CapitaLand China Trust Unveils Strategic C-REIT Move, Optimises Portfolio Amid Mixed 1H 2025 Results

Key Highlights: Strategic C-REIT Stake, Portfolio Optimisation, and Detailed 1H 2025 Earnings Review

CapitaLand China Trust (CLCT), Singapore’s largest and first China-focused S-REIT, has announced a series of strategic moves and reported its financial results for the first half of 2025. The Trust, backed by the CapitaLand Group with over 30 years of experience in China, continues to position itself as a trusted proxy for China’s domestic growth with a multi-asset mandate spanning retail, business parks, and logistics parks.

1. Strategic Pivot: Entry into Onshore C-REIT Market

• First International-Sponsored Retail C-REIT Stake: CLCT will divest CapitaMall Yuhuating and take a 5% strategic stake in the new CapitaLand Commercial China REIT (CLCR), alongside other CapitaLand entities. This marks the first international sponsorship of a retail C-REIT in China.
• Unlocking Value and Capital Recycling: The divestment of CapitaMall Yuhuating to CLCR was achieved at a final sale price of RMB813.8 million—an 8.8% premium to the floor price and a 3.7% premium to its end-2024 valuation. This move strengthens CLCT’s balance sheet, reduces leverage, and provides additional capital flexibility for buy-backs and future growth.
• Broader Pipeline Access: CLCT retains rights of first refusal (ROFRs) over CapitaLand’s retail assets, while gaining new recycling channels through the onshore C-REIT platform.
• Financial Impact: The transaction allows CLCT to reduce its aggregate leverage from 42.6% to 41.2% (and potentially to 42.3% if some proceeds are used for unit buy-backs), enhancing its financial flexibility.

2. Portfolio and Operational Performance: 1H 2025

• Gross Revenue: RMB867.6 million, down 6.3% year-on-year, largely impacted by lower rents and occupancy in some retail and business park assets, as well as specific supermarket upgrades and a business park tenant pre-termination.
• Net Property Income (NPI): RMB580.3 million, down 8.1% year-on-year. Excluding one-offs, NPI would have been comparable to 2H 2024, thanks to cost savings of 2.5%.
• Distribution Per Unit (DPU): 2.49 Singapore cents, down 17.3% year-on-year (excluding the Yuhuating distribution). This was due to lower NPI and a weaker RMB against SGD, partially offset by lower finance costs.
• Portfolio Occupancy: 91.6% overall, with retail at 96.9%, business parks at 86.9%, and logistics parks at 96.6%. Retail portfolio saw some pressure from strategic anchor upgrades, while business parks faced a cautious leasing environment.
• Active Asset Management: Key asset enhancement initiatives (AEIs) included supermarket upgrades at CapitaMall Xuefu (achieving >7x supermarket sales/sqm), CapitaMall Wangjing (introduction of JD.com’s “7Fresh”), and CapitaMall Xizhimen. Business parks attracted new MNC tenants and improved community engagement.

3. Capital Management and Debt Profile

• Healthy Balance Sheet: S\$1.82 billion in total debt as of 30 June 2025, with a gearing ratio of 42.1% and average cost of debt at 3.42%.
• Improved RMB Funding: Issued RMB600 million bonds at 2.88% in April 2025, increasing RMB-denominated debt to 41% (on track for ~50% by year-end), thus reducing forex risk and financing costs.
• Staggered Debt Maturity: No refinancing risk for 2025, with well-distributed maturities and 87% of debt at fixed rates.
• Sustainability Focus: 68% of portfolio is green-certified, and sustainability-linked loans comprise 51% of total debt.

4. Business Outlook: Macro and Sectoral Trends

• Macro Tailwinds: China’s GDP grew 5.2% YoY in 2Q 2025; retail sales rose 4.8% in June. The US-China trade truce and resumption of AI chip exports to China signal easing trade tensions. The government has rolled out fiscal and monetary stimuli, including tax cuts, salary hikes, and a 30-point plan to boost consumption.
• Retail AEI Pipeline: Ongoing AEIs at major malls are expected to unlock higher rental value by converting low-yielding anchor spaces into vibrant, higher-yielding zones with improved tenant mix and circulation.
• Business Parks: Market remains challenging, with pressure on rents and occupancy; however, government policies supporting tech and innovation sectors may provide new growth opportunities.
• Logistics Parks: Strong performance with full occupancy in 3 out of 4 assets; early tenant renewals have been secured even at lower reversion rents.
• Portfolio Risk Mitigation: Tenant concentration risk reduced, with the top 10 tenants contributing just 8.3% of total rental income. WALE stands at 2.4 years by NLA, providing income visibility.

5. Other Shareholder-Important and Potentially Price-Sensitive Details

• Distribution Schedule: 1H 2025 distribution of 2.49 S cents per unit, with record and payment dates already announced.
• Liquidity and Trading: CLCT offers an attractive 6.7% trailing 12-month yield, above market benchmarks, and averages 2.8 million units in daily trading volume.
• Differentiation from CLCR: CLCT remains a diversified, multi-asset vehicle with a broader investment mandate and regulatory leverage cap of 50%, compared to CLCR’s retail-only focus and 28.6% leverage limit.

Conclusion: Why This Matters for Shareholders and the Share Price

The most significant, price-sensitive development is CLCT’s active participation in the onshore C-REIT market through the CapitaLand Commercial China REIT, unlocking value from mature assets and gaining new exposure to onshore capital markets. This move, combined with disciplined capital management, ongoing AEIs, and a clear focus on portfolio resilience, positions CLCT as a nimble and forward-looking proxy for China’s evolving real estate sector.

However, near-term DPU softness and sectoral headwinds in business parks and retail should be carefully monitored. The Trust’s ability to stabilise earnings and drive organic growth through AEIs and capital recycling will be key to future share price performance.

Disclaimer: This article is for informational purposes only and does not constitute investment advice or an offer or solicitation to buy or sell any securities. Past performance is not indicative of future performance. Investors should conduct their own research and consult their financial adviser before making investment decisions.

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