• 4QFY15 DPU rose 9.8% YoY
• Solid rental reversions
• Positives likely priced in

4QFY15 results beat our expectations

Mapletree Greater China Commercial Trust (MGCCT) reported a robust set of 4QFY15 results which exceeded our expectations, due largely to better-than-expected rental reversions achieved. Gross revenue grew 17.4% YoY to S$76.2m, while DPU rose 9.8% to 1.742 S cents. This was underpinned by solid rental uplifts and continued high occupancy rates at both Festival Walk (FW) and Gateway Plaza (GP). For FY15, MGCCT’s revenue of S$281.1m (+11.3%) and DPU of 6.543 S cents (+10.4%) came in 2.3% and 3.4% ahead of our projections, respectively.

Operational trends illustrate resilience

Management delivered positive rental reversions of 22% and 30% at FW’s retail and GP’s office segments, respectively, as at 31 Mar 2015. The passing rent for FW (retail) stands at ~HK$127 psf per month (psf pm), while prime retail malls in Hong Kong are still fetching rents ranging from HK$150-180 psf pm. For GP (office), its passing rent of ~CNY318 psm pm also falls below current market spot rents of CNY320-350 psm pm. MGCCT’s gearing ratio stood at 36.2%, as at 31 Mar 2015, while 87% of its interest cost has been hedged for FY16. Management has also hedged ~60% of its forecasted FY16 distributable income. Operationally, MGCCT’s overall portfolio occupancy remained healthy at 98.8%, and footfall and tenant sales at FW registered growth of 1.9% and 5.8% to 41.8m and HK$5.62b, respectively, for FY15.

Raise forecasts and fair value, but maintain HOLD

Looking ahead, MGCCT highlighted that despite China’s restriction on visits of Shenzhen residents to Hong Kong to once a week, this is not expected to have a significant impact on FW’s performance. This is because FW still relies predominantly on the local catchment area for growth. We expect FW to remain resilient, and raise our FY16 and FY17 DPU projections by 7.8% and 7.6%, respectively, after factoring in higher rental rate and stronger HKD and CNY assumptions in our model. Rolling forward our valuations, our fair value estimate for MGCCT is increased from S$1.01 to S$1.07. However, we are maintaining our HOLD rating, as we believe its positives have already been priced in by the market.

Source: OCBC Research - 27 Apr 2015