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Mega-IPO Mapletree Greater China Commercial Trust Makes A Splash
Initial Public Offering | 11 March 2013
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By: Jade Lee
Articles (97) Profile

A big household name indeed attracts a great deal of attention. For the past few weeks, many investors were attracted to the $1.7 billion listing of Temasek-linked Mapletree Greater China Commercial Trust (MGCCT). And not surprising to the market, the public tranche of initial public offering (IPO) was over-subscribed by nine times, signalling market watchers’ affinity towards China-focused real estate investment trust (REIT), despite the cancellation of the Dynasty REIT listing in October last year.

Commitments from institutional investors were just as impressive. The mega-listing managed to secure a total of 953.5 million units, or 55 percent of the 1.7 billion shares from 11 corner stone investors, who agreed not to sell the shares until the end of its lock-up period. Having stellar names such as AIA Group, CBRE Group, Henderson Global Investors and Morgan Stanley as cornerstones, investor sentiments would certainly be boosted.

So, What Can Investors Expect?

MGCCT’s current portfolio is worth some $4.3 billion and only comprises of two retail and office developments in the prime areas in Hong Kong and China (Festival Walk in Kowloon area and Gateway Plaza in Beijing). Touted as the best-in-class commercial properties in the regions, both buildings have an occupancy rate of over 98 percent and WALE (weighted average lease expiry) by gross rental income of 2.4 years. The manager has also projected rental reversions of 14.4 percent and 14.9 percent for Festival Walk and 65.4 percent and 38.9 percent for Gateway Plaza for leases expiring in FY14 and FY15 respectively.

In the short to medium term, the manager of the REIT said it may purchase another five assets which are located in Xi’an, Shanghai and Foshan. These assets, which have the potential to be worth up to $3 billion, are said to match MGCCT’s investment mandate and are expected to be ready after one to five years.

Interesting enough, MGCCT’s eccentric management fee structure could be an attraction that is not to be missed by investors. Going against the norm of maintaining assets’ growth rather than unitholders’ interest in the Singapore REIT sector, MGCCT’s base fees are pegged to distribution income and distribution per unit (DPU) growth rather than assets under management and net property income. With the REIT manager now enticed to grow distribution income and DPU, this could essentially align manager’s interest with investors’.

Furthermore, MGCCT’s comparative yield to other listed China-based landlords could be another pull factor for investors that are gorging on high-yield stocks. With projected yields of 5.6 percent in FY14 and 6.1 percent for FY15, this has compared well with other REITs such as CapitaRetail China Trust (FY12: 5.5 percent) and Fortune REIT (FY12: 4.8 percent). While there is a fair share of anxiety out there about MGCCT’s high gearing ratio of 43 percent, a comforting note given by MGCCT is that the interest used to pay on the loan is actually acting as a tax shield, which ultimately benefits the trust by about $6 million a year. The trust further added that the gearing will not go beyond 45 percent.

Jade manages and oversees a portfolio of stocks which are mainly focused on the mining and property sectors at Shares Investment.

Please click here for more information about this author.

Mapletree North Asia Commercial Trust  1.430 -- --   
Business: Real estate investment trust focused on commercial assets (comprising retail & office) in HK & China.

Insight: Apr-19, FY19 revenue rose 15.1% due to higher rent... Read More


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