Mapletree Greater China Commercial Trust

DBS Group Research, July 30

MAPLETREE Greater China Commercial Trust's gross revenue grew 9 per cent y-o-y to S$63.8 million, beating prospectus forecast by 6 per cent. NPI also came in 9 per cent better than expected at S$52.6 million (+10 per cent y-o-y).

The improved results were driven by an increase in portfolio occupancy to 99.2 per cent from 98.5 per cent at end-March. Festival Walk continued to enjoy full occupancy with Gateway Plaza adding more tenants (98.6 per cent occupancy).

Over the quarter, Festival Walk and Gateway Plaza also achieved positive rental reversion of 12-21 per cent and 33 per cent, respectively. Underlying shopper traffic at Festival Walk was stable, up 0.5 per cent y-o-y to 9.25 million, while tenant sales inched up 0.1 per cent y-o-y to HK$1.2 billion (S$193 million).

Mapletree Greater China declared 1.56 Singapore cents distribution per unit (DPU) in Q1 2015. This was on the back of S$42.1 million distribution income, which was 10 per cent ahead of prospectus forecast.

Moving forward, Mapletree Greater China has hedged 90 per cent of forecast FY2014/2015 Hong Kong dollar distributable income and is actively monitoring the market to progressively convert yuan distributable income to Singapore dollar.

Meanwhile, exposure to rising interest rates is partially mitigated with 71 per cent of the group's debt carrying fixed rates until end- FY2016.

Outlook remains positive. Despite slower retail sales in Hong Kong YTD, we expect positive rental reversion at Festival Walk given its positioning in the mid-to-upper consumer segment, supported by the manager's active tenant management and strong demand from tenants.

Rents should also rise at Gateway Plaza as recent new leases were transacted at 320-350 yuan (S$65-71) per square foot per month, more than 35 per cent higher than existing rents. In 2014, Mapletree Greater China will see 14 per cent of leases (by gross rental income) expiring at Festival Walk and 13 per cent at Gateway Plaza.

After adjusting for the stronger-than-expected results YTD, we raised FY2015 and FY2016 distributable income estimates by 4-5 per cent and lifted our discounted cash flow-based target price (TP) to S$1.04 (implied yield of 5.9-6.3 per cent) from S$1.02.

The stock remains attractive, offering 12 per cent upside to our revised TP and FY2015 DPU yield of 6.6 per cent. Mapletree Greater China offers a strong organic growth profile backed by positive rental reversion at its portfolio of quality properties.

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