CRCT – BT

CapitaRetail China equity exercise completing soon

CAPITARETAIL China Trust (CRCT) is proceeding to complete a $280 million equity-raising exercise to fund the acquisition of Xizhimen Mall in Beijing by the end of this month.

CapitaRetail China Trust Management Ltd’s (CRCTML) CEO Lim Beng Chee, who said this at the trust’s fourth-quarter results briefing yesterday, also expressed confidence of getting legal title to Wangjing Mall – currently the trust’s main income generator – by May. CRCT currently does not have legal title to this property, also in Beijing. Instead, it has only contractual rights to the asset.

The trust posted distributable income of $8.6 million for the fourth quarter ended Dec 31, 2007, 9.1 per cent higher than the CRCTML’s forecast, despite net property income and gross revenue falling below forecast. CRCT’s Q4 distribution per unit of 1.80 cents reflects an annualised payout of 7.15 cents, translating to 3.78 per cent distribution yield based on CRCT’s closing price of $1.89 yesterday. The counter ended two cents lower yesterday. It reached an intra-day high of $3.34 in October last year.

Yields on real estate investment trusts like CRCT go up as their unit prices on the stock market fall, all other factors being equal.

Based on the trust’s current price, the upcoming $336 million acquisition of Xizhimen Mall will still provide yield accretion, going by the asset’s initial property yield of 5.7 per cent for the first year, Mr Lim added.

CRCTML obtained unitholders’ approval for the equity-raising exercise on Dec 4 but has yet to launch it because of weak equity market conditions. Assuming CapitaLand and CapitaMall Trust each subscribe for the new units to maintain their current 20 per cent stake each in CRCT, the amount to be raised from external parties would be $168 million, which Mr Lim described as a ‘very small equity raising’ for which he expects good response based on the keen interest among investors on the China growth story during CRCTML’s roadshow in November.

For Q4 ended Dec 31, CRCT posted net property income of $11.6 million, 13.6 per cent below the trust manager’s forecast in the trust’s listing prospectus dated Nov 29, 2006, on the back of gross revenue of $17.9 million, 11.2 per cent below forecast. This was due mainly to three of the trust’s seven established malls – Qibao Mall, Xinwu Mall and Jinyu Mall.

The shortfalls were temporary in nature – for instance, delays in the start of certain leases on the upper floors in the case of Qibao Mall. Management has taken a longer-than-expected time to sign new leases to achieve a more optimal tenancy mix and rental rate. Revenue is expected to improve within three to six months, CRCT said in its results statement.

Despite lower-than-expected revenue and net property income, CRCT’s Q4 distributable income still came in above forecast because of net interest saving, and over-provision of taxation in previous quarters.

For the year ended December 2007, CRCT posted distributable income of nearly $32 million, 9.5 per cent above forecast.

The trust’s asset size will increase to $1.2 billion after the Xizhimen acquisition and the trust manager is confident of achieving the $3 billion target size by end-2009, thanks to the strong acquisition pipeline put in place sponsor CapitaLand.