• 9M23 NPI of S$188m trails behind our full year estimates
• 3Q23 gross revenue down 1.9%; Stable retail NPI with sales at c.107% of pre-covid levels; Business Park saw higher vacancies on flat reversions; Master lease tenant at Shuangjing in arrears (c.1-2% GRI exposure)
• Early refinancing of FY24 debt and issuance of 3.8% coupon RMB denominated bond in Oct-23
• Maintain BUY with lower TP of S$1.20; FY23F yield at 8.8%

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

Flat reversions for both retail and new economy segments. Underlying retail drivers continues to show momentum from 1H23 numbers, which has seen a V-shaped recovery in both traffic footfall and tenant sales. For 3Q23, shopper traffic rose 35% y-o-y (led by Beijing Malls) and tenant sales recovered to c.107% of comparable level in 2019. We estimate that retail reversions signed for the quarter were flat and boosted by AEI completions for the period, especially Rock Square mall and Grand Canyon mall. Occupancy rose 1ppt q-o-q to 97.8%.

Securing tenants early within business parks segment in a supplyheavy market. New leases in the quarter saw demand from the electronics and professional services segment. We estimate that reversions signed for the period were 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 most assets were unchanged, while AIT (Ascendas Innovation Towers) and SG-HZ Science Park 1 saw a steepening of vacancies by 1.1- 4.3% q-o-q. Operational numbers continue to reflect sluggish sentiment within the new economy asset space, which is similar to other logistics SREITs with China exposure. Hence portfolio vacancies within the new economy and logistics segments may not improve at this juncture, in our view. New economy segment which has been a pillar of support through the pandemic years, may now be a portfolio drag with NPI for the period flat y-o-y from a low base in 2022.

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

Key supermarket market master lease tenant falls into arrears. One of CLCT’s top retail tenants within the supermarket category has fallen into rental arrears in the past quarter. The tenant in question was one of two master lease anchor tenants at Shuangjing (c.60% of the space), and a previous tenant at Grand Canyon before its exit. While CLCT is currently drawing down on rental deposits by the tenants, it will need to find a more concrete plan for the lease. Shuangjing mall contributed c.3% to total gross revenue income in FY22, while the supermarket tenant contributes c.1-2% to GRI at Shuangjing mall.

Maintain BUY with lower TP of S$1.20 (previously S$1.40). CLCT continues to experience weakness in the new economy segments and a depreciating RMB against SGD. We have cut our DPU forecasts for this year on the basis of a weaker than expected quarter in 3Q23, whereby most of the topline recovery for this year (FY23) will be offset by translation losses. The RMB has depreciated by c.8% against the SGD.

We factored in slower recovery in occupancy and flatter reversions (negative within logistics assets) amongst the new economy assets. On an individual asset level, we have carved out income contributed by the supermarket tenant that was in arrears at Shuangjing mall starting from FY23. We have reduced our FY23F and FY24F DPUs by 5-9% to 7.54 / 8.07 Scts to 7.14 / 7.32 Scts. CLCT trades at a forward yields of 8.8% / 9.0% on FY23F / FY24F assumptions.