• 4QFY18 DPU -2.8% YoY
• Positive rental reversions of 8%-15%
• Approvals obtained for Japan acquisition

4QFY18 Results Met Our Expectations

Mapletree Greater China Commercial Trust (MGCCT) reported its 4QFY18 results which came in within our expectations. Gross revenue and NPI fell 5.5% and 6.0% YoY to S$89.6m and S$72.9m, respectively. The decline was attributed to the reversal in 4QFY17 of Value Added Tax (VAT) payable for Gateway Plaza (GP) previously assumed at a higher rate and weaker HKD against the SGD, but partially offset by higher rental rates at Festival Walk (FW) and GP. DPU correspondingly dipped 2.8% YoY to 1.904 S cents.

For FY18, MGCCT’s gross revenue increased 1.3% to S$355.0m and this made up 98.8% of our forecast. DPU of 7.481 S cents represented a growth of 1.9%, and came in 1.4% higher than our projection.

Improved Occupancy and Firm Rental Reversions

Operationally, MGCCT’s properties remained resilient. Overall portfolio occupancy moved up 1.6 ppt QoQ to 98.5%, as FW and Sandhill Plaza (SP) achieved 100% occupancy. Rental reversions were positive across all three assets, coming in at 11% for FW (both retail and office components), 8% for GP and 15% for SP.

Another positive came from the robust improvements in FW’s tenant sales (+7.4% to HK$5.2b) and footfall (+3.2% to 41.7m) for FY18. Management sounded more upbeat about the prospects of its rental reversions at FW, and seemed confident of achieving low double-digit rental uplifts in FY19.

Proposed Japan Acquisition Gets Green Light

MGCCT also announced that it had obtained unitholders approval at an EGM for the acquisition of a portfolio of six freehold commercial properties in Japan. Thereafter, management closed a private placement exercise which will raise gross proceeds of S$330.3m with an issuance of 311.6m new units at a price of S$1.06 per unit. As a recap, the Japan acquisitions are expected to cost ~S$770.5m, while the initial NPI yield works out to be ~4.8% based on the agreed portfolio value.

Factoring in this acquisition in our model and fine-tuning our other assumptions, we raise our FY19F DPU forecast by 2.5%. Rolling forward our valuations, our DDM-derived fair value increases from S$1.39 to S$1.42.

Source: OCBC Research - 27 Apr 2018