SINGAPORE (Nov 30): OCBC Investment Research is maintaining its “hold” on CapitaLand Retail China Trust (CRCT) with a higher fair value of $1.63 compared to $1.61 previously, after accounting for the trust’s acquisition of Rock Square and its private placement to fund it.
To recap, CRCT had formed a joint venture (JV) with its sponsor CapitaLand to acquire the entire stake of a company that owns Rock Square, a shopping mall in Guangzhou, with the trust as a 61% majority shareholder.
The private placement of 51.5 million new units closed yesterday at the issue price of $1.612, with the upsize option of 12.9 million additional new units exercised to raise a total of $103.8 million.
See: CapitaLand and CRCT to jointly acquire shopping mall in Guangzhou for $689 mil
See: CRCT raises $103.8 mil in oversubscribed placement for joint acquisition of Guangzhou mall
In a Thursday report, lead analyst Deborah Ong says the deal will be slightly accretive against CRCT’s FY16 results, which would see its distribution per unit (DPU) increase by 1% to 10.16 cents.
Going forward, she sees potential for further operational upside from rental reversions of expiring leases at Rock Square, although not so much in terms of leasing out additional space, as the mall is already highly occupied.
“Rock Square is one of the largest malls in Haizhu District, the second most populous urban district in the city. According to the management, it appeals to mid- to high-income working adults and families, and boasted a footfall of 24million in 2016,” says Ong.
“Notably, 52% of Rock Square’s total rent or 32% of its NLA is up for renewal from 2018 to 2020. The management believes that average passing rents are currently below market. There may be less upside in terms of leasing out additional space, as the mall already has a committed occupancy of 96.4% as of 30 Jun 2017,” she adds.
As at 11.14am, units in CRCT are trading flat at $1.65, with a FY18 DPU yield of 6.3%.
