Company profile
China Merchants Commercial Housing Trust is a Hong Kong collective investment scheme in the form of unit trust funds. It is initiated by a well-known state-owned enterprise, Shekou, and is mainly established for the purpose of owning and investing in high-quality commercial properties (including Hong Kong and Macao, but excluding investment land cities). Real estate investment trust (REITs). The property portfolio of the China Merchants Commercial Housing Trust Fund consists of five properties, including a Grade An office building, New Times Square, three office complex Digital Building, Technology Building, Technology Building Phase II, and a shopping mall Garden City. The above properties are located in Shekou, Nanshan District, Shenzhen City and have a total leasable area of 250000 square meters on September 30, 2019, with an assessed value of RMB 6.52 billion.
Sino-Thai viewpoint
Office rents in Shenzhen have experienced downward pressure in recent years: the main driving forces for the development of the office market in Shenzhen include: (1) the rapid economic development of Shenzhen, (2) the development of high-tech and financial industries, (3) the improvement of transport and infrastructure, and (4) the support of Guangdong-Hong Kong-Macau Greater Bay Area government.
At the end of the first quarter of 2019, the total supply of office space in Shenzhen was about 10.35 million square meters. The vacancy rate of Grade An offices ranged from 9.6% to 15.1% from 2014 to 2018 and is expected to rise to 20.4% in 2019 due to the increase in the supply of new projects. A large number of new projects will be listed in the next five years, which is expected to keep the average vacancy rate high for some time. The average monthly rent for Grade An office space rose slightly from 224 yuan per square meter in 2014 to 254 yuan per square meter in 2017.
Rents for Grade An office space in Shenzhen will face downward pressure from 2019 to 2023, driven by the supply of new office space, especially in Nanshan District and Qianhai District.
In terms of operating performance: in the 2016-2018 fiscal year and as of June 30, 2019, the company realized operating income of 370 million yuan, 360 million yuan, 390 million yuan and 190 million yuan respectively, of which the rental income of the five core properties was 320 million yuan, 300 million yuan, 330 million yuan and 160 million yuan respectively, a slight decrease in 17 years due to the decrease in office and shopping center rental income. The average occupancy rate of the five properties decreased at 81% compared with the same period last year, while their rental income increased slightly compared with the same period last year. Operating expenses such as property management expenses and other taxes accounted for 33.2%, 23.1%, 23.1% and 22.6% of the total income, respectively. The fair value of investment property changed by 220 million yuan, 710 million yuan, 1.2 billion yuan and 380 million yuan respectively, of which the large changes in the first half of 19 years led to a sharp drop in profit by about 50% valuation: based on the 1.1 billion fund units after the global public offering, the company's market capitalization is HK $38.6-4.51 billion, which is lower than that of its Hong Kong equity counterparts. The 18-year price-to-earnings ratio of the company is about 3.1-3.6 times, which is lower than the industry average, and the price-to-book ratio is about 0.91-1.07 times, which is higher than the industry average. The management said that with the opening of Metro Line 12, it will drive the rental demand for office space along the line in the future, and the rising trend of the market can be translated into an increase in rental income. In addition, the company will have three potential properties to be injected, namely, Harbour II, Prince's Square II and New Times Square II. It is expected that emphasis will be placed on the preparation of new property injection in the second half of next year or the year after next. After the listing of China Merchants Commercial Housing Trust, it will become the 11th REITs on the Hong Kong Stock Exchange and the sixth REITs containing only mainland properties. However, considering that the vacancy rate of Grade An office buildings in first-tier cities is on the rise, the committed rate of return per fund unit is about 5.9-6.9%. Investors can consider long-term investment and do not recommend first-day purchase. We give it 58 points on the above, rated as "do not apply for purchase".
Risk hints: (1) market competition risk, (2) China real estate related policy risk, (3) interest rate risk