CapitaRetail China Trust - Almost ready to acquire

Wednesday, July 15, 2009

We have upgraded our rating for CRCT to 2 (Outperform) from 4 (Underperform) and expect a resumption of acquisitions from CapitaLand’s China-mall pipeline to improve its DPU-growth outlook and trigger further unit-price outperformance. Based on our new acquisition assumptions and revised estimates, we forecast CRCT’s industry-leading DPU CAGR (FY08-11) to increase to 9.0% (from 8.4%).

We believe the strong unit-price performance so far in 2009 has allowed the manager to set its sights again on acquisitions. Assuming that positive unit-price momentum can be sustained, we now believe CRCT can launch a successful acquisition and equity-fundraising deal that would be accretive for unitholders.

CRCT has a S$65.2m (15.5% of total debt) unsecured offshore loan due in FY09, a S$288.5m (68.7%) unsecured, fixed-rate, offshore loan due in FY10, and a S$66.3m (15.8%) onshore loan due in FY11.

We have raised our target price, based on our RNG-valuation method, to S$1.32 (from S$1.00). We have capitalised the portfolio’s estimated FY10 (previously FY09) core operating distribution at an effective cap-rate assumption of 6.0% (from 7%). CRCT’s target price to latest (March 2009) book of S$1.24 is 1.06x.

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