CapitaLand China Trust (CLCT) BUY: 1Q25 In-Line Results Amid Occupancy & FX Headwinds

OCBC Investment Research Private Limited 24 April 2025
CapitaLand China Trust (CLCT) 1Q25 Update: Navigating Occupancy and FX Headwinds Amid China’s Economic Landscape

Investment Thesis Overview

CapitaLand China Trust (CLCT), a prominent Singapore-based REIT (Ticker: CAPA.SI), manages a diverse portfolio encompassing nine shopping malls, five business park properties, and four logistics park properties spread across 12 major cities in mainland China. Since China’s reopening post-pandemic, CLCT’s assets have shown varied performance trajectories.
The retail segment, comprising malls, has reaped benefits from a gradual recovery in domestic consumption, further bolstered by management’s active asset enhancement initiatives (AEIs) and repositioning strategies. Conversely, the new economy assets (business parks and logistics facilities) face challenges with lackluster growth momentum and subdued business sentiment.
In the immediate future, the retail portfolio is anticipated to be the primary driver of CLCT’s performance. However, the new economy segment is expected to grapple with ongoing volatility and potential downside risks concerning occupancy rates and rental reversions. Over the longer term, CLCT is positioned to potentially benefit from China’s pro-growth policies as the nation’s economic recovery unfolds over multiple years.
OCBC Investment Research maintains a BUY rating on CLCT as of 24 April 2025, with a last closing price of SGD 0.690 and a revised fair value estimate of SGD 0.715.

1Q25 Financial Performance Highlights

CLCT released its 1Q25 business update, providing key operational metrics while being relatively light on detailed financials.
Gross Revenue and NPI: Gross revenue for 1Q25 stood at CNY 439.7 million, a decrease of 6.1% year-on-year (YoY). Net property income (NPI) similarly declined by 6.6% YoY to CNY 292.5 million. These figures represent 24.7% and 24.3% of OCBC’s initial full-year forecasts, respectively.
Adjusted Performance: Management indicated that excluding specific non-recurring events – namely the pre-termination of a lease by a serviced office tenant at Singapore-Hangzhou Science Technology Park Phase II and supermarket upgrading works at three malls – the YoY decline would have been less pronounced, at 4.4% for gross revenue and 4.0% for NPI.

Segment Performance Breakdown

Retail Portfolio: Resilience Amidst Challenges

Revenue and Occupancy: Retail revenue experienced a slight dip of 2.7% YoY. Portfolio occupancy remained healthy, though it saw a minor decrease quarter-on-quarter (QoQ) from 98.2% to 97.7%.
Rental Reversions: Rental reversions were slightly positive, coming in at +0.5% for the quarter.
Shopper Traffic and Tenant Sales: Shopper traffic showed positive momentum, growing 2.4% YoY in 1Q25. However, tenant sales slipped by 2.4% YoY. Excluding the impact of anchor supermarkets undergoing upgrades, tenant sales would have registered a modest growth of 0.7% YoY.
Outlook: There is cautious optimism that potential additional stimulus measures from the Chinese government, aimed at boosting domestic consumption and mitigating US tariff impacts, could positively influence CLCT’s mall performance.

New Economy Assets: Facing Occupancy Pressures

Business Parks: Revenue from business parks saw a more significant decline, falling 9.6% YoY primarily due to lower occupancy. Occupancy dropped by 3.9 percentage points (ppt) QoQ to 83.7%. Key contributors to this decline were Singapore-Hangzhou Science Technology Park Phase II (affected by the lease pre-termination) and Ascendas Innovation Towers.
Logistics Parks: In contrast, revenue from the logistics parks managed to grow by 3.3% YoY. This occurred despite a 1.9 ppt QoQ decrease in overall occupancy to 95.7%. The decline was mainly driven by Chengdu Shuangliu Logistics Park, where occupancy fell to 82.9% following lease expiries. Encouragingly, the remaining three logistics assets maintained full occupancy.

Financial Position and Debt Management

Gearing: CLCT’s gearing ratio increased slightly, moving from 41.9% as of 31 December 2024 to 42.6% as of 31 March 2025.
Cost of Debt: The cost of debt remained stable QoQ at 3.51%. A significant portion, 75%, of CLCT’s debt is secured on fixed rates, mitigating interest rate volatility risk.
Interest Rate Sensitivity: Management provided sensitivity analysis, indicating that a 50 basis point (bps) increase in SGD interest rates would negatively impact FY24 distribution per unit (DPU) by 1.2%. Conversely, a 50 bps decrease in CNY interest rates would uplift FY24 DPU by 1.2%.
Debt Strategy & FX Hedging: In April 2025, CLCT successfully issued a CNY 600 million three-year bond at a competitive rate of 2.88%. This issuance increased the proportion of CNY-denominated debt to 41% of the total, aligning with the strategic goal of reaching approximately 50% by the end of the year to create a natural hedge.

Impact of US Tariffs

Management commentary suggests limited direct impact from potential US tariffs on CLCT’s portfolio:
Retail Tenants: Primarily serve the domestic Chinese market with minimal reliance on US imports.
New Economy Tenants: Assets largely focus on the domestic market. Few business park tenants and the new master lessee at Shanghai Fengxian Logistics Park are reported to have limited direct exposure to the US market.

