CapitaRetail China's DPU up 12% in Q1

CAPITARETAIL China Trust (CRCT) remains confident about its prospects in China, the "bright spot in a still uncertain global economy", and its ability to tap into China's robust consumption growth.

CRCT posted a 23.6 per cent increase in income available for distribution in Q1 to $16.6 million, which translated to a distribution per unit (DPU) of 2.41 cents for the first quarter ended March – a 12.1 per cent year-on-year increase.

This translates to an annualised DPU of 9.69 cents. Based on CRCT's closing unit price of $1.265 on April 16, the annualised distribution yield is 7.7 per cent.

Gross revenue for the quarter climbed 18.3 per cent year-on-year to RMB188.2 million, due to contributions from CapitaMall Minzhongleyuan, higher occupancy achieved in CapitaMall Qibao, higher revenues in CapitaMall Saihan after successful tenancy adjustment, and higher rental growth in CapitaMall Xizhimen and CapitaMall Wangjing. Net property income (NPI) for the quarter was RMB126.2 million, an 18.3 per cent year-on-year increase.

Converted to Sing dollars, gross revenue and NPI grew 22.7 per cent to $37.9 million and $25.4 million respectively, mainly due to a stronger RMB against the Singapore dollar.

Tony Tan, chief executive of CRCT manager CapitaRetail China Trust Management, said: "We are pleased that all our multi-tenanted malls continued their growth momentum and achieved double-digit growth. Our two largest malls, CapitaMall Xizhimen and CapitaMall Wangjing, saw NPI growth of 14.0 per cent and 12.5 per cent respectively.

"Across our portfolio, we registered strong rental reversion of 13.0 per cent, reflecting our retailers' confidence in our malls and China's retail industry overall."

CRCT said it has begun tenancy adjustments at CapitaMall Minzhongleyuan, and will soon commence asset enhancement works at the mall. The asset enhancement initiative (AEI) is expected to take place over the next two to three years and estimated capital expenditure required is RMB 74.0 million.

CRCT owns nine malls located in six of China's cities. As at end-March, CRCT's total asset size was approximately $1.5 billion.

Waiting for catalysts

At a Glance

• Full year DPU was 2.4% higher than our forecast

• Rental reversion likely to increase at a more sustainable pace in FY12

• Possible AEI works are key re-rating catalysts

• Maintain Hold and S$1.31 TP

Comment on Results

Slightly ahead of expectations. In SGD terms, 4Q11 gross revenue and NPI grew by c.20% y-o-y to $36.4m and $22.8m respectively, partly due to contribution from Mingzhongleyuan, which was acquired in June 2011. Stripping that off, NPI growth was still a healthy 12% on the back of strong rental reversions, higher tenants sales and stronger RMB vs SGD. Consequently, distributable income came in 21% higher y-o-y at S$15.7m but a smaller 10% on a DPU basis (2.28cts) due to an enlarged unit base. Portfolio occupancy remained robust at 98.1%.

Improving occupancy, strong rental reversions. Post its AEI works in various malls, the trust continued to enjoy higher rental reversion of 11.5% y-o-y over preceding rents. Shopper footfalls at Xizhimen have also risen by c.10% since the opening of the linkway between the mall and subway station in 4Q11. While we still expect positive rental reversion for its FY12 leases (28.3% of the leases in term of revenue), rents are likely to grow at a more sustainable pace of 5-7%. Meanwhile, we see more opportunities to optimize Mingzhongleyuan and Wangjing NPI yields via asset enhancement works and tenant re-mixing. The trust could tweak the tenant mix at Mingzhongleyuan and at the 7-storey office tower block at Wangjing to drive footfalls in the medium term.

Gearing is healthy, no major refinancing needs in 2012. Net gearing declined from 31.4% to 28% due to revaluation gain of S$96m. Separately, the trust has also secured refinancing for 88.2% of its loans due in 2012.

Recommendation

Maintain Hold. We like CRCT’s pro-active leasing strategy and ability to drive rental renewals and occupancies. However, we are maintaining our HOLD call till more clarity and guidance are given on the possible AEI works, which are potential re-rating catalysts for the stock. The stock is currently trading at FY12 DPU of 7.5%.

CRCT’s Q4 DPU rises 10%

Trust’s 9 income-producing malls ‘operating at close to full occupancy rate of 98.1%’

UNDETERRED by the uncertain global economy, China’s consumers are continuing to spend money – and CapitaRetail China Trust (CRCT) is reaping the benefits.

The real-estate investment trust (Reit) posted strong results for the fourth quarter ended Dec 31, 2011, with distribution per unit (DPU) rising 10 per cent year on year to 2.28 cents.

Total DPU for 2011 rose to 8.7 cents, a 4.1 per cent increase from 2010. The distribution yield is 7.6 per cent, based on CRCT’s closing price of $1.14 on Thursday.

Income available for distribution for the quarter exceeded the forecast by 9.1 per cent and stood at $15.7 million – a 21 per cent increase from the corresponding period a year ago.

For the year, income available for distribution was $57.2 million, 9.6 per cent higher than 2010’s $52.2 million.

Said Tony Tan, chief executive officer of CRCT’s manager CapitaRetail China Trust Management Ltd: ‘We are pleased to deliver a set of strong financial results with our nine income-producing malls operating at close to full occupancy rate of 98.1 per cent.’

