Mapletree Greater China Commercial Trust - Riches in the sand


■ We visited MGCCT’s maiden acquisition, Sandhill Plaza, in Shanghai

■ Management said it will be selective in its future acquisitions

■ Overall portfolio occupancy was 98.4% (30 September 2015)

Background:
We visited Mapletree Greater China Commercial Trust’s (MGCCT) Sandhill Plaza in Shanghai and spoke to management about the company’s expansion plans in China.

Highlights:
MGCCT’s purchase of Sandhill Plaza in June 2015 is its maiden acquisition and first foray into Shanghai following its public listing in March 2013. Built in December 2012, the 83,802 sq m GFA property comprises 9 office buildings, with 1 high-rise (20 floors) and 8 low-rise (3-4 floors) buildings.

As at 30 September 2015, it was fully leased with overall rents close to CNY5/sq m a day. Management said that low-rise buildings, which are often leased to single tenants, command higher rents. Sandhill Plaza attracts a range of clients, such as local finance companies looking to decentralise their operations from the core central business district where rents are higher, but wanting to maintain a professional image.

In terms of its future expansion plans, management said it was selective when it comes to its acquisition targets. Sandhill Plaza is located in the Northern part of the Zhangjiang High-tech Park, one of the most developed park clusters in Shanghai and the nearest one to Pudong Airport. The cluster can be divided into 3 zones: North (mature area, most developed amongst the 3), Mid (growing with new buildings under construction) and South (under planning).

Management said properties in the North zone of the park face fewer leasing issues with 3 comparable commercial buildings nearby that are fully occupied, with rents at CNY5.5-6.5/sq m a day. However, the Mid zone can be challenging, with some commercial properties facing trouble in leasing or selling vacant space, according to management. This highlights the need for proper due diligence when it comes to future acquisition targets.

We also asked management about its gearing ratio, which was 41% as at 30 September 2015. It said that the figure is in line with its target range of 40-45%. Management said it would consider raising equity if an attractive acquisition was in the pipeline.

Apart from Sandhill Plaza, MGCCT also owns 2 mixed developments (retail and office) – Festival Walk in Hong Kong and Gateway Plaza in Beijing. Its overall portfolio occupancy was 98.4% as at 30 September 2015, with Festival Walk fully leased as well.

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Valuation:
Based on the Bloomberg consensus for 2016E, the stock is trading at a PBR of 0.8x and offers a 7.7% dividend yield. (Read Report)

Source : Daiwa Capital Markets

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