Dividend and more dividend yield questions asked during CRCT’s AGM


I attended Capita Retail China Trust’s AGM today. Besides the S$20 capitamall voucher I received, I came away feeling ‘full’ because of some new things I learnt.

Here’s what I learnt, in the form of questions asked by unitholders.

What is the impact of the business tax, currency movement and property tax change on the results?

As background, The finance head answered that the impact of the 3 changes above amounted to about 3% impact on revenue and NPI. This meant that, had it not been for the changes above, revenue and NPI would have been 3% higher.

Why is rental reversion of Xizhimen negative since the manager is saying they want to do tenant remixing?

The manager answered by saying that due to the remixing, some tenants that paid lower rents were brought in. An example is a cafe cum library. In China, this experential lifestyle type of tenants appears to be the ‘in’ thing where people can come in, hang around, and feed their ‘senses’ by reading, drinking coffee and enjoying life.

What is the yield on cost target of Grand Canyon in future?

The manager said Grand Canyon was bought at about the 3% yield on cost range. Their goal is to move it to a steady state of 6, 7% over two rental cycles. The present cycle that ended was the first which resulted in yield on cost moving up to about 4-5%. When the second rent cycle comes, the manager claims to be able to hit their target.

Why is the NLA divided by GFA (efficiency ratio) less than 50%? In most other malls, the efficiency ratio is about 60%.

The manager replied that the carpark area needs to be removed from the GFA to give GRA, by which NLA can be divided to get the efficiency ratio. So in this case, the calculation of efficiency is understated because of the GFA amount.

The Wuhu mall looks based in terms of gross revenue and NPI margin. During Tony’s time, the previous CEO, the manager has been saying that tenant remixing has been explored. What has been done substantially in the last 2 years? Why has repositioning been taking so long? Why not sell?

The manager said that the Wuhu market is generally tough as retailers are not in a rapid expansionary mode. However, the manager is working with the property management team to see which retailers are most suited to come into the mall. Some international retailers may not be suitable because of the market context, so the manager is trying best to understand the context so see which retailers are most suitable. The manager is also open to selling.

Regarding the recent Chengdu acquisition, the mall was being operated by another operator with their own traffic counters. When CRCT took over, did they have any ‘surprises’?

The manager replied that they were comfortable with the numbers during due diligence. After taking over the mall, the manager is now charting their own path forward and there has been no nasty ‘surprises’.

A unitholder asked about a double impact from property tax in 2017 since in 2016, only the second half of the year suffered.

The manager said that the effect will be double of course, but when second half 2017 results are compared with second half 2016, they will be on the same basis. At the same time, the manager is optimizing the tax plans to minimize the taxes paid by the REIT.

For Xinnan property, the NPI yield was 5.4% during announcement. But this unitholder calculated a 4% annualized yield on cost. The unitholder was trying to understand the drop and to get a starting point for the mall’s yield on cost to see how much upside potential there is.

The manager said that some mall expenses were brought forward to 4Q16, and there were also some one off expenses that’s why 4Q16’s income and therefore yield is slightly lower. It’s not accurate therefore to annualize the quarterly figure.

The unitholder asked if the acquisition is good if there was only 30 years of lease left.

The manager replied by saying that one cannot compare China’s 30 or 40 year leasehold duration vs 99 years in Singapore. One needs to compare China vs China property which will be more accurate. Most commercial leases are 40 years, so in that regard, 30 years left is still fairly long at 75% of the original duration.

Tenant sales growth has been slowing lately with the latest at about 3.9%. The unitholder asked if this low single digit growth was the new ‘normal’ for the portfolio.

The manager said that if one drills into tenant sales by type, fashion and supermarket tenant sales is slowing. However, the children, education and lifestyle sector has growing tenant sales. So while on an overall basis growth is in the low single digit, there are some bright spots. The manager is therefore mindful of trends and will stay on top of them. As the CRCT portfolio is relatively developed and mature, and the base has moved larger, it is only reasonable to expect the growth to temper down.

When the manager says they are pioneering new concepts in Xizhimen and Wangjing, what does that exactly mean? Shouldn’t this result in positive rental reversion then?

Pioneering new concepts means to bring in trades and tenants that are welcome by customers. The manager does not look at rent vs rent alone. The mall is looked at holistically and managed as a business with NPI and revenue growth important. So for lease renewals, the immediate rent-vs-rent change isn’t looked at directly but the performance and tenant mix of the whole mall is also considered.

There are more big malls sprouting up in tier 1 and 2 cities such as Joy City which has NLA of more than 100,000 sqm. Compared to CRCT, it is much bigger. Is the manager seeing sales trend down due to competition.

While large malls have their own advantages, the manager is cognizant of running each mall on its own merits. I.e. if a mall is 30,000 sqm in size, the strategy is different than running a 60,000 sqm or 90,000 sqm mall.

Singapore and China relations have not been so good. Is that affecting the REIT?

The manager does not see any direct impact at the operational level. Especially in the last quarter of 2016 where there was some friction, there was no spiralling down of relations on a day to day basis.

The yield of CRCT is much higher than CCT. As an investor, I would buy CRCT. Would the yield of CRCT have a bit of return of capital embedded. Because compared to CCT where the underlying Singapore properties have a much higher yield, the asset virtually collapses in 25 years when the lease runs out.

The manager agrees and points out the CCT is in a more developed market versus China which is developing. There is also the risk of yuan depreciation. Therefore, the yield of CRCT ought to be higher.

What has the impact of e-commerce been on the malls?

Manager says there is a dichotomy or two extreme kinds of behaviour. Tenants who didn’t innovate and take active measures are seeing lower sales. Those who cultivate their online and offline presence, and improve their brand equity are doing well. An example is Uniqlo where they refresh their clothing line often and boost their online presence. For CRCT, the focus is on elements that cannot really be cannibalized by the internet, such as F&B, and experential services. In this regard, the REIT wants to capture the physical ‘space’ well to benefit from continued use of physicla spaces by consumers.

Will the assets become worthless at the end of the lease?

For residential properties, the government has stated there can be a payment for lease extension. However, for commercial properties, there has been no concrete or official announcement made by the government, so no one is really sure what happens after the lease runs out. Most likely is that the government will allow a payment for lease extension, similar to residential properties.


So that wraps up the AGM! Quite a bit of good information has been shared especially regarding questions on yields. It’s also enlightening to see how unitholders are stepping up to ask questions of the management of public companies, and some of the questioners are getting younger and younger!

I remember the last questioner Rusmin who actually blogs at Fifthperson.


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