CapitaLand Retail China Trust - Phillip Securities 2017-07-31: Stabilising Tenant Sales

CapitaLand Retail China Trust - Phillip Securities 2017-07-31: Stabilising Tenant Sales CAPITALAND RETAIL CHINA TRUST AU8U.SI

CapitaLand Retail China Trust - Stabilising Tenant Sales

  • CRCT's 1H17 revenue, NPI and DPU were within our expectations.
  • Occupancy and rental reversions in main Beijing and Chengdu malls remain healthy.
  • Tenant sales growth look to be stabilising, at low-mid single digit as malls mature.
  • We raise our FY18e DPU by 4.6% to factor in the stronger rental growth prospect for CapitaMall Wangjing.
  • Maintain NEUTRAL with higher DDM-derived target price of S$1.64.



The positives 

  • + Occupancy and rental reversions in main Beijing and Chengdu malls remain healthy: CRCT’s 1H17 overall rental reversions improved to 5.2% (FY16: 3.9%). The main Beijing and Chengdu multi-tenanted malls (c.70% of total portfolio) maintained near full occupancy with rental reversions ranging from 0.8%-11% in the quarter. We expect overall rental reversions to stabilise in the mid-single digit range as CRCT’s main Beijing malls mature.
  • + Conversion of part of departmental store to specialty retail space in CapitaMall Wangjing could increase portfolio NPI by 1% in FY18: CRCT will recover c.4,700sqm of department store space in Wangjing (c.9% of total mall NLA) from anchor tenant Beijing Hualian Group to house higher-yielding specialty stores. Rental reversions are expected to range from 50%-60%, according to management. Assuming 50% rental reversions, we estimate this initiative alone could increase portfolio NPI by at least 1%. (vs -3.2% organic NPI growth for total portfolio in FY16).
  • + Tenant sales stabilising, at low single digit rate: Tenant sales growth have fallen from 2014 (16%), but looks to be stabilising at the mid-single digit level as CRCT’s malls reach a mature stage.


The negatives 

  • - Divestment of CapitaMall Anzhen could mean loss of rental income in short term as divestment proceeds get re-allocated for other accretive acquisitions: Sale price represents an exit yield of c.5.9% and a net gain of S$31.5mn (2.3x Anzhen’s FY16 NPI). Rental income in FY18 could face a shortfall as a result of the divested property unless partial divestment proceeds are re-distributed.


Outlook 

  • We expect flat DPU YoY for FY17e and a 5.1% increase for FY18e. Tenant sales should stabilise after falling the past 2 years as CRCT’s malls mature. 
  • Mall rejuvenations at CapitaMall Wangjing, Xinnan and Minzhongleyuan are expected to drive FY18 tenant sales.


Maintain NEUTRAL with higher target price of S$1.64.

  • We raise our FY18e DPU by 4.6% to factor in stronger growth prospects for Wangjing. 
  • We expect management to utilise divestment proceeds to stabilise DPU from loss of income if needed. 
  • We also raised our terminal growth rate to 1.5% (from 1%) as divestment proceeds from Master-leased Anzhen get reinvested into stronger growth malls. This translates to a FY17e yield of 6.1% and P/NAV of 0.98.




Dehong Tan Phillip Securities | http://www.poems.com.sg/ 2017-07-31
Phillip Securities SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.64 Up 1.440



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