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Mapletree Greater China Commercial Trust IPO–Good Buy?

One of the biggest IPO in recent times is coming soon in Mapletree’s Greater China Commerical Trust (MGCCT)

The prospectus is out.

MGCCT Prospectus | Read it here

A total of 776 mil units are on offer, with 511 mil designated to cornerstone investors and 265 mil for the public.

Here is a rough time table (not confirm yet)

Greater China

The mandate of this trust is to invest in income producing real estate in Greater China. This would include:

  1. Hong Kong
  2. Beijing – 1st tier city
  3. Shanghai – 1st tier city
  4. Guangzhou – 1st tier city
  5. Shenzhen – 1st tier city
  6. Chengdu – 2nd tier city
  7. Chongqing – 2nd tier city
  8. Foshan – 2nd tier city
  9. Hangzhou – 2nd tier city
  10. Nanjing – 2nd tier city
  11. Suzhou – 2nd tier city
  12. Tianjin – 2nd tier city
  13. Wuhan – 2nd tier city
  14. Xi-an – 2nd tier city

That does provide a large catchment area for parent Mapletree to dump assets in the future.

Festival Walk and Gateway Plaza

The IPO injects 2 premier properties into the trust.

Festival Walk (又一城), a premier retail and lifestyle destination, comprising a seven-storey territorial retail mall with a four-storey office component on top of the mall, as well as three floors of underground car parks. It is located in Kowloon Tong, an upscale residential area in Hong Kong, and is directly linked to the Kowloon Tong MTR station, which is the interchange for MTR’s local underground metro line (Kwun Tong Line) and the overland railway linking Hong Kong directly to the Shenzhen border (East Rail Line).

Gateway Plaza (佳程廣場), a premier Grade A office building consisting of two 25-storey towers connected by a three-storey atrium, as well as three underground floors. It is located in the Chaoyang district, at the junction of East Third Ring Road and Airport Expressway, and is within the traditional commercial and office area known as the Lufthansa Area in Beijing,

The 2 properties have a total of 2.4 mil sq ft GFA. To compare, Causeway point before re-development have a GFA of 0.64 mil sq ft GFA.

Some reviews of Festival Walk:

I visited several malls in HK and this one was probably my favourite. They have some high end stores, but it’s not crazy like Harbour City/Elements/etc. where you feel like things are way too expensive. The place is spacious and relatively less-crowded than malls closer to downtown.

Stores include Cole Haan, Marc by Marc Jacobs, Camper, Agnes B, Paul Smith, Log-On (one of my favourites! Huge variety of cosmetics, accessories, stationary, home ware to buy at reasonable prices), Coach, etc. There are also a number of children’s wear places, a big bookshop (with English books), Taste supermarket (a bit pricey, but convenient and their sushi is pretty fresh and yummy), a skating rink, and an AMC theatre (be warned, there are not always English subtitles). Food court has cheap options for Asian food and SimplyLife is a great place for a healthy lunch or all-day breakfast.

Check out the beautiful Lunar New Year displays!

Visited February 2013

Festival Walk is next to the MTR station and is accessible from many locations in Hong Kong. Like most malls in HK, it is overwhelmed by international brands, that being said, the most local flavor is in the food outlets. If a good Chinese dim sum restaurant appeals to you, then the House of Canton is really tops. There is the King’s Palace if you want congee local style. The fast food counter at the large food store, Taste, has some tasty dishes available at the lunch and dinner rush hours and when they are gone or time’s up the counter closes so if you get there at the right time, you can get some local, freshly prepared items to take away. There are many other places, some chains as well as a food court. There is a large bookstore, Page One, with a sizable selection of English language publications. Marks & Spenser offers clothing that those who aren’t super slim types can wear and at Christmas they have the British holiday treats including mince pies. But beware of getting disoriented as the mall is designed, as so many others now are, to take you anywhere but where you want to go, exposing you to as much store frontage as possible.

Visited January 2013

This is a great mall, with good eateries and shops to cater for just about everything you need. The big plus is its location away from usual tourist spots so you really get a sense of Hong Kong. Do eat early as the eateries, including the pretty interesting food court, gets v crowded early. From 6pm for dinner! Definitely more interesting than the touristy malls. The staff seem pretty helpful, including helping a lost tourist (me!) locate the supermarket and mtr!

Visited February 2013

Festival Walk, 又一城 , is our latest to-go place for our trips to HK. Prior to this we used to visit the likes of Sogo, Times Square, IFC Bldg, Elements, Langham, Pacific Plaza, CityPlaza and even Shatin Plaza. Located just beside the Kowloon Tong Station (MTR 觀塘線 and 東鐵線) it is definitely central. While it houses major Brands like H&M, M&S, agnes.b, calvin klein, Samsonite & Longchamp, the usual crowd is definitely manageable. Coffee chains & TASTE adds-on to your eating needs for this middle class shopping. The L4 Hong Kong Records shop is where we go to look out for labels which we cannot find back home.
Just that we do not like the arrangement of their escalators, a bit confusing and unfriendly, for tourist like myself (always in a rush..!). And the top level foodcourt which always appear full. If only more spaces can be allocated for food.! But, some seats here offered a great view of the skating rink.
For those whom are unfazed by the usual shopping haunts this place is definitely worth a try, maybe it will become your t-go place for subsequent visit too.

