CRCT – UOBKH

2Q07: DPU Growth Despite Lower Revenue

DPU growth of 9.6% despite lower gross revenue. CRCT’s gross revenue of S$17.6m and NPI of S$12.4m came in lower than its forecast by 7.2% and 1.6% respectively. This lower revenue is largely due to longer than expected time taken to conclude lease negotiations with F&B tenants in Qibao Mall, and also to a smaller extent, weakening of RMB against Singapore Dollars. Despite that, DPU reported 1.27 Scts in 2Q07, a 9.6% increase over its forecast.

Impact of reconfiguration works to come in 2H07. Despite several issues faced associated with its reconfiguration works, such as longer than expected time taken by authorities to approve tenants’ business operations, pretermination of leases as well as affected shoppers traffic, we believe CRCT is capable of resolving the issues with the stabilising of rental income and impact of asset enhancements to come in the second half of the year. Potential upside may also be derived from improvements in occupancy rates of Wangjing Mall, Qibao Mall and Xinwu Mall whose current occupancy rates are at 90.3%, 78.0% and 81.5% respectively.

Aggressive acquisition pipeline. CapitaLand, CRCT’s parent, has signed an agreement with Vanke, China’s largest residential developer to acquire retail malls in China. CapitaLand has already identified a list of retail malls for CRCT where it has the first refusal, allowing its current portfolio to potentially grow multi-fold for the next few years. We believe acquisitions and continued asset enhancements will be the key stock driver going forward.