CRCT

CRCT: The China retail mall trust reported 2Q15 results that were largely in line with estimates, with DPU rising 5.4% y/y to 2.73¢ on the back of 7.9% growth in distributable income to $22.9m. This brought 1H15 DPU to 5.37¢, which represents 48.8% of market forecasts.

Revenue and NPI scaled higher by 7.4% and 5.3% to $51.2m and $36m respectively, underpinned largely by a stronger RMB versus SGD. In RMB terms however, revenue and NPI dipped marginally to Rmb249.6m (-0.1%) and Rmb 165.8m (-1%) respectively. This was due to lower contributions from two of its retail malls, specifically:

1) CapitaMall Minzhongleyuan - affected by road closures for the construction of a new subway line
2) CapitaMall Wuhu - undergoing tenant repositioning

The slack was picked up by improved rentals from the other malls, which chalked up higher revenue & NPI (+5.9%). Operationally, CRCT enjoyed 2% and 17.8% growth in shopper traffic and tenant sales at its malls, which gave rise to a positive rental reversion of 4.6%, albeit moderating from the 12.8% and 14.9% achieved in 1Q15 and 2Q14.

Notably, CRCT's malls managed to generate better tenant sales (+15.9%) in 1H15, which is noticeably higher than the national retail sales growth of 10.4%.

Occupancy rates slipped to 95% (-3.1ppt), with the ongoing tenancy adjustments at CapitaMall Wuhu (66.5%) exerting negative pressures. Weighted lease to expiry stood at 8.7 years.

Aggregate leverage was a comfortable 27.7% (-0.9ppt q/q) with average cost of debt at 2.98%. About 77.5% of total debt has been hedged with no major refinancing required for the remainder of 2015.

Moving forward, CRCT intends to strengthen its portfolio through an AEI at CapitaMall Wangjing (target completion by 1H16), as well as continued improvements at CapitaMall Wuhu and Minzhongleyuan.

The trust continues to remain bullish on China’s long-term outlook particularly with the government’s push to ensure a broader base of economic growth.

CRCT is currently trading at an annualized distribution yield of 6.7% and 0.96x P/B.

Recent broker ratings:
OCBC maintains Hold with TP of $1.64