Mapletree Greater China Commercial Trust
(Bloomberg: MAGIC SP)
Growth and stability in one fes ve package
Ini ate: BUY
Financials
YE Mar (S$m)
2013*
2014**
2015F
2016F
Revenue
236.6
267.6
281.9
291.4
Net property income
187.2
216.2
226.9
234.6
Distributable income
104.5
168.2
173.9
176.8
EPS (S cents)
3.9
4.5
4.6
4.8
DPS (S cents)
3.9
6.3
6.4
6.5
Div Yield (%)
4.2
6.8
7.4
7.5
* For the period of 7 Mar 2012 to 31 Mar 2013 ** For the period of 7 Mar 2013 to 31 Mar 2014
Key Operating Statistics
2013*
2014**
2015F
2016F
ROE (%)
-
4.2
4.0
4.2
ROA (%)
-
2.5
2.4
2.5
42.9
38.0
36.4
35.9
Current Ratio (x)
3.0
1.5
1.1
1.0
Price / Book (x)
1.0
0.8
0.8
0.8
Stock Data
Issued Shares (m)
2,684.3
Market Cap (S$m) Major Shareholders
2,308.5 Mapletree Investments (34.53%)
Free Float
60.8%
52 week lo / hi
0.79 / 0.97
12-Month MAGIC SP (Blue) vs. FSSTI
Source: Bloomberg
Sharon WOO
[email protected] +65 6236 2630
LAST CLOSE: S$0.87
FAIR VALUE: S$0.98
Ra onale for report: Ini ate Coverage
Thursday, 03 July 2014
Aggregate leverage (%)
Monday, 24 October 2011
Mapletree Greater China Commercial Trust (“MGCCT”) is a real estate investment trust sponsored by Mapletree Investments. MGCCT’s investment mandate includes commercial income‐producing real estate assets in the Greater China region, ie Hong Kong and key first‐ and second‐ er ci es in China. It currently owns two assets, Fes val Walk in Hong Kong and Gateway Plaza in Beijing. Resilient, best‐in‐class assets with diverse tenant base. Fes val Walk is one of the 10 largest and most popular malls in Hong Kong. Its loca on above Kowloon Tong MTR in an upscale residen al area near two large universi es, broad range of ameni es and excellent connec vity has a racted high‐quality tenants such as Apple, Rolex and TaSTe Supermarket. Unlike other Hong Kong malls, we expect Fes val Walk to remain resilient to current HK‐China tensions as only c.10% of total visitors are Chinese tourists (vs c.40% at other malls). Gateway Plaza is a similarly high‐quality asset: it is one of the largest wholly‐owned Grade A office buildings in Beijing by GFA, with over 50% of its total le able area leased to Fortune 500 companies such as BMW and Bank of China. Con nuing organic growth from rental reversions. In FY13, MGCCT recorded rental reversions far exceeding prospectus forecasts of 20‐22% for Fes val Walk and 79% for Gateway Plaza. We expect con nued strong rental reversions as 18% and 10% of Fes val Walk and Gateway Plaza leases respec vely expire in FY14. We es mate rents on expiring leases are c.15‐30% lower than market rents, supported by limited new supply in both markets. Established Sponsor and extensive debt headroom. Mapletree Investments currently manages 4 S‐REITS as well as 5 private real estate funds with opera ons in 7 countries and 15 Asian ci es. We think MGCCT is poised to capitalize on its Sponsor’s experience with a debt headroom of S$1.07bn, with its current gearing at a comfortable 38% with a Moody’s ra ng of Baa1 Stable. Ini ate BUY with FV $0.98 on growth and resilience. MGCCT’s rare combina on of high‐quality assets experiencing strong rental reversions has not been recognised by the market, as we es mate MGCCT trades at an a rac ve 7.4% forward yield. Our DDM‐backed FV implies a total return of 20% over the last close price.
Please see important disclosures at the end of this publica on
Mapletree Greater China Commercial Trust
Thursday, 03 July 2014
Table of Contents Por olio Summary ...................................................................... Page 3 Investment Thesis ...................................................................... Page 4 Overview: growth and stability in one fes ve package ...... Page 4 Fes val Walk: jewel of Kowloon Tong ................................ Page 5 Gateway Plaza: Grade‐A stability ........................................ Page 8 Diverse and high‐quality tenant base ............................... Page 10 Organic growth from under‐rented leases ....................... Page 11 Well‐managed debt profile ............................................... Page 13 Inorganic growth backed by established Sponsor ............ Page 15 Valua on and Assump ons ...................................................... Page 16 Company Background ............................................................... Page 17 Key Risks................................................................................... Page 19 S‐REIT Comparison .................................................................... Page 20 Financials .................................................................................. Page 21
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Fig 1: Por olio at‐a‐glance
PORTFOLIO SUMMARY Assets
(As of 4Q13) Loca on
Fes val Walk 又一城
Gateway Plaza 佳程广场
Kowloon Tong,
Chaoyang (Lu hansa
Fig 2: NPI by property
Territorial 7‐storey Grade A office build‐ retail mall with 4‐ ing with podium for storey office tower office/retail November 1998 August 2005 33 years 38.6 years (June 2047) (Feburary 2053)
Descrip on Comple on Lease term Usage Occupancy Number of leases Gross revenue (SGD m) Net property income (NPI) (SGD m) Valua on (SGD m) Cap rates (gross) Weighted average lease expiry Gross floor area (GFA) (sq ) Retail GFA Office GFA Net le able area (NLA) (sq ) Retail NLA Office NLA Car park lots
Office/retail 100% 255 200.5 157.8 3,611 4.5% 2.7 years 1,208,754 980,089 228,665 793,728 579,746 213,982 830
Source: Company
97.50% 102
67.1 58.3 1,111 6.5% 2.1 years 1,145,882 126,379 1,019,503 1,145,882 126,379 1,019,503 692
Fig 3: NPI by sector
Source: Company
