CapitaLand China Trust - Largest China-Focused Singapore REIT

First and largest China-Focused S-REIT

CapitaLand China Trust, or CLCT, has a portfolio of nine shopping malls, five business park properties, and four logistics park properties in China. 

This portfolio is spread out across 12 Chinese cities with a total gross floor area of approximately 1.8 million square metres. 

CLCT’s portfolio was worth around RMB 24 billion as of 31 December 2024.

The retail portion makes up the bulk (70.7%) of gross rental income (GRI) for 2024. 

Business parks took up around a quarter (25.8%) of GRI while logistics park made up the remainder (3.5%). 

CLCT’s strategy is to build a balanced, multi-asset portfolio to tap into China’s domestic consumption growth and its innovation-driven economy through four key pillars.

Impacted by weak economic environment in China

With CLCT’s portfolio being concentrated in China, the REIT had to grapple with tough conditions in the past several years, both at the macroeconomic level and at the country level. 

Interest rates saw their sharpest increase ever from 2022 to 2023, rising by 4.88 percentage points within a short span, resulting in sharply higher finance costs for the REIT. 

At the same time, China implemented a COVID-zero policy in 2019 that enforced strict quarantine protocols, resulting in movement restrictions across the country. 

This policy involved mass testing, quarantining the sick, and imposing draconian lockdowns. China began to ease this policy only at the tail end of 2024 and slowly lifted restrictions on intra-country travel and entry into public spaces.

Back in 2021, the manager acquired the portfolio of business and logistics parks to help the REIT pivot away from a pure retail strategy. 

Retail malls were suffering back then as COVID-zero restricted movements. While 2022 saw a full year of contributions from these newly acquired assets, rental reliefs had to be doled out to mall tenants who were adversely impacted by prolonged COVID-zero lockdowns.

Subsequently, China began experiencing weak consumer spending as its economy was hit by a flurry of real estate woes in 2023 and 2024, with many prominent Chinese developers running into financial difficulties. 

Business and logistics parks were subsequently hit by oversupply and weak occupancies as tenants pulled out or downsized. The result was a consecutive three-year decline in CLCT’s distribution per unit (DPU).

Retail segment more resilient in 2024

CLCT is witnessing differing fortunes for its malls segment, versus its business and logistics parks segments. 

On the retail front, although the China REIT reported slower growth in shopper traffic and tenant sales for the fourth quarter of 2024, the full year (2024) still saw shopper traffic grow 8.7% year on year and tenant sales rise 2% year on year. 

The retail division also maintained an impressive occupancy rate of 98.2%.

Asset enhancement initiatives (AEIs) carried out in 2023 also boosted the retail segment and achieved a return on investment of around 14% for the three malls that underwent AEIs. 

The star performer was CapitaMall Grand Canyon, which logged a 26.6% year-on-year surge in shopper traffic and a 13.9% year-on-year increase in tenant sales for 2024 post-AEI. 

According to management, more initiatives are slated for 2025.

CLCT also expects China’s recent policy measures aimed at boosting domestic consumption and household income a to have a positive impact on the retail sector.

Logistics and business parks facing headwinds

The situation remained tough for business and logistics parks. Business parks recorded a negative rental reversion of 4.5% for 2024 while logistics parks saw a negative reversion of 24.5%. 

CLCT’s business park portfolio saw occupancy at 87.6% for 2024, dipping slightly below the 91% recorded in 2023. 

Logistics parks occupancy improved to 97.6%, above the previous year’s 82% and China’s market occupancy of 75% (according to Colliers).

While waiting for a recovery, CLCT’s manager is actively mitigating risks through tenant diversification. 

For its tenant mix, the contribution from the top 10 tenants declined from 10.7% (of total rental income) in 2023 to 9.3% in 2024. The top tenant also contributed just 1.7% of rental income in 2024, down from 2.4% the previous year.

Increasing natural hedge to mitigate currency risk

CLCT has secured refinancing from existing lenders for its tranche of S$200 million debt due this year, pushing it out beyond 2030. This means that just S$3.5 million of loans are coming due for 2025, out of total debt of S$1.86 billion. 

Meanwhile, the manager is also taking advantage of lower RMB interest rates to reduce the REIT’s overall cost of debt.

CLCT recently issued a CNH 600 million bond due in 2028 at a 2.88% coupon per annum. This follows the issuance of a CNH 400 million bond due in 2027 at a coupon rate of 2.9% per annum to replace higher-interest SGD loans. This compares to CLCT’s average cost of debt for 2024 was 3.51%. 

The REIT aims to increase the proportion of RMB-denominated debt as a percentage of its total debt to 50% by the end of this year from 35% in December 2024. 

Key risks

The key risk for CLCT include a persistently weak Chinese economy that negatively impacts consumer spending, thus affecting its retail malls segment. 

The escalation in the global trade war may also impact occupancy and rental reversion rates for its business and logistics parks. 

A mitigating factor is the measures introduced by Chinese regulators to prop up the economy, potentially helping to boost domestic demand and drive consumption.

Price-to-book close to historical low

With a 12-month historical DPU of S$0.0565, CLCT’s shares trades at a distribution yield of 9.3% based on a share price of S$0.605. 

The REIT currently trades at a price-to-book valuation of 0.54x, below its historical average of 0.61x and close to its historical low.

If you are interested to learn more about the outlook of Singapore REITs amidst the current market volatility, join us for our upcoming free webinar on 16 April, where we will discuss if the share prices of Singapore REITs will recover with falling bond yields. Register for free here.

Related links:

• CapitaLand China Trust share price history and share price target
• CapitaLand China Trust history and dividend forecasts

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