SINGAPORE (Aug 1): DBS Vickers is maintaining its “buy” call on Mapletree Greater China Commercial Trust (MAGIC) with a target price of $1.25.
This is due to MAGIC’s attractive valuations that offer a prospective FY18 yield of 6.7%, which is the highest among large-cap REITs.
In a Tuesday report, analyst Mervin Song says the trust’s 0.1% increase y-o-y in 1Q18 DPU of 1.85 cents was in line with expectations, although 1Q18 was hit by higher property taxes at Festival Walk, which was absent in 1Q17. Stripping out the tax impact, 1Q18 DPU would have been up around 2-3% y-o-y.
Despite the drag from higher property tax, MAGIC’s 1Q18 gross revenue and NPI grew 4.6% and 3.7% respectively. This was attributed to higher average rents across MAGIC’s three properties – Festival Walk, Gateway Plaza and Sandhill Plaza.
The trust’s overall portfolio occupancy also remains high at 98.8% and boosted by 100% occupancy at Festival Walk.
In 1Q18, MAGIC also saw a 2.1% increase y-o-y in tenant sales while foot traffic saw a 4.6% rise.
This was partially due to the opening of two mini anchors. Muji opened over the quarter, while the Festival Grand cinema had been closed between January to July 2016.
Over the quarter, 68% of leases due to expire were renewed or re-let. Another 11.6% of leases are up for renewal in what remains in the financial year.
“We believe the market will likely react positively to the news that tenant sales have finally turned the corner, reducing the risk of negative rental reversions in the near future which some investors have been fearful of,” says Song.
With most large-cap REITs trading close to or at a premium to book value, MAGIC offers “a compelling switch” as it is trading at a 11% discount to book value.
Units in MAGIC are trading at $1.10 as at 4.36pm.
