Mapletree Greater China Commercial Trust - Hold: Investor feedback from HK non-deal roadshow

■ Steady performance expected from all three properties, supporting 7.3% FY16e dividend yield

■ Proactive hedging strategies mitigate risks to DPU from interest rate and foreign exchange volatility

Hold with unchanged DDM- and NAV-based TP of SGD1.15

Steady performance expected from all three assets
We recently hosted investor meetings for Mapletree Greater China Commercial Trust (MGCCT) in Hong Kong. Investors’ focuses were mainly on the retail sales outlook for Festival Walk (FW), the latest office market trends in Beijing and Shanghai, where MGCCT’s assets are located, and the REIT’s interest cost/FX hedging strategies. We expect steady performance of MGCCT’s assets, together with the REIT’s proactive capital management (more details on p. 3), to support FY16e DPU, implying a 7.3% dividend yield, on our estimates.

Festival Walk’s FY16e rental growth well locked in
As of September 2015, FW has 98% of FY16e expiring retail leases committed and achieved an average 20% rental uplift. Further, with limited contributions from turnover rents (in mid-single digit as a proportion of total), we expect resilient rental growth at FW. While retail sales growth softened to +1.8% y-o-y in 1HFY16 from 6.5% y-o-y in 1QFY16, this was partly affected by changes in tenants in the houseware & furnishings and F&B segments in 2QFY16. Management expects strong shopper traffic (+2.9% y-o-y in 1HFY16), the upcoming festive season in 3QFY16, tenant mix enhancement and creative marketing promotions at the mall to support retail sales.

Assets in China faring well
Gateway Plaza (GP) in Beijing continued to enjoy high occupancy of 96.3% as of September 2015, despite new office supply, and has seen demand from tenants from the IT, financial services, professional services and real estate sectors, which helps diversify the tenant mix. As of September 2015, GP has c72% of FY16e expiring leases committed at an average 25% rental uplift. Meanwhile, Sandhill Plaza, with occupancy of 100% as of September 2015, is well-positioned for the growing decentralized office trend in Shanghai and good rental reversions (upon more lease expiries post-FY16e).

Technical Analysis
Daily Chart
We have a Hold rating and target price of SGD1.15
Our target price is based on a 50:50 weighting of our DDM-based (assuming a discount rate of 7.6%) and NAV-based (assuming cap rates of 5-8%) valuations. We expect MGCCT’s portfolio to deliver resilient rental performance, albeit with potentially slowing DPU growth while, as for other REITs, trends in long-term bond yields in HK/US may result in volatility in MGCCT’s share price trends. Other key risks include potential value-accretive acquisitions (positive) and/or subdued Hong Kong retail sales (negative). (Read Report)

Source : HSBC Global Research

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