Mapletree Greater China Commercial Trust - Another good quarter

1QFY3/18 results highlights
MAGIC posted a 0.1% yoy rise in 1QFY3/18 DPU to 1.851 Scts on a 4.6% yoy improvement in gross revenue thanks to positive rental reversions and a slight uptick in portfolio occupancy to 98.8%. Results are in line, making up 25.2% of our FY3/18 forecast. NPI margin was relatively stable at c.81% as higher property tax at Gateway Plaza (GP) was offset by lower marketing cost at Festival Walk (FW).  
 
FW benefiting from tenant remixing and good shopper patronage
FW continues to do well with rental revenue up 2.9% yoy to S$61.8m and rental reversion of 9% over previous levels. Tenant sales and shopper footfall rose 2.1% yoy/4.6% yoy due to contributions from two mini-anchors – MUJI and Festival Grand cinema. 80% of FY18 retail expiries have been renewed/leased and the tenant mix has been strengthened with more international and popular brands such as Dr Kong, eGG, LACOSTE and Michael Kors. As such, we anticipate a continued strong showing.
 
GW and SP supported by positive rental reversions
GW posted a slight 1.6% lower NPI due to additional property taxes, partly offset by a 1.9% pts hike in occupancy to 98.8% and 10% positive rental reversions. Contributions from Sandhill Plaza (SP) remained flat as higher achieved rents, thanks to 13% uplift on renewals, were moderated by a dip in occupancy. About 70% of GP and 54% of SP FY18 expiries have been renewed. As such, we expect a stable performance over the coming quarters.
 
No refinancing needs till FY19
In terms of capital management, gearing and effective interest cost held steady qoq at 39.4% and 2.74% respectively. The trust has fixed 76% of its debt cost, mitigating impact of interest rate volatility. With the recent rollover of HK$510m of debt, there are no refinancing needs till FY19. About 58% of the trust’s FY18 distribution income has been hedged into Singapore dollars, giving investors good earnings visibility.
 
Maintain Add
Our FY18-20 DPU estimates are intact. But we update our blended risk free rate assumption from 2.8% to 2%, to closer reflect current levels. Accordingly, our DDM-based target price is raised slightly to S$1.17. We keep our Add call with a potential total return of 12%. We like MAGIC for its exposure to the HK retail sales recovery and resilient performance of FW. Downside risks include slowdown in rental reversion or a decline in occupancy rate.