Aim property company China Real Estate Opportunities (CREO) has reported a pre-tax loss of £92m at its year end, caused by inauspicious currency movements and spiralling finance charges. Fears surrounding future prospects for the Chinese property market have caused shares to slump 74 per cent in a year, but the company stressed its exposure is to commercial property, rather than residential, and would prove more resilient.
The gross portfolio value increased 61 per cent in the period to £1.02bn, benefiting significantly from the appreciation of the Chinese Yuan. This boosted adjusted net asset value (NAV) by 59 per cent to £13.24.
But the NAV growth triggered a £44m performance fee for CREO's investment adviser. As the company's debts are held in US dollars, which depreciated against the pound, finance charges swelled to £73m and gearing has risen to 57 per cent. The earliest debt maturity is April 2010.
CREO's investment property portfolio has an average occupancy level of 92 per cent, and recorded a 23 per cent year-on-year growth in gross rental income to £26m, reflecting lease renewals and rent reviews. In keeping with local market custom, the average lease length is just two years.
China's slowing export trade and reduced demand from international tenants has led to the construction of its Beijing Logistics Park being shelved, though construction of CREO's City Center development in Shanghai should begin this May.
The cavernous discount to NAV "remains a source of concern" for the board, which purchased and cancelled 3.5m shares in the period. In November, CREO acquired a 7 per cent stake in the Hong Kong-listed RREEF China Commercial Trust, which has property assets in Beijing.
When: 10 Apr 2008
Price: 811p
