3 slides you should know from CRCT’s second quarter results

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Xizhimen CRCT
Xizhimen CRCT

Capitaland retail china trust released their quarterly results on 27 July 2017, and reception by analysts have been good. On most fronts, there has been an improvement in performance, on a portfolio aggregate basis and at the individual property.

Here are three main takeaways that investors should know from the result briefing.

Strong top line growth

Gross revenue, net property income and distributable income are all up both on a quarterly and half yearly basis.

Implies: Growth is on an uptrend since both quarterly and half yearly results have turned in well.

All properties in the portfolio except for Qibao and Wuhu registered growth in revenue, driven by strong rental reversion this quarter.

Going forward, expect revenue, net property income and distributable income to moderate slightly. This quarter’s figures at the high teens level is likely not sustainable, given it is much higher than China’s GDP growth and inflation rates.

Even if there is moderation, growth would come down to the low teens or high single digit levels.

Strong rental reversion

CRCT’s rental reversion in the recent past have shown to be a little volatile, with pockets of negative reversions seen among positive. This is the first quarter in the recent past where rental reversion has all been positive.

This indicates that the despite the poor retail environment, CRCT’s malls were able to command a good showing. The landlord, having strong bargaining power, was able to ensure that strong tenants who can pay high rents remain, while those who are weaker have to be let go.

Going forward, expect portfolio rental reversion figures to remain in the high single digit range. This will be slightly above China’s GDP growth rate of 6.5%, meaning that growth of the CRCT portfolio is likely to come in stronger than the overall country average. 

Healthy shopper traffic growth

Shopper traffic has grown both on a quarterly and half yearly basis, registering high single digit growth and continuing the trend that has been playing out over the last few quarters.

Coinciding with the positive rental reversion figures earlier reported, shoppers in China do not appear to be moderating in their desire for visiting malls.

Overall, CRCT appears to be a good counter despite the general slowdown in China’s economy. Many people are claiming that the country is on the brink of a debt induced recession, but the sentiment among consumers and shoppers appear to be brighter.

How long this will last is anyone’s guess, but we think that the high savings rate should be able to delay the recession for a while longer. However, a moderation in the rate of debt growth should come sometime soon.

In the meantime, CRCT appears to be holding up well with strong top line growth, healthy rental reversion and a decent amount of foot traffic to their malls.

CRCT is reported to be trading at a yield of 6.4% based on 30 June 2017 closing price of S$1.64. This seems to be a decent yield to be entering, providing a spread of 4.55 over 10 year Singapore government bond yields and 3.3% over the STI.

Potential target entry would be S$1.5 (which was last hit in April), giving a dividend yield of 7% which is close to what other industrial yields are producing.


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