Yahoo Finance CapitaLand China Trust's occupancy metrices to recover by end-1HFY2023: DBS
The analysts have kept their "buy" call and TP unchanged at $1.45.
DBS Group Research analysts Geraldine Wong and Derek Tan have kept their “buy” call and target price at $1.45 for CapitaLand China Trust (CLCT) after the REIT reported a distribution per unit (DPU) of 7.50 cents for the FY2022 ended Dec 31, 2022, down by 14.1% y-o-y.
To Wong and Tan, CLCT’s FY2022 DPU fell short of their estimates due to the rental rebates distributed. The rebates came up to around 0.8 months worth across the REIT’s portfolio.
CLCT’s 2HFY2022 DPU of 3.40 cents, which fell by 24.4% y-o-y due to the heightened lockdown impact during the period, also lagged behind Wong and Tan’s estimate.
That said, the analysts still remain positive on CLCT’s prospects, as they see the REIT being a proxy for China’s re-opening.
China exited its final lockdown in the 4QFY2022; the country eased its domestic measures in December 2022 and reopening its borders in January.
“CLCT, with pure-play China exposure diversified across retail (70%) and new economy – business parks, logistics (30%) – would be a key proxy for China’s reopening,” write Wong and Tan.
In addition, the analysts see CLCT’s portfolio weakness peaking in the 4QFY2022 on the back of “exacerbated disruptions” in the FY2022.
During the period, CLCT’s occupancy saw the sharpest h-o-h impact as CLCT’s tenants – both from the retail and new economy properties – felt the accumulated toll on operations from the lockdowns.
“We anticipate a recovery in operating metrices by end 1HFY2023, to be led by a recovery in occupancy,” say the analysts.
Rebates have also heightened at around one month for the retail portfolio (minimum for new economy), which should fuel the last lap of the race, the analysts note.
“Reversions continue to be stable at [around] 3%, which should mean a V-shaped recovery to the top line and net property income (NPI), as rebates should taper off substantially on the back of reopening in 2023,” they write.
“Asset enhancement initiatives (AEIs) at selected retail malls are to garner over 20% in reversionary rents that will see a further upside in FY2023 upon phased completions,” they add.
In their report dated Feb 6, Wong and Tan see opportunities to acquire units in CLCT as its cost of capital improves.
“Portfolio rejuvenation continues to be underway as CLCT looks to achieve middle to long-term target of 40:30:30 asset exposure within the mixed development: retail: new economy segments,” they note.
“Divestment will continue to feature strongly within the retail segment, primarily older non-core retail malls such as Shuangjing Mall and Grand Canyon, to reshuffle towards new economy assets,” they add.
“While divestment proceeds will be the key to making acquisitions, given that CLCT is currently at an optimal debt ratio of [around] 40%, equity fundraising can be reconsidered selectively, as share price prospects picked up significantly since December 2022 to trade closer to book,” they continue. CLCT is currently trading at a P/B ratio of 0.92x.
The analysts have raised their DPU estimates to 8.16 cents for the FY2023 and to 8.73 cents for the FY2024, which imply forward yields of 6.4% and 6.9% respectively.
“We revise our estimates to account for higher interest cost (+50 basis points or bps/+75 bps) going into FY2023/FY2024, and lower gross turnover (GTO) income within the retail portfolio,” they write.
Units in CLCT closed flat at $1.23 on Feb 8.
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