• 2QFY16 DPU rose 12.6% YoY
• Positive rental reversions of 20%-25%
• Full quarter impact from Sandhill Plaza

2QFY16 results met our expectations

Mapletree Greater China Commercial Trust (MGCCT) reported a strong set of 2QFY16 results which came in within our expectations. Gross revenue accelerated 25.4% YoY to S$84.6m. This was driven by positive rental uplifts achieved in previous quarters by Festival Walk (FW) and Gateway Plaza (GP), coupled with a full quarter of contribution from Sandhill Plaza (SP), which was acquired on 17 Jun 2015. Consequently, MGCCT’s DPU jumped 12.6% to 1.808 S cents. On a 1HFY16 basis, its gross revenue increased 22.3% to S$160.6m and this formed 49.2% of our FY16 forecast. DPU of 3.499 S cents represented a growth of 10.7%, and constituted 48.7% of our full-year projection.

Underlying operations remain robust

Management achieved positive rental reversions of 20% and 25% at FW’s retail and GP’s office segments, respectively, as at 30 Sep 2015, although the latter was a moderation from the 29%-32% recorded from 2QFY15 to 1QFY16. 81% of MGCCT’s expired/expiring leases (by lettable area) in FY16 have already been committed.

Footfall and tenant sales at FW registered YoY growth of 2.9% and 1.7% to reach 20.3m and HK$2.58b, respectively, for 1HFY16. Overall portfolio occupancy declined marginally from 99.0% to 98.4%, but still a healthy level, in our view. SP has now reached full occupancy, versus 96.2% (as at 31 Mar 2015) prior to MGCCT’s acquisition. We believe this reflects management’s strong execution capabilities.

Still a BUY

MGCCT’s gearing ratio stood at 41.0%, as at 30 Sep 2015, which is relatively stable when compared to end 1QFY16 (41.2%). Management has hedged 86% of its interest cost for FY16, as well as ~81% of its forecasted FY16 distributable income (comprising both HKD and CNY). We retain our forecasts and S$1.10 fair value estimate, and continue to rate MGCCT a BUY, given its resilient portfolio, strong management team and attractive valuations. The stock is trading at a distribution yield of 7.3% and P/B ratio of 0.84x for FY16, based on our projections.

Source: OCBC Research - 28 Oct 2015