Optimism Recently Returned To China Real Estate Players

Bucking the regional trend, China’s economy is expected to grow by 1.9% in 2020 on the back of a faster than expected recovery in 2Q20, placing the IMF’s GDP growth forecast for 2021 to 8.2% assuming a smooth transition from public sector support to private sector demand.
Of the 10 largest constituents of the FTSE ST China Index, three – comprising two REITs and a real estate developer – are in the real estate segment. They are CapitaLand Retail China Trust, Sasseur REIT and Yanlord Land Group.
Business activities for CapitaLand Retail China Trust, Sasseur REIT and Yanlord Land are also gradually resuming in tandem. As a result, the 2 REITs and Developer are more optimistic about financial performances in the near term, pointing to expectations of stronger retail sales & housing demand in coming quarters.

China’s GDP growth has bucked the regional trend in 2020 and is expected to resume its more normalised path of 8% growth in 2021. As the IMF highlighted this month, after hitting a trough in February, China’s growth received a boost from infrastructure, real estate investment, and a surge in exports, mainly of medical and protective equipment, as well as work-from-home-related electronics. The regional economic outlook (click here) added that this has been followed by a gradual recovery in private non-housing investment and consumption. In the 2020 year to 29 October, China’s Small-cap Stock Indices have also kept pace its Large-cap Indices, which compares to a significant under performance over the past three year.

The FTSE ST China Index is based on the underlying constituents of the FTSE ST All-Share Index, which have the majority of their sales revenue derived from or operating assets located in Mainland China. The FTSE ST China Index, aims to capture the performance of the largest Chinese-listed companies on the SGX Mainboard by full market capitalisation.

Companies eligible for inclusion in the FTSE ST China Index must feature in the FTSE ST All-Share Index, and at each review derive at least 50% of their sales revenue from Mainland China, or have at least 50% of their operating assets or revenue located in Mainland China. Of the 10 largest constituents of the FTSE ST China Index, 3 – comprising two REITs and a real estate developer – are in the real estate segment. They are CapitaLand Retail China Trust, Sasseur REIT and Yanlord Land Group.

For the factsheet on the FTSE ST China Index, click here.

Highlight from CapitaLand Retail China Trust (SGX:AU8U)’s recent announcements

Strategy

On 30 September 2020, CapitaLand Retail China Trust unveiled plans to expand its investment strategy beyond the retail sector to include assets that are used for office and industrial purposes, focusing on long-term investment in real estate and real estate-related assets in China, Hong Kong and Macau.
This includes assets used primarily for retail, office and industrial purposes, such as business parks, logistics facilities, data centres and integrated developments.
With the expanded investment strategy, CapitaLand Retail China Trust’ will be better positioned for growth as it will be the dedicated Singapore-listed REIT for CapitaLand Group’s non-lodging China business, with acquisition pipeline access to CapitaLand China’s assets.
In addition, CapitaLand Retail China Trust’ would gain exposure to a more extensive pool of tenants across the sectors to reduce tenant concentration risk.
It allows CapitaLand Retail China Trust’ to seize new opportunities in the growing China real estate market and enhance the manager’s ability to provide long-term and sustainable returns to unitholders.
A diversified portfolio of assets in this regard will make the portfolio more resilient and less susceptible to any adverse changes caused by unforeseeable external events and factors.

Operations

With the easing of restrictions, all CapitaLand Retail China Trust’ malls and trade categories are operational.
As retailers realign their business strategies and expansion plans, leasing demand is expected to be soft near term.
Sees continued recovery momentum in traffic and sales.
To focus on refreshed mall offerings and proactive tenant remixing to capture new consumer preferences.
Create community-based stickiness by organising interactive and exciting thematic activities.
Accelerated digitalisation journey in response to COVID-19.
Over 1,200 retailers have been onboarded onto China’s CapitaStar platform YTD.
Leverage on Capitastar’s sizeable member base of more than 10 million people, to run targeted promotions such as live streaming to engage shoppers and stimulate more spending.

Highlight from Sasseur REIT (SGX:CRPU)’s recent announcements

There has been concerted effort to promote domestic internal consumption by the authorities in China in a bid to balance volatile external environment, which will benefit outlet sales.
As the situation in China continues to improve, the manager of Sasseur REIT believes the remaining quarters of 2020 will deliver stronger performances and sales will return to pre-pandemic levels.
Growing middle-class population in China creates a large potential customer base for the outlet mall market in China.
China’s outlet industry expected to become the world’s largest outlet market in terms of sales revenue by 2030.
Strong growth potential -
- Two right of first refusal properties (ROFR) and nine pipeline properties -
  - Assuming Sasseur REIT acquires the full interest in the ROFR properties and pipeline properties, it will almost quadraple the total gross floor area of the initial portfolio.
- Strategically located portfolio in fast-growing cities.
- Leading privately-owned outlet mall operator in the Chinese outlet mall industry.
- First-mover advantage in the Tier-2 Chinese cities with an increasing addressable market size.
- Diversified mix of tenants across various trade sectors.
Market Leadership
- Unique Art-Commerce Business Model : Full alignment of interests of tenants, REIT unitholders, the REIT and entrusted managers, with the potential for sharing upsides.
- Proactive Asset Management Strategy : Focus on asset enhancement, organic growth and yield accretive acquisitions.
- Resilient Retail Segment : High growth sector offering attractive value-for-money branded products that cater to the rising aspirations and demand of the expanding Chinese middle class.
- Strong Partnerships: Longstanding and strong business relationships with leading premium international and local retail brands.

Highlight from Yanlord Land Group (SGX:Z25)’s recent announcements

All of Yanlord’s construction sites in China had resumed works by April 2020, and around 70% of its construction sites are expected to catch up on their original construction schedule, with the balance 30% experiencing delays of one to two months from the original schedule.
In 1H 2020, China’s real estate sector recovered in a stable manner, with total investment in residential development rising 2.6% to RMB4.63 trillion, based on data compiled by the National Bureau of Statistics on 16 July 2020.
- Buoyed by resilient demand for residential properties, primary commodity housing prices in the top 70 cities rose approximately 4.9% y-o-y in June 2020.
As at 30 June 2020, the Group together with its joint ventures and associates recorded an accumulated contracted pre-sale of RMB75.779 billion, representing a total GFA of approximately 2.4 million sqm, which are pending recognition in 2H 2020 and beyond.
In line with the stable recovery of China’s real estate industry, the Group together with its joint ventures and associates will continue to launch new projects for pre-sales in accordance with its development schedule; this would include launching new projects and new batches of existing projects in 2H 2020.
To better mitigate against potential volatility, the Group will continue to maintain its healthy cash position and prudent financial policies to support sustainable growth and development.
Barring any significant deterioration in the global economy and other unforeseen circumstances like policy fine-tuning in specific cities, the Board is confident of the Group’s performance relative to the industry trend for the next reporting period and the following 12 months, based on number of pre-sale units to-date, expected delivery schedules and on-schedule construction works in progress.
In view of the positive rebound on the sector and healthy demand from home upgraders in China, Yanlord, with its high-quality landbank and strong brand recognition, believes it is well poised to tap the continued demand growth for quality residential developments in the country.

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