Source: Company Fig 4: Gateway Plaza key tenants
Fig 5: Fes val Walk key tenants
Source: Company
Fig 7: Trade sector by GRI Source: Company Fig 6: Lease expiry by gross rental income (GRI)
Source: Company Source: Company
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INVESTMENT THESIS Overview: growth and stability in one fes ve package We like MGCCT for its premium, well‐located assets, its diverse tenant base, the expected strong rental reversions over FY14‐15 on under‐rented leases, and its established Sponsor and well‐managed debt profile. In addi on, we think MGCCT will outperform its retail H‐REIT peers on con nuing HK‐China tensions as as only c.10% of total visitors are Chinese tourists (vs c.40% at other malls). Fes val Walk: Kowloon Tong lifestyle hub. Fes val Walk is one of the largest and most popular malls in Hong Kong. Situated directly above Kowloon Tong MTR sta on, it is a natural hub for the surrounding upscale residen al area and schools such as the City University of Hong Kong and the American Interna onal School. It offers a broad range of unique ameni es such as a seven‐theatre cinema and one of the largest ska ng rinks in Hong Kong, and caters to a diverse mix of visitors from students to affluent celebrity residents with tenants such as Apple, Rolex and TaSTe Supermarket. As Kowloon Tong sta on is also an interchange for the Kowloon‐Canton Railway, Fes val Walk is highly accessible from the Chinese mainland as it takes only 1 hour and 40 minutes to reach Kowloon from Guangzhou, the last stop on the 9‐sta on line that runs through Dongguan and Shenzhen. However, unlike other Hong Kong malls, we expect Fes val Walk to remain resilient to current HK‐China tensions as only c.10% of total visitors are Chinese tourists (vs c.40% at other malls). Gateway Plaza: Grade‐A stability. Gateway Plaza is located in the similarly upscale Chaoyang district, home to regional or global headquarters for mul na onal corpora ons such as IBM, CITIC Group, Sinopec, and Swire Group, and many of Beijing’s embassies, including Singapore’s. It is one of the largest wholly‐owned Grade A office buildings in Beijing by GFA, with over 50% of its total le able area leased to Fortune 500 companies such as BMW and Bank of China. Organic growth from expiring leases lower than current rates. We expect con nued strong rental reversions in FY14 as 18% and 10% of Fes val Walk and Gateway Plaza leases respec vely are due for renewal, and es mate that rents on expiring leases are c.15‐30% lower than current market rates. This is supported by limited new supply in both markets. Diverse tenant base: over 250 office/retail tenants ensures sustainability. MGCCT’s tenant base is well diversified from both trade sector and individual tenant perspec ves. First, no single trade sector comprises more than 25% of MGCCT’s gross rental income (GRI). Second, MGCCT’s top 10 tenants are spread across Fes val Walk and Gateway Plaza, and comprise only 27% of GRI as of 4Q13. MGCCT’s well‐rounded por olio ensures sustainability of its GRI, and has remained resilient through economic downturns such as SARS and the 2009 global financial crisis. Established Sponsor, extensive debt headroom: growth opportuni es. Finally, we like MGCCT for its established Sponsor Mapletree Investments and S$1.0bn debt headroom, enough for a large acquisi on. We think MGCCT is poised to capitalize on its Sponsor’s experience in 7 countries and 15 Asian ci es. AmFraser Securi es Pte Ltd
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Fes val Walk: jewel of Kowloon Tong Prime asset: loca on, connec vity, catchment. Fes val Walk is located in the heart of Kowloon Tong, an upscale residen al area (Fig 8). Among the top 10 malls in Hong Kong by size (Fig 9), it is a natural lifestyle hub for the nearby schools, such as the neighbouring City University of Hong Kong, and residents of luxury condos such as Dynasty Heights, home to celebri es such as Hong Kong TVB actress Charmaine Sheh. Fig 8: Fes val Walk loca on ∏ Dynasty Heights ∏ Beacon Heights
∏ One Beacon Hill ∏ One Mayfair
∏ Mount Beacon
¤Lok Fu
City University of Hong Kong ◊
Fes val Walk ¤Kowloon Tong ◊ Australian Interna onal School ∏ Sunderland Court ∏ Village Gardens
◊ Hong Kong Bap st University Key
¤Shek Kip Mei
◊ American Interna onal School
La Salle College ◊ Fig 9: Top 10 retail malls, Hong Kong Name Harbour City Wonderful Worlds of Whampoa New Town Plaza I & II Metro City MegaBox Cityplaza Taikoo Tuen Mun Town Plaza Elements Fes val Walk Times Square
District Tsim Sha Tsui Hung Hom Sha Tin Tseung Kwan O Kowloon Bay Quarry Bay Tuen Mun Kowloon Sta on Kowloon Tong Causeway Bay
Region Kowloon Kowloon New Territories New Territories Kowloon Hong Kong Island New Territories Kowloon Kowloon Hong Kong Island * Approximate figures
∏ Luxury condos ◊ Schools
¤ MTR sta
ons
Source: Company
Gross area ('000 sq ) * 1,948 1,714 1,650 1,413 1,146 1,105 1,011 1,000 980 936 Source: Company
Fig 10: Rail network connec vity
Kowloon Canton Railway link to China
Fes val Walk
Catchment extends to the mainland. As Kowloon Tong sta on is also an interchange for the Kowloon‐Canton Railway (KCR), Fes val Walk is highly accessible from the Chinese mainland (Fig 10). It takes only 1 hour and 40 minutes to reach Kowloon from Guangzhou, the last stop on the 9‐sta on line that also runs through Dongguan and Shenzhen, large ci es in the Pearl River Delta metropolitan area. A 2010 United Na ons report es mates the popula on of the delta region at 120m, supplemen ng the local primary and secondary trade catchments of over 1.4m Hong Kong residents.
