It will be using part of the proceeds to participate in listing of CapitaLand Commercial C-Reit on Shanghai Stock Exchange

 

[SINGAPORE] CapitaLand China Trust (CLCT) : AU8U 0%, a CapitaLand Investment : 9CI -0.77% subsidiary, is set to raise up to 748 million yuan (S$134.9 million) through the divestment of CapitaMall Yuhuating, a mature retail asset in Changsha. This is part of its participation in the proposed listing of CapitaLand Commercial C-Reit (CLCR) on the Shanghai Stock Exchange.

 

CLCT will dispose of its entire interest in CapitaMalls Hunan Commercial Property, the entity that owns CapitaMall Yuhuating, to Changsha Kaiting Consulting & Management.

 

The trust will sell the asset at a floor price of 748 million yuan, based on independent valuations. Gross proceeds from the transaction are expected to reach 738.5 million yuan, with net proceeds of about 595.3 million yuan after deducting transaction costs and the subscription amount.

 

From the gross proceeds, CLCT intends to allocate around S$20.7 million to subscribe for 5 per cent of the commercial real estate investment trust&rsquo s (C-Reit) initial public offering (IPO) units. The subscription will be subject to a five-year lock-up period.

 

The manager noted on Thursday (Jun 12) that if CapitaMall Yuhuating is divested at the floor price, the exit net property income yield would be 6.8 per cent. Assuming the net proceeds are used to reduce debt and buy back units, the distribution per unit accretion is projected at 0.4 per cent.

 

CLCT&rsquo s manager views the transaction as a key step in realising value from a mature asset, while continuing to maintain exposure to China&rsquo s retail sector through its stake in CLCR. The move is also expected to strengthen its balance sheet, potentially reducing aggregate leverage from 42.6 per cent to 41.4 per cent.

 

In addition to improving financial flexibility &ndash through the use of the proceeds for debt repayment, unit buybacks or working capital &ndash CLCT&rsquo s participation in CLCR gives it a new platform for future asset recycling, as well as access to China&rsquo s onshore capital markets and a broader investor base.

 

The manager also noted that the C-Reit market in China has been gaining momentum. &ldquo As at Jun 10, there are currently 66 listed C-Reits with total market capitalisation of approximately 201.7 billion yuan.&rdquo

 

This is due to the Chinese government ramping up efforts to boost consumer spending. Consumption-related C-Reits have achieved strong post-IPO average unit price increases of more than 50 per cent, demonstrating the potential for capital appreciation, added the manager.

The distribution will be paid out on Mar 27, after the record date on Feb 14

 

THE manager of CapitaLand China Trust : AU8U -1.37% (CLCT) on Thursday (Feb 6) posted a 12 per cent decline in distribution per unit (DPU) to S$0.0264 for the second half ended Dec 31, from S$0.03 in the year-ago period.

 

This brings total DPU for FY2024 to S$0.0565, down 16.2 per cent year on year (yoy) from S$0.0674, and was attributed to an enlarged unit base. Based on the closing price of S$0.73 per unit on Wednesday, CLCT&rsquo s distribution yield for the full year was 7.7 per cent.

 

The decline in DPU in H2 2024 has narrowed from a 19.5 per cent drop for the first half, said Gerry Chan, chief executive officer of CapitaLand China Trust&rsquo s manager.

 

He said: &ldquo Overall, our results reflect strong performance from our largest asset class, which is the retail portfolio, and (this) was driven by our asset enhancement initiative (AEI) efforts. The market for business park and logistics assets has been relatively more challenging, offsetting our retail performance.&rdquo

 

The China-focused real estate investment trust posted a 6.5 per cent decrease in revenue for the half-year period to S$168.5 million from S$180.2 million, due to a weaker yuan against the Singapore dollar.

 

On a yuan basis, revenue fell 5.5 per cent yoy. The manager attributed this decline to lower revenue contributions from the business parks and logistics parks segments, owing to lower occupancy and rental rates. There was also an absence of contributions from CapitaMall Shuangjing, which was divested in January last year.

 

Additionally, there was a decline in revenue contribution from CapitaMall Xinnan due to lower average occupancy and gross rental rate resulting from rental adjustments and tenants remix. This was partially offset by improved performance in CapitaMall Grand Canyon, Rock Square and CapitaMall Yuhuating, which benefited from AEIs.

 

Net property income (NPI) for the second half stood at S$108.6 million, down 7.6 per cent from S$117.5 million in the same period a year earlier.

 

The three malls that underwent AEIs in 2023, however, recorded a 13.7 per cent year-on-year increase in NPI.

 

Distributable income was down 10.3 per cent on the year to S$45.5 million from S$50.7 million. The distribution will be paid out on Mar 27, after the record date on Feb 14.

