CapitaChina Retail Trust’s gross revenue jumped 4% in 4Q12

Check out its growth driver.

According to DBS, CapitaChina Retail Trust’s 4Q12 gross revenues and net property income grew 4% and 6% y-o-y respectively, which were lifted by strong rental reversions, offsetting the weaker Rmb and income vacuum from the ongoing asset enhancement initiative (AEI) work at Mingzhongleyuan.

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While distributable income came in 7% higher at S$16.8m, DPU rose by 0.9% y-o-y to 2.30Scts due to the enlarged share base after the recent placement. The group revalued its portfolio up by 4.7% to book NAV of S$1.29 on better performance and lower cap rate of 25bbp.

Our View
A more intensive make-over for MingzhongLeyuan. New plans will involve the closure of the entire mall from Jul’13 to 2Q14 (except for the newly renovated L1), which should strengthen its positioning in the longer term.

Estimated capex will increase by 39% to c.S$20.6m (Rmb103m) but is expected to generate an additional NPI of c.$2m (Rmb 10.4m), representing a decent 10.1% ROI. We believe the income vacuum from the mall, which management guided will have a 3% impact on distributions which we believe will be more than offset by the strong rental reversion for the remaining malls. 

Positive rental performance. In the reviewed quarter, the trust recorded strong rental reversions of 23.6% (over preceding rents), supported by robust shopper footfall and tenant sales, which grew 23.1% and 11.7% y-o-y respectively.

Tenancy remixing at Qibao saw higher tenant sales of 35.9% y-o-y. The strong reversions will continue to help lift revenue in the coming quarters. Meanwhile, the opening of the basement linkway to the train station at Xizhimen drove foot fall up 48.6% but only lifted tenant sales by 12.5%.