China Real Estate Opportunities (CREO) is planning a return to the development market and has confirmed that it's in talks with banks to finance the construction of an extension to its Shanghai mixed-use City Centre development. After successfully delivering a £26.6m refinancing, chief executive Richard David hopes to combine the development deal with two further refinancings, totalling £284m, that must be completed by 2010 and 2011. Construction should begin in 2010's second quarter.
More generally, strong domestic consumer spending have helped CREO's retail assets to perform well. And while Shanghai office rents have have fallen by 20 per cent since their peak, reflecting increasing supply and the retrenchment of foreign companies, rents have swelled exorbitantly in the last three years. So the group's gross rental income increased 33 per cent year-on-year to £15.9m.
Moreover, Shanghai's short lease lengths (averaging three years) have allowed CREO some flexibility when negotiating with its office tenants. While the group's overall occupancy declined from 92 per cent to 85 per cent in the period, CREO has retained 75 per cent of those tenants with expiries whilst also securing some new lettings to blue chip companies. Mr David is also "quietly confident" that lease renewal negotiations with office tenant SPX, which occupiers 58 per cent of CREO's Treasury Building in Shanghai, will be successful.
| CHINA REAL ESTATE OPPORTUNITY (CREO) | ||||
|---|---|---|---|---|
| ORD PRICE: | 298p | MARKET VALUE: | £ 148m | |
| TOUCH: | 290-305p | 12M HIGH: | 646p | LOW: 165p |
| DIVIDEND YIELD: | nil | DEV PROPERTIES: | £116m | |
| DISCOUNT TO NAV: | 63% | |||
| INVEST PROPERTIES: | £664m | NET DEBT: | 62%* | |
| Half year to 30 Jun | Net asset value (p) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 758 | 15.0 | 0.08 | nil |
| 2009 | 811 | -7.06 | -5.00 | nil |
| % change | +7 | - | - | - |
Ex-div: - Payment: - *Includes restricted cash | ||||
