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Author: kimeng   |   Latest post: Fri, 16 Aug 2019, 9:48 AM

 

CapitaLand Retail China Trust: An In-line Set of Results

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  • 2Q19 DPU down 3.8% YoY
  • Healthy rental reversions
  • Fair value at S$1.45

Results within expectation

CapitaLand Retail China Trust (CRCT) posted results within expectations. In SGD terms, 2Q19 gross revenue dropped 1.9% YoY to S$55.2m while NPI increased 7.3% YoY to S$40.4m. With regard to the NPI growth, note that there has been an accounting change; operating lease rental expenses associated with the CapitaMall Qihan and CapitaMall Minzhongleyuan leases have been replaced with net changes in fair value of investment properties and interest expense on lease liabilities.

In RMB terms, gross revenue was 1.9% YoY higher due to stronger rental growth from the multi-tenanted malls, offset by lower revenue from CapitaMall Grand Canyon and CapitaMall Qibao. Overall, 2Q19 distributable income increased 5.0% YoY to S$25.4m, but due to the lack of capital distributions this quarter (2Q18 saw S$1.5m in capital distributions), the total distributable amount to unitholders dropped 1.2% YoY. 2Q19 DPU decreased 3.8% YoY to 2.54 S cents or 24.6% of our initial full-year forecast which we consider within expectations.

Rental reversions remain strong

Leases representing 6.0% of the portfolio’s NLA were renewed during the quarter. We are encouraged by the firm +7.0% rental reversions clocked. Standouts include CapitaMall Xizhimen and Rock Square which saw 12.1% and 17.4% rental reversions respectively. Looking ahead, leases representing 16.2% of the portfolio’s gross rental income will expire in 2H19 and 26.3% in 2020.

We continue to watch the economic situation in China carefully, especially the ongoing trade negotiations. Notably, that the pace of growth in tenant sales and portfolio shopper traffic in CRCT’s portfolio has dropped QoQ – coming in a +2.8% YoY and +0.3% YoY respectively for 2Q19, vs. +9.8% and +14.0% for 1Q19.

Separately, recall that CRCT earlier announced the acquisition of three malls in Harbin and Changsha. We believe that the addition of the three malls to CRCT’s portfolio remains a strategically wise transaction and will revise our fair value accordingly as further details were announced.

After adjustments and decreasing our risk-free rate from 2.3% to 2.0%, our fair value increases from S$1.38 to S$1.45. We maintain HOLD on CRCT.

Source: OCBC Research - 1 Aug 2019

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