MAGIC upgraded to Add by CGS-CIMB after entry into Japan’s market

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CGS-CIMB upgraded Mapletree Greater China Commercial Trust to Add from Hold after it purchased six commercial properties in Japan for a total cost of S$770.5 million.

“We view this transaction positively as it diversifies MAGIC’s portfolio exposure to the still-rising Japan commercial market. Rental growth there has picked up on the back of stronger economic activity amid low vacancy rates,” it said, noting that Japan was expected to make up 12-13 percent of the enlarged assets under management after the deal.

The Japan portfolio’s net property income (NPI) yield of 48 percent is “significantly higher” than the cost of funding, meaning the acquisition is expected to be dividend per unit (DPU) accretive by mid-2018, the note said.

The top four tenants of the Japanese properties include blue-chip names such as Fujitsu, Seiko Instruments, PERSOL and Japan Information Processing Service, it noted.

CGS-CIMB tweaked its target price up to S$1.30 from S$1.26.

“We would be buyers into any share price weakness,” it said, noting MAGIC’s fiscal 2019-20 DPU yields were around 6.4-6.5 percent.

The unit ended Monday up 0.87 percent at S$1.16.