Source: HK MTR
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Fig 11: Fes val Walk ameni es
Shopper’s heaven with unique ameni es and over 200 brands. Fes val Walk counts a seven‐theatre cinema and one of the largest ska ng rinks in Hong Kong among its ameni es (Fig 11). In total, Fes val Walk is host to over 200 brands and over 30 F&B outlets, and the tenant mix is ac vely managed to cater to a diverse mix of students, residents, and tourists. For instance, while TaSTe Supermarket serves residents, a luxury jewelry and watches sec on featuring mega brands such as Rolex and Omega was introduced to serve affluent Mainland Chinese visitors. Also, we note Apple’s first Kowloon store is in Fes val Walk, an endorsement of its popularity, especially as it was only the second store in Hong Kong. So popular it wins awards. In 2013 alone, Fes val Walk won several popularity awards (Fig 12). Notably, it is also popular among mainlanders, winning two mainland‐centric popularity awards. Fig 12: Fes val Walk 2013 awards "Yahoo! Emo ve Brand Awards", Shopping Centre Category 2012‐13 (雅虎感情品牌大奖) "Top 10 Favourite Shopping Malls", Hong Kong Economic Times (香港十大我最喜爱商场) "The Most "LIKE" Hong Kong Brand ‐ Shopping Mall", Guangzhou Southern Metropolis Daily (香港最LIKE 名品牌商场) "The Best Shoppping Mall In Town", Fashion and Beauty Magazine "Most Pres gious Brands by Mainland Visitors", LoveTravel Media
Always abuzz. Fes val Walk is host to numerous events throughout the year such as movie premieres, fes vals, ice‐ska ng compe ons, car shows and product launches (Fig 13). These events, o en graced by celebri es such as Charmaine Sheh and Cheung Chi Lam, draw thousands of shoppers to the mall. Source: Company
Fig 13: Fes val Walk FY13 event highlights Date Apr‐13 May‐13 Jun‐13 Jul‐13 Aug‐13
Sep‐13
"Welcome to Our World" by Brietling x Global Timepieces Mid‐Autumn Fes val Promo on at Glacier
Oct‐13
"b+ab x Angelababy by CHEINMAN" 18th Birth‐ day Photo Exhibi on Lexus Motor Show Nissan ELGRAND 250 Car Show Asian Junior Figure Ska ng Championship
Nov‐13
Christmas Ligh ng Ceremony by Cheung Chi‐Lam
Dec‐13
Christmas Magical Moment by Magician John Taylor
Jan‐14
"Break the Guiness World Records by Crea ng the Largest Sushi Mozaic" by Itachi & Itamae Sushi 10th Anniversary Celebra on
Feb‐14 Mar‐14
"A Blessed Year of the Horse At Fes val Walk Opening Ceremony with Kenneth Ma and Char‐ maine Sheh" BMW Car Show Mercedes‐Benz Car Show Jaguar Land Rover Car Show
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Event "Spring Fashion Maze" Fashion Exhibi on The Great Gatsby Costume Exhibi on Father's Day Special Gi Redemp on The Roo op Gala Premiere Summer Camp at Glacier Ice Rink "Endless Massage Pleasure" by OSIM uInfinity BMW Car Show
Clockwise: Chinese New Year Celebra‐ ons with Kenneth Ma and Charmaine Sheh, movie premiere of “Young Detec ve Dee” with Carina Lau, “Welcome to Our World” exhibi on, “The Great Gatsby” exhibi on, Asia Junior Figure Ska ng Championship, BMW Car Show. Source: Company
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Fig 14: Fes val Walk visitor profile Consistent growth in rental income, shopper traffic resilient to downturns.
Its excellent loca on and unique ameni es a ract a diverse crowd of shoppers from students and affluent locals (c. 85% of total visitors) to tourists, many of which are Mainland Chinese (Fig 14). The diversified tenant por olio has allowed it to weather economic downturns well, with rental income and shopper traffic showing resilience despite downturns in 2003 and 2008‐9 (Fig 15).
