CAPITALAND RETAIL CHINA TRUST (SGX:AU8U)
CapitaLand Retail China Trust - On Path To Return To Normalcy
- Rebound in shopper traffic and tenants’ sales in March.
- All malls and 90% of stores are open.
- Portfolio occupancy remained healthy at 95.4%.
Signs of recovery in China
- On same store basis, CapitaLand Retail China Trust (SGX:AU8U)’s tenants’ sales fell 54.8% y-o-y and shopper traffic was down 52.2% y-o-y in 1Q, weighed by COVID-19. See CapitaLand Retail China Trust Announcements. However, we see signs of recovery in March with shopper traffic and tenants’ sales jumping 105% m-o-m and 189% m-o-m respectively.
- Management sees that the worst is probably over in China and expects operations to return to normalcy with shopper traffic to be progressively improving to the pre-COVID 19 level of 75% by end of 2Q. However, there is a potential risk of resurgence of infections in China. Should this happen, CapitaLand Retail China Trust’s operating metrics will likely remain under pressure in the near-term.
90% of stores reopened; remaining 10% are restricted business
- All CapitaLand Retail China Trust's malls have reopened from 2 Apr with ~90% of stores opened as of 19 Apr. The remaining 10% which remain closed are largely in the business of leisure and entertainment e.g. cinema, KTV, gym and enrichment classes. They are considered restricted business and will remain closed until further notices from local governments. F&B businesses are open but not operating at their full capacity with continued social distancing.
CRCT plans to provide 1 month of rental rebate
- As at 31 Mar 2020, portfolio occupancy remained healthy at 95.4%, down 1.3 ppt q-o-q. It is taking longer time for CapitaLand Retail China Trust to sign new leases and to find replacement tenants. We are likely to see “frictional vacancies” but dominant malls could perform better than weaker malls.
- Management did not disclose the rental reversions in 1Q but shared that it was still positive (in low single digit).
- Looking ahead, leases representing 30.0% of the portfolio’s gross rental income will expire in 2020. We expect rental reversions to come under pressure in FY20 given soft market sentiment.
- CapitaLand Retail China Trust plans to provide ~1 month of rental rebate in its 2 phases of relief package and has been in discussions with tenants to lend more support e.g stagger rental payments by instalments, restructuring of tenant leases to reduce fixed rent component temporary to lessen the load of tenants.
- With the series of macro policies announced by Chinese government to support economy and boost consumption, we expect CapitaLand Retail China Trust to benefit from the recovery trend in China. After adjustments (risk free rate: 1.55%, COE: 8.6%), our fair value estimate slips from S$1.57 to S$1.44.
- See CapitaLand Retail China Trust Share Price; CapitaLand Retail China Trust Target Price; CapitaLand Retail China Trust Analyst Reports; CapitaLand Retail China Trust Dividend History; CapitaLand Retail China Trust Announcements; CapitaLand Retail China Trust Latest News.
Chu Peng
OCBC Investment Research
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https://www.iocbc.com/
2020-04-27
SGX Stock
Analyst Report
1.44
DOWN
1.570
