CAPITALAND RETAIL CHINA TRUST
AU8U.SI
CapitaLand Retail China Trust - Mall Rejuvenations At Multi-tenanted Malls Driving NPI
- CapitaLand Retail China Trust (CRCT)'s 3Q17 NPI and DPU were within our expectations.
- Portfolio occupancy (95.6%) and rental reversions (7.5%) remain healthy.
- Stable average cost of debt at 2.42%.
- Tenant sales slowing, 3Q17 down 2.0% YoY.
- Maintain NEUTRAL with unchanged DDM-derived target price of S$1.64.
The Positives
+ Stripping out impact from acquisition (Xinnan) and divestment (Anzhen), NPI grew 6.1% YoY in RMB terms.
- Multi-tenanted (non-Master lease) malls grew NPI by 4.9%, excluding new acquisition Xinnan. This is driven by stable portfolio occupancy (3Q17: 95.6% vs 2Q17: 96.2%) and positive rental reversions of 7.5% for the 20,283 sqm of leases renewed in the quarter.
+ Stable average cost of debt at 2.42%:
- This compares with 2.44% as at 2Q17. The stable cost of debt is achieved despite the re-financing of a S$300mn 1-year bridging term loan secured in FY16 for the financing of Xinnan’s acquisition into longer term debt. The new loan now expires > 2021.
- Gearing remains stable at 35.4%.
+ Gradual shifting away from underperforming department stores into higher yielding trade sectors:
- Percentage of total rental income as at Sept17 (disclosed in results slides) from department stores saw a significant drop YoY to 6.5% (FY16: 16.8%). The shift is towards higher yielding trade sectors such as fashion and F&B.
The Negatives
- Tenant sales slowing, 3Q17 down 2.0% YoY (2Q up 1.9% YoY):
- YTD tenant sales is up 0.8%. Weaker trade sectors include leisure (cinema) and supermarkets, while stronger sectors include fashion and F&B.
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 and rental reversions.
Maintain NEUTRAL with unchanged target price of S$1.64.
- This translates to a FY18e yield of 6.4% and P/NAV of 1.0.
- At a current yield of 6.0%, CRCT is trading at -1s.d. for post-GFC yields, which we deem fair given that tenant sales and rental reversions are stabilising around mid-single digits as malls mature.
- We also prefer to see a more sustainable pick-up in rental reversions or more accretive acquisitions before relooking at our recommendation.
Dehong Tan
Phillip Securities
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http://www.poems.com.sg/
2017-10-25
Phillip Securities
SGX Stock
Analyst Report
1.640
Same
1.640