Fig 16: Fes val Walk GRI split
6,000
1,400
5,000
1,200 1,000
4,000
800
3,000
600
2,000
400
1,000
200
0
0
Retail sales (LHS)
Gross revenue (HKD m)
Source: Company
Retail sales (HKD m)
Fig 15: 1999‐2013 Fes val Walk retail sales and gross revenue
Gross rev enue (RHS)
Source: Company, AmFraser es mates Source: Company
Office small but quality. Contribu ng 19% of Fes val Walk’s GRI (Fig 16), the office tenants are established MNCs such as Arup and Pruden al. Fig 17 shows the lease expiry profile and tenant mix by GRI. Fig 17: Fes val Walk lease expiry profile and tenant mix by GRI
Source: Company
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Gateway Plaza: Grade‐A stability Top‐10 Grade A asset by size.... Like Fes val Walk, Gateway Plaza is well‐ located and among the top‐10 Grade A single‐ owner offices in Beijing by GFA (Fig 18). Fig 18: Top 10 Grade A single‐owner offices, Beijing Asset ChenSunny World Trade Centre World Financial Centre Oriental Plaza East Zone IFC China World Tower Gateway Plaza China Electronics Plaza China Central Place (Towers I&II) Winland Interna onal Financial Centre Sino‐Steel Plaza
Submarket Office GFA (sqm, 000) Financial Street 194 CBD 177.847 East Chang An Avenue 150 CBD 146.385 CBD 142 Chaoyang 130.488 Zhongguancun 124.5 CBD 120.245 Financial Street 120 Zhongguancun 110 Source: Colliers, Company
...and connec vity. From Gateway Plaza, Sanyuqiao Metro is about 10 minutes’ walk. Addi onally, it is c. 8km from the CBD and 20 minutes’ drive from the airport (Fig 19). The upscale Chaoyang district is home to regional or global headquarters for mul na onal corpora ons such as IBM, CITIC Group, Sinopec, and Swire Group, and many of Beijing’s embassies, including Singapore’s. Fig 19: Gateway Plaza loca on Beijing Capital Interna onal Airport
Sanyuanqiao sta on Embassy cluster
Gateway Plaza Source: Google, AmFraser es mates
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Mapletree Greater China Commercial Trust
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Fig 20: Gateway Plaza GRI split
Grade‐A names provide stability, with retail complemen ng office. Over 50% of Gateway Plaza’s total le able area is leased to Fortune 500 companies such as BMW and Bank of China. Diverse tenant pool and well‐spread lease expiry profile. Fig 20 shows the upcoming lease expiry profile and tenant mix by GRI for Gateway Plaza. We note that no single sector accounts for more than 31% of Gateway Plaza’s GRI. Management has guided that they are in lease nego a ons with more than half of the tenants with leases expiring in FY14.
Retail asset enhancements to provide further upside. Management has guided for S$ 8‐10m of asset enhancement ini a ves (“AEI”) for Gateway Plaza in FY14. As laid out in the Prospectus, management believes there Source: Company are opportuni es to create addi onal space for F&B outlets in the basement, enhancing the Level 1 lobby to include another café and improving access to the Level 2 retail outlets. Also, the installa on of a pair of li s would improve access from the underground car parks to the atrium levels. Fig 21: Gateway Plaza lease expiry profile and tenant mix by GRI
Source: Company
Outstanding li ga on: indemnity provided to MGCCT. As stated in the Prospectus dated 27 February 2013 as well as in the announcement from the Manager on 3 October 2013, there is a Li ga on Ac on against HK Gateway Plaza for the return of an alleged loan of RMB210.0 million (which purportedly took place in June 2007). The Manager, together with its People’s Republic of China counsel, are contes ng the Li ga on Ac on. MGCCT is provided with an indemnity (subject to such limita ons as described in the Prospectus) by the seller of Gateway Plaza in rela on to the Li ga on Ac on.
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Diverse and high‐quality tenant base 291 tenants across all sectors. As at the end of FY2013, there were a total of 291 tenants across Fes val Walk and Gateway Plaza, including many that are leaders in their respec ve sectors. For instance, MGCCT counts Apple, H&M, Marks & Spencer, Over Arup, Pruden al and Uniqlo among its top tenants in Fes val Walk, and Bank of China, BASF, the BMW Group, Con nental Automo ve, Cummins, Terex, and United Airlines in Gateway Plaza. Well‐diversified: top 10 tenants account for 27% of GRI. Collec vely, the 10 largest tenants accounted for only 27% of GRI. Also, they were spread evenly across Fes val Walk and Gateway Plaza office and retail segments (Fig 21). Thus, MGCCT’s trade mix by GRI is very diverse, with no single sector accoun ng for more than 25% of GRI (Fig 22). Fig 22: Top 10 tenants by GRI Building Tenant Type Gateway Plaza BMW Office Fes val Walk Ove Arup Office Fes val Walk TaSTE Retail Gateway Plaza China Fortune Land Development Office Fes val Walk Apple Retail Gateway Plaza Cummins Office Fes val Walk H&M Retail Fes val Walk Marks & Spencer Retail Fes val Walk Pruden al Office Gateway Plaza John Deere Office
Sector Automobile Professional & Business Services Department Store & Supermarket Real Estate Electronics Manufacturing Apparel & Fashion Accessories Department Store & Supermarket Insurance Manufacturing
% GRI 7.1 4.2 3 2.8 2.4 1.8 1.5 1.4 1.4 1.3 Total 26.9 Source: Company
Fig 23: Trade sector by GRI
Source: Company
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Organic growth from expiring leases We es mate expiring leases are c.15‐30% lower than market rents. Many of MGCCT’s leases expiring in FY14 were signed in 2010‐2012, when market rents were significantly lower than current rents (Fig 24‐25). Rising demand and limited supply have doubled office rents in the Chinese capital since 2008, making its Finance Street the world’s third‐most expensive behind Hong Kong’s Central and London’s West End, according to CBRE. Hong Kong to grow, Beijing stabilizing? Despite the so ening in the Beijing office market, we forecast a 6% upli to gross revenues in FY14. Savills expects prime Hong Kong shopping centre rents to increase 5‐10% in 2014, and for Beijing office rents to dip 0‐2%. We note however that market sen ment is mixed as Jones Lang Lasalle expects Beijing office rents to increase slightly and for vacancy rates to fall to below 4%, and this could provide further upside for Gateway Plaza rents not included in our valua on. Fig 24: Hong Kong shopping mall rental index (overall vs Kowloon)
Source: Savills, AnFraser es mates
Fig 25: Bejing office rental index (overall vs Lu hansa)
Source: Savills. AmFraser es mates
Fig 26: Beijing office new supply, take‐up and vacancy rates
Source: Savills, AmFraser es mates
