Mapletree Greater China Commercial Trust - CIMB Research 2015-12-09: Resilient portfolio

MAPLETREE GREATER CHINACOMM TR RW06.SI

Mapletree Greater China Commercial Trust - Resilient portfolio

1HFY16 performance underpinned by improvement across all assets and positive currency effect.
Outlook for Festival Walk remains robust with 20% upward rental reversion; tenant remixing to widen shopper appeal.
Steady growth from China properties with bulk of FY16 leases due re-contracted.
Positive rental reversions and potential new acquisitions to drive outlook.

Underpinned by improvement across all assets and new contribution from Sandhill Plaza (SP) and a stronger HK$ and Rmb, MAGIC booked 22% growth in NP.
To date, 81% of leases expiring in FY16 have been re-contracted.
Portfolio occupancy remained robust at 98.4%. Higher interest charges ate into distributable income as the acquisition of SP was fully funded by debt. As at end-Sep 15, gearing rose to 41%.

For 1HFY16, Festival Walk’s (FW) NPI climbed 18% yoy due to a strong 20% rental uplift on retail lease renewals. This was despite a marginal yoy drop in tenant sales while shopper traffic grew positively. The robust demand for space at FW bodes well for renewal of the remaining 6.2% and 18.9% of lease income expiring in 2HFY16 and FY17 respectively. Ongoing tenant remixing, such as introducing more family-focused offerings to appeal to a wider shopper pool, is expected to continue to draw traffic.

In China, Gateway Plaza (GW) achieved 25% upside on re-leasing activities in 2Q while occupancy remained at 96.3%. While the spread between passing and market rents has narrowed, we expect this property to remain stable as there is only a minimal 0.8% and 5.9% of rental income due to be re-contracted in 2HFY16 and FY17 respectively.
In SP, we expect the renewal of the 4.3% of rental income in FY17 to be positive given the 15- 20% gap in current and passing rents.

Looking ahead, positive rental reversions, particularly at FW and SP, are expected to continue to drive bottomline growth. The trust will also continue to look for inorganic growth via acquisitions, especially in China.
Based on a gearing of 45%, it has a debt headroom of c.S$430m.

We continue to like MAGIC for its resilient portfolio.
Its earnings stream is visible, with 81% of FY16 distributable income hedged and 86% of debt cost fixed for FY16.
We reiterate our Add call, with unchanged DDM-based target price of S$1.20.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-12-09

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