Yesterday, CapitaLand Retail China Trust (SGX: AU8U), or CRCT, released its 2019 second-quarter earnings update. As a quick introduction, CRCT is a Singapore-based real estate investment trust (REIT) investing in retail real estate in China. The REIT’s shopping malls are located in China, Hong Kong, and Macau.
Here, I’ll look at some of the highlights from the latest results announcement and outline three things I liked about them.
We will start by looking at some key financials from the latest quarterly earnings.
For the quarter ended 30 June 2019, gross revenue fell 1.9% to S$55.2 million while net property income improved 7.3% to S$40.4 million. The higher net property income was due to improved performance in CRCT’s multi-tenanted malls and lower property expenses. Yet, distribution per unit (DPU) fell 3.8% year-on-year to 2.54 cents. Excluding capital distribution, DPU would have grown 2.0% year-on-year.
There are three things investors should like about CRCT’s latest results. Firstly, shopper traffic was up 0.3% year-on-year for the latest quarter. Moreover, tenant sales were up 2.8% in this quarter as compared to the same period last year. Both factors are encouraging since more customers are visiting and spending money in its malls.
Secondly, rental reversion for the quarter was up by 7.0% year-on-year, which contributed towards higher net property income. This means CRCT has no problem raising rental rates.
Thirdly, CRCT’s gearing remained at a reasonably low level of 33.8%, which is a safe distance from the regulatory ceiling of 45%. This gives it plenty of room for future acquisitions.
Going forward, China’s economic performance, as well as its retail strength, will have a significant impact on the REIT’s fortunes. On that note, here’s what Mr Tan Tze Wooi, CEO of the REIT’s manager, said:
“Despite global market headwinds and trade tensions, China’s economy registered steady growth at 6.2% for 2Q 2019, in line with market expectations. The continued rise in national urban disposable income per capita of 8.0% for the first half of 2019 indicates momentum in the increasing spending power of China’s middle class, a trend which CRCT malls are well-placed to benefit from.”
In other words, investors should expect CRCT to perform well in the foreseeable future, so long as China can continue to sustain its growth.
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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 Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore has recommended the shares of CapitaLand Retail China Trust.