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No new malls in Hong Kong un l 2018. As Hong Kong is a largely developed city, there were only 5 large‐scale shopping malls which opened in the past 3 years. Furthermore, no major upcoming shopping malls are coming onto the market from 2014‐2017. According to MGCCT, only two upcoming suburban shopping malls located in the New Territories, including Yoho Mega Town (GFA: 1m sq ) and the TW5 Cityside retail project (GFA: 121k sq ) are slated for comple on in 2018. Beijing: demand to match comple ons. From 2014 to 2017, the new supply of Grade‐A offices is expected to increase by 620k sqm per year in Beijing, with Beijing CBD contribu ng about 260k sqm of office space per year as well as East Second Ring Road and Beijing Financial Street area of around 50,000‐60,000 sqm per annum. In Lu hansa Area, future office supply will be rela vely limited, averaging about 34,000 square metres per year from 2014 to 2017. Fig 27 lists the upcoming supply of Beijing office space for the rest of 2014. Fig 27: 2014 Beijing office comple ons Project Zhongguancun Internet Financial Centre Ocean Interna onal Centre II Tower 1 Ocean Interna onal Centre II Tower 2 Jinshifang Street No. 7 Project (BFS E9) Posco Centre Raycomm Infotech Park ‐ Tower B SOHO Peaks Tower 3 Guanghualu SOHO II
AmFraser Securi es Pte Ltd
Comple on 2Q 2Q 3Q 4Q 4Q 4Q 4Q 4Q
Submarket Leasable office space (000 sqm) Zhongguancun 51 CBD vicinity 33 CBD vicinity 22 Financial Street 59 Wangjing 74 Zhongguancun 58 Wangjing 124 CBD 63 Source: Savills
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Well‐managed debt profile 38% gearing with no refinancing needs l 2015. MGCCT’s total borrowings currently stand at HKD 11.5bn or S$1.8bn (Fig 28), with no refinancing l 2015. Its current gearing is a comfortable 38%, with a Moody’s ra ng of Baa1 Stable. Fig 28: Debt maturity profile (% and HKD bn)
3,315
4,130
4,010
Source: Company
Effec ve capital management. At IPO, MGCCT drew on an unsecured Term Loan Facility of HKD 12.15bn from a club of six banks. Through efficient cash management, MGCCT repaid HKD 695m of the Term Loan Facility in September 2013, resul ng in a decrease in the total debt to HKD 11.5bn. Low all‐in interest rate of 2%, fixed to insure against vola lity. To insure against a rising interest rate environment, MGCCT has fixed interest costs for 71% of their total debt un l FY16. Ac ve management against forex vola lity. Due to con nued vola lity of the HKD, management has an exis ng hedge on 90% of HKD distributable income for FY14. Management has also guided that they are ac vely monitoring the market to progressively convert Renminbi when the rates are favourable. Given the recent change in the People’s Bank of China’s stance in allowing greater vola lity to its currency, the Manager may also hedge Renminbi should it assess that such ac on will be beneficial to Unitholders. Debt headroom of S$1.07bn enough for a large acquisi on. With its ra ng of Baa1 Stable, MGCCT can borrow up to 60% of its assets. As it currently has S$1.8bn of debt, it can take up to S$1.07bn of addi onal debt against its assets to finance acquisi ons. Addi onal flexibility from 2013 medium term securi es programme. In May 2013, MGCCT established a US$1.5bn Euro Medium Term Securi es Programme that they can tap on in the case of an acquisi on, and diversify its sources of funding beyond bank borrowings.
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Inorganic growth backed by established Sponsor Sponsor with 14‐year pan‐Asian track record. MGCCT benefits from the Sponsor, Mapletree Investments’ leading Asia‐focused real estate development, investment and capital management exper se. The Sponsor currently manages 4 S‐REITS as well as 5 private real estate funds with opera ons in 7 countries and 15 Asian ci es (Fig 29). We think MGCCT is poised to capitalize on its Sponsor’s experience with its sizeable debt headroom of S$1.07bn. Fig 29: Mapletree Investments and subsidiary vehicles Launch/ Investment Investment Fund life Strategy lis ng date universe focus (years) Fund size/NAV Private funds 9 USD 1,400m Mapletree China A private fund established with the objec ve of 2013 China Commercial, Opportunis c/ Opportunity Fund II maximising total returns by inves ng in a por olio industrial, Value add of development projects and projects with value residen al, mixed‐use enhancement poten al located in Tier I and Tier II ci es in China. Mapletree India A private fund established with the objec ve of 2008 India, China Commercial, Opportunis c/ 10 USD 1,158m China Fund maximising total returns by acquiring, developing mixed‐use Value add and realising real estate projects in India and China. Mapletree Industri‐ A private fund established with the objec ve of 2006 Pan Asia Industrial Core+/Value 7 USD 299m al Fund inves ng in industrial proper es in Asia for yield add and apprecia on. CIMB‐Mapletree A Shariah‐compliant private fund with the objec‐ 2013 Malaysia Commercial, Core+/Value 7 MYR 140m Real Estate Fund 2 ve of maximising total returns on capital, primar‐ educa on add Shariah ily through rental income and capital gains from facili es property investments and development projects in Malaysia. CIMB‐Mapletree A Malaysia‐focused private fund with a mandate 2005 Malaysia Commercial, Core+/Value 8 MYR 402m Real Estate Fund 1 to make direct investments in development and/ residen al add or investment assets, real estate investment prod‐ ucts and listed real estate securi es. Public‐listed REITS MGCCT 2013 Greater Commercial Public REIT 1 S$ 2,840m Diversified por olio of income‐producing com‐ China mercial real estate in the Greater China region. Mapletree Com‐ REIT inves ng on a long‐term basis in a diversified 2011 Singapore Commercial Public REIT 3 S$ 2,426m mercial Trust por olio of office and retail proper es in Singa‐ pore. Mapletree Industri‐ REIT inves ng in a diversified por olio of income‐ 2010 Singapore Industrial Public REIT 4 S$ 2,029m al Trust producing proper es used for industrial purposes in Singapore. Mapletree Logis cs 2005 Pan Asia Logis cs Public REIT 9 S$ 2,382m First Asia‐focused logis cs REIT in Singapore with Trust the principal strategy of inves ng in a diversified por olio of income‐producing logis cs real estate Name
Descrip on
Source: Mapletree Investments
ROFR pipeline: Kowloon East. In January 2014, the Sponsor won a Government Land Tender for a prime commercial site in Kowloon East, earmarked as Hong Kong’s new Central Business District. At a total development cost of approximately HKD 6.0bn, the site will be developed into a Grade‐A office building with a gross floor area of 61,344 sqm and comple on is expected by the end of 2017. MGCCT is granted the right of first refusal over the future sale of this property by the Sponsor.
