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Chinese Shoppers Continue To Power CapitaRetail China Trust

CapitaRetail China Trust (SGX: AU8U) is a real estate investment trust focusing on retail malls in China. It is partly owned and managed by retail mall developer, owner, and manager, CapitaMalls Asia (SGX: JS8). The two shares are in turn part of the CapitaLand (SGX: C31) group.

The REIT currently operates 10 malls in China with a valuation of more than RMB10billion (around S$2 billion). It announced its first quarter results on 24 April 2014.

Operating results

The trust’s gross revenue for the quarter had increased by 15.5% year-on-year to RMB231.7 million and the growth came mainly on the back of contributions from CapitaMall Grand Canyon which was only acquired last December.

Meanwhile, distributable income of the REIT had also improved by 13.2% to S$19.6million. However, due to an increase in the number of units of the REIT, its distribution per unit only managed to increase by 3.9% to 2.4 Singapore cents. Based on CapitaRetail China Trust’s closing price of S$1.51 on the 24 April 2014, that will be an annualized yield of 6.4%.

The growth in both revenue and distributions was achieved despite one of the REIT’s malls, CapitaMall Minzhongleyuan, being closed for asset enhancement works during the quarter.

Turning to the REIT’s balance sheet, it had been able to improve its gearing to 31.8% from 32.8% in the fourth quarter of 2013. But even though the REIT had lowered its leverage, its cost of financing had increased dramatically from 2.6% to 3.64%. This was mainly due to the higher cost of loans obtained for the purchase of CapitaMall Grand Canyon.

The occupancy rate for the REIT’s portfolio remained relatively stable at around 98.4%. There is a total of about 11.6% of the REIT’s leases – based on gross rent – that’s up for renewal this year; there’s a chance the REIT might be able to see some upward-revision of rental rates for those expiring leases.

How are the tenants doing?

For a mall operator and owner, you can only do well if your tenants are doing well. On that front, tenants in CapitaRetail China Trust had experienced a 14.3% year-on-year increase in sales during the quarter. Furthermore, traffic flow at the malls had also gone up 7.3% from a year ago.

Going forward

The trust is expecting the improvement works for CapitaMall Minzhongleyuan to be completed in the second quarter of this year. The mall has already gotten a committed gross rental that is 11.5% higher than its internal forecast.

The REIT’s management is still very positive on the long term outlook of the Chinese economy. As the population of the country improves its standard of living, the REIT’s manager expects the increase in consumption to translate into better performance for the trust. Currently, the REIT’s portfolio of malls are exposed mainly to the fashion, food & beverage and department store sectors, which are very much dependent on the consumption power of the Chinese population.

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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 Stanley Lim doesn’t own shares in any companies mentioned.