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CRCT declares 40% lower 1H20 DPU of 3.02 cents, plans to broaden asset classes beyond retail to augment income

Felicia Tan
Felicia Tan7/29/2020 08:25 AM GMT+08  • 4 min read
CRCT declares 40% lower 1H20 DPU of 3.02 cents, plans to broaden asset classes beyond retail to augment income
Unitholders can expect to receive their dividends on September 28.
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The manager of CapitaLand Retail China Trust (CRCT) has declared a distribution per unit (DPU) of 3.02 cents for 1H20 ended June, down 40% from the 5.03 cents reported a year ago.

Distributable income in 1H20 fell 29.7% to $35.3 million from $50.2 million in 1H19. For the period, CRCT has released the $3.5 million retained in FY19 from the compensation received by CapitaMall Erqi following the exit of its anchor tenant. At the same time, some $1.8 million (or 5.0%) was retained in 1H20 for general corporate and working capital purposes.

In RMB terms, gross revenue fell 7.8% y-o-y to RMB511.0 million ($100.6 million), mainly due to the rental relief extended to tenants affected by the Covid-19 outbreak. The number also registered the lack of contributions from CapitaMall Erqi following the pre-termination of lease from its anchor tenant in 4Q19, and its divestment in May.

This was partially mitigated by contributions from CapitaMall Yuhuating, CapitaMall Xuefu, and CapitaMall Aidemengdun, which were acquired in August 2019.

In SGD terms, gross revenue for the same period fell 8.7% y-o-y to $101.5 million due to the strong Singapore dollar.

1H20 property expenses increased 17% y-o-y to $36.2 million due to the inclusion of expenses from CapitaMall Yuhuating, CapitaMall Xuefu, and CapitaMall Aidemengdun. This was offset by lower property tax and property management fees, and lower utilities, staff related costs, marketing expenses, and Covid-19 concessions from the government.

Accordingly, net property income (NPI) fell 18.6% y-o-y to $65.3 million. In RMB terms, NPI fell 17.9% to RMB328.6 million.

As at June 30, cash and cash equivalents stood at $364.6 million, down 2.4% y-o-y.

Tan Tze Wooi, CEO of the manager says that China’s policy focus to support businesses and boost domestic consumption following its 2Q20 GDP growth has “bode well” for the retail sector’s recovery.

“Retail sales for June 2020 declined 1.8% from the same period last year, narrowing by 1 percentage point from May 2020. On the back of improving consumer sentiment and active asset management, CRCT’s enlarged portfolio recorded a 25.9% quarter-on-quarter improvement in shopper traffic for 2Q 2020. Tenants’ sales for 2Q 2020 increased by 23.7% from 1Q 2020,” he says.

“CRCT’s portfolio reconstitution of adding new growth drivers has been key in diversifying and stabilising the Trust’s performance amidst COVID-19 challenges… In 1H 2020, we completed the divestment of CapitaMall Erqi ahead of schedule, unlocking value and improving CRCT’s balance sheet further,” he adds.

Despite a 2Q2020 q-o-q recovery in shopper traffic and tenant sales, challenges remains. According to Tan, CapitaMall Grand Canyon in Beijing was affected by Beijing’s second Covid-19 wave - which was contained by mid-July. “There was a second wave in Fengtai district, which is where Grand Canyon is located, and this had an impact on tenants wanting to recommit, and is reflected in Grand Canyon’s lower occupancy rate,” Tan says. He adds that the mall has been disinfected and shopper traffic recently is around 50% to 60% of pre-Covid levels.

Tan further explains that the manager intends to grow CRCT into a sustainable and resilient China REIT platform, and that it continues to be on the lookout for accretive acquisitions.

Tan also surprised analysts and media during a results briefing on July 29 when he acknowledged that CRCT is open to acquiring assets other than shopping malls. “In terms of different asset classes, we are also trying to assemble a good mix such that yields are in line with market and they brings us stabiliy to grow income over time,” he says.

What would these other assets be? “I would say we would look at asset classes which are within the CapitaLand group where we have a strong management presence and domain knowledge. That’s an easier way to think about where we are going. We would not move into a total foreign asset class where as a group we have no knowledge. We have retail, integrated developments, other parts of the group such as business parks which we can potentially look at, to augment the retail income stream,” Tan says.

He adds that CRCT will be flexible on leases, in particular in the first year of rentals in the typical three-year leases. “We may lower rents in the first year,” Tan says, till trading stabilises and picks up in subsequent years. “Strengthening the balance sheet is also a key focus, by bring gearing down, and locking in refinancing.”

CRCT has a portfolio of 13 shopping malls with a total of some one million sqm of total gross floor area (GFA) in eight Chinese cities.

Unitholders can expect to receive their dividends on September 28.

As at July 29, units in CRCT are trading at 0.78x its NAV of $1.60, up 3 cents from July 28, but down 21% year-to-date.

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