CRCT saw its fourth consecutive quarter of double-digit growth in net property income, which rose 17 per cent to 113.5 million yuan (S$22.5 million), while for the full year, this was up 16 per cent at 443 million yuan.

But on a comparable portfolio basis that excludes CapitaMall Minzhongleyuan, which was acquired in June last year, net property income rose 12 per cent year on year.

Gross revenue for the quarter was 181.8 million yuan, an increase of 19 per cent over Q4 2010. In Singapore dollar terms, this was 3.8 per cent higher than forecast. This was mainly due to the contribution of 13.5 million yuan from CapitaMall Minzhongleyuan.

CRCT’s other malls contributed 14.8 million yuan, the increase of which was attributed to higher occupancies achieved in CapitaMall Qibao and CapitaMall Saihan, and higher rental growth in CapitaMall Xizhimen.

With China’s retail sales growing at a robust rate of 17 per cent in 2011, CRCT said that it is ‘confident’ about its prospects in China: ‘Increasing urbanisation, growing disposable income, and pro-consumption government policies will support the sustainable growth of the retail market in China.’

Mr Tan said that asset enhancement and acquisitions will be key drivers of growth in 2012, and added that a sustainable growth rate of 5 to 7 per cent over the next 20 to 30 years would be a ‘reasonable forecast’.

CRCT rose 4.5 cents, or 3.9 per cent, to close at $1.185 per unit yesterday.

Maintaining an upward momentum

At a Glance

• 9M11 DPU forms 75% of FY11 DPU

• Good underlying performance, double digit rental reversion growth rate of 11.9%

• Maintain Hold at a revised TP of S$1.31

Comment on Results

In line with expectations. Underlying 3Q revenues in RMB terms grew by 21.6% supported by robust performance across all malls as well as the maiden contribution from Minzhongleyuan Mall. However, the strong S$ continued to erode topline and NPI growth to a lower 13.7–13.8% y-o-y to S$33.8m and S$21.7m respectively. 3Q distribution income was 1.9% higher at S$14.6m (DPU of 2.12Scts). 9M DPU of 6.42cts forms 75% of our full year forecast.

Strong underlying performance. CRCT’s malls saw another consecutive quarter of double digit rental reversion growth rate of

11.9% for 173 new and renewal leases in 3Q. Overall occupancy stabilised at 97.7%, with Mingzhongleyuan Mall’s occupancy rising from 90.6% to 94.8%. Tenant sales jumped 21.1% yoy supported by a 2.9% growth in shopper traffic. Going forward, earnings are likely to see steady growth momentum with about 7.0% and 25.5% of gross rental income expiring in FY11 and FY12 respectively. The opening of three Metro lines and North railway station which is connected to Xizhimen Mall is likely to drive footfalls and boost retail sales.

Gearing remains healthy at 31.4 %. The refinancing is expected to be concluded in 4Q11 and would further extend its current 1.56 year debt maturity profile.

Recommendation

Likely to be affected by continued gradual SGD appreciation, Maintain Hold. We like CRCT’s pro-active leasing strategy and ability to drive rental renewals and occupancies. We believe DPU growth will continue to be dampened by further but more gradual appreciation in the S$. The stock is currently trading at FY12 DPU of 7.4%. Maintain Hold at revised DCF-backed target price of S$1.31 as we roll forward to FY12 numbers.

CapitaRChina Q3 distribution income rises

Quarter’s DPU climbs to 2.12 cents as new mall helps lift revenue

CAPITARETAIL China Trust’s third-quarter income available for distribution rose 12.3 per cent to $14.6 million, buoyed by contributions from a recently acquired mall and higher revenue from its other malls.

Distribution per unit for the quarter rose to 2.12 cents, from 2.08 cents a year ago. Its revenue rose 13.7 per cent year-on-year to $33.8 million for the July-September period, while net property income increased by 13.8 per cent to $21.7 million. In yuan terms, gross revenue rose by 21.6 per cent, or 31.7 million yuan, to 179.0 million yuan.

Its revenue was lower than forecast when measured in Singapore dollars, due mainly to a stronger Singapore dollar against the yuan when compared with the rate used in the forecast. The Q3 revenue jump was due mainly to a 13.6 million yuan contribution from CapitaMall Minzhongleyuan in Wuhan, the property trust’s newest mall, which was acquired on June 30.

Still, on a comparable portfolio basis, the trust’s net property income grew by 13.4 per cent in yuan terms, demonstrating its ability to generate organic growth from its malls, said Tony Tan, chief executive of the trust’s manager.

The trust’s portfolio now comprises nine shopping malls in China – four in Beijing and one each in Shanghai, Zhengzhou, Huhhot, Wuhu and Wuhan. Its total asset size at end-September was some $1.4 billion.

Tenant sales at the trust’s five multi-tenanted malls rose by 21.1 per cent year-on-year in Q3, Mr Tan said. ‘We continue to register strong rental reversion of 11.9 per cent across the portfolio this quarter.’

For the nine months to end-September, distribution per unit was 6.42 cents, compared to 6.29 cents last year.

Gross revenue for the January-September period rose 7.4 per cent to $95.4 million, compared to last year, while net property income increased 8.3 per cent to $63.0 million.

‘China’s economic fundamentals remain strong and we continue to be positive on our prospects in China,’ Victor Liew, chairman of the trust’s manager, said. ‘China continues to be a key market for international and domestic retailers.’

The trust’s units last traded at $1.17 yesterday before the results were announced, unchanged from Thursday’s closing price.