CapitaLand Retail China Trust gears up for the future

SINGAPORE (Dec 2): DBS is optimistic on CapitaLand Retail China Trust (CRCT) upgrading it to a “buy” call with a target price of S$1.60 (RM5), citing the REIT’s preparations for the future.

In a Thursday report, lead analyst Mervin Song notes that while the REIT faces headwinds with a weaker average RMB exchange rate, impact from higher property taxes in Beijing and increased interest rates, he believes these risks have already been priced in.

Furthermore, the potential of CRCT malls have not been maximised, notes Song, with several properties still ramping up or in transition. These include Grand Canyon, which is still generating annualised net property yield of 5.3%, well below the target range of 7% to 8%.

Meanwhile, Minzhongleyuan and Wuhu are incurring losses due to nearby road closures and repositioning works respectively. Recently-acquired Galleria mall’s margins are still sub-optimal, due to previous management by third-party operators.

The REIT’s gearing will hit 37% post acquisition of Galleria mall, notes Song, well below the 45% limit imposed by the Monetary Authority of Singapore, leaving debt headroom to utilize for acquisition opportunities.

“Our understanding is that price expectations from potential sellers are now lower and some retail mall operators are looking to exit the sector, given challengers in managing a retail asset,” says Song.

Units of CRCT traded down 1 Singaporean cent at S$1.38 as of 11.06 a.m.