CRCT income not fully optimized: DBS

Which of its two retail properties have room for improvement via additional works and tenant re-mixing?

CapitaRetail China Trust will see better income yields for Mingzhongleyuan mall and Wangjing mall if it looks into asset enchancement and a better renter line-up, according to DBS in its comments following CRCT results.

Here's more from DBS:

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%.