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Poten al acquisi ons from other Mapletree Investments vehicles. We note that Gateway Plaza was acquired from Mapletree India China Fund, a sponsored private fund under the Mapletree Investments umbrella. Fig 30 lists the ci es within MGCCT’s mandate and Fig 31 highlights some proper es under the Mapletree Investments umbrella. Fig 30: Ci es within MGCCT’s mandate
Source: Company
Fig 31: Selected proper es within MGCCT’s Greater China mandate
Clockwise: Vivocity Xi’an, Vivocity Shanghai, Vivocity Nanhai
AmFraser Securi es Pte Ltd
Source: Mapletree Investments Page 15
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VALUATION AND ASSUMPTIONS We value MGCCT using a single stage dividend discount model. We make the following assump ons in our valua on: 1. Average passing rent increases of 8.5% for Gateway Plaza and 4% for Fes val Walk in FY14, normalizing to 2% in FY18 2. Average occupancy rates of 97.5% for Gateway Plaza and 100% for Fes val Walk 3. All‐in interest cost of 2% in FY14, rising 25 basis points per year to 2.5% in FY16 and beyond 4. Beta of 0.797 (Bloomberg), risk free rate of 2.5% and terminal growth rate of 1%
Fig 32: Dividend discount model Valua on
0.6
1.6
2.6 2017
2018
6.4
6.5
6.6
6.6
7.3
104.2
PV per share (cents)
6.0
5.6
5.3
4.9
76.2
Target price per share (cents)
0.98
Terminal value per share (cents)
Terminal growth rate
1%
Risk free rate
2.5%
Beta
0.797
Market risk premium Cost of equity
Capital Apprecia on, % Div yield, % Total, %
7%
8.1%
12.6% 7.40% 19.95%
Fig 33: Input sensi vity analysis WACC
4.6
2016
Dividend per share (cents)
AmFraser Securi es Pte Ltd
3.6
2015
97.971 7.1% 7.6% 8.1% 8.6% 9.1%
0.5% 1.07 1.00 0.93 0.87 0.82
Terminal growth rate 1.0% 1.5% 1.14 1.22 1.05 1.12 0.98 1.04 0.91 0.96 0.86 0.90
2019
Source: AmFraser
2.0% 2.5% 1.32 1.44 1.20 1.30 1.11 1.18 1.02 1.09 0.95 1.00 Source: AmFraser
Page 16
Mapletree Greater China Commercial Trust
Thursday, 03 July 2014
COMPANY BACKGROUND Fig 34 shows the structure of MGCCT and its related en es, while Fig 35 shows the various fees payable by MGCCT and Fig 36 lists key management. Fig 34: MGCCT structure
Source: Company
AmFraser Securi es Pte Ltd
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Mapletree Greater China Commercial Trust
Thursday, 03 July 2014
Fig 35: Fee structure Fee
Payable to Payment
Base fee
Manager
Perfor‐ mance fee Manager Trustee's fee
Trustee
Acquisi on fee Manager Divestment fee Manager
Property manage‐ ment fee Project manage‐ ment fee
Property manager Property manager
Descrip on
Cash and/or units 10% of distributable income 25% of the difference in DPU in the current FY vs the preceding FY, mul plied by the weighted Cash and/or average number of units in issue units Payable only if the DPU in any FY exceeds that in the previous FY Current: 0.02% per annum of the Deposited Property Shall not exceed 0.1% per annum of the value of the Deposited Property, or fall under Cash S$15,000 per month excluding out of pocket expenses and GST 0.75% for acquisi ons from Related Par es Cash and/or 1% of the i) acquisi on price of any real estate purchased or ii) the underlying value of any units real estate which is taken into account when compu ng acquisi on price or iii) the acquisi on 0.5% of (i) the sale price of any real estate sold or divested or (ii) the underlying value of any Cash and/or real estate which is taken into account when compu ng sale price or (iii) the sale price of any units investment sold or divested. 2.0% per annum of gross revenue for the relevant property (calculated before business tax for property in PRC) 2.0% per annum of NPI for the relevant property (calculated before accoun ng for the Prop‐ erty Management Fee in each FY) Cash and/or 20% of all fees payable to third party service providers units FY13‐15: Manager elected to receive 100% in the form of units Up to 3.0% of total considera on costs Cash and/or If Project Management Fee exceeds S$100,000, subject to independent quan ty surveyor's units opinion Source: Company
Fig 36: Key management Manager
Experience Property Manager
Ms Chow is both an Execu ve Director and the Chief Execu ve Officer of the Manager. She has more than 16 years of invest‐ ment experience in the region, including Singapore, China, Hong Kong, India, Vietnam and Thailand. Prior to joining the Man‐ ager, Ms Chow was Chief Execu ve Officer, India, with the Sponsor. Ms Chow joined the Sponsor in 2002 as Manager (Business Development) and was one of the key members in execu ng the 2005 SGX‐ST mainboard lis ng of Mapletree Lo‐ gis cs Trust (“MLT”). She later became the Senior Vice President and Head of Investment for Mapletree Logis cs Trust Man‐ agement Ltd, responsible for sourcing and evalua ng poten al acquisi ons in the region, as well as recommending and ana‐ lysing poten al