• High rental reversions at Rock Square
• Wangjing AEI to complete in 2Q
• Attractive unit price as at 26 Apr close

No Anzhen, No Problem – 1Q DPU Flat

1Q18 NPI fell by 7.7% or S$3.1m YoY to S$37.2m, with S$3.4m of the decline attributable to the absence of CapitaMall Anzhen which was divested on 1 Jul 2017. Despite this, 1Q18 distributable income increased 9.6% YoY to S$26.7m, partly helped by a S$1.2m contribution from the Rock Square joint venture which was acquired on 31 Jan 2018 as well as a S$3.0m partial capital distribution of gains from the Anzhen disposal. 1Q18 DPU increased 0.4% YoY to 2.75 S cents or 25.9% of our initial fullyear forecast which we consider within expectations. The exchange rate for 1Q18 was 1 RMB = 0.207 SGD, the same as that for 1Q17.

Focus on Rock Square and Wangjing PostAEI

Notably, Rock Square clocked an impressive rental reversion rate of above 20% in 1Q18, vs. the 15% we initially projected. We expect that similarly high rental reversions will be recorded for the remaining ~28% of leases (by gross rental income) up for renewal at Rock Square for the rest of 2018, given that average passing rents are currently below market.

We are also positive on the AEI at Wangjing, which is on schedule to complete in 2Q18. So far, rental income for the recovered space has almost doubled, an improvement that has yet to be expressed in 1Q18’s financials.

Sell-down Unwarranted Given Robust Retail Outlook

Overall, the REIT achieved a 12.8% rental reversion for its multi-tenanted malls while portfolio occupancy stood at 94.9% as at 31 Mar 2018. The retail market appears to remain robust with tenant sales and shopper traffic increasing 2.1% and 7.7% YoY, respectively.

We continue to assume that management will smoothen out DPU for shareholders in the near term, and project a S$7.4m capital distribution of the gain from the Anzhen disposal in 2018, including the S$3.0m distribution that has already been announced. After adjustments, our fair value remains at S$1.66.

Against 26 Apr 2018’s close of S$1.55, which is 8.3% below its high of S$1.69 YTD, our fair value represents a total upside of 14% including a FY18F dividend yield of 6.8%. We re-iterate BUY on CRCT

Source: OCBC Research - 27 Apr 2018