CapitaLand China Trust - OCBC Investment 2024-07-30: Rolling With The Punches

• CapitaLand China Trust (SGX:AU8U)'s 1H24 gross revenue fell 2.3% y-o-y to CNY925.9m, with the logistics park portfolio being the main drag on performance, while NPI declined by a greater 4.9% y-o-y to CNY631.3m following a reduction in property tax incentives for business parks.

1H24 results slightly missed our expectations

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• The distribution, which is due to be paid out on 25 Sep 2024, constituted 48.1% of our initial full year forecast, which we deem to be slightly below our expectations.

Management remains positive on the performance of its retail portfolio, though cost pressures could increase in 2H24

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• Despite our concerns around cautious consumer sentiment and downtrading trends in China, operational metrics remained healthy, in part due to a favourable tenant mix (such as improved essentials as well as food & beverages offerings).
• Overall retail portfolio occupancy remained stable q-o-q at 97.8%, and negative rental reversions (based on first incoming rent of new lease versus last period outgoing rent of old lease) have narrowed from -3.4% in FY23 to -1.3% in 1H24.
• On an average versus average basis, rental reversions were positive in seven out of nine malls. 1H24 shopper traffic and tenant sales grew 14.1% and 6.6% y-o-y, respectively, with the latter surpassing pre-COVID levels by 1.8%.

Between a rock and a hard place: balancing occupancy with rental reversions for new economy assets

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Ada Lim OCBC Investment Research | https://www.iocbc.com/ 2024-07-30 SGinvestors.io

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