SINGAPORE (Apr 27): OCBC investment Research says the selldown of CapitaLand Retail China Trust is unwarranted given China’s robust retail outlook.
The research house also expects similarly high rental reversions to be recorded for the remaining 28% of leases by gross rental income up for renewal at Rock Square for the rest of 2018.
Meanwhile, OCBC is positive on the AEI at Wangjing, which is on schedule for completion in 2Q18. So far, rental income for the recovered space has almost doubled, an improvement that has yet to be expressed in 1Q18’s financials.
To recap, CRCT’s net property income for 1Q18 fell 7.7% y-o-y to $37.2 million with $3.4 million of the decline due to the absence of CapitaMall Anzhen which was sold last July.
See: CapitaLand Retail China Trust declares 0.4% higher 1Q DPU of 2.75 cents
Despite this, 1Q18 distributable income increased 9.6% y-o-y to $26.7 million, partly helped by a $1.2 million contribution from the Rock Square joint venture which was acquired on Jan 31 as well as a $3.0 million partial capital distribution of gains from the Anzhen disposal.
1Q18 DPU increased 0.4% y-o-y to 2.75 cents or 25.9% of OCBC’s initial full-year forecast which OCBC considers were within expectations.
Notably, Rock Square clocked an impressive rental reversion rate of above 20% in 1Q18 vs the 15% OCBC initially projected.
Overall, the REIT achieved a 12.8% rental reversion for its multi-tenanted malls while portfolio occupancy stood at 94.9% as at Mar 31. The retail market appears to remain robust with tenant sales and shopper traffic increasing 2.1% and 7.7% y-o-y, respectively.
“We continue to assume that management will smoothen out DPU for shareholders in the near term, and project a $7.4 million capital distribution of the gain from the Anzhen disposal in 2018, including the $3.0 million distribution that has already been announced,” says analyst Deborah Ong in a Friday report.
“After adjustments, our fair value remains at $1.66. Against Apr 26’s close of $1.55, which is 8.3% below its high of $1.69 year-to-date, our fair value represents a total upside of 14% including a FY18 dividend yield of 6.8%,” adds Ong.
As at 4.07pm, units in CRCT are up 1 cent at $1.56 or 14.9 times FY18 earnings.
