(+/-) Revenue top line in line with estimates; DPU trends behind post income retention of S$3.6m
- CLCT announced 1H22 revenue of S$199.3m (+12.7% y-o-y) and NPI of S$139.5m (+16% y-o-y), in line with estimates.
- The higher top-line performance was due to a full six months of contributions from both business parks and logistics assets as opposed to 1H21, partially offset by higher rental relief for retail tenants.
- Distributable income of S$72.3m (before retention) was up 12.8% y-o-y, but trails behind our estimates after factoring in income retention of S$3.6m for the period.
- DPU for 1H22 at 4.10 Scts was marginally down y-o-y at 3.1%.
- Including income retained, 1H22 DPU at 4.32 Scts was higher y-o-y at 2.1%.
(+/-) Lockdowns took a toll on retail portfolio but troughed in the months of March; new economy portfolio continues to deliver strong reversions amidst uncertainty
- Portfolio occupancy across all three segments saw a marginal decline h-o-h amidst China’s lockdown uncertainty, but should perform better in 2H22.
- CLCT’s retail, business park, and logistics portfolios occupancies retreated 0.8ppt, 1.5ppt, and 0.4ppt, respectively h-o-h to land at 95.5%, 94.7%, and 97.0%.
- Approximately 0.5 months’ worth of rents were provided to retail tenants for this period, or 0.3 months’ worth on a portfolio basis. Negligible rental reversions were provided to new economy tenants.
- Retail portfolio continues to see marginally negative reversions at -2.8%, led by lower performing malls such as Qibao Mall.
- Consumer sentiment and retail spending took a toll amidst China’s lockdown, with CLCT’s shopper traffic and tenant sales witnessing a dip for the months of March to May.
- Tenant sales for 1Q22 trended up towards normalcy across the portfolio (at 90%-100% of pre-COVID levels), while 2Q22 numbers were impacted by c.200 days of mall closures amalgamated across the portfolio.
- 1H22 shopper traffic and tenant sales declined 21% and 13% y-o-y, respectively, which translates to c.58% and 73% of 2019 levels on a same-store basis.
- New economy segments delivered strong reversions amidst the lockdowns with the BP segment at 6.4% and logistics segment at 6.5%.
(+) Ongoing asset rejuvenation efforts to pay off in FY23F in preparation for the upturn
- Retail AEI continues to be a focus for CLCT.
- Ongoing AEI includes the optimisation of 14k sqm of space at CapitaMall Wangjing from 3Q22F, which will help increase rental income by more than 100% upon completion.
- CapitaMall Grand Canyon is undergoing space reconfiguration. About 1,860sqm of space previously occupied by a mini anchor tenant will be configured to be released in smaller blocks.
- The initiative will target completion by year-end to deliver an expected ROI of more than 40%.
(+) FX hedging for the period paid off amidst strengthening SGD; CLCT’s gearing stood at 38.6% as at 30 June 2022.
- Interest cost increased 0.1ppt to 2.71%, on a WAFE of 3.1%, supported by onshore borrowings (18% borrowings exposure) that continue to benefit from lower benchmark rates in China.
- CLCT will look to increase its percentage of onshore debt through acquisitions to take advantage of lower interest costs. A long-term goal would be for the onshore: offshore debt ratio to increase from the current 18:82 to 30:70.
- Debt due for refinancing in FY22 has been fully executed with no further refinancing needs the current financial year.
- Approximately 71% of loans are hedged on fixed interest rates.
- Approximately 77% of income is hedged on a forex basis, which paid off in the period as the SGD strengthens against the RMB.
- Interest expenses will increase or decrease by S$0.5m with a 0.1% increase or decrease in variable rates per annum.
Brighter skies in 2H22. Lockdown sentiment took a toll on retail operational numbers for 1H22. 1Q22 tenant sales were on the cusp of recovery, with it already narrowing to pre-COVID levels, but there was a temporary disruption, primarily in 2Q22. A total of 200 trading days of closure were seen within CLCT’s retail portfolio in 1H22 associated with CLCT’s exposure in Shanghai, Beijing, and Harbin between mid-March to May. All malls have since reopened from 1 June. Nonetheless, reopening sentiment showed an upwards kink in May/June, as the retail scene returns to normalcy in China.
With 2021’s Beijing lockdown as a guidance, we expect a strong rebound in tenant sales and traffic in 2H22 on the presumption that CLCT’s key cities will not re-enter lockdown.
Maintain BUY with unchanged TP of S$1.55; further rental rebates priced in. We have priced in further rental rebates in 2H22, bringing total rental rebates for the full year from the current 0.5 months to 0.75 months (out of pocket and post insurance claims) for CLCT’s retail portfolio. We have also increased our interest rate assumptions by 15-20bps in FY23/FY24. Full-year DPU is projected to decrease by 2.2%/1.5% to 8.81 Scts/9.22 Scts for FY23F/FY24F, respectively. Forward yields continue to be attractive at 7.6% and 7.9% for FY22F and FY23F, respectively.