March 5, 2020 / 12:53 PM / a month ago

China's Yuexiu REIT sees higher 2020 office rental income even as coronavirus hits retail

HONG KONG, March 5 (Reuters) - China’s Yuexiu Real Estate Investment Trust said on Thursday its retail and hotel businesses will be under pressure in the first half of the year due to the coronavirus outbreak, but it still expected office rental income to grow in 2020 and to see a stable occupancy rate on strong tenant demand.

Its single commercial building in the epidemic center, Wuhan, signed two new leases this year - to an online training company and a state-owned company - amid the novel coronovirus outbreak, the Guangzhou-based REIT said at a conference to announce its earnings.

It said the fact that most of its tenants were not small-to-medium enterprises would help mitigate the impact of the coronavirus outbreak on its earnings, suggesting larger companies may be more resilient to a potential economic slowdown.

A supermarket located in the building recorded daily turnover of over 300,000 yuan in February, 19% higher than a year ago, and more than before the city’s lockdown.

Still, most of the retail tenants remained closed during the month, which would affect its rental income.

The company said rental concessions to its retail tenants in Wuhan and other cities would reduce its total income by 90 million yuan this year, an amount that represents 4.4% of total gross revenue in 2019. That drop would be reflected over the coming three financial years due to a three-year lease period.

But Chairman and Chief Executive Lin Deliang said he was optimistic over the long run and expects to see a surge in consumer spending after the epidemic is over. He said the company was talking to its hotel operator, Four Seasons, as well as to retail tenants, to prepare for it.

“China’s economy now is different from during (a previous viral outbreak) SARS; it is mainly driven by consumption. So what we’re doing now is to discuss with tenants how to boost consumption after the epidemic is over so that we can catch up on the businesses,” Lin said.

Yuexiu REIT said its distribution income in 2019 dropped 10.4% to 761.2 million yuan.

The stock closed up 1.4% before the earnings announcement. Hang Seng Index was up 2.1%.

Reporting by Clare Jim; Editing by Bernadette Baum

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