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Public company info - Spring Real Estate Investment Trust , 01426.HK

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Spring Real Estate Investment Trust, 01426.HK - Company Profile
Chairman Toshihiro Toyoshima
Share Issued (share) 1,258,000,000
Par Currency
Par Value -0.0
Industry Real Estate Investment Trust
Corporate Profile Business Summary: The Group is a real estate investment trust formed primarily to own and invest in high quality income-producing real estate assets in Asia. Performance for the year: As RMB continued to weaken during the Reporting Year, the RMB/US$ monthly average exchange rate adopted was 5.4% lower than that in 2015. Partly as a result, Spring REIT reported revenue of US$75.43 million, representing a year-on-year decrease of 6.3%. As at 31 December 2016, net assets attributable to Unitholders increased to US$866.68 million from US$864.22 million a year ago. Business Review: While Spring REIT’s operation during the Reporting Year remained supported by healthy operating statistics, its financial performance was held back by adverse changes in the tax regime. Revenue fell 1.0% to RMB500.91 million for the Reporting Year. After deducting operating expenses of RMB123.70 million, net property income stood at RMB377.21 million for the Reporting Year, down 2.0% year-on-year. For the Reporting Year, Spring REIT reported a 1.8% decrease in rental income to RMB477.90 million, affected by the tax reform that replaced the 5% business tax rate with a value-added tax (“VAT”) at a rate of 11% levied on rental revenues (the “B2V Reform”) that was put in place in May 2016. Discounting such tax impact, net rental would have grown by approximately 1.1% to RMB463.42 million. In terms of operating statistics, the Office Tower 1 and Office Tower 2 in China Central Place (“CCP”) along with a total of approximately 600 car parking lots (the “Property”) recorded an average occupancy for the Reporting Year of 94.3% (2015: 95.2%). A total of 54,658 sqm was leased out, 28.1% of which was attributable to new lettings while the remainder was renewal. The average net passing rent of the Property for the Reporting Year, where the impact of B2V Reform has been discounted, stood at RMB343 per sqm, up 1.6% year-on-year on the back of a respectable average rental reversions of 7.5% (2015: 8.6%). Tenancy base Spring REIT’s Property had a total of 182 tenancies as at 31 December 2016. The top five tenant accounted for 22.9% of total revenue for the Reporting Year and occupied 25.4% of total GFA as at 31 December 2016. Carpark income For the Reporting Year, car park income amounted to RMB3.77 million, representing 0.8% of total revenue. Car park income declined 11.5% when compared with RMB4.26 million in 2015, and the decrease was partly attributable to the B2V Reform. Unlike office leases, the Manager has not been able to pass on the heavier tax burden by increasing car park rates. Discounting the impact of B2V Reform, car park income would have decreased by 5.6% to RMB4.02 million. Cost Property operating expenses mainly comprise of tax expenses, namely withholding tax, business and other tax (excluding stamp duty), and property tax. Tax expenses in aggregate accounted for 86.3% of the total property operating expenses. Property management fee, payable at 2.0% of total revenue, accounted for 8.7% of the property operating expenses. The mild increase of property operating expenses of 2.3% year-on-year to RMB123.70 million (2015: RMB120.93 million) was primarily due to the increase in property tax of 69.6% to RMB42.14 million being partially offset by a fall in business and other tax of 45.9% to RMB15.61 million. Due to the nature of VAT, it is netted off with the rental income and not presented as a separate line item in the income statement. Prospects: The year of 2016 is marked by geopolitical uncertainties. 2017 will see these changes play out: the Trump presidency, key post-Brexit elections in Europe, volatile currencies and rising interest rates. Closer to home, macro environment seems more upbeat as China’s economic growth remains resilient, demonstrated by sustainable economic numbers, and in particular, a robust property market. In Beijing, the year 2016 marked the beginning of a pipeline of new office supply. However, the Manager understands what differentiates Spring REIT is the quality of its product. We are pleased to witness cases of returning tenants since the Group’s inception, evidencing not only the Group’s superior property locations but also the quality of service the Group provide. We are proud to note that out of the 182 tenancies as at 31 December 2016, 127 of them, representing 73.7% of the building’s GFA, has remained with us since the Group’s listing in December 2013. In view of the potential supply in Beijing, the Manager has begun and will continue to enter into leases with longer duration in order to enhance stability and certainty of future revenue. In the coming year, lease contracts constituting 28% and 31% of Spring REIT’s total GFA and rental income respectively are due for renewal. While the Group are striving to achieve positive rental reversion for new lettings and renewals, the Group are also aware that the tax changes introduced during the course of 2016 will have their impact for the full year in 2017. In this regard, in the absence of significant improvement in the office leasing market, the Group expect a decline in net property income for the Property in 2017. Going forward, the Manager will continue to devote substantial effort in modifying the capital structure, with a view to enhancing the financial flexibility of Spring REIT. We believe an optimal capital structure should strike a balance among various factors, including an acceptable debt to equity range, a low cost of capital and controlled exposure to interest rate and currency volatility. While the refinancing exercise completed in 2015 has enhanced return to the Group’s Unitholders by offering a cheaper source of fund and a longer tenure, the Group are constantly looking for room for further improvement. We would take action again to finetune the debt profile through diversification in currencies and maturities, and to rebalance the mix of equity and debts as well as fixed and floating rates as and when appropriate. At Spring REIT, the Group are always looking for enhancement and expansion opportunities and the Group believe this can be done through acquisition. While timing, pricing and market conditions are all important factors when assessing a target, accretion and quality of cash flow remain the key consideration for the Manager. At the extraordinary general meeting held on 20 May 2015, the Group received the Unitholders’ support to expand Spring REIT’s investment scope to encompass investment opportunities outside Asia. While China is expected to remain as the mainstay, new opportunities to be emerged elsewhere are also what the Group shall explore from time to time.

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