• 4Q14 DPU grew 12.7% YoY
• Positive rental reversions of 23.1% in FY14
• Healthy financial position

4Q14 results within expectations

CapitaRetail China Trust (CRCT) reported a good set of 4Q14 results which met our expectations. DPU grew 12.7% YoY to 2.48 S cents on the back of a 27.7% increase in its gross revenue to S$52.7m. The latter was driven by new contributions from its acquired CapitaMall Grand Canyon and organic rental growth from its other multi-tenanted malls, but partially offset by a decline in revenue from CapitaMall Wuhu. For FY14, revenue and DPU increased by 27.0% and 8.9% to S$203.3m and 9.82 S cents, such that these figures constituted 102.3% and 101.3% of our FY14 projections, respectively.

Fundamentals remain strong

CRCT’s overall portfolio occupancy stood at 95.9% as at 31 Dec 2014, a slight 1.7 ppt QoQ decline. The drag came from weaker occupancy from CapitaMall Wuhu and CapitaMall Minzhongleyuan. The former is undergoing a repositioning phase due to competitive pressures, while the latter was impacted by a major road closure to facilitate the construction of subway Line 6 for two years from Aug 2014 (estimated -0.4 S cents impact to FY14 DPU). Nevertheless, CRCT’s other malls have performed strongly. The REIT manager also secured solid rental reversions of 20.6% and 23.1% in 4Q14 and FY14, respectively, making it the fourth consecutive quarter where it saw a rental uplift of more than 20%. Shopper traffic and tenants’ sales rose 3.9% and 16.2% in FY14, respectively.

Maintain HOLD

As at 31 Dec 2014, CRCT had a healthy gearing ratio of 28.7%. 72.6% of its total borrowings are at fixed rate (86.0% if we exclude onshore RMB loans). We raise our DDM-derived fair value estimate on CRCT from S$1.58 to S$1.64 after rolling forward our estimates. CRCT is trading at FY15F distribution yield of 6.2%, which is approximately one standard deviation below its 5-year average forward yield of 6.8%. Maintain HOLD.

Source: OCBC Research - 30 Jan 2015