In late January, CapitaLand Retail China Trust (SGX: AU8U) released its 2016 full year earnings report.
As a brief background, CapitaLand Retail China Trust is the first real estate investment trust in Singapore?s stock market that has a focus on shopping malls in China. Currently, the REIT has 11 shopping malls in its portfolio. These properties are located in different parts of China including major cities such as Shanghai, Beijing, and Chengdu.
The REIT?s manager also held an earnings briefing when it released its results. The following are three key things I picked up from the briefing.
The CapitaLand advantage
As a brief background, CapitaLand Retail China Trust is the first real estate investment trust in Singapore’s stock market that has a focus on shopping malls in China. Currently, the REIT has 11 shopping malls in its portfolio. These properties are located in different parts of China including major cities such as Shanghai, Beijing, and Chengdu.
The REIT’s manager also held an earnings briefing when it released its results. The following are three key things I picked up from the briefing.
The CapitaLand advantage
CapitaLand Retail China Trust acquired Galleria (Chengdu) on 30 September 2016. The mall has since been rebranded to CapitaMall Xinnan. Tony Tan, the chief executive for the REIT’s manager, provided some insight on the acquisition:
“We call the low-hanging fruit that we saw in Xinnan was their cost structure is too high. They outsource everything. They outsource the asset management. They outsource the property management to two independent parties. So the cost structure is too high.
They don’t have the benefit of synergy like we, together with our sponsor have in Chengdu. So we’ve got to see some cost rationalization. That would be a major uplift in the performance — the financial performance.”
In short, the REIT is looking to use its advantages in branding and its ability to share costs among the malls in its portfolio to improve CapitaMall Xinnan’s performance.
Rental market pricing
Rental reversions (read: rental increases) is a source of revenue growth for the REIT. During the briefing, Tan expressed caution on expecting too much growth from reversions. He said:
“I think over the last two years, I’ve been already prompting you all that don’t expect double-digit rental reversion consistently, and I’ve done that for the last — if you will recall, since 2011 or 2012. It has been double-digit, double-digit.
So I think we’ve come to a point where we have to be more careful. We don’t want to be pressing ourselves on the market. We want the center to be successful but we also don’t want squeeze them until they cannot breathe. So that’s been the strategy.”
The paragraph above provides how insight on how CapitaLand Retail China Trust looks at its market and the steps it is taking to keep its malls relevant.
On debt refinancing
A typical REIT comes with debt. And, debt needs to be refinanced from time to time. It’s no different for CapitaLand Retail China Trust. Tan gave some insight on the REIT’s efforts in refinancing its debt:
“We also started engaging with some of the banks. I think based on our indication — or the financing margin actually has not gone up, which is also a positive reflection on the banks’ appetite for exposure to CRCT, so I think we are quite comforted by that.”
Overall, it looks like there are positive signs for the REIT on the debt refinancing side.
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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 Chin Hui Leong does not own shares in any companies mentioned.