Published January 22, 2009

CRCT sees China business remaining resilient

Trust's net property income for Q4 jumps 76% to $20.4m; DPU at 2.27 cents

By EMILYN YAP

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CAPITARETAIL China Trust (CRCT) expects its mall business in China to remain fairly resilient even as the country's economic growth slows this year.

Still packed: CRCT malls are experiencing limited impact from the crisis

The trust shared this outlook yesterday as it unveiled a 76 per cent year-on-year jump in net property income to $20.4 million for the fourth quarter ended Dec 31, 2008.

As a result, income available for distribution rose 64 per cent to $14.1 million. This translates to a distribution per unit (DPU) of 2.27 cents, exceeding the 1.80 cents in 4Q 2007.

On an annualised basis, CRCT's DPU in Q4 2008 was 9.03 cents, generating a distribution yield of 15.1 per cent based on the unit closing price of 60 cents as at Dec 31, 2008. The trust gained 3.5 cents to close at 66 cents yesterday.

For FY2008, income available for distribution also improved 43 per cent from a year ago to $45.9 million. This led to a DPU of 7.53 cents, higher than the 6.72 cents in FY2007. The distribution yield reached 12.6 per cent.

According to Barclays Wealth Research, China's GDP growth could slide to 7.5 per cent this year and the slowdown has raised doubts on whether internal consumption will hold up.

'We may not be immune to possible slowdowns in consumer spending,' said Victor Liew, chairman of trust manager CapitaRetail China Trust Management yesterday. But 'the large proportion of mass-market retailers selling basic necessities at our malls will provide some resilience for our portfolio'.

The top retailers in CRCT's mall portfolio are Beijing Hualian Supermarket and Beijing Hualian Department Store, which accounted for 29 per cent of gross rental income as of December last year.

'We are seeing limited impact from the crisis, especially at second-tier cities,' said the trust manager's CEO Wee Hui Kan at a briefing yesterday. 'Now and then, some tenants may not be doing so well relative to before . . . but we have not seen a significant deterioration.'

CRCT's focus is to 'preserve stability' this year by maintaining occupancy levels, fine-tuning the tenancy mix and driving shopper traffic and sales, he said.

This means that acquisitions are not on the cards yet. According to Mr Wee, distressed retail assets have yet to surface and capital for purchases would not come easily.

But he noted that China's credit environment has improved in the last few months. At the government's encouragement, banks are more willing to extend loans and costs may be lower than those for offshore funds. 'We will put some focus on trying to tap the onshore market,' said Mr Wee.

CRCT's gearing as at Dec 31, 2008 was 32.8 per cent, and it has $61 million of debt maturing this year.