CapitaLand Retail China Trust (CRCT) is Singapore’s first China retail real estate investment trust (REIT) with a portfolio of 11 shopping malls. The malls have a diverse mix of approximately 1,600 tenants which include leading brands like UNIQLO, Xiaomi, ZARA, Nanjing Impressions, Nike, Sephora, Starbucks and Sisyphe. As at 31 December 2018, CRCT’s portfolio is valued at S$3.0 billion.
According to CEO Tan Tze Wooi in the latest annual report, the Chinese retail space remains resilient amid a slowdown in China’s GDP growth and the economic uncertainty arising from the U.S.-China trade war:
‘China’s retail sales of consumer goods grew by 9.0% to RMB38.1 trillion in 2018, sustained by consumption in major cities that saw an increase in urban disposal income and expenditure per capita of 7.8% and 6.8% respectively.’
I attended the AGM to learn more the REIT’s performance and the retail scene in China. Here are six things I learned from the 2019 CapitaLand Retail China Trust AGM:
1. Gross revenue increased 4.7% to S$239.9 million and net property income (NPI) increased 6.8% to S$159.3 million. This was mainly due to the 51% acquisition of Rock Square, and growth in gross revenue and NPI from CapitaMall Xizhimen, CapitaMall Wangjiang and CapitaMall Xinnan. This was partially offset by discontinued contribution from CapitaMall Anzhen which was divested in July 2017.
2. Distributable income increased 9.4% to S$99.7 million while distribution per unit (DPU) increased 1.2% to 10.22 cents. The growth in distributable income was attributable to the acquisition of Rock Square and the improved performance from their multi-tenanted malls. 80% of CRCT’s distributable income is hedged to mitigate against foreign currency risk. DPU growth slowed due to the issuance of 64.4 million units in a private placement the previous year.
3. As of 31 December 2018, CRCT has a portfolio occupancy of 97.5% with a weighted lease expiry of 2.9 years. During the year, 663 leases were signed or renewed at an average rental reversion of 10.9%.
4. CRCT’s gearing ratio at end-2018 was 35.4%. The average cost of financing for the REIT is 2.73%. Eighty percent of debt are fixed interest rate loans, which will mitigate the effect of rate hikes.
5. A shareholder was concerned about the short land lease balance for many properties in the portfolio which have 23 to 35 years left. CEO Tan Tze Wooi explained that land use rights in China for retail zones are usually for 40 years; 50 years for commercial zones; and 70 years for residential zones. When CRCT listed in 2006, some of its assets had already been in operation for 13 years. The Chinese government may allow landowners to top up and pay premium to extend the land lease, but there is no clear indication of their policy at this time. Strategically, CRCT aims to recycle its portfolio by divesting older properties for younger quality assets.
6. A shareholder asked the reason for the continued fall in occupancy rate at CapitaMall Minzhongleyuan in Wuhan after the completion of the metro line. The CEO explained that Wuhan’s core city center and its communities going through a resettlement. The mall’s business landscape remains challenging and the government is promoting a new retail catchment area in Wuhan which has shifted the retail center of gravity to other places. The mall has worked on differentiating itself in the last two years but it’s very difficult for a smaller mall like Minzhongleyuan to go head on with the big malls. CRCT has secured a co-working provider in the mall and upgraded the cinema in a bid to mix its tenant base and attract younger crowds.
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