asset enhancement ini a ves, with a view to enhance MLT’s por olio. Ms Chow holds a Master of Science in Real Estate and a Bachelor of Science (Estate Management) (Second Upper Class Honours) from the Na onal University of Singapore. Ms Jean Low More than 21 years of experience in the area of audi ng, consultancy, risk management and performance measurement. Chief Financial Prior to joining the Manager, Ms Low was the Head of Risk Management and Performance Measurement with the Sponsor since 2006 where she had an extensive mandate, including overseeing the management and monitoring of Mapletree Officer Group's por olio risk as well as the internal performance management framework. She holds a Master of Business Administra on from the London Business School and a Bachelor of Science in Economics from the London School of Economics, and is also a Fellow of the Ins tute of Chartered Accountants in England and Wales.
Ms Cindy Chow Chief Execu‐ ve Officer and Execu ve Director
Ms Michelle More than 10 years of experience in the real estate business, focusing on investment, valua on and asset management work. Prior to joining the Manager, Ms Chan was the Head of Investment, leading the Sponsor’s Hong Kong commercial team Chen Head, Invest‐ in sourcing, evalua ng and acquiring commercial assets in Hong Kong. Ms Chan joined the Sponsor in 2007 as Investment Manager, and was subsequently Senior Investment Manager, for Mapletree India China Fund based in Hong Kong / Guang‐ ment and Asset Manage‐ zhou, China. She played a key role in Mapletree’s acquisi on of Fes val Walk from Swire Proper es Limited in August 2011. She holds a Bachelor of Science in Surveying from the University of Hong Kong, and is also a Registered Professional Surveyor ment in General Prac ce Division and a member of the Hong Kong Ins tute of Surveyors.
Selected Board members Mr Wong is the Chairman of the Manager. Un l 31 March 2014, Mr Wong was also a Board of Director of the Sponsor and a Mr Frank member of its Investment Commi ee. Mr Wong is also an Independent Non‐Execu ve Director of Industrial and Commercial Wong Chairman and Bank of China Limited, one of the largest banking ins tu ons in the world. He is also an Independent Non‐Execu ve Director Independent of China Mobile Limited which is listed on both the New York Stock Exchange and Hong Kong Stock Exchange. In addi on, Mr Non‐execu ve Wong is a Non‐Execu ve Director of PSA Interna onal Pte Ltd and a member of the Hong Kong SAR Government’s Financial Services Development Council. From 1999 un l his re rement in 2008, Mr Wong had served as Vice Chairman of DBS Bank Director Ltd, Director and Chief Opera ng Officer of DBS Bank Ltd. and DBS Group Holdings Ltd and concurrently an Execu ve Direc‐ tor of DBS Group Holdings Ltd, Chairman of DBS Bank (China) Limited and Chairman of DBS Bank (Hong Kong) Limited.
Source: Company
AmFraser Securi es Pte Ltd
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Mapletree Greater China Commercial Trust
Thursday, 03 July 2014
KEY RISKS Asset concentra on risk. As over 70% of MGCCT’s NPI is derived from Fes val Walk, nega ve condi ons experienced by Fes val Walk such as the recent pipe leakage (which was covered by insurance) will dispropor onately affect MGCCT. Economic contrac on in Greater China. MGCCT’s two proper es are located in Hong Kong and the PRC. An economic decline in Hong Kong and the PRC could adversely affect MGCCT’s results of opera ons and future growth. Forex risk. MGCCT’s main foreign currency exposure is in HKD. If the HKD strengthens against the SGD with all other variables including tax being held constant, total return for the FY13 financial period would decrease by S$3.9m. Conversely, had the HKD depreciated by 4%, total return for the FY13 financial period would increase by S$3.9m. Rising interest rates. As the Federal Reserve gradually reduces its purchases in the bond market, interest rates are expected to rise. While we have accounted for this in our valua on by a 50bp increase in the effec ve interest rate of MGCCT by FY16, it is possible that interest rates will increase further than that. If HKD interest rates had increased/decreased by 0.5% per annum, the total return would have been lower/higher by S$2.4m in FY13. Geopoli cal risk and Hong Kong unrest. The ongoing Hong Kong‐China tensions involving Mainland Chinese tourists, as well as the unofficial referendum on democra c reform in which over 800,000 residents par cipated, could threaten Mainland visita ons and shopper traffic to Fes val Walk. Li ga on risk. As men oned in Page 9, there is outstanding li ga on against HK Gateway Plaza for the return of an alleged loan of RMB210.0 million (which purportedly took place in June 2007). MGCCT has been provided with an indemnity by the seller of Gateway Plaza in rela on to the Li ga on Ac on.
