CapitaLand China Trust - New Economy Exposure A Shelter Amidst Lockdown Headwinds For Retail
- Key observations for CapitaLand China Trust (SGX:AU8U) in 1Q22
- Gross revenue rose 24.0% y-o-y to RMB489.9m, while NPI rose 30.4% y-o-y to RMB344.5m, in line with full-year estimates.
- Overall portfolio occupancy felt the impact of lockdowns that ensued because the government’s zero-COVID tolerance policy.
- Exposure to the Shanghai lockdown is maintained at just one portfolio mall (CapitaMall Qibao, 0.2% of AUM) and two newly acquired logistics park assets (Shanghai Fengxian and Kunshan Bacheng logistics parks, 2.5% and 1.4% of AUM, respectively) or 4.1% portfolio exposure by AUM.
- Rental reversions for the period were flat for retail leases and +6.5% for business park leases.
- Given prolonged uncertainty on China operations with the government’s zero-COVID tolerance policy, we see more weakness in the coming quarters, concentrated in CapitaLand China Trust’s retail portfolio. CapitaLand China Trust’s strategic pivot toward the new economy, which now accounts for more than 30% of portfolio exposure, has played out well in recent quarters, as sporadic mall lockdowns and retail rental rebates return.
- We reduce our FY22 DPU estimates for CapitaLand China Trust from 9.49 cents to 9.01 cents, as we priced in
- rental rebates for half a month (out of pocket and post insurance claims) across the retail portfolio and
- flat retail reversions for FY22.
- In our opinion, markets continue to overlook CapitaLand China Trust’s pivot toward the new economy given ongoing macro headwinds which posed an overhang for China S-REITs. While we acknowledge that the short-term weakness could sustain for the rest of the year, we continue to set our eyes on the horizon for CapitaLand China Trust, as asset rejuvenation continues to unfold in the coming years to increase resilience through new economy exposure, which should help re-rate P/NAV to trade closer to its industrial peers over the medium term.
- On more conservative assumptions, CapitaLand China Trust will grow DPUs by a 4.3% CAGR between FY22-23 and continue to deliver an attractive forward FY22 yield of 7.6% at the current trading level.
- Maintain BUY rating on CapitaLand China Trust with slightly lower target price of S$1.55.
Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.
Geraldine WONG DBS Group Research | Derek TAN DBS Research | https://www.dbs.com/insightsdirect/ 2022-04-27 2022-04-27
Previous report by DBS Research:
2021-02-01 CapitaLand China Trust - Hiccups From Beijing Resurgence
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