SINGAPORE (Mar 28): OCBC Investment Research is upgrading its call on CapitaLand Retail China Trust (CRCT) to “buy” from “hold” previously with an unchanged fair value of $1.66, which represents a total expected return of 14% including dividend yield as of the REIT’s Tuesday closing unit price of $1.55.
This move comes as units of Chinese retail trust Sasseur REIT commenced trading on the SGX-ST this morning, after announcing the recent conclusion of its initial public offering (IPO), which was over 3.7 times subscribed and raised gross proceeds of $396 million.
See: Sasseur REIT says public tranche over 3.7 times subscribed
In a Wednesday report, lead analyst Deborah Ong says both REITs may be closely compared as both fall within the “Chinese retail” space.
However, she believes CRCT’s structure enjoys greater stability notwithstanding Sasseur’s two years of guaranteed total rent – albeit less upside participation as CRCT’s rental income is directly determined by the underlying leases within its portfolio, of which a much smaller proportion is determined by turnover sales.
“From what we understand, Sasseur REIT’s resultant rent from the sponsor will consist of a fixed component with 3% annual escalation, as well as variable component comprising a percentage of underlying tenant sales. According to Sasseur’s forecasts, the fixed component is expected to make up ~70% of the total resultant rent in 2018,” notes Ong in comparison.
Looking ahead, the analyst expects CRCT to benefit from a robust retail sector in its China market in light of Premier Li Keqiang’s GDP growth target of 6.5%, as well as positive datapoints and government forecasts, which she believes continue to bode well for the trust’s prospects.
“The urban unemployment rate is projected to stay within 5.5%. In addition, retail sales of consumer goods increased 10.2% y-o-yin 2017 to RMB 36 trillion, according to the National Bureau of Statistics,” she elaborates.
“Going forward, we expect retail sales growth in China to remain healthy for both online and offline stores.”
As at 10.44am, units in CRCT are trading 1 cent higher at $1.56, which implies a FY18F DPU yield of 6.84%.
Units in Sasseur REIT are flat at 80.5 cents, or 0.6% higher than its offer price of 80 cents.
