• 3Q23 gross revenue down 1.9% y-o-y to RMB478m, 9M23 net property income stacks up to S$188m, trails behind our full year estimates
• Drivers for this quarter continues to be led by retail recovery as expected, with 3Q23 sales at c.107% of pre-covid levels with a boost from AEI completions and Golden Week spendings; Business park segment saw a steepening of vacancies amidst soft demand and supply headwinds, Reversions for both retail and business park segments is flat for the quarter on our estimates
• Early refinancing of FY24 debt has lent strong support for cost of debt, with issuance of 3.8% coupon RMB denominated bond in Oct-23
• Estimates and TP under review

Performance continues to be led by retails segment as expected.

3Q23 Operational numbers reported saw a 1.9% y-o-y decline to RMB478m and net property income up 1.2% y-o-y to RMB316m On SGD terms, 3Q23 net property income saw a -8.4% y-o-y decline on SGD terms, with 9M23 net property income stacking up to c.S$188m, and behind our full year estimates. The flat NPI on RMB terms was led by stronger performing retail malls which saw portfolio contributions grow 15% y-o-y, partially netting off decline in revenue from impending closure of Qibao mall and lower occupancy from the business park segment.

CLCT shared that master lease tenant at Shuangjing mall has fallen into arrears for the quarter, although over the years, exposure to the tenant has been largely reduced with the impending exit of Qibao Mall. Exposure to Shuangjing mall in terms of valuation in RMB terms is approximately c.3% to retail portfolio and c.2% in consideration of the entire portfolio. 

Flat reversions for both retail and new economy segments. 

Underlying retail drivers continues to show momentum from 1H23 numbers, which showed a V-shaped recovery in both traffic footfall and tenant sales. For the quarter, shopper traffic rose 35% y-o-y (led by Beijing Malls) and tenant sales has recovered to c.107% of 2019 comparable levels. We estimate that retail reversions signed for the quarter to be flat and boosted by AEI completions for the period, the most recent being Rock Square mall and Grand Canyon mall. Occupancy rose 1ppt q-o-q to 97.8%.

Early securement of tenants within business parks segment in a supply-heavy market. New leases in the quarter saw demand from tenants within the electronics and professional services segment. 

We estimate that reversions signed for the period is flat at 0.9% following decent reversionary numbers in 1H23 at 3.9%. CLCT has secured about c.70% of lease expiries in 4Q23 by NLA. Business park occupancies on an asset level continue to see flattish momentum, while lower occupied assets such as AIT (Ascendas Innovation Towers) amd SG-HZ science park 1 saw a steepening of vacancies at 4.3% - 1.1% q-o-q.

Operational numbers continue to reflect sluggish sentiments within the new economy asset space, which sounds a similar sluggish picture of recovery from other logistics S-REITs with China exposure, which may prolong portfolio vacancies within the new economy and logistics segments. New economy segment which has been a pillar of support through the pandemic years, may now turn around as a portfolio drag with NPI for the period flat y-o-y albeit a low base in 2022. 

Capital structure has been supportive. Cost of debt flat q-o-q at 3.55% on a high fixed hedge ratio of 75%, alongside dovish onshore denominated debt which makes up 15% of total portfolio debt exposure, and in line with our estimates. ICR ratio saw a decline from 3.4x in 1H23 to 3.2x in 3Q23. CLCT has entered into early refinancing for debt due in FY24, on a c.100bps savings in interest cost for SGD denominated debt and successfully issued a a 3.8% coupon RMB denominated bond. 

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