AmFraser Securi es Pte Ltd
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Mapletree Greater China Commercial Trust
Thursday, 03 July 2014
PEER COMPARISON Greater China peers with strong rental reversions in 2013. MGCCT’s closest SGX‐listed peers are CapitaRetail China Trust and Fortune REIT. The former has retail assets across China, while the la er has retail assets across Hong Kong. Both peers, along with MGCCT, have reported favourable rental reversions during 2013. For instance, Fortune REIT reported average rental reversions of 26.5% for FY13. Be er yield than its peers. We note that MGCCT is trading at a FY14 forward yield of 7.4%, higher than the indica ve yield of both CapitaRetail China Trust and Fortune REIT. MGCCT’s yield also compares very well against its S‐REIT retail and commercial peers (Fig 36, in dark pink and gray respec vely), as well as other sectors. Best‐in‐class assets offering value. We feel that MGCCT is among the S‐ REITs that currently offer true value ‐ an a rac ve yield, backed by best‐in‐ class assets, expected to experience con nuing growth through strong rental reversions over the coming year. Fig 37: Yield comparison
Source: Company
Fig 38: Retail peer comparison*
* As of 2 July 2014. Yields are indica ve for companies not under coverage
AmFraser Securi es Pte Ltd
Source: Bloomberg, company data, AmFraser es mates Page 20
Mapletree Greater China Commercial Trust
Thursday, 03 July 2014
FINANCIALS
AmFraser Securi es Pte Ltd
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Mapletree Greater China Commercial Trust
AmFraser Securi es Pte Ltd
Thursday, 03 July 2014
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Mapletree Greater China Commercial Trust
Thursday, 03 July 2014
AmFraser Research recommenda ons are based on a Total Return ra ng system, defined as follows: BUY: >15% total return over the next 12 months HOLD: ‐15% to +15% total return over the next 12 months SELL: <‐15% total return over the next 12 months
Disclaimer This report is prepared by AmFraser Securi es Pte Ltd (“AmFraser”), which is a holder of a capital markets services licence and an exempt financial adviser in Singapore. This report is provided for informa on only and is not an offer or a solicita on to deal in securi es or to enter into any legal rela ons, nor an advice or a recommenda on with respect to such securi es. This report is prepared for general circula on. It does not have regard to the specific investment objec ves, financial situa on and the par cular needs of any recipient hereof. You should independently evaluate par cular investments and consult an independent financial adviser before dealing in any securi es men oned in this report. This report is confiden al. This report may not be published, circulated, reproduced or distributed in whole or in part by any recipient of this report to any other person without the prior wri en consent of AmFraser. This report is not intended for distribu on, publica on to or use by any person in any jurisdic on outside Singapore or any other jurisdic on as AmFraser may determine in its absolute discre on, where the distribu on, publica on or use of this report would be contrary to applicable law or would subject AmFraser and its connected persons (as defined in the Financial Advisers Act, Chapter 110 of Singapore) to any registra on, licensing or other requirements within such jurisdic on. The informa on or views in the report (“Informa on”) has been obtained or derived from sources believed by AmFraser to be reliable. However, AmFraser makes no representa on as to the accuracy or completeness of such sources or the Informa on and AmFraser accepts no liability whatsoever for any loss or damage arising from the use of or reliance on the Informa on. AmFraser and its connected persons may have issued other reports expressing views different from the Informa on and all views expressed in all reports of AmFraser and its connected persons are subject to change without no ce. AmFraser reserves the right to act upon or use the Informa on at any me, including before its publica on herein. Except as otherwise indicated below, (1) AmFraser, its connected persons and its officers, employees and representa ves may, to the extent permi ed by law, transact with, perform or provide broking, underwri ng, corporate finance‐related or other services for or solicit business from, the subject corpora on(s) referred to in this report; (2) AmFraser, its connected persons and its officers, employees and representa ves may also, to the extent permi ed by law, transact with, perform or provide broking or other services for or solicit business from, other persons in respect of dealings in the securi es referred to in this report or other investments related thereto; and (3) the officers, employees and representa ves of AmFraser may also serve on the board of directors or in trustee posi ons with the subject corpora on(s) referred to in this report. (All of the foregoing is herea er referred to as the “Subject Business”.) However, as of the date of this report, neither AmFraser nor its representa ve(s) who produced this report (each a “research analyst”), has any proprietary posi on or material interest in, and AmFraser does not make any market in, the securi es which are referred to in this report. Each research analyst of AmFraser who produced this report hereby cer fies that (1) the views expressed in this report accurately reflect his/her personal views about all of the subject corpora on(s) and securi es in this report; (2) the report was produced independently by him/her; (3) he/she does not carry out, whether for himself/herself or on behalf of AmFraser or any other person, any of the Subject Business involving any of the subject corpora on(s) or securi es referred to in this report; and (4) he/she has not received and will not receive any compensa on that is directly or indirectly related or linked to the recommenda ons or views expressed in this report or to any sales, trading, dealing or corporate finance advisory services or transac on in respect of the securi es in this report. However, the compensa on received by each such research analyst is based upon various factors, including AmFraser’s total revenues, a por on of which are generated from AmFraser’s business of dealing in securi es. Copyright 2014. AmFraser Securi es Pte Ltd. All rights reserved.
______________________________ LEE Wing How
for AmFraser Securi es Pte Ltd AmFraser Securi es Pte Ltd
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