CapitaLand China Trust posts 24.4% drop in H2 DPU to S$0.034

CAPITALAND China Trust (CLCT) on Friday (Feb 3) posted a 24.4 per cent year-on-year drop in distribution per unit (DPU) to S$0.034 for its second half ended Dec 31, 2022, from S$0.045 a year earlier.

The lower DPU came despite the real estate investment trust (Reit) releasing in H2 2022 S$3.6 million from the amount available for distribution to unitholders previously retained in H1.

Distributable income fell 20.3 per cent year on year to S$56.9 million from S$71.4 million, impacted by lower retail performance, higher interest expenses as well as the absence of one-off proceeds, said the Reit’s manager.

The decline in H2 performance can also be attributed to higher rental relief provided for tenants whose operations were affected by long periods of Covid-19 lockdowns during the year, particularly in H2, the manager noted.

“In the second half of 2022, the amount of rental relief that we set aside is about five times that of the previous year,” said Tan Tze Wooi, chief executive of the Reit manager, at a briefing accompanying the results announcement.

“For the full year 2022, we’re probably setting aside about three times what we put through in 2021,” he added.

Gross revenue was down 8.6 per cent to S$183.9 million for the half-year period, from S$201.1 million a year earlier, mainly due to a decline from the retail portfolio as most of the malls were mandated to close for various days in H2 of 2022. 

Meanwhile, net property income (NPI) fell 11.8 per cent on year to S$114.7 million for the half year, from S$130.1 million.

The latest set of H2 results brought CLCT’s FY2022 DPU to S$0.075, down 14 per cent from S$0.0873 in FY2021, as the topline increase was dragged by finance costs and taxes. 

Gross revenue for the full year rose 1.4 per cent to S$383.2 million from S$378 million, as the provision for rental relief in H2 was more than offset by higher contributions from new acquisitions. FY2022 NPI increased 1.5 per cent to S$254.2 million from S$250.4 million.

The business parks and logistics parks segments showed positive year-on-year performance for the year ended Dec 31, compared with FY2021.

In contrast, the retail malls segment saw a decline in gross revenue, falling by 6.5 per cent from S$278.5 million in FY2021 to S$260.3 million in FY2022. Net property income for the segment also fell 8.7 per cent from S$179.7 million to S$164.1 million.

Tan expects the Reit’s retail portfolio to shift to a positive trajectory in 2023, following China’s easing of Covid-19 restrictions.

“(From) what we are seeing in the Chinese New Year period, we are confident that business activity is coming back (and) consumer flow is coming back. I think this is a good sign looking forward; the indicators are pointing that consumption spending will return,” Tan said.

CLCT’s portfolio is “well-placed to capitalise on growth opportunities across multiple sectors”, said the manager’s chairman Soh Kim Soon.

CLCT’s retail assets, business parks and logistics parks registered positive rental reversions for FY2022 and achieved steady occupancy of 95.4 per cent, 91.4 per cent and 96.4 per cent respectively as at end-2022, with improved tenant quality.

Following the release of CLCT’s H2 results, DBS Group Research has removed the trust from its list of dividend equity picks as it noted an 11 per cent gain since its inclusion in mid-December 2022. “While a pullback in the stock price is possible, we will look for re-entry opportunities as we stay positive on the China reopening theme,” said the research team on Friday, adding that the FY2022 headline numbers were weaker than expected.

Units of CLCT closed 1.6 per cent or S$0.02 lower at S$1.25 on Friday.