Press Release

Presentations

Financials

Limited upside here – downgrade to HOLD

• 3QFY15 DPU rose 9.5% YoY
  
• Solid operation statistics
  
• Limited potential returns ahead
  

3QFY15 results came in within our expectations

Mapletree Greater China Commercial Trust (MGCCT) reported its 3QFY15 results which met our expectations. Gross revenue grew 12.0% YoY to S$73.6m, while DPU jumped 9.5% to 1.662 S cents. This robust set of performance was underpinned by sturdy rental reversions achieved at both Festival Walk (FW) and Gateway Plaza (GP), resulting in YoY gross revenue growth of 9.4% and 20.1% to S$54.1m and S$19.5m, respectively. For 9MFY15, gross revenue of S$204.9m represented an increase of 9.2%, forming 74.5% of our FY15 projection. DPU accelerated 10.6% to 4.815 S cents and constituted 76.1% of our full year forecast.

Underlying trends exhibit strength

Positive rental uplift of 21% and 32% was achieved at FW’s retail and GP’s office segments, respectively, as at 31 Dec 2014. 90% of MGCCT’s expiring leases (by lettable area) in FY15 have already been renewed or re-let. Overall portfolio occupancy stood at a healthy 99.4%, as at end Dec-2014, with full occupancy maintained at FW. Other encouraging signs include an estimated 4.4% and 5.1% YoY improvement in FW’s footfall and tenants’ sales to 11.9m and HK$1,597m, respectively, in 3QFY15. This was accomplished despite the challenging Hong Kong retail scene. We believe this exemplifies the solid positioning and resilience of FW.

Downgrade to HOLD on valuation grounds

Since our initiation on MGCCT with a ‘Buy’ rating in 3 Oct last year, its share price has jumped 13.3% (total returns of 16.8% if we include 1HFY15’s 3.162 S cents distribution). At current price level, we see limited potential total returns ahead. Hence, we downgrade MGCCT to HOLD on valuation grounds, with a marginally higher fair value estimate of S$1.01 (previously S$1.00) due to a slightly smaller unit base assumption. The stock still offers a decent FY15F and FY16F distribution yield of 6.2% and 6.4%, respectively.

Delivering sturdy returns to unitholders

• 2QFY15 DPU rose 10.4% YoY
  
• Solid occupancy and rental reversions
  
• Minimal impact from Hong Kong protests
  

2QFY15 results met our expectations

Mapletree Greater China Commercial Trust (MGCCT) reported its 2QFY15 results which exceeded its IPO forecast but were in-line with our expectations. Revenue rose 6.9% YoY to S$67.5m (9.2% above its projection) due to positive rental reversions from Festival Walk (FW) and Gateway Plaza (GP). DPU of 1.606 S cents represented a growth of 10.4% and came in 11.6% ahead of its forecast. For 1HFY15, revenue increased 7.7% to S$131.3m and constituted 47.8% of our FY15 estimate. DPU growth of 11.1% to 3.162 S cents (10.5% above MGCCT’s IPO forecast) formed 50.0% of our full-year figure.

Operating metrics exhibit resilience and comfort

Overall portfolio occupancy remains unchanged QoQ at a healthy 99.2%. Positive rental uplift of 21% and 32% were achieved at FW’s retail and GP’s office segments, respectively, for 1HFY14. 87% of MGCCT’s expiring leases for FY15 have already been committed. Its financial position also remains solid, with a comfortable gearing ratio of 37.7% and all-in average cost of debt of just 2.1%. YTD, MGCCT had already hedged ~90% of its HKD forecasted distributable income. During 2QFY15, it further hedged >70% of its 2HFY15 CNY distributable income and >80% of its 1HFY16 HKD distributable income, thus mitigating its FX volatility.

Maintain BUY

The pro-democracy protests in Hong Kong have put the spotlight on companies with large exposure there. MGGCT assured us that it has seen minimal impact for FW as it is not located in the affected areas. Going forward, it also does not expect its performance to be adversely affected by these demonstrations. In fact, some of its F&B tenants actually saw an increase in reservations as some consumers switched locations from the impacted areas. Overall tenants’ sales at FW grew 3.6% to HK$2.5b in 1HFY15 although footfall inched down slightly by 1.7% to 19.2m. We retain our projections as results were within our expectations. Since our ‘Buy’ initiation on 3 Oct this year, MGCCT’s share price has appreciated 6.1%, outperforming the STI’s and FTSE ST REIT Index’s -0.5% and 1.1% movement during the same period. We reiterate our BUY rating and S$1.00 fair value estimate.

