CapitaLand Retail China Trust’s newly-acquired mall a ‘potential core asset’

SINGAPORE (Aug 22): CapitaLand Retail China Trust (CRCT) is looking at a “potential core asset” in its newest acquisition, the Galleria shopping mall in Chengdu, China.

CRCT has agreed to buy Galleria, which is located in established retail precinct Xinnan Tiandi, for RMB1.5 billion (S$305 million or RM909.4 million).

Galleria will be CRCT’s 11th mall, and will enlarge its portfolio size by about 14% to RMB12.5 billion.

“The management views the mall as a potential core asset, offering a steady contribution within the portfolio,” says OCBC Investment Research’s lead analyst Deborah Ong in a Monday report.

“We note that its sponsor CapitaLand has five existing malls in Chengdu, which will give CRCT an opportunity to expand their footprint in the city going forward,” Ong adds.

OCBC has upgrading its rating for CRCT to “buy”, following its announcement of the acquisition. In addition, it has raised its fair value estimated to S$1.67, from S$1.51 previously.

Over at DBS Vickers Securities, lead analyst Mervin Song is also positive on CRCT’s new acquisition.

Song says the research house is “positive on the expected DPU accretion for the acquisition of the Galleria mall”.

However, he warns that rents are unlikely to rise significantly, due to the large increase in supply in Chengdu over the past few years and downward pressure on rents and occupancy.

“Potentially mitigating the pressure on rent are the modest mid-teen occupancy costs, as well as the location of the property,” says Song. “Galleria mall is surrounded by complementary retail offerings… which draw footfall to the area.”

However, DBS is keeping its “hold” recommendation on CRCT, due to the depreciation of the yuan. The research house raised CRCT’s target price to S$1.65, from S$1.60 previously.

“While we remain positive on CRCT’s medium-term outlook, forecasting an 8% 3-year NPI CAGR in RMB terms, the recent depreciation of the RMB versus SGD might cap CRCT’s near-term performance as seen by the 4% y-o-y decline in 2Q16 DPU,” says Song.

Units of CapitaLand Retail China Trust closed 0.6% higher at S$1.61 on Monday. — theedgemarkets.com.sg

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