Last checked at 5 Feb 2010 07:00
China Real Estate Opportunities plc
Pre-Close Trading Update
China Real Estate Opportunities plc (the "Company"), one of the leading Chinese property companies quoted on the AIM market of the London Stock Exchange, has issued the following trading update in advance of the release of its annual results for the 12 month period ended 31 December 2009.
Property Portfolio Valuation as at 31 December 2009
The Board is pleased to announce that as at 31 December 2009 the aggregate gross value of the portfolio, as determined by an independent valuation carried out by DTZ Debenham Tie Leung in accordance with RICS standards, was RMB9.188 billion (equivalent to £837 million at the closing exchange rate of RMB10.98:£1 as at 31 December 2009). These valuations are broken down as follows:
| Name | 31 December 2009 | 30 June 2009 |
|
| RMB million | RMB million |
|
|
|
|
| City Centre, Shanghai | 5,564 | 5,390 |
| City Centre Extension, Shanghai | 1,261 | 1,213 |
| Central Plaza, Shanghai | 1,604 | 1,532 |
| The Treasury Building, Shanghai | 641 | 600 |
| Beijing International Logistics Centre, Beijing | 118
| 99 |
| Total | 9,188 | 8,834 |
These valuations, which are based on fair values in accordance with the Company's normal accounting policies, represent an increase of 4% in local currency terms (7.35% in sterling terms) since the 30 June 2009 valuation of RMB8.834 billion (equivalent to £780 million at the then prevailing exchange rate of RMB11.25:£1). These amounts exclude the recent disposal of the Company's interest in the Tangdao Bay property, the proceeds of which will be received upon completion of the standard PRC regulatory procedures for the offshore repatriation of proceeds of domestic asset sales.
Trading Update
The year just ended proved to be a challenging year on the office leasing front with vacancy rates in Shanghai peaking at 14.2% in Q1 and reducing to 11.4% by year end. The retail sector however, continued to perform strongly, aided by the resurgence of the Chinese consumer.
The property portfolio witnessed 212 lease expiries during the year, representing more than 50% of its entire tenancy base. Approximately 55% of these leases were renewed, whilst a further 15% were moved out of the Central Plaza property as part of the refurbishment and re-positioning program. Sixty new tenants, amounting to 28% of lease expiries, entered into leases including Metlife Insurance, Prudential Insurance and Johnson & Johnson. Overall, this resulted in portfolio occupancy (excluding space under refurbishment) at 31 December 2009 of 85%, (office 79%; retail 97%) representing a reduction of 6% over 31 December 2008 but translated into increases in gross rental income on a per square metre basis as follows:
|
| Average daily rent per sqm (RMB) | ||
| Investment Property | 31 December 2009 | 30 June 2009 | Increase over period |
| City Centre Office | 5.32 | 5.05 | 5% |
| City Centre Retail | 6.11 | 5.97 | 2% |
| Central Plaza | 6.33 | 6.16 | 3% |
| Treasury Building | 6.18 | 6.18 | 0% |
As previously reported, during the year, two disposals have been made at premia to the values at which they had been included in the financial statements. These were the 5% interest in City Centre 5, disposed of in June 2009 for an 8.9% premium over the valuation at 31 December 2008 and the 50% interest in Tangdao Bay, disposed of in January 2010 for a 10.9% premium over the valuation at 30 June 2009. In addition, the disposal in November 2009 of approximately 60% of the Company's shareholding in RREEF China Commercial Trust, a Hong Kong listed entity, generated a 20% return on acquisition price.
Including the proceeds from the Tangdao Bay disposal, the Company's cash holdings at 31 December 2009 would have amounted to approximately £75 million.
The Company also made significant progress in the first phase of its refinancing programme with the completion of a loan facility with CITIC Ka Wah Bank in December 2009. This replaced, on improved terms, the existing loan with Credit Suisse in respect of the Treasury Building in Shanghai, which had been due to expire in March 2010. From discussions taking place, the Company remains confident that significant interest remains from a number of local and regional banks to fulfill the Company's refinancing requirements in 2010.
Asian listing
Despite this strong performance in a difficult global environment, the Company's shares continue to trade at a significant discount to net asset value. With a view to narrowing the gap, the Board, with its advisers, has been considering for some time a number of options intended to widen the universe of potential shareholders, including obtaining a listing for the Company on a recognised stock exchange in Asia, so as to deliver the following potential benefits:
Ø Positioning the company closer to its asset base
Ø Strong regional appreciation for Chinese real estate companies which in the main trade at a very low discount or slight premium to NAV
Ø Ability to participate in the strong capital flows experienced in Asia, which have exceeded USD8.8 billion for the property sector on the Hong Kong and Singapore exchanges alone in the past 6 months
More specifically, the Board has identified Singapore as its preferred listing location and a "Business Trust" structure under Singapore law as the likely structure, and subject to ongoing communication with shareholders and the relevant regulators, the Company intends to proceed with this proposal within the next 6 months.
Singapore Business Trusts provide greater operational and investment flexibility than Real Estate Investment Trusts with regard to matters such as development limits and levels of gearing. This flexibility should enable CREO to deliver stronger growth and higher accretive earnings than its peer group.
The Company intends to engage with its shareholders to elicit their feedback on this proposal, which is at an advanced exploratory stage.
Tender Offer
The Company expects to receive the sales proceeds from its disposal of Tangdao Bay upon completion of the standard PRC regulatory procedures for the offshore repatriation of proceeds of domestic asset sales and CREO will make a further announcement regarding the proposed tender offer in due course.
Contact:
CREO
Ray Horney, Chairman
Tel: + 44 (0)1273 775225
Sarah Moriarty, Investor Relations
Tel: +353 1 6189455
Matrix Corporate CapitalPaul Fincham Tel +44 (0)20 3206 7000
Davy
Des Carville
Tel: +353 1 679 6363
Citigate Dewe Rogerson Limited
Tom Baldock
Tel: + 44 (0) 20 7638 9571
Murray Consultants
Ed Micheau
Tel: + 3531 498 0300