Revised Forecasts and Valuation

Taking into account the 1Q25 performance and the prevailing macroeconomic environment, OCBC Investment Research has adjusted its forecasts:
DPU Forecasts: FY25 and FY26 DPU forecasts have been lowered by 1.8% and 2.2%, respectively.
Cost of Equity: The cost of equity estimate has been increased by 22 bps to approximately 9%. This adjustment reflects the uncertain macroeconomic backdrop and the potential risk of CNY devaluation as a countermeasure to US tariffs, which could negatively impact distributions and increase gearing risks.
Fair Value Estimate: Consequently, the fair value (FV) estimate for CLCT has been reduced from SGD 0.76 to SGD 0.715.

Key Financial Metrics and Forecasts

Source: REIT Manager, Internal estimates

Security Information (as at 24 April 2025)

• Ticker: CAPA.SI
• Market Cap (SGD b): 1.2
• Daily turnover (SGD m): 2.6
• Free Float: 66%
• Shares Outstanding (m): 1,720
• Top Shareholder: Temasek Holdings Pte. Ltd. 32.5%

Source: Refinitiv, REIT Manager

ESG Considerations

CLCT’s ESG score was maintained as of January 2025. Key highlights include:
Governance: CLCT demonstrates leadership in overall governance practices compared to global peers, featuring a majority independent board, relevant expertise within its audit committee, and board-level oversight of business ethics.
Areas for Improvement: Potential exists for enhancement in human capital management, particularly concerning recruitment and retention challenges associated with skilled portfolio management staff. Green building efforts also present an area for further development.
Sustainability Potential: CLCT has significant potential to capitalize on the growing demand for sustainable buildings and currently offers green leases to its tenants.

Potential Catalysts

Factors that could positively influence CLCT’s performance include:
Sustained positive retail sales momentum, potentially driven by pro-consumption government policies.
Achieving higher-than-anticipated rental reversions across the portfolio.
Successful execution of DPU-accretive acquisitions, asset enhancement initiatives, and effective capital recycling strategies.

Investment Risks

Key risks that could negatively impact CLCT include:
A slowdown in macroeconomic conditions in China, potentially dampening consumer and business sentiment.
Incurring significant costs associated with backfilling vacancies, particularly in the new economy portfolio.
Unfavourable foreign exchange fluctuations, specifically continued depreciation of the Chinese Yuan (CNY) against the Singapore Dollar (SGD).

Valuation Analysis: Peer Comparison

Source: Refinitiv

Update on CapitaLand Commercial C-REIT (CLCR)

On 17 April 2025, CapitaLand Investment (CLI) announced its application for the registration and listing of CapitaLand Commercial C-REIT (CLCR), marking its entry into the China real estate investment trust (C-REIT) market.
Seeding Assets: CLCR’s initial portfolio will comprise two assets: CapitaMall SKY+ in Guangzhou (from CLI) and CapitaMall Yuhuating in Changsha (from CLCT).
Sponsor Stake: CLI, CLCT, and CapitaLand Development (CLD) will collectively hold a minimum 20% interest in CLCR post-listing.
CLCT’s Participation: The proposed transaction involves two components for CLCT:
The divestment of CapitaMall Yuhuating to CLCR.
The subscription of shares in the newly formed CLCR. CLCT will be subject to a five-year lock-up period for the initial public offering units it holds upon CLCR’s listing.
Approvals Required: As this is considered an interested person transaction (IPT), it requires approval from CLCT’s unitholders at an extraordinary general meeting (EGM), in addition to necessary regulatory approvals.
Strategic Rationale for CLCT: Management views this transaction as an opportunity to unlock value from a mature retail asset (CapitaMall Yuhuating) and gain exposure to the emerging China C-REIT asset class. Net proceeds from the divestment may be utilized for debt reduction and/or share buybacks.
Pipeline Access: CLCT will retain its existing right of first refusal (ROFR) over CLI’s pipeline of potential future assets in China.
Structure & Differentiation: The proposed structure involves CLCT divesting an asset into CLCR while also becoming a unitholder in CLCR alongside CLI and CLD. CLCR will focus specifically on commercial assets within the China C-REIT framework, differentiating it from CLCT’s broader mandate and Singapore-listed structure. Further details are expected in due course.

Company Overview

Background: CapitaLand China Trust (CLCT) was established as a private trust on 23 October 2006 and listed on the Singapore Exchange (SGX-ST) on 8 December 2006. The Manager is CapitaLand Retail China Trust Management Limited, and the Trustee is HSBC Institutional Trust Services (Singapore) Limited.
Investment Mandate: CLCT aims to invest long-term in a diversified portfolio of income-generating real estate and related assets primarily used for retail, office, and industrial purposes (including business parks, logistics facilities, data centres, and integrated developments) across China, Hong Kong, and Macau.
Portfolio Scale: As Singapore’s largest China-focused REIT, CLCT has expanded significantly since its IPO. From an initial seven shopping malls, the portfolio now comprises 18 properties across 12 key Chinese cities. This includes nine retail properties, five business park properties, and four logistics park properties, totaling a gross floor area (GFA) of 1.8 million square meters.

FY24 Portfolio Insights

• Gross Revenue Contribution by Asset Type: Retail (71.5%), Business Park (25.9%), Logistics Park (2.7%).
• Portfolio Value Breakdown by Asset Type: Retail (71.3%), Business Park (22.5%), Logistics Park (6.1%).
• Gearing Ratio Trend: The gearing ratio has trended upwards from 31.5% in FY20 to 41.9% in FY24.
• Distribution Per Unit (DPU) Trend: DPU was 6.35 S cents in FY20, peaked at 8.73 S cents in FY21, and stood at 5.65 S cents in FY24.

Source: REIT Manager

Historical Financial Performance (FY2020-FY2024)

Income Statement Summary (Millions of SGD)

Profitability Ratios (%)

Credit Ratios

Source: Refinitiv (for historical financial tables)