• Topline revenue declined c.1.6% y-o-y to RMB468.1m, in tandem, NPI dropped 7.7% y-o-y to RMB313.1m and trails behind estimates
• Key positives: Retail segment (70% exposure) continues to maintain strong occupancies of 98% with underlying tenant sales and footfall increasing in the mid-teens percentage on a low base, Cost of debt declined 10 bps q-o-q through increasing exposure to dovish onshore debt 
• What we are watching: (i) Occupancy of new economy segment as submarket continues to see persist supply overhang, (ii) Strategy at Fengxian logistics which saw the vacation of a 3PL tenant this quarter, (iii) Tenant in arrears
• Estimate under review

1Q24 Operational Update

CapitaLand China Trust reported a c.1.6% y-o-y decline top line revenue to RMB468.1m. The retail segment continue to perform better than the new economy segment, and in line with our expectations, rising 5.7% y-o-y on a same store basis (excluding divestment of Shuangjing and Qibao mall). Underlying operational results continues to support the health of the retail segment and its high occupancy of 98%, with shopper traffic and tenant sales increasing 17% and 13% y-o-y respectively on a low base. The new economy segment continues to see deepening woes, delivering a 6.6% y-o-y decline in gross revenues. Both the business parks and logistics segment continue to see downward momentum in occupancies, landing at 90.2% and 67.6% respectively. Notably, one of CLCT’s 4 logistics asset saw the vacation of its tenant in the quarter from a c.60% occupancy previously. Capital management front was generally stable on a q-o-q basis with gearing ending at 40.8%, and cost of debt of 3.47%  (10 bps decline q-o-q). RMB denominated loan rose from c.20% of overall debt in 4Q23 to 23% this quarter, with a long term target to increase onshore exposure to 30%. There will be no refinancing requirement for the rest of the year. 

Our views

The vacation of CLCT’s Fengxian logistics asset, was the second notable tenant vacation, after the exit of Shuangjing Mall’s master lease (which was subsequently divested). Management guided that they expect at least 3-6 months of vacation for the asset, depending on the capex requirement of the new tenant. We remain cautious on the tenant risk within the new economy segment, which will see an additional layer of submarket supply risk to see potential suppression in reversions. Retail remains the shining star across CLCT’s portfolio, where we believe reversionary rents from AEI completions and in-built lease escalations within the portfolio should continue to help hold reversions flat for this segment as we expect flat or marginally positive growth in NPI for this segment this year. Estimates under review.

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