Latest Earnings From CapitaLand Retail China Trust: Drop In Distribution Experienced

CapitaLand Retail China Trust (SGX: AU8U) released its second-quarter earnings yesterday.

As a brief background, CapitaLand Retail China Trust is a real estate investment trust that focuses on the ownership of retail malls in China. Right now, its portfolio has 10 Chinese malls that are located in six cities.

With that, let’s have a look at its latest earnings.

Financial highlights

The following are some of the latest financial figures from CapitaLand Retail China Trust:

  • Gross revenue for the second-quarter came in 5.1% lower at S$51.5 million compared to a year ago. Investors should note that part of the reason for the decline was due to the weakening of China’s renminbi against the Singapore dollar by 4.1% year-on-year.
  • Net property income followed suit, dropping 1.5% year-on-year to S$35.5 million.
  • Income available for distribution declined by 2.5% to S$22.4 million from S$22.9 million in the same quarter a year ago. This led to the REIT’s distribution per unit (DPU) trickling downwards by 4.4% to 2.61 cents for the reporting quarter.
  • CapitaLand Retail China Trust’s adjusted net asset value (NAV) per unit decreased by 6.1% year-on-year from S$1.65 to S$1.55.

Let’s now look at the trust’s debt profile:

  • The REIT’s gearing ratio currently stands at 29.2%, up from the 27.7% seen at end-June 2015. This is partly due to an increase in total borrowings from S$676.6 million to S$699.1 million. Meanwhile, the net debt to EBITDA ratio had increased slightly from 5.2 times to 5.3 times.
  • There are a few bright spots though. The REIT’s average cost of debt stepped down slightly from 2.98% to 2.97% and its interest coverage ratio remained at 6.4 times.

Business highlights

CapitaLand Retail China Trust reported an overall portfolio occupancy rate of 94.9% in the second-quarter of 2016, which is down slightly from the 95% seen a year ago. The weighted average lease term to expiry (WALE) by total rental income had also dropped from 6.5 years in the second-quarter of 2015 to 5.8 years.

The good thing for the trust is that it reported a positive portfolio rental reversion of 5.1%.

Tenant sales and shopper traffic, which are two important metrics for gauging the popularity of retail malls, saw a year-on-year increase of 1.4% and decline of 0.2%, respectively.

In the earnings release, Tony Tan, the chief executive of the mall’s manager, had shared some of the REIT’s efforts in strengthening its malls:

“To stand out from the competition, we continued to enhance our malls’ attractiveness by introducing popular brands and keeping abreast of the latest consumer trends.”

The road ahead

Tan also gave commentary on the upgrading works the REIT has done on its malls:

“As part of our proactive asset management, we have also identified asset enhancement opportunities.  CapitaMall Saihan finished upgrading works to its façade in the quarter under review, while CapitaMall Qibao is expected to complete similar upgrading works in the third quarter of this year. Also targeted for completion in the same quarter is the façade upgrading of CapitaMall Wangjing.

Such improvement works augment our ongoing efforts to refresh the malls’ tenant mix and attract more shoppers. We will continue to look out for suitable opportunities to uplift the shopping experience and strengthen our malls’ roles as lifestyle destinations in their respective communities.”

China’s government is currently implementing reforms. CapitaLand Retail China Trust said:

“The Chinese government has reiterated that the reform policies will focus on maintaining economic stability and improving living standards including reducing overcapacity, streamlining state-owned enterprises, providing greater access to the private sector and ensuring workers are skilled for further employment.

As China transitions to a consumption-driven economy, short-term growth fluctuations are inevitable.”

The REIT added:

“Despite the short-term fluctuations, the transitioning of the Chinese economy bodes well for [CapitaLand Retail China Trust’s] objective of investing in China retail properties on a long-term basis. We will continue with our disciplined approach to look for suitable opportunities to expand our market presence.”

Units of the REIT closed at a price of S$1.56 each yesterday. Based on its latest net asset value per unit, the trust has a price-to-book ratio of 1.

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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 Esjay does not own shares in any companies mentioned.