MGCCT – Shop Till You Drop

Mapletree Greater China Commercial Trust (RW0U.SI) is a real estate investment trust that has commercial properties in both Hong Kong and China. It is one of four listed REITs managed by Singaporean property developer Mapletree Investments, the real-estate arm of the state’s investment company Temasek Holdings. Mapletree Greater China Commercial Trust’s (MGCCT) portfolio, with a value of 5.82bn SGD, comprises of Festival Walk, a premier retail and office building in Hong Kong, Gateway Plaza, a premier Grade-A office development with a podium area in Beijing, and Sandhill Plaza, a premium quality business park property in Shanghai.

Despite a slowing down Chinese economy, MGCCT reported nice results in its second quarter statement with better performance across most of its metrics. The slowdown has not affected the performance of MGCCT properties.

Gross Revenues and net income of second quarter jumped 25.4% and 26% respectively. For the first six months of its fiscal year, both are up more than 22%. The distributable income shows a consistent growth from 37.1m SGD after MGCCT’s first listing to 49.5m SGD for the recent quarter. MGCCT’s portfolio occupancy is almost at maximum levels with 98.4%. The company found the right formula to still thrive the business in the country.

Despite the slowdown, domestic consumption in China and Hong Kong remains stable. A reason is certainly China’s attempt to restructure its economy away from an export-driven model towards a more domestic consumption. Another reason is the growing middle class, which will continue to support domestic activities, such as commercial activities.

MGCCT has a healthy balance sheet. Just the gearing ratio of 41% – the average borrowings for REITs is around 35% – shows limited potential for further investments as the cap of 45% allowed by The Monetary Authority of Singapore is almost reached. This high ratio came from the acquisition of Sandhill Plaza in June. The high debt burden may affect yields when interest and foreign exchange rate becomes unfavorable.

On the other hand, an annualized distribution yield of stable 7% and a P/E ratio of 7 makes this investment an interesting consideration. Analysts see the share growing on an average of 16% in the next twelve months. As our view on China’s growth is not as gloomy we would rate this stock as an outperformer for the next six to twelve months as well. A good entry point technically would be a crossing above the 200 moving average combined with a MACD signal.

Asia Investment Signals’ Rating: ★★★☆☆