SINGAPORE (July 28): OCBC is maintaining its “hold” call on CapitaLand Retail China Trust (CRCT) with a lower fair value of $1.55 as the group is still progressing with capital recycling.
In a Friday report, analyst Deborah Ong says CRCT’s 2Q17 results were within expectations as it saw a 14.5% y-o-y increase in revenue to $59.0 million due to the new contribution from CapitaMall Xinnan.
See: CapitaLand Retail China Trust posts 0.8% higher 1H DPU of 5.36 cents
The group also posted a 0.4% increase y-o-y in DPU for 2Q17 to 2.62 cents, while 1H DPU was at 5.36 cents.
Meanwhile, due to additional tax with $2.5 million for malls in Beijing and higher property management fees of $0.4 million from CapitaMall Xinnan, the group saw 18.9% increase y-o-y in property expenses for 2Q17.
CRCT has targeted to sell its entire interest in a company that currently holds CapitaMall Anzhen for a consideration of 1.13 billion yuan ($227 million), which is 12.9% above consideration of 5.9% FY16F NPI yield.
The divestment is targeted to complete in 4Q17 and will generate a net gain of $31.5 million.
CRCT’s management has yet to decide if the divestment proceeds will be used to top up the loss in distributable income from the divestment at the end of the year.
Along with its divestment, CRCT will recover about 4,700sqm of Level 4 space in CapitaMall Wangjing from BHG, which will be converted to house high-yielding specialty stores.
Hence, CapitaMall Wangjing will be increasing its proportion of non-anchor NLA from 50% to 60%.
“Given the high double-digit rental reversions we expect for this conversion on Level 4, we forecast that contributions from Wangjing will improve from 2Q18 onwards,” says Ong.
Units of CRCT are trading 1 cent higher at $1.64 as at 12.56pm.
