Latest Earnings from CapitaLand Retail China Trust: Distribution Declines

CapitaLand Retail China Trust (SGX: AU8U) released its third-quarter results yesterday for the three months ended 30 September 2016.

As a quick background, CRCT is a real estate investment trust with a focus on shopping malls located in China. Right now, it has 11 malls spread across six Chinese cities. CRCT has a total asset base of S$2.7 billion as of 30 September 2016.

With that, let’s take a look at the REIT’s results.

Financial highlights

  • Gross revenue for third-quarter came in 8.5% lower at S$50.6 million compared to the same quarter a year ago. Investors should note that part of the reason for the decline was due to a weakening of the renminbi against the Singapore dollar by 8.1% over the last 12 months.
  • Net property income followed suit, dropping 6.9% to S$32.8 million from S$35.2 million a year ago.
  • Income available for distribution consequently declined 7.7% to S$20.6 million from S$22.3 million in the prior year. This led to the REIT’s distribution per unit (DPU) falling by 10.6% to 2.36 cents for the reporting quarter.
  • The REIT’s adjusted net asset value (NAV) per unit had declined by 8.3% year-on-year from S$1.68 to S$1.54. CRCT reported S$995.1 million in total borrowings for the reporting quarter, up from S$709.8 million a year ago. This led to its gearing ratio increasing from 28.5% to 36.7% and its net debt to EBITDA ratio climbing from 5.5 times to 7.8 times. The REIT’s interest coverage also weakened slightly from 6.4 times in the third-quarter of 2015 to 6.2 times. But, CRCT had managed to marginally reduce its average cost of debt from 2.98% to 2.9%.
  • 43.7% of the REIT’s total borrowings will come due in 2017. Investors may want to watch CRCT’s progress in refinancing its debt.

Business highlights and a future outlook

CRCT saw its overall portfolio occupancy rate come in at 95.2% for the reporting quarter, an increase from the 94.8% seen a year ago. The REIT also currently has a weighted average lease term to expiry (by rent income) of 5.6 years, down from the 6.3 years seen in the third-quarter of 2015.

Tenant sales and shopper traffic are two important metrics to analyse the popularity of a mall. CRCT saw shopper traffic in its portfolio of malls fall by 1.2%; the good news is there was a 5.5% quarter-on-quarter increase. Meanwhile, the REIT’s quarterly tenants’ sales managed to climb by 2.9% and 1.7% on a year-on-year and quarter-on-quarter basis, respectively.

The REIT also reported an average positive rental reversion of 4.8% for the reporting quarter. While positive reversions show that tenants are still willing to pay higher rent for the REIT’s mall spaces, it’s worth noting that the third-quarter of 2015 saw a positive rental reversion of 10.9%.

In the earnings release, the REIT shared some data about its key markets. It said:

“For the first nine months of 2016, retail sales expanded 10.4% year-on-year to RMB23.8 trillion. Urban disposable income and expenditure per capita grew 5.7% and 5.3% year-on-year respectively.”

The REIT also mentioned some of the latest data it has on Beijing, Shanghai, Chengdu, and Wuhan. The four areas in China all saw their respective gross domestic product and retail sales post year-on-year growth rates in the mid to high single-digit percentage range.

Units of CRCT closed at a price of S$1.56 yesterday. Based on its current net asset value, the trust has a price-to-book ratio of 1.0 and a trailing distribution yield of 6.6%.

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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.