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Distribution Falls At CapitaRetail China Trust

CapitaChina Retail Trust CapitaRetail China Trust (SGX: AU8U), a subsidiary of CapitaMalls Asia (SGX: JS8) and a part of the CapitaLand (SGX: C31) family, announced third quarter earnings earlier today. Quarterly gross revenue came in at RMB192m, a 1.3% year-on-year decline from a year ago. This resulted in a 4.3% slide in net property income to RMB121m.

Distributable income for the quarter went up 2.1% to S$17.1m from a year ago, but distributions per unit (DPU) – what actually matters for unit holders – was down 6.6% to 2.26 Singapore cents.

A private placement of 57m units that occurred on 2 Nov 2012 had caused dilution for existing owners of CRCT, resulting in the drop in DPU.

CRCT is a China-focused real estate investment trust that specialises in retail malls. It has a portfolio of nine malls in the country as shown in the table below:

Mall Location
CapitaMall Xizhimen Beijing
CapitaMall Wanjing Beijing
CapitaMall Anzhen Beijing
CapitaMall Shuangjing Beijing
CapitaMall Erqi Zhengzhou
CapitaMall Minzhongleyuan Wuhan
CapitaMall Qibao Shanghai
CapitaMall Saihan Huhhot
CapitaMall Wuhu Wuhu

Gross revenue had declined mainly due to CapitaMall Minzhongleyuan being closed since July 2013 for asset enhancement works.

Property expenses had increased due to higher property management fees and staff costs, which accounted for the larger decrease in net property income.

CRCT saw healthy occupancy rates of 98.3% across the board in its retail malls. In addition, there was also positive rental reversion (where rents are adjusted to market rates either on expiration, or at a predetermined date) of 10%.

Shoppers were also out in force with a 3.4% year-on-year increase in shopper-traffic in the REIT’s malls. That helped to boost average monthly sales in the quarter for the various malls’ tennats by 10% compared to a year ago.

As REITs are generally highly-levered entities, which can pose financial risks for investors, unitholders might be pleased to see that CRCT’s balance sheet has improved somewhat compared to a year ago.

Gearing has gone down from 28.1% to 25.8%; interest coverage has improved from 7.8 times to 8.4 times; and, the average cost of debt (i.e. interest rates) for the REIT has decreased slightly from 2.62% to 2.6%.

The REIT has total borrowings of S$469m and more than four-fifths of it has fixed interest rates. This helps to temporarily insulate CRCT from a potential increase in interest rates in the future, if any. In addition, it has a well-staggered debt maturity profile, shown in the table below:

Debt Amount Maturity Date
S$20m 2013
S$160.2m 2014
S$88m 2015
S$100m 2016
S$50.5m 2017
S$50m 2018

Going forward, CRCT expects an improved outlook in China backed up by an increase in external demand and supportive domestic policies.

The REIT opened at S$1.40 today, with its units valued at 0.97 times book value and carrying an annualised distribution yield of 6.7% based on its pay-out year-to-date.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.