Diversification pays off
• Plans to provide 0.2 months of rental relief
• 4.1% exposure to Greater Shanghai by AUM
• Flat/+6.5% rental reversion for Retail/New economy portfolio
Investment thesis
CapitaLand China Trust (CLCT) announced its 1Q22 business update. Shopper traffic declined 7.1% YoY while tenants’ sales grew marginally by 0.3% YoY in 1Q22. In light of the Covid-19 situation in China, three
retail malls were closed in 1Q22 and will reopen when local conditions permit. CLCT plans to provide rental relief of 0.2 months equivalent of gross rental income to its affected retail tenants and also seek to file insurance claims to partially offset the cost of closure. For CLCT’s New Economy portfolio, all business parks remained open with no impact on the operations. Activities at two of CLCT’s logistics were paused, in line with the lockdown in Shanghai, but CLCT continues to receive full rental payments from them. Overall, performance of the New Economy portfolio remained resilient, benefiting from policy support, growth in local consumption and demand for logistics. After adjustments and increasing our risk-free rate from 1.9% to 2.5%, our fair value decreases from SGD1.50 to SGD1.40.
Investment summary
• Shopper traffic fell 7.1% YoY while tenants’ sales grew by 0.3% YoY – CapitaLand China Trust (CLCT)
announced its 1Q22 business update. Shopper traffic improved 6% year-over-year (YoY) in Jan and Feb
2022 but was impacted by the resurgence of Covid19 cases in Mar 2022. Consequently, shopper traffic
declined 7.1% YoY while tenants’ sales grew marginally by 0.3% YoY in 1Q22. In light of the Covid19 situation in China, CapitaMall Aidemengdun, Qibao and Xuefu, totalling ~9% of asset under management (AUM) were closed in 1Q22 and will reopen when local conditions permit. CLCT plans to provide rental relief of 0.2 months equivalent of gross rental income to its affected retail tenants (~0.3 months provided in FY21) and also seek to file insurance claims to partially offset the cost of closure.
• Positive rental reversions of 6.5% for New Economy portfolio – For CLCT’s New Economy portfolio, all
business parks remained open with no impact on the operations. Activities at two of CLCT’s logistics were
paused, in line with the lockdown in Shanghai, but CLCT continues to receive full rental payments. As of
31 Mar 2022, occupancy rate of business parks dipped slightly by 1.5 percentage points (ppt) quarter-over-quarter (QoQ) to 94.7%. On the other hand, logistics park occupancy grew marginally by 0.2 ppt QoQ to 97.6%.
• New Economy portfolio remained resilient – Overall, performance of the New Economy portfolio (20% by AUM) remained resilient with positive rental reversions of 6.5% in1Q22. Management expects healthy leasing demand to continue for business parks and logistics, benefiting from policy support, growth in local consumption and demand for logistics. Rental reversions of the retail portfolio improved from -3.4%
in FY21 to flat. Leasing environment is likely to remain cautious. CLCT will continue to adopt an active and
flexible approach, while optimising tenant mix to attract shoppers. After adjustments and increasing our risk-free rate from 1.9% to 2.5%, our fair value decreases from SGD1.50 to SGD1.40.
ESG Updates
• CLCT’s is on par with global peers on corporate governance practices. As a CapitaLand-sponsored
REIT, CLCT aligns its sustainability management approach with that of CapitaLand Limited. While CLCT benefits from CapitaLand’s 2030 Sustainability Master Plan, it continues to lag peers in reinforcing its own environmental performance. As of 2020, only 5.9% of its portfolio was certified to meet green building standards (the Retail REITs sub-industry average was 45.1%). Moreover, CLCT shows lagging efforts to attract and retain talent relative to peers.