SINGAPORE (Feb 10): Since Jan 24, units in CapitaLand Retail China Trust (CRCT) has shed some 9.09% or 15 cents to trade at $1.51 on Monday morning.
CRCT has high exposure to the novel coronavirus that has claimed 910 lives and infected over 40,500 worldwide. The retail trust on Jan 29 announced that it had to close CapitaMall Minzhongleyuan in Wuhan, one of its 13 malls in China. Wuhan is the city in Hubei where the coronavirus originated from.
While CRCT’s mall in Wuhan will only reopen “when local conditions permit”, the rest of its 12 malls are still operating albeit with shorter operating hours.
The trust said that its Wuhan mall represented less than 3% of its portfolio value as at Sept 30, 2019, and contributed approximately 0.5% of its net property income for 9M19. As such, CRCT does not expect the temporary closure of its Wuhan mall to have a material impact on its FY20 financial performance.
Overall, OCBC Investment Research analyst Chu Peng says, “Management saw a significant drop in traffic during CNY period this year and will likely to see a clearer picture after the CNY holiday when more people return to work. Given the on-going coronavirus situation in China, we could see dampened sentiment and continued declines in shopper traffic and tenants’ sales in 1H20, which would pressure CRCT’s overall performance.”
OCBC has lowered its target price on CRCT to $1.57 from $1.62, and downgraded its recommendation to "hold" from "buy" previously.
However, this is a good time for investors to accumulate CRCT on dips, according to DBS Group Research.
“While short-term overhanging risks persist, we remain excited with its long-term milestones which remain intact as portfolio rejuvenation efforts are expected to unwind this year. We expect a strong DPU growth coming from the acquisition of three sponsor malls, while the Hohhot asset swap will underpin a stronger growth profile in the medium term,” says DBS, who has maintained its “buy” recommendation on CRCT with a lowered target price of $1.75 from $1.80 previously.
CRCT on Feb 7 also announced that it is divesting CapitaMall Erqi for a consideration of RMB 850.9 million ($165.2 million), representing about 20% premium to the mall’s latest market valuation. This will add another $13 million to the trust’s capital reserve, bringing the total to about $45 million post-divestment.
In a separate announcement on the same day, CRCT also announced its 4Q19 results, recording a 3.3% drop in 4Q19 DPU (after capital distribution) to 2.34 cents from 2.42 cents in 4Q18. This was mainly due to an enlarged units base. Distributable amount to unitholders for the quarter rose 19.6% y-o-y to $28.4 million.
Gross revenue for the 4Q19 period was 21.2% higher than the year before, bringing net property income to $44.1 million, 22.9% higher than a year ago.
As at Dec 31, 2019, portfolio occupancy remained high at 96.7%. For 4Q19, while shopper traffic and tenant sales grew 36.7% YoY and 31.0% y-o-y, respectively. Rental reversion for the portfolio was +4.7% in 4Q --down 2.7 percentage points from +7.4% in 3Q -- dragged by CapitaMall Minzhongleyuan, Xinnan, Qibao and Xuefu.
The trust’s results were within both OCBC’s and DBS’ expectations.
As at 11.40am, units in CRCT are trading at $1.51 or 17.1 times FY20 earnings, with a distribution yield of 6.5%, according to DBS estimates.
