Tuesday, June 16, 2015

Mapletree Greater China Commercial Trust - Maiden foray into Shanghai

What Happened 
MAGIC has announced its maiden acquisition of Sandhill Plaza for Rmb1,840.3m (total acquisition cost of Rmb1,881.3m) or equivalent to a 5.75% cap rate. This price is 3.2% below the independent valuation of Rmb1,902m. The acquisition could expand the trust’s lettable area by 37% to 2.6msf and increase AUM by 7.7% to S$5.76bn, of which Shanghai will make up 7% of the latter. The 83,801.5sm GFA property is 96.2% committed. 40% of the 58 tenants are non-domestic companies such as ADI, Borouge, Broadcom, Disney, Univar and Wincor Nixdorf. It has good connectivity to the Metro Line 2 and is a 30-minute drive from Pudong Airport and Lujiazui CBD. The deal is expected to be funded entirely by RMB and HK$ debt and would increase MAGIC’s gearing from 36.2% to 40.6%. 

What We Think
The purchase represents the trust’s first diversification into decentralised business parks space in the Zhangjiang Hi-tech Park in Shanghai. This park is the largest and most established business park in Shanghai. Major tenants in Zhangjiang are largely from the IT and industrial R&D sectors and include names such as EBay, Lenovo, Sony, HP, SAP, Pfizer, Novartis, GE, Dupont and Honeywell. The purchase would also enable MAGIC to be leveraged to the office decentralisation trend as improved transportation conveniences, tax incentives and the relatively more affordable occupancy costs drive demand from hi-tech, IT, trading, R&D as well as regional HQ demand. While this appears to dilute the trust’s exposure to the HK retail property market, the accretive purchase could provide investors with higher forward DPU growth. The deal is expected to add to MAGIC’s bottomline and DPU. Further upside can be achieved as the property is currently under-rented with average rents of Rmb4.82psm/day vs. Rmb5.36psm/day of comparable peers. 

What You Should Do
We revise our FY16-18 DPU by 1.5-4.7% as we factor in contributions from this acquisition. Consequently, our DDM-backed target price is lifted by 1.7% to S$1.20. We continue to like MAGIC for its stable and resilient portfolio. Maintain Add. 

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