SINGAPORE (Mar 20): Domestic demand is a much larger portion of the Chinese economy than during the GFC, and the Chinese consumer has become an important aspect of domestic demand. “In 2019 China’s retail sales amounted to US$5 trillion ($7.1 trillion) compared to US$5.5 trillion in the US. In 2012, Chinese retail sales were valued at US$3.7 trillion while the US’ was US$4.3 trillion. So the gap has closed quite fast,” says Suan Teck Kin, head of research at UOB Global Economic and Market Research.
Since the external economy with Europe and the US is hampered by Covid-19, China’s domestic economy will have to pick up the pace, says Suan. “Local governments are providing spending incentives. For instance in southern China for car purchases, people are encouraged to replace old cars,” Suan points out. As China gets back to work, consumer demand is likely to rebound, he adds.
That news will be a welcome relief to locally listed REITs with Chinese retail assets. These REITs are likely to report a decline in net property income in the first quarter, although the decline distributions per unit could be mitigated by some form of support.
Malls which had been shut or which could only operate supermarkets and pharmacies in January and February this year in the wake of Covid-19 and the lockdown of Hubei province, are gradually returning to normal.
“The Central Government has started to encourage businesses in China to resume operations. As more people return to their daily activities, footfall in our China malls has been picking up. For CapitaLand Retail China Trust’s (CRCT) portfolio, we have seen progressive week-on-week improvement at our malls that cater specifically to the residential catchment, with footfall reaching 40% to 85% of the average daily traffic of 2019,” says a CRCT spokeswoman.
During the height of China’s Covide-19 outbreak, 12 of CapitaLand’s malls were or-dered to close temporarily, as part of the local authorities’ measures to contain the spread of the virus. Eight of these malls have since reopened.
The remaining four malls that are still shut are located in Wuhan, one of which is Capita-Mall Minzhongleyuan owned by CRCT. The mall represents approximately 2.4% of CRCT’s portfolio value as at Dec 31, 2019 and 0.2% of 4QFY2019 net property income. As such, CRCT does not expect the temporary closure of Minzhongleyuan to have a material impact on CRCT’s FY2020 financial performance.
In a results briefing in February, Tan Tze Wooi, CEO of CRCT’s manager, had said that CRCT’s cash holdings, which were profit from sales of properties, could be used to top up DPU.
On March 17, Sasseur REIT’s manager announced “encouraging first day reopening sales from Sasseur REIT’s four outlet malls” which had reopened progressively from March 11, 2020. These malls were closed for 44–49 days since January 26–27 this year in an effort to control the Covid-19 outbreak in China.
“Overall, the first day combined sales from the four outlet malls were 129% higher than the relevant corresponding dates in 2019,” Sasseur REIT’s manager says. “There is strong pent-up demand from shoppers who had to minimise their social and shopping activities during the period when Covid-19 outbreak was very severe in China. Now that the situation has greatly improved, we are seeing a healthy flow of shop-pers back to our malls and it is now business as usual,” says Anthony Ang, CEO of Sasseur REIT’s manager.
“While there will be impact to 1Q2020 sales performance due to the closure of ap-proximately seven weeks, the Sponsor will ensure Sasseur REIT continues to receive the fixed component in accordance with the Entrustment Management Agreement and variable component, which is pegged to ac-tual sales,” Ang adds.
On March 10, BHG Retail REIT’s manager announced that Hefei Mengchenglu Mall and Hefei Changjiangxilu Mall, which had partially closed on Feb 7, have reopened upon approval from the relevant local authorities. BHG Retail REIT owns six properties altogether and they are all now open.
Wang Qiu, CEO of Dasin Retail Trust’s manager says most of her malls — which are all in Guangdong province — have resumed operations. “Four malls resumed nor-mal operations on Feb 24 this year, and the fifth resumed on March 2,” she says.
“We’ve resumed full operating hours although entertainment, education and training facilities are still closed. In terms of F&B there is improvement but there must be a one metre distance between diners. Temperature scans are in place and customers have to pay by WeChat,” Wang explains. New Covid-19 cases in Guangdong were in single digits in February, and there were no new cases in Guangdong in March. “China’s measures were effective in containing Cov-id-19 even though it impacted our mall operations in February and March, and we are normalising operations now,” she says.