 

Natural hedging strategies

For the full year, distributable income fell 15 per cent yoy to S$96.8 million from S$113.9 million. Revenue was down 6.4 per cent to S$341.5 million from S$364.7 million previously, and NPI fell 8.2 per cent to S$226.6 million from S$246.7 million.

 

Gearing as at end-December stood at 41.9 per cent, up from 41.6 per cent as at end-September. Around 76 per cent of CLCT&rsquo s total debt is on fixed interest rates.

 

Chan said: &ldquo CLCT is well-positioned to capitalise on further interest rate reductions as the renminbi rate-easing cycle continues. This will effectively lower our overall cost of debt and enhance our natural hedging strategies.&rdquo

 

Its retail portfolio achieved 98.2 per cent occupancy as at end-December &ndash the same as the previous year &ndash with the majority of its retail assets recording improved occupancy yoy.

 

The business park segment&rsquo s occupancy was 87.6 per cent, while the logistics park segment&rsquo s was 97.6 per cent as at end-December.

 

However, rental reversion for the three segments was impacted by subdued consumer spending in China.

 

The manager reported a negative rental reversion of 24.5 per cent for the logistics park segment. Rental reversions for CLCT&rsquo s retail and business park segments were also negative, at -1.1 per cent and -4.5 per cent, respectively.

 

Said Chan: &ldquo The market in China for logistics has been tough, with low demand and oversupply issues. Average vacancies of 20 to 30 per cent in many sub-markets are common. We prioritised occupancies in this market for 2024.&rdquo

 

As at end-December, CLCT&rsquo s portfolio valuation declined 1.7 per cent on the year to about 24 billion yuan (S$4.4 billion).

 

&ldquo Within the retail sector, smaller and weaker assets faced greater downside pressure, while business parks and logistics parks were impacted by near-term supply-demand imbalances and a softer market outlook,&rdquo said the manager.

 

Sharing his outlook for 2025, Chan said he sees &ldquo stable to very small&rdquo negative rental reversions for the Reit&rsquo s retail portfolio due to subdued consumer spending. 

 

He said: &ldquo We are well-positioned for (the) retail portfolio when domestic consumption grows.&rdquo

 

For the business park segment, Chan said the business climate remains cautious, and some sub-markets may continue to face pressure. 

 

He said: &ldquo We expect negative single-digit reversions... Our portfolio leans towards innovation-driven sectors including electronics and technology for business parks, (for) which government policies signal stronger support. We will focus on these policy-aligned areas to better position our assets.&rdquo  

 

The logistics sector is still exposed to geopolitical risk and trade uncertainties, Chan said. However, the Reit sees smaller negative reversions for its portfolio compared to previous years. 

 

&ldquo We will continue to review portfolio reconstitution options for logistics assets when there are opportunities, but certainly we are committed to maintaining a high occupancy.&rdquo

CapitaLand China Trust reported a 16.2% y-o-y decline in distributions per unit (DPU) to 5.65 cents in FY2024 ended Dec 31, 2024 with distributable income down 15% y-o-y to $96.8 million.

 

However, DPU in 2HFY2024 fell by lower 12% y-o-y to 2.64 cents suggesting that the downtrend may be approaching a trough. The decline in DPU was impacted by lower performance from business parks and logistics parks, lower realised foreign exchange gain and weaker Renminbi (RMB) against the Singapore dollar, partially offset by lower finance costs.  

 

Revenue during FY2024 fell by 3.9% y-o-y to $1,837.6 million due to the absence of contributions from CapitaMall Shuangjing, which was divested and CapitaMall Qibao, alongside lower occupancy and rents in business parks and logistics parks. Income loss from Shanghai Fengxian Logistics Park has been addressed with the signing of a master-leased tenant for an eight-year lease in December 2024.

The three malls that underwent AEI saw an improved performance. Excluding CapitaMall Shuangjing and CapitaMall Qibao, gross revenue for the overall portfolio would have declined 2.2% y-o-y.

 

Net property income (NPI) fell by 5.8% y-o-y to $1,219 million in FY2024. In addition to the divestment of the two malls, and lower performance from the business and logistics parks, NPI was also affected by a reduction in property tax incentives.

 

The three malls that underwent AEI in 2023 achieved a 13.7% y-o-y growth in NPI and a blended return on investment (ROI) of about 14%, exceeding the cost of funds. The retail sector accounted for 70.7% of the portfolio&rsquo s gross rental income as of Dec 31, 2024.

 

On the capital management front, CLCT took advantage of lower RMB interest rates to reduce its overall cost of debt, issuing a CNH400 million bond due in 2027 at 2.9% per annum in October 2024 to replace higher-interest SGD loans.

 

This increased the proportion of its RMB-denominated debt facilities to 35% of its total debt as at end-December 2024. CLCT aims to further raise this to approximately 50% of its loan book by the end of 2025.

 

Aggregate leverage crept up by 3 basis points in the fourth quarter to 41.9% but interest coverage ratio was unchanged q-o-q at 3 times.