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ALP REIT INVESTMENT CLUB
CAPITALAND RETAIL CHINA TRUST (AU8U)
(2May2016) close: S$1.48
12M-Target price: S$1.70
1.) Type of REIT: Retail REIT.
2.) Number of property in the portfolio: The REIT currently has 10 properties in its portfolio which cumulatively carry a valuation of RMB10.9 billion (around S$2.6 billion).
3.) Countries that the business operates in: China
4.) Top 5 properties that generates the highest revenue (Decreasing order): CapitaMall Xizhimen (27.1%), CapitaMall Wangjing (21.2%), CapitaMall Grand Canyon (14.4%), CapitaMall Qibao (10.2%) and CapitaMall Anzhen (8.2%).
5.) Challenges: An increase in new malls in Beijing may potentially put pressure on rents at CRCT’s malls. This risk is partially mitigated by the fact that approximately 80% of the new supply is located out of the core retail areas where CRCT’s malls are situated.
CapitaLand Retail China Trust ended 2015 with a portfolio occupancy of 95.1%, down slightly from the 95.9% seen a year ago. Given that portfolio occupancy was at 98.2% in 2013, this might be a trend worth keeping an eye on.
Gross revenue was mainly boosted from a weaker CNY. We note that for the rest of 2016, MZLY has 33.0% of its leases (as a percentage of the mall’s rental income) expiring while Wuhu has 19.4%; this may continue to exert a drag on CRCT’s rental reversions for FY16.
Committed Occupancy Rates
Committed Occupancy Rates
6.) Strengths: The Chinese government has reiterated its commitment to rebalance its economy by driving domestic consumption. This should augur well for [CapitaLand Retail China Trusts] shopping malls which are positioned as one stop family-oriented destinations for rising middle-income consumers.
As at 31 December 2015, total borrowings were at S$707.1 million, translating to a gearing ratio of 27.7%. Of the total borrowings, 74.3% have fixed interest rates. This provides greater certainty and mitigates risk in a rising interest rate environment. The average cost of debt for FY 2015 was 2.99%, lower than FY 2014’s 3.32%.
7.) Significant events: CapitaMall Xizhimen was conferred the “Shopping Mall Awards 2015 – Best Regional Mall” by the China Chain Store and Franchise Association.
9.) Recommendation: Buy. The REIT delivered positive DPU growth over the past few quarters. With CRCT trading at 0.8x book and offering attractive FY16-17F yields of 7.5%-7.7%. One thing to take note is that as consumers are now purchasing more goods online, sales at shopping malls may decline, causing rents at CRCT’s properties to be negatively impacted. This threat is partially mitigated by the fact that 42% of CRCT’s GRI is sourced from tenants in the F&B (23% of GRI), supermarket (10%), leisure & entertainment (3%), education (3%) and beauty & healthcare (3%) sectors which are more immune to the e-commerce threat.
COMPILED BY: Zhang Xin
DISCLAMER: Readers should not rely solely on information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.
CAPITALAND RETAIL CHINA TRUST HEADLINES