CRCT – DBSV

Positive pricing

• In line with expectations

• Strong rental reversions supported by healthy retail sale

• Upside catalysts to come from possible acquisitions

• Downgrade to HOLD on valuation grounds, TP raised to S$1.67

In-line results. CRCT’s distribution per unit (DPU) for 3Q came in at 2.42 cents representing an increase of 14.2% y-oy. 9M DPU makes up 77% of our forecast. While the growth was supported by 14.2% and 16.1% increase in gross revenue and NPI respectively, the group also benefited from a strong Rmb, which has strengthened by about 10% against the S$ in the reviewed quarter. Stripping that off, gross revenue and NPI would have increased by about 8-10%. Most malls continue to record strong NPI growth on a y-o-y basis offsetting the lower income at Mingzhongleyuan.

Positive rental reversions drive mall’s performance Occupancy continued to hold steady at c.97% except for MZLY which is undergoing AEI works and CapitaMall Wuhu which is undergoing tenancy adjustments. Rental reversion was also up by 18% vs 15% last quarter, largely driven by Wangjing (+33.7%), MZLY (+22.6%) and Xizhimen (+19.4%). The healthy reversion was supported by a 15.6% rise in tenant sales outperforming China’s overall Sep retail sales number at +14.2%. With 9.7% and 27.1% of the revenue up for renewal in 4Q12 and FY13, we believe this REIT should continue to see strong rental reversions.

Downgrade to HOLD on valuation grounds. We raise our TP by 6.3% and FY12/13 DPU by 4.4%-6.6% to account for the better-than expected rent. While FY13/14 yield remains attractive at 6.0-6.5%, we believe much of the positives have been priced in with the REIT trading at 1.27x P/BV vs the Asian retail average at 1.15x. With limited upside to our new TP, we downgrade the stock to HOLD largely on valuation grounds. Upside risk for share price performance of the stock could likely depend on news flow about potential acquisition of new properties in the pipeline.