MAGIC’s purchase of Sandhill Plaza in Shanghai for a total of Rmb1,881.3m
marks its maiden acquisition post listing
. The property is located in
Shanghai’s most established ‘Silicon Valley’ location of Zhangjiang and allows
MAGIC to be leveraged to the decentralised office demand as improved
transportation conveniences and tax incentives increase the attractiveness of
this asset class. The purchase is accretive and is projected to raise its FY16-18
DPU estimates by 1.5-4.7%. Maintain Add with a slightly higher DDM-based
target price of S$1.20
MAGIC has announced its maiden acquisition of Sandhill Plaza for
Rmb1,840.3m (total acquisition cost of Rmb1,881.3m) or equivalent to a 5.75%
cap rate. This price is 3.2% below the independent valuation of Rmb1,902m.
The acquisition could expand the trust’s lettable area by 37% to 2.6msf and
increase AUM by 7.7% to S$5.76bn, of which Shanghai will make up 7% of the
latter. The 83,801.5sm GFA property is 96.2% committed. 40% of the 58
tenants are non-domestic companies such as ADI, Borouge, Broadcom, Disney,
Univar and Wincor Nixdorf. It has good connectivity to the Metro Line 2 and is
a 30-minute drive from Pudong Airport and Lujiazui CBD. The deal is expected
to be funded entirely by RMB and HK$ debt and would increase MAGIC’s
gearing from 36.2% to 40.6%.
What We Think
The purchase represents the trust’s first diversification into decentralised
business parks space in the Zhangjiang Hi-tech Park in Shanghai. This park is
the largest and most established business park in Shanghai. Major tenants in
Zhangjiang are largely from the IT and industrial R&D sectors and include
names such as EBay, Lenovo, Sony, HP, SAP, Pfizer, Novartis, GE, Dupont and
Honeywell. The purchase would also enable MAGIC to be leveraged to the
office decentralisation trend as improved transportation conveniences, tax
incentives and the relatively more affordable occupancy costs drive demand
from hi-tech, IT, trading, R&D as well as regional HQ demand.
appears to dilute the trust’s exposure to the HK retail property market, the
accretive purchase could provide investors with higher forward DPU growth.
The deal is expected to add to MAGIC’s bottomline and DPU. Further upside
can be achieved as the property is currently under-rented with average rents of
Rmb4.82psm/day vs. Rmb5.36psm/day of comparable peers.
What You Should Do
We revise our FY16-18 DPU by 1.5-4.7% as we factor in contributions from this
. Consequently, our DDM-backed target price is lifted by 1.7% to
. We continue to like MAGIC for its stable and resilient portfolio.
Maintain Add. (Read Report)
Read Related Report
Source : CIMB Research
Labels: Mapletree Greater China Commercial Trust, S-REITs