MAPLETREE GREATER CHINA COMMERCIAL TRUST

Mapletree Greater China Commercial Trust (“MGCCT”) is a real estate investment trust sponsored by Mapletree Investments. MGCCT’s investment mandate includes commercial income producing real estate assets in the Greater China region, ie Hong Kong and key first‐ and second‐tier cities in China. It currently owns two assets, Festival Walk in Hong Kong and Gateway Plaza in Beijing.

Resilient, best‐in‐class assets with diverse tenant base. Festival Walk is one of the 10 largest and most popular malls in Hong Kong. Its location above Kowloon Tong MTR in an upscale residential area near two large universities, broad range of amenities and excellent connectivity has attracted high‐quality tenants such as Apple, Rolex and TaSTe Supermarket. Unlike other Hong Kong malls, we expect

Festival Walk to remain resilient to current HK‐China tensions as only c.10% of total visitors are Chinese tourists (vs c.40% at other malls). Gateway Plaza is a similarly high‐quality asset: it is one of the largest wholly‐owned Grade A office buildings in Beijing by GFA, with over 50% of its total le

A good showing

• Maiden numbers ahead of forecast by 8%
  
• Boosted by strong reversions at Festival Walk and Gateway Plaza
  
• Maintain Buy, TP revised to S$1.09
  

Highlights

Sterling set of maiden results. MAGIC reported its maiden set of results for the period 7 Mar – 30 June 2013. Income available for distribution for the period of S$46.1m was 8.3% higher than IPO prospectus forecast, translating to a DPU of 1.734Scts (vs forecast of 1.6Scts). This was achieved on revenue of S$73.8m (+3.4% ahead of forecast) while NPI came in at S$59.7m (+7.4% over forecast) on efficient cost management.

Robust leasing activities. Portfolio occupancy remained high at 98.3% (Festival Walk 99.1%, Gateway Plaza 97.8%). About 84% of expiring retail leases at Festival Walk this year were renewed at rates 21% higher than preceding levels, aided by higher tenant sales of 7.8% y-o-y with shopper traffic rising 1.5% y-o-y, while 90% of office leases due were renewed at 25% higher rates than previously. For Gateway Plaza, 43% of leases expiring this financial year have been renewed at rents 86% higher than previously, with a retention rate of >92% as it continued to enjoy expansion demand from tenants’ consolidation activities.

Our View

Benefiting from organic rental growth and AEIs. Looking ahead, we expect 2H to be better than 1H. There is a remaining 25% of leases at Festival Walk to be re-contracted in FY14 and another 5% at Gateway Plaza with an additional 18% and 10% of leases at both properties respectively due in FY15. We believe that Festival Walk will continue to deliver robust results, aided by steadily growing retail sales in HK. Planned AEIs including conversion of the office into semi-commercial space at Festival Walk will also likely contribute from end of 3QCY13 while ongoing tenant remixing should bear positive fruits in the medium term. Despite the overall

weaker Beijing office leasing market, Gateway Plaza continued to enjoy good demand in its micro-market with transacted rents still within the Rmb320-360psm/mth range. Demand drivers are expected to come from existing tenants’ expansion demand rather than new demand.

Healthy balance sheet. In terms of capital management, gearing is at 41.5% with two thirds of its debt swapped into fixed rate with all-in interest cost maintained at 2%. 100% and 90% of its HK$ distributable income for Year 1 and 2 have also been hedged respectively. This provides unitholders with certainty of distributions.

Recommendation

BUY, S$1.09 TP. We continue to like MAGIC for its earnings resilience backed by robust performance at Festival Walk as well as the growth aspects from organic positive rental reversions. With the adjustment of the latest risk free rates, we have revised our TP to S$1.09. The stock offers 5.8-6.4% FY14-15 DPU yields and a potential total return of 20-21%. Maintain Buy.