CRCT – JPM

1Q10 results review

• 1Q10 results slightly ahead of expectation, with trust announcing DPU of S$0.0214/unit, annualizing 7% yield based on Friday’s closing price. The better than expected earnings was a result of lower than expected interest expenses. Note that the trust pays dividend on a semi-annual basis.

• Capital management a big focus this year. Whilst the trust has extended S$88million term loan for another two years to 2012, CRCT has yet to refinance S$283.5million worth of debt (68.2% of total borrowings), comprising S$200.5million term loan due Dec-10 and S$83million short-term money market line. With expectation of RMB appreciation at high level, we see upside risk for the trust to refinance at a better than expected rate. Current gearing for CRCT is 33.8% with average cost of debt at 2.4%.

• Operating performance to turn around in 2H10, in our view. Whilst net property income grew 7.5% in RMB term, the increase is largely a result of new contributions from Xizhimen Phase 2. Net property income for initial portfolio grew only 1% Y/Y due to still challenging Beijing retail market as well as the repositioning of Qibao Mall in Shanghai. That said, as tenant sales started to increase with 9% sequential growth and the new commitment at Qibao Mall to be started in July, we see potential turn around in underlying performance in 2nd half this year.

• We retain our Neutral rating, with Dec-10 DDM based price target at S$1.25/unit. Key risks to our rating and price target include surprises on operating fundamentals both on the upside or downside, and the uncertain timing of the introduction of China REIT code, which is likely to support or even lift up the valuation of the trust.