Wednesday, August 05, 2015

Mapletree Greater China Commercial Trust - Still forging ahead

Boosted by portfolio-wide improvements 
MAGIC reported a 19% rise in revenue to S$76m while distribution income came in 10% higher at S$46.3m (DPU 1.696 Scts). The better results were due to positive rental reversions at Festival Walk and Gateway Plaza as well as a small c.2-week maiden contribution from Sandhill Plaza, which helped to offset higher operating expenses, largely from Festival Walk, and increased interest costs. Portfolio occupancy inched up to 99%. Festival Walk, which enjoyed continued resilience, saw a 16% rental uplift for renewal leases, supported by a 6.5% and 5.9% yoy rise in tenant sales and shopper traffic, respectively. At Gateway Plaza, there was a 29% rise in re-contracted rents for 59% of the leases due for reversion in FY16. 

Full-quarter impact from Sandhill Plaza from 2Q onwards
Looking ahead, we expect MAGIC to benefit from a full quarter’s contribution from Sandhill Plaza from 2Q onwards while the continued resilience of Festival Walk and limited new office supply in Beijing should bolster MAGIC’s bottomline when leases are re-contracted. There is a remaining 13.6% and 29% of FY16 and FY17 gross rental income due to expire over this period. We believe renewal rates at Festival Walk would continue to be positive. While the spread between passing rents and market rents at Gateway Plaza have narrowed, we think renewal of some of the under-rented spaces could provide positive upside at this property. Although gearing of 41.2% is higher relative to its peers, the trust has locked in 86% of its interest cost and is looking to extend its debt maturity profile. Meanwhile, about 63% of its FY16 distributable income has been hedged. 

Retain Add
We continue to like MAGIC for its resilient portfolio and leave our FY16-17 DPU estimates of 7.4 Scts and 7.7 Scts unchanged. Our DDM-backed target price of S$1.20 and Add rating are maintained. 

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