Mapletree Greater China Commercial Trust (MGCCT) is a Singapore REIT which owns two high-quality assets valued at S$4.7b (as at end FY14) and strategically located in prime commercial districts in Hong Kong and China. MGCCT has performed well financially for its first full fiscal period after its IPO, with FY14 revenue and DPU exceeding its projections. We see continued organic growth from MGCCT’s resilient portfolio, underpinned by further positive rental reversions. We value MGCCT using the dividend discount model (DDM), and derive a fair value estimate of S$1.00. Coupled with an attractive FY15F distribution yield of 7.0%, this translates into total potential returns of 18.1%. MGCCT is also trading at an undemanding FY15F P/B of 0.87x, which we believe is undervalued given its high quality and resilient portfolio. With a cheaper P/B ratio and a higher prospective distribution yield than its S-REITs peers, we initiate coverage on MGCCT with a BUY rating.
Best-in-class commercial assets in Hong Kong and China
Mapletree Greater China Commercial Trust (MGCCT) is a Singapore REIT which owns two high-quality assets strategically located in prime commercial districts. The first asset is Festival Walk, a landmark territorial retail mall (with an office component) ranked as one of the top 10 retail malls by GFA in Hong Kong. The second is Gateway Plaza, a premier Grade A office building consisting of two 25-storey towers connected by a three-storey atrium in Beijing, China. The combined market valuation of MGCCT’s portfolio was S$4.7b as at end FY14, an increase of 9.5% from its valuation at 7 Mar 2013 (IPO date).
Strong first year financial performance since IPO
MGCCT has performed well financially for its first full fiscal period after its IPO. Revenue, distributable income and DPU of S$267.6m, S$168.2m and 6.265 S cents for FY14 exceeded the REIT manager’s projections by 7.4%, 13.3% and 13.1%, respectively, highlighting its strong execution capabilities. We see continued organic growth ahead from MGCCT’s resilient portfolio, with built-in rental escalation for some leases and opportunities for further positive rental reversions. This would be underpinned by stable domestic demand in Hong Kong’s retail market, and robust demand and supply dynamics in Beijing’s office sector. Overall, we expect MGCCT’s revenue, distributable income and DPU to increase at a steady CAGR of 3.1%, 2.9% and 1.6% from FY14-FY17F, respectively.
Initiate coverage with BUY
We value MGCCT using the dividend discount model (DDM) as it is expected to pay out stable rental income (net of expenses) generated from its assets at regular intervals. We derive a fair value estimate of S$1.00 for MGCCT after inputting our financial forecasts and CAPM assumptions (cost of equity: 8.2%; terminal growth rate: 2.0%) in our model. Coupled with an attractive FY15F distribution yield of 7.0%, this translates into total potential returns of 18.1%. MGCCT is also trading at an undemanding FY15F P/B of 0.87x, which we believe is undervalued given its high quality and resilient portfolio. With a cheaper P/B ratio and a higher prospective distribution yield than its S-REITs peers, we initiate coverage on MGCCT with a BUY rating.
Mapletree Greater China Commercial Trust (MGCCT) is a Singapore REIT which owns two high-quality assets strategically located in prime commercial districts. The first asset is Festival Walk, a landmark territorial retail mall (with an office component) ranked as one of the top 10 retail malls by GFA in Hong Kong. The second is Gateway Plaza, a premier Grade A office building consisting of two 25-storey towers connected by a three-storey atrium in Beijing, China. The combined market valuation of MGCCT’s portfolio was S$4.7b as at end FY14, an increase of 9.5% from its valuation at 7 Mar 2013 (IPO date).
Strong first year financial performance since IPO
MGCCT has performed well financially for its first full fiscal period after its IPO. Revenue, distributable income and DPU of S$267.6m, S$168.2m and 6.265 S cents for FY14 exceeded the REIT manager’s projections by 7.4%, 13.3% and 13.1%, respectively, highlighting its strong execution capabilities. We see continued organic growth ahead from MGCCT’s resilient portfolio, with built-in rental escalation for some leases and opportunities for further positive rental reversions. This would be underpinned by stable domestic demand in Hong Kong’s retail market, and robust demand and supply dynamics in Beijing’s office sector. Overall, we expect MGCCT’s revenue, distributable income and DPU to increase at a steady CAGR of 3.1%, 2.9% and 1.6% from FY14-FY17F, respectively.
Initiate coverage with BUY
We value MGCCT using the dividend discount model (DDM) as it is expected to pay out stable rental income (net of expenses) generated from its assets at regular intervals. We derive a fair value estimate of S$1.00 for MGCCT after inputting our financial forecasts and CAPM assumptions (cost of equity: 8.2%; terminal growth rate: 2.0%) in our model. Coupled with an attractive FY15F distribution yield of 7.0%, this translates into total potential returns of 18.1%. MGCCT is also trading at an undemanding FY15F P/B of 0.87x, which we believe is undervalued given its high quality and resilient portfolio. With a cheaper P/B ratio and a higher prospective distribution yield than its S-REITs peers, we initiate coverage on MGCCT with a BUY rating.
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