CRCT evaluating tenant mix; posts H1 DPU of 3.02 Singapore cents

Singapore

CAPITALAND Retail China Trust (CRCT) is assessing its tenant mix amid the Covid-19 pandemic and may "take the hard decision" to phase out tenants if their business formats are not viable, said Tan Tze Wooi, chief executive of the real estate investment trust (Reit)'s manager.

In a virtual results briefing on Wednesday, Mr Tan talked about a "continuous effort" to replace irrelevant trades with those that resonate with the lifestyle needs and spending preferences of consumers today.

CRCT has posted a distribution per unit (DPU) of 3.02 Singapore cents for the six months ended June 30, down 41.4 per cent from the year-ago DPU of 5.13 cents. For the first half of last year, after making a divestment, CRCT had also returned investors S$1 million via a capital distribution. Excluding this distribution, the year-ago DPU was 5.03 cents.

Gross revenue for the Reit declined 7.8 per cent to 511 million yuan (S$100.4 million) in H1 2020 from a year earlier. In Singapore-dollar (SGD) terms, gross revenue declined 8.7 per cent to S$101.5 million as the SGD climbed against the yuan.

Net property income (NPI) dropped 17.9 per cent to 328.6 million yuan for the half year, down from 400 million yuan a year earlier. In SGD terms, NPI shed 18.6 per cent to S$65.3 million, down from S$80.2 million for the year-ago period.

Rental relief of around 1.2 months of equivalent portfolio gross rent was extended in the first half this year, the Reit's manager said.

"I think we have to come in and probably give them a little bit of support in the next three to six months for them to have a better sense of how they want to realign their business," said Mr Tan. "This is where we are coming in to assist and being flexible in some of our lease terms restructuring, being a little bit flexible in our first year of fixed rental, as we sign new ones with them."

Income available for distribution to unitholders fell 29.7 per cent to S$35.3 million. For H1 2020, CRCT released S$3.5 million retained in FY2019 from compensation received by CapitaMall Erqi following the exit of its anchor tenant. Simultaneously, S$1.8 million was retained from the income available for distribution to unitholders for general corporate and working capital purposes.

The retention, which was made in view of "near-term market uncertainties", represents 5 per cent of the income available for distribution to unitholders, the manager said. As such, the distributable amount to unitholders came in at S$37 million for the six-month period, down 27.7 per cent from a year ago. The distribution will be paid on Sept 28, following books closure on Aug 7.

CRCT's total portfolio occupancy as at June 30 stood at 91.5 per cent, down from 96.3 per cent a year ago. As at end June, CRCT's gearing was 33.6 per cent, well below the new regulatory limit of 50 per cent. All refinancing requirements in 2020 have been completed, the manager said. It added that 80 per cent of the Reit's total term loans are on fixed interest rates, while it has hedged 64.4 per cent of its undistributed income in Singapore dollars.

David Lum, analyst at Daiwa Capital Markets, has downgraded his recommendation on CRCT to "outperform" from "buy", while raising his target price on the counter to S$1.35, from S$1.30 previously.

"Management said that in addition to proactive leasing and asset enhancements, it was willing to consider external growth through acquisitions of alternative asset classes. The ideal opportunity would be assets with a significant retail component (integrated developments or business parks) in the sponsor's core cities in China," Mr Lum wrote in a research note on Wednesday.

He added that while CRCT still offers "undemanding valuations", he now sees higher execution risks from leasing and acquisitions.

CRCT had 13 shopping malls located in eight cities across China, as at June 30. Units of CRCT closed at S$1.26 on Wednesday, up S$0.03 or 2.4 per cent on a cum-distribution basis.