MAPLETREE GREATER CHINA COMMERCIAL TRUST

MAPLETREE GREATER CHINA COMMERCIAL TRUST | ADD

March 29 close: S$1.15

Target price: S$1.30

CGS-CIMB, March 28

Mapletree Greater China Commercial (MGCC) Trust announced it is acquiring a 98.47 per cent stake in a portfolio of six Japan commercial properties from MJOF, a private real estate fund managed by its sponsor.

We view this transaction positively as it diversifies MGCC's portfolio exposure to the still-rising Japan commercial market. Rental growth there has picked up on the back of stronger economic activity amid low vacancy rates.

Japan is expected to make up 12-13 per cent of the enlarged assets under management and net property income post-acquisition. The trust's occupancy and income visibility will also be strengthened with a longer weighted average lease to expiry of 3.1 years.

The acquisition is projected to be distribution per unit (DPU) accretive as the Japan portfolio's net property income yield of 4.8 per cent is significantly higher than the current cost of funding.

We tweak our FY2019-2020F DPU estimates up by 0.4 per cent to 2 per cent to include the new contributions. Our dividend discount model-based target price is lifted from S$1.26 to S$1.30 with the additional income and a change in our blended cost of equity to 8.5 per cent, from 8.9 per cent previously.

Hence, we upgrade our call from "hold" to "add". We would be buyers into any share price weakness.

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