Will escalating China woes derail CRCT’s growth story?
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It will benefit from increased consumption.
CapitaLand Retail China Trust is still poised for growth despite China’s slowing economy, according to a report by DBS.
Although investors are currently fearful of the slowdown in China’s GDP growth, DBS said that RCT should remain well positioned as it should benefit from China’s move towards a consumption-based economy. This trend is illustrated by the 10.7% jump in retail sales for FY15, faster than the overall GDP growth of 6.9%.
“Going forward, we understand CRCT remains confident of generating positive rental reversions (in the “single-digit range), although lower than the 15-20% achieved over the past few years,” DBS said.
The lower level of rental reversion is also due to CRCT making a strategic decision to attract certain tenants as part of its constant tenant remixing to sustain the performance of its malls in the long term, DBS noted.
“CRCT’s earnings have been negatively impacted by the road closures surrounding Minzhongleyuan over the past two years. As these works are scheduled to be completed by end-2016, we believe we are approaching an inflection point for the mall’s earnings,” the report added.
Questions & Answers
Q.Why is CRCT still expected to grow, despite China's economic slowdown?
Why is CRCT still expected to grow, despite China's economic slowdown?
CRCT is expected to benefit from China's shift towards a consumption-based economy. This trend was shown by retail sales growth outpacing GDP growth in FY15.
Q.What is the expected rental reversion for CRCT in the future?
What is the expected rental reversion for CRCT in the future?
CRCT is confident of achieving positive rental reversions in the single-digit range. This is lower than the 15-20% seen in previous years.
Q.Why are CRCT's rental reversions projected to be lower than in the past?
Why are CRCT's rental reversions projected to be lower than in the past?
The lower rental reversion is partly due to CRCT's strategic decision to attract specific tenants. This is part of their tenant remixing to maintain long-term mall performance.
Q.How have road closures affected Minzhongleyuan mall, and when is this expected to change?
How have road closures affected Minzhongleyuan mall, and when is this expected to change?
Road closures around Minzhongleyuan have negatively impacted its earnings for the past two years. These works are scheduled for completion by the end of 2016.
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