CapitaLand Retail China Trust - DBS Research 2020-12-09: New Horizons Beyond Scale


CapitaLand Retail China Trust - New Horizons Beyond Scale

  • Shopper traffic and tenant sales at c.90% of normalised levels.
  • Yuquan mall to prepare for year-end launch at a 94% committed occupancy.
  • 8% DPU CAGR as we price in the recent S$1bn acquisition deal; compelling 8.5% forward yield at current CapitaLand Retail China Trust Share Price.
  • Reiterate BUY call on CapitaLand Retail China Trust with S$1.70 target price.

Revision of estimates

Recovery momentum sustained for both shopper traffic and tenant sales

  • CapitaLand Retail China Trust (SGX:AU8U)’s shopper traffic has recovered to 89% of pre-COVID levels (3Q19) while tenant sales have recovered to 92% of pre-COVID levels.
  • Recovery momentum remains strong with a 35% and 26% q-o-q improvement in shopper traffic and tenant sales respectively.
  • Broader portfolio occupancy improved by 0.3ppt to 93.7% in the quarter.
  • We note that leasing momentum within Beijing malls, that was hit in the past quarter by city-wide lockdown measures, had since eased in 3Q20.
  • Occupancy amongst the Beijing malls improved 1ppt to 94.7% q-o-q, led by Xizhimen (+2.6ppts to 95.2%).
  • Occupancy amongst the non-Beijing malls retreated 0.3ppt to 89.9% in the quarter, with weakness within Rock Square (91.9% occupancy) which is undergoing AEI.
  • 10.4% of leases by GRI will be up for renewal in 4Q20, with 32% expiring next year.
  • A big portion of lease expiries originate from Yuhuating which has an upcoming lease expiry of an anchor tenant (contributing c.50% of NLA at the mall).

Area reconfiguration at Rock Square; Yuquan mall launch targeted for year-end

  • Rock Square is undergoing a reconfiguration project at level 3 to generate five smaller and higher-yielding retail plots in 2020.
  • Project ROI is expected to be c.15% and new plots will be leased to tenants in the F&B space.
  • CapitaLand Retail China Trust has plans to extract an additional 1,000 sqm in portfolio NLA over the next 2-3 years.
  • The launch of Yuquan mall to replace Saihan mall in the ‘Hohhot bundle swap’ remains on track and scheduled for year-end.
  • The mall surprised with a strong 94% committed occupancy and will place emphasis on concepts such as edutainment and feature ‘eco-garden’ aesthetics.

Higher target price as we price in the recent S$1bn deal; attractive 5.0% yield accretion on revised FY21 DPU.

  • We price in the recent deal comprising business park assets/portfolios, acquired at an initial yield of 6.8% and on the assumption of a 75% NPI margin and the remaining 49% stake in Rock Square at a 4.4% NPI yield.
  • Revised DPUs of 10.6 cents/11.0 cents come FY21/FY22 represent a 5.0% yield increment from our previous FY21 forecast.
  • Our assumptions follow a 44% debt: 40% equity: 16% equity & perpetuals (S$100m) funding structure with revenue contribution to begin at the start of 2021.
  • Following the acquisition, CapitaLand Retail China Trust’s enlarged portfolio will consist of 18 properties, with its AUM enlarged by 28.5% to S$4.5bn and GFA increasing by 76% to 1.77m sqm.
  • Business parks and industrial spaces will contribute 15% and 5% respectively to the enlarged portfolio by GRI by asset class from the existing full retail exposure with more deals to ensue.
  • Going into the medium term, this deal will likely be the first of many as CapitaLand Retail China Trust steers the ship towards a target asset exposure comprised of mixed development/business park/retail sectors targeted at 40%/30%/30%.


Singapore retail REIT sector report:

Geraldine WONG DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2020-12-09
SGX Stock Analyst Report BUY MAINTAIN BUY 1.70 UP 1.550