1H24 DPU in line with estimates. CLCT reported a 4.9% y/y decrease in 1H24 NPI to RMB631mn, on lower contributions from its logistics and business park portfolio, mitigated by strong retail performance. DPU for 1H24 of 3.01 Scts was flat on a h/h basis but down by 19% y/y, in line with our full year estimates of 6.0 Scts. The retail segment remains the most resilient with flat contributions y/y albeit the divestment of Shuangjing mall and termination of Qibao mall lease. On a same-store-basis, retail segment NPI growth would have been 6.1% y/y, supported by recent AEI completions and with underlying tenant sales remaining healthy and registering a 6.6% y/y improvement. Reversions were positive at 1.2% for leases signed in the period, with high occupancy rate maintained at 97.8%.

Upcoming lease renewals to monitor in new economy segment. Within the new economy segment, business park occupancy improved marginally to 90.5% (+0.3ppt q/q), with reversions slightly negative at -3.7% for this half, tilted towards higher than average negative reversions within Hangzhou business parks. Logistics segment delivered a mixed set of results. Leases signed in this period were more steeply negative at -27%, as per guidance from previous quarters. Its logistics portfolio occupancy was at 70.4% post one of its tenant vacating at Shanghai Fengxian from business closure. Apart from CLCT’s Shanghai Fengxian logistics asset, logistics occupancy for the other three assets would have ended at c.90% for the quarter.

Gearing and cost of debt stable, held up by RMB denominated loans. CLCT's cost of debt remained stable at 3.49%, with a healthy interest coverage ratio of 3.2 times. Gearing remained stable at 40.8%, with 76% of CLCT's total debt on fixed interest rates. RMB-denominated loan facilities made up c.27% of CLCT’s total debt book this period, with plans to further expand this to 30% by the end of the year.

Our thoughts. Datapoints within the new economy segment continue to remain weak as per guidance, impacted by a general decline in overall submarket rents for logistics assets in China, alongside supply overhang for selected China cities like Hangzhou. We have priced in buffers within our CLCT’s estimates, with full year DPU of 6.0 Scts. Within the new economy segment, we watch for two things (i) upcoming business park lease renewals, which makes up c.26% of BP GRI income for remaining FY24F leases, (ii) tenant prospecting at Fengxian logistics asset which management has guided for vacancy lasting at least 3-6 months. Our view on retail is that reversionary rents will likely remain stable and within the low single digit positive range from AEI completions and inbuilt lease escalation clauses.

Divestments continue to be on the radar and primarily targeted at non-core retail assets for now, including Aidemengdun Mall and Xinnan Mall, where management will look to recycle proceeds to alleviate balance sheet pressures. Further divestment proceeds may go into their share buy-back strategy. While management is open to explore divestments within the new economy segment, rent volatility, alongside a low overlap of bid ask spread has made for a difficult investment market at the current point in time.

Maintain BUY with TP of SGD0.95. Our FY24F DPUs unchanged at 6.0 Scts (-11% y/y) translates to a forward yield of 8.8%.