Mapletree Greater China Trust Review 1H FY16/17

My simplify Mapletree Greater China Trust (MGCCT) Review

 Note: The below is my personal review, please ensure you do your own homework.

1.       Gearing around 39.9%

The debt need to watch will be those that mature in March 2018, 2019 and 2020 as it is about 29%, 16% and 16% of the total debt.

Based on the trend of issuance of the bond the average interest rate might be going up to 3.5% from the current 2.9% this is basically an increase about 60bps. With the guidance provided, the dividend we should expect it to drop around 0.035 cents and this translate about 0.4% drop.

2.       Lease Expiry

For FY16/17, The management has managed to have positive rental revision, the next risk will come when MGCCT need to secure the renewal with no change or positive rental revision in FY17/18 as this is the first bulk (36.5%) of the lease will expired and follow by FY18/19 of 23.5% expiry.

For FY16/17, the concern here is for

·         Festival Walk where it is account 21% and with the retail market challenge and new office supply.

·         Gateway Plaza where the vacancy rate in Beijing is climbing

3.       Price to Book Value

Based on 95 cents and Net Asset of $1.19 this translate MGCCT is currently on discount of 20%

4.       Future Acquisition

There is a potential acquisition in 2018 on-ward as the sponsor new office building will be ready, depend on when it will dump into MGCCT.

5.       Dividend Yield

Based on 95 cents, it is currently yielding about 7.5%.

The dividend has been growing from 6.2 cents in 2014 to 7.2 cents in 2015. With uncertainty in retail market and office supply in Hong Kong and Beijing plus the cost of borrowing likely to increase in the future, I will just assume there is no growth in dividend.

6.       REIT Manager Fees

REIT Manager performance fees is based on a performance fee of 25.0% of the difference in DPU of financial year with the DPU in the preceding financial year multiplied by the weighted average number of Units in issue for such financial year.

7.       Risk

·         The gearing is pretty on high end for my risk appetite

·         Interest Rate hike

·         Retail challenge in Hong Kong

·         New supply in Hong Kong and Beijing

8.       VAT and Property Tax Implementation – Clarified with MGCCT

Sandhill Plaza is not subjected to change in the property tax as of now.

Sandhill Plaza is an onshore entity hence the applicable VAT is 5%

Gateway Plaza is impacted with the property tax changes and currently applying 11% VAT

1H FY16/17 Revenue is already reported net of VAT