Mapletree Greater China Commercial Trust - Robust showing

Boosted by better asset performance and positive currency effect 
MAGIC reported a 12.6% rise in DPU to 1.81 Scts, accounting for 25% of our FY16 forecast. This was supported by a 25% rise in topline, thanks to improvement across all assets, a full quarter’s income from Sandhill Plaza (SP) and a stronger HK$ and Rmb. To date, 81% of leases expiring in FY16 have been re-contracted. Portfolio occupancy remained robust at 98.4%. The slower uplift in DPU was due to higher interest charges as the acquisition of SP was fully funded by debt. Gearing rose to 41% as at Sep 15. 

Strong showing from Festival Walk 
Festival Walk (FW) saw a 21% rise in 2Q revenue and NPI due to a strong 20% rental uplift on retail lease renewals. This was despite a marginal yoy drop in tenant sales while shopper traffic grew positively. The robust demand for space at FW bodes well for renewal of the remaining 6.2% and 18.9% of lease income expiring in 2HFY16 and FY17, respectively. Ongoing tenant remixing, such as introducing more family-focused offerings to appeal to a wider shopper pool, is expected to continue to draw traffic. 

Bulk of China lease renewals in FY16 locked in 
In China, GW achieved 25% upside on re-leasing activities in 2Q while occupancy remained at 96.3%. While the spread between passing and market rents has narrowed, we expect this property to remain stable as there is only a minimal 0.8% and 5.9% of rental income due to be re-contracted in 2HFY16 and FY17, respectively. In SP, we expect the renewal of the 4.3% of rental income in FY17 to be positive given the 15-20% gap in current and passing rents. 

Organic and inorganic growth to drive outlook 
Looking ahead, positive rental reversions, particularly at FW and SP, are expected to continue to drive bottomline growth. The trust will also continue to look for inorganic growth via acquisitions, especially in China. Based on a gearing of 45%, it has remaining debt headroom of c.S$430m. 

Maintain Add 
We continue to like MAGIC for its resilient portfolio. Its earnings stream is visible, with 81% of FY16 distributable income hedged and 86% of debt cost fixed for FY16. Our FY16 and FY17 DPU of 7.4 Scts and 7.7 Scts, respectively, are unchanged, as is our DDM-based target price of S$1.20. We also retain our Add rating.