CapitaLand China Trust: FY24 Results – Phasing out a storm
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- Full year FY24 DPU declined 16% y/y to 5.65 scts (7% below our estimates) on weaker performance from new economy assets
- Retail continues to be the best performing asset-class with high occupancy of 98% maintained and -1.1% reversions for leases signed; Business Parks (BP) maintains occupancy on -5% reversions, bright spot in logistics to secure new anchor tenant at Fengxian Logistics park in Shanghai to bring logistics occ back to 98%
- Gearing rose to 41.9% on a -1.7% decline in valuations but remains well buffered; Shift to increase more RMB-exposure in loan book (from c.35% in FY24 to c.50% by end FY25) to support interest cost
- Estimates Under Review
FY24 Results – Below Estimates. CapitaLand China Trust (CLCT) reported a -3.9% and -5.8% y/y decline in gross revenue and NPI to RMB1,837m and RMB1,219m respectively. Lower top-line revenue was due to Shuangjing Mall divestment, loss of income contribution from Qibao mall and weaker performance in new economy assets. Distribution income declined a further 15% y/y to SGD96.8m due to an added layer of foreign translation losses. DPU for FY24 declined c.16% to 5.65 Scts - below DBS estimates and consensus estimates. Retail portfolio continues to be the anchor amidst stormy seas, with NPI performance up 1.9% y/y on a same store basis and boosted by stronger performance at three AEI-malls which saw a c.14% boost to NPIs to offset performance of weaker malls. Underlying malls performance continues to trend healthy with a c.9% y/y increase in shopper traffic and c.2% y/y increase in shopper traffics and a below-pandemic occupancy cost of 18.4%. Retail occupancy was the best across the asset classes, improving 30 bps q/q to 98.2%, with average signing reversions of -1.1%. New economy continues to see bright spots amidst a softer trading environment. Business parks reversions were -4.5% to maintain stable occupancy q/q at 87.6% but trended lower in the year after an anchor tenant exit at Ascendas Innovation Towers (-20 ppt to 72% occ on an asset level). Logistics park segment saw a boost in occupancy from 72.5% to 97.6% from a new anchor tenant secured in the portfolio, with -25% reversions in line with an overall deterioration of logistics rents in China.
Our thoughts. CLCT recognised a second year of double digit declines in DPUs, phasing out weakness in the new economy segment which continues to be impacted by over-supply and an industry-wide correction in logistics rents. Currency exchange has added another layer of weakness to past DPUs, trending now to a two decade high rate of c.5.4:1.0 (SGD:RMB) and we see additional forex risk to reduce in magnitude for forward years. The managers have also been pro-active in managing capital structure by increasing RMB loan-book exposure to 35% (from 20% a year ago) to ride on dovish onshore interest rates. This has effectively locked in a stable interest cost of 3.51% as at year end (with a 4 bps savings in average cost q/q). Gearing increased by 1.1 ppt h/h to 41.9% reflect at -1.7% y/y decline in portfolio valuations (logistics assets c.-10% y/y; retail and business park assets -1.1 / 1.2% y/y) but remains sufficiently buffered due to CLCT’s strategic divestments last year to maintain balance sheet flexibility. CLCT’s focus on maintaining occupancy within retail and business park is delivering commendable results to maintain above sub-market occupancy rates. Our concerns is tilted towards the logistics segment which could see further softening as a sub-asset class in lieu of higher tariffs administered on China by the US, which will impact export-businesses and logistics assets supporting these businesses. CLCT’s Shanghai Fengxian logistics park sits closer to a key export hubs as opposed to the other three logistics park within CLCT’s portfolio in Kunshan, Wuhan and Chengdu which are more focused on domestic businesses. The asset has been effectively de-risked ahead of the incoming tariff policies, with a new anchor tenant secured in Dec-24 to fully lease the asset for a long tenure of 8-years. While reversions signed likely reflect softening headline rents for logistics spaces in the tune of 20-30% decline, there will be in-built annual escalation within this lease at a low single-digit percentage per annum. Occupancy for the logistics sub-segment improved drastically to 98% (from c.73% last quarter), but riding out of negative rent reversions in the portfolio will likely extend to another year and beyond. 
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