Hong Kong has many similarities to Singapore. Being a city state, a financial hub and a high-density metropolis, Hong Kong and Singapore are almost considered as sisters’ cities. Moreover, many Singaporeans are familiar with Hong Kong’s exciting retail scene in Causeway Bay, Mong Kok or Tsim Sha Tsui.

However, not many are aware that a major shopping mall located away from its city centre is actually owned by a Singapore entity. While its location in Kowloon Tong is primarily a residential area, the shopping mall is no less glitzy than the centrally-located malls. This property is the Festival Walk (FW), owned by Singapore-listed Mapletree Greater China Commercial Trust (MGCCT) (SGX:RW0U).

We shall now look at what is Mapletree Greater China Commercial Trust made up of. Maybe, you can consider visiting Festival Walk in your next trip to Hong Kong.

Stock Information
1

Ticker Symbol: RW0U

Market Capitalisation: S$3.1b

Sector: Real Estate Investment Trust

2- What Does Mapletree Greater China Commercial Trust Own?

Mapletree Greater China Commercial Trust is a commercial REIT focusing on properties in China and Hong Kong. Currently, the REIT has 3 commercial properties in the Greater China area: Festival Walk in Hong Kong, Gateway Plaza in Beijing and Sandhill Plaza in Shanghai.

Festival Walk (FW)

FW is a commercial property with both office and retail component. It is located in the Kowloon Tong residential area, with direct access to the Kowloon Tong MTR station and East Rail Line that extends to the border with Shenzhen. The mall is well-supported by commuters passing through the busy transport node and a catchment area with more than 1.4 million residents.

Gateway Plaza (GP)

GP is a Grade-A office building located in the Lufthansa commercial hub within the Third Ring Road in Beijing. It consists of two 25-storey and a 3-storey podium. Its tenants include multinationals and local companies such as BASF, BMW and Doosan. It is well-linked by major train and road networks, being located next to the Airport Expressway, Subway Line 10 and Airport Express Line.

Sandhill Plaza (SP)

Acquired in June 2015, SP is a business park property in the Zhangjiang Hi-tech Park, part of Shanghai’s Free Trade Zone. It sits adjacent to the Middle Ring Expressway, within a 30-minute drive to Pudong International Airport, Lujiazui Central Business District and People’s Square in Puxi. It is also easily accessible via public transport – within a 5-minute walk to Metro Line 2 Guanglan Road Station

Here is a summary of key metrics of the 3 properties extracted from the latest Annual Report:

FWGPSP
Valuation (S$)4.55 b1.26 b419 m
Lettable Area (Sq M)

*For comparison, Vivo City’s lettable area is 97,060 sqm; CapitaGreen. a Grade A office building in Singapore, has a lettable area of 65,348 sqm

74,171106,45663,284
Occupancy Rate100%96.9%100%
Net Property Income (S$)198 m65 m22.6 m

3-Key Strength/Opportunities

Overall Quality of Assets

Investing in REITs is essentially owning part of the underlying properties to receive income distribution from rentals. Fundamentally, the quality of assets in terms of their ability to attract new tenants, retain old tenants, and increase rentals are paramount to the performance of the REIT. We look at some indicators of MGCCT’s assets quality:

Indicators (Last FY2016’s figure)FWGPSP
Occupancy Rate100% (100%)96.9% (96.8%)100% (100%)
Gross Revenue 247.2 m (236.5 m)79.1 m (82.3 m)24.3 m (17.8 m)
Net Property Income (NPI)198 m (187.2 m)65 m (72.7 m)22.6 m (16.5 m)
Rental Reversion Retail: 12%

Office: 7%

10%16%

As seen from the table, MGCCT’s assets enjoy healthy occupation rate with FW and SP being fully leased, and enjoying positive rental reversion.

MGCCT’s gross revenue and net property income have also grown over previous year’s except for GP which was impacted by the implementation of Value Added Tax (VAT). However, following clarification with the local authority, MGCCT managed to reverse the VAT paid earlier, into FY16/17 Q4’s distribution. Moving forward, the VAT rate would stabilise and there will be less impact on GP.

Strength of Key Asset – FW

FW is the key component of MGCCT’s asset portfolio as it takes up 74% of the property valuation and 69.3% of its NPI.

FW brings along a unique value proposition to MGCCT. Firstly, it’s sits above the intersection of 2 train lines with established upscale residential areas in the vicinity delivering a constant stream of mall visitors. Unlike the prime shopping malls located downtown that have a huge reliance on expenditure by tourists, FW caters to the daily needs of local shoppers that are less discretionary and more stable in nature. The two universities nearby also present youths as another target audience with relatively good spending power on top of FW’s already-diversified visitor pool.

Personally, I have also visited FW 3 times in recent years as my relative lives nearby, I am impressed with FW’s posh interior and its integrated shopping experience with plenty of entertainment options such as cinema, bowling alley and ice skating rink. My relative also shares experience of busy crowds and frequent long queues to dine in the restaurants within the mall. These personal accounts further strengthen my confidence in Festival Walk.

Property Manager’s Alignment with Shareholders’ Interest

MGCCT has a unique remuneration model. The management fees comprise of a base fee of 10% of the Distributable Income and performance fee of 25% of the difference in Distribution per Unit between current and previous FY’s. Such arrangement represents better alignment between Manager and unit holders’ interest as Manager would be less incentivised to acquire new properties that may not be yield-accretive.

4 – Risks

Economic Slowdown

China economy is transitioning from one that is export-led to domestic-consumption driven. This will not be a smooth-sailing process and hiccups are expected. China economy would have to maintain a modest growth rate, to ensure that corporations enjoy reasonable growth and not resort to cost-cutting measures that could impact demands for office and business park space. It is the same concerns for other major economies such as Europe and US where MGCCT’s international corporate tenants originate from.

Adaptation of Malls towards E-Commerce

The shift of consumer shopping activities towards the online space is in full steam. Many traditional retailers are already feeling the heat and struggling in face of challenges posed by electronic retailers and online direct purchases. Shopping malls, as traditional locations where retailers set up shops, are impacted too. Mall operators need to refresh various aspects of shopping experience to attract shoppers. Examples are utilising technology such as augmented reality, sprucing up physical amenities and improving the level of staff service to make shopping a fun-filled experience. This will not be an easy task.

Valuation

MGCCT is currently trading at a PB ratio of 0.85 and a distribution yield of 6.59% based on the price of $1.11. That makes it one of the higher yielding REITs listed in Singapore.

Shareholding Structure

MGCCT’s largest shareholder is Temasek Holdings, with a 36.54% ownership of the total issued capital. Board Chairman Paul Ma owns 0.03% of the shareholding, while Cindy Chow Pei Pei, the CEO, owns 0.023%.

Financials

MGCCT’s latest financial reports can be found in the link.

What do you think about Mapletree Greater China Commercial Trust? Will you invest in them? Share your thoughts below.

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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in CS Chong’s personal capacity. It does not in any way represent those of his employer and other related entities. CS Chong owns Mapletree Greater China Commercial Trust.

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