Visited October 2012

Not sure if these reviews are paid! Search up the top malls and you will see that they generally say it’s a good mall but not as crowded!

Gateway Plaza is one of the top 10 Grade A office building in Beijing and anchored by many large corporations

Fundamentals

The total asset size is worth SGD$4.4 bil. Total debt is SGD $1.9 bil. Total equity SGD $2.4 bil.

This brings the debt to asset ratio to 43%. I dunno about you but why is it that all Mapletree trust have extremely high leverage? Do they really have some connections such that they will never die?

Projected full year income for 2013/2014 is around 139 mil. But the financing cost is 40 mil and management fee 13 mil. The interest expense is around 2.1%. 

I wonder if this is the best investment around:

  1. Huixian REIT unlevered is 6.7% yield on 0.8 PTB
  2. Fortune REIT 17% leveraged is 4% yield
  3. CapitaRetailChina REIT 28% leverage is 4.6% yield

if you unlevered MGCCT, the yield on asset is 3.1%. Looks like it really needs to grow a lot to reach Huixian’s level!

At this point it looks like Fortune REIT is a better bet!

Expected Dividend Yield

MGCCT is expected to pay between 5.6% to 6% yield. This would likely depend on the subscription price between 88 cents and 93 cents.

In the second year, the yield is expected to go up by 8.6% to 6.1% to 6.5%.

The WALE of the two properties are at 2.4 years which is rather short. Given the optimistic nature the management expects the rental revision of the mall to be upwards of 15% and the office building to  be 39-65% in the next two years.

Such optimism!

Management Fee

The base management fee of 10% of Distributable Income looks excessive. However, the amount should equate to the management fee structure of other REITs which uses a % of the assets under management.

The performance fee is 25% of the difference in DPU from the previous year.

This structure is good in the sense that both are dependent on the DPU.

Whether it is through leverage, rights issue, placement, the end state is the DPU should go up. (of course there are other considerations that are not factored in such as quality of growth, assets, leverage and risk management)

Conclusion

Like all IPOs the caveat is that the parent will only list if they can suck good money out from you. But you will get good ipo of Starhub at less than 1 dollar or even CapitaRetailChina at $1.15.

Whether an IPO does well depend on whether there are enough interest in it. And for this one it looks like the cornerstone investors are subscribing at the high end of the price.

I also think the price appreciation on the first week could be muted given how much people know about Mapletree and REITs in general

Is it a good investment to hold long term? We have to judge the management team. Its got a good structure and good assets that’s for sure. But if you pay a premium for it, you have more downside risks then upside.

Investments in Huixian, Fortune may make more sense.

Still, under a good management like Frasers, you can see what kind of bombastic thing they can do.

I run a free Singapore Dividend Stock Tracker available for everyone’s perusal. Do follow my Dividend Stock Tracker which is updated nightly  here.

Kyith

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Cecilia Lim

Monday 15th of May 2017

Is this REIT worth buying now?

Kyith

Saturday 20th of May 2017

Hi Cecilia,

What attracts you to this REIT? Why are you considering it?

Weiz

Sunday 14th of February 2016

Came across this in your archives, but noticed that you've gotten some MGCCT recently as well. Is the recent lower price the factor that changed your consideration, or something more to it?

Kyith

Monday 15th of February 2016

Hi Weiz,

its not a good idea to buy at IPO because firms IPO so that they can raise money. They are not going to do it cheap. Also the big risk is: are the owners just transferring the risk to you and me? During IPO they have 2 properties, and you won't know the quality of the property. now we have more time to assess the risks and the properties. Beijing have limited supply. HK faces challenges but the property is at a good location. I look at this as more of an industrial reit since the properties in hk and china have limited land lease.

Reiko

Wednesday 20th of February 2013

Hi Drizzt, it is in pages 53 and 54 of their preliminary prospectus regarding the lawsuit.

Drizzt

Friday 22nd of February 2013

hi reiko, thanks for pointing to me.

Reiko

Wednesday 20th of February 2013

Hi Drizzt, if you place an order for the IPO via private placement, and later when the public offering is made, can you change your mind and withdraw your application? Thanks in advance.

Reiko

Wednesday 20th of February 2013

Hi Drizzt, I heard about some ongoing lawsuit of the beijing gateway plaza. What impact has this on the reit? I am totally new to reits.

Drizzt

Wednesday 20th of February 2013

hi Reiko, i have no idea to both private placement and the lawsuit but its good you bring it up

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