• Upcoming BJ retail supply
• Retail sales up 10.2% YTD
• Lowered FV; maintain HOLD

CRCT’s 1Q results were in line with industry

Out of CRCT’s portfolio of ten malls, five are located in Beijing, and the remaining five are each located in Shanghai, Wuhan, Zhengzhou, Hohhot, and Wuhu. According to Savills Beijing Spring Retail Briefing, retail sales in Beijing increased 1.0% YoY to RMB161.7 in the first two months of 2016, 6.8 ppt lower relative to the growth of the same period last year.

Mall occupancy rates decreased 0.3 ppt to 94.5% city-wide by the end of 1Q16. This is in line with what CRCT reported for 1Q16: tenants’ sales had clocked a mild growth of 1.0% YoY, shopper traffic fell 1.4% YoY, while overall portfolio committed occupancy fell 0.5ppt QoQ to 94.6%.

According to Savills, Beijing’s prime locations experienced the weakest performance, down 1 ppt to 94.2% for the quarter, mainly due to ongoing branding readjustment strategies being undertaken by several projects.

Beijing retail market to see 5.6% supply injection

According to Savills, the remainder of 2016 will see an influx of supply in the Beijing market, with the scheduled launch of eight more mid- to high-end shopping malls adding approx. 590,000 sq m, of retail GFA or a 5.6% increase over the current stock of 10.47m sq m.

During the quarter, only one new project entered the retail market, BHG Shopping Mall in the Pinggu district, adding 59,000 sq m of retail GFA to the market.

Pared down growth forecasts

According to the National Bureau of Statistics, China’s retail sales grew 10.0% YoY in May (versus 10.1% in April) and were up 10.2% YoY YTD. Nonetheless, we judge the general retail market to be weak within Beijing where half of CRCT’s assets are located. Consequently, we have pared down our assumptions for rental reversions and occupancy.

For 1Q16, portfolio rental reversions came in at 7.3% in 1Q16 (8.1% excluding Wuhu), slightly lower than FY15’s 8.1%. We note that for the rest of 2016, MZLY has 33.0% of its leases (as a percentage of the mall’s rental income) expiring while Wuhu has 19.4%; this may continue to exert a drag on CRCT’s rental reversions for FY16.

Our FY16 DPU forecast drops from 11.1 S-cents to 10.9 S-cents. Our fair value estimate lowers from S$1.48 to S$1.43 as we update our assumptions for rental reversions and expected market return. Maintain HOLD.

Source: OCBC Research - 17 Jun 2016