CMC REIT Achieves 12% Revenue Growth in 1H2024, Interim Distribution Per Unit Soars 26% to HK$0.06

PR Newswire

Thu, Aug 15, 2024, 5:34 AM 7 min read

Despite a challenging environment, CMC REIT delivered strong operating performance during the period. Due to a significant increase of 9.7% in rental income, reaching RMB238.4 million, it propelled the total revenue of CMC REIT for the reporting period to RMB266.3 million, increased by 11.9% over the 2023 relevant period. Including cash payments received under the DPU Commitment, the interim distribution per unit for the reporting period is HK$0.06 (equivalent to RMB0.055), which represents an annual distribution yield of 11.0%, based on the closing unit price on 28 June 2024 (being HK$1.09).

As at 30 June 2024, net assets attributable to unitholders amounted to RMB3,201 million or RMB2.84 per unit, equivalent to HKD3.11 per unit ("NAV per Unit") (31 December 2023: RMB3.01 per unit, equivalent to HKD3.32) based on central parity rate as announced by the People's Bank of China on 28 June 2024. The closing unit price of HKD1.09 on 28 June 2024 was at a 65.0% discount to the NAV per Unit.

The Aggregate Occupancy Rate of the Total Property Portfolio Climbed to over 90%
During the reporting period, the aggregate occupancy rate of the total property portfolio rose from 86.8% to 92.7% when compared to 31 December 2023, representing an overall increase of 5.9 percentage points. This was mainly because new tenants, particularly anchor stores, were signed after the renovation and upgrading of Garden City Shopping Centre, leading to an 11.3 percentage point increase in the occupancy rate there. The average occupancy rate of offices has also been steadily improving, and increased by 4.7 percentage points to 94.7%, as a result of CMC REIT's strategy of prioritizing occupancy over rental rates.

In order to boost occupancy, CMC REIT has been more amenable to granting various concessions to tenants in lease renewal negotiations. Meanwhile, at Garden City Shopping Centre CMC REIT has also offered substantial rental concessions in order to rebuild occupancy after its upgrading as fast as possible, resulting in a material drop in its passing rents.

New Times Plaza
In this challenging environment, New Times Plaza has been offering concessionary rentals at a discount to market levels, resulting in a 2.7 percentage points increase in occupancy rate from 89.6% at the end of 2023 to 92.3%.

Cyberport Building, Technology Building and Technology Building 2
The three offices in Net Valley performed well over the reporting period. As one of our prime assets, Technology Building maintained an enviable 100% occupancy rate, even as its passing rent increased by RMB3.8/sq.m to RMB137.4/sq.m compared to 31 December 2023.

Technology Building 2 also done well. The occupancy rate there increased by 3.4 percentage points as compared to the end of last year, making it another fully occupied building. Its passing rent decreased slightly by RMB1.4/sq.m to RMB122.7/sq.m. For Cyberport Building, as several new technology company tenants moved in, its occupancy rate rose by 9.7 percentage points, while its passing rent decreased marginally.

Onward Science & Trade Center
Due to the downward trend of market rentals and the intense competition among Grade-A offices in Beijing, in order to shore up occupancy, Onward Science & Trade Center has also been prioritizing occupancy over rental rates like New Times Plaza. The strategy has resulted in a 9.2 percentage points increase in occupancy to 91.1%, exceeding 90% for the first time since its acquisition.

Garden City Shopping Centre
Operations at Garden City Shopping Centre have improved after the completion of its upgrading and renovation. With the opening of many new shops in early 2024, the occupancy rate of the shopping centre increased dramatically from 73.7% to 85.0%, an increase of 11.3 percentage points. Meanwhile, due to the addition of a number of anchor stores with large floor areas and lower passing rents, and Garden City Shopping Centre's preferential rentals to attracting new shops, its passing rents have fallen to RMB126.3/sq.m. CMC REIT will strive to improve the footfall as Garden City Shopping Centre through various means such as events and promotions, so that passing rent can recover over time.

Outlook
The market's interest rates will gradually trend down and central banks in the European Union and Great Britain have already started cutting their benchmark rates, while the Federal Reserve is widely expected to face headwinds in maintaining high interest rates over the long term. In such an environment, financing costs for real estate owners and occupiers alike will head lower for the foreseeable future. With this continued deepening of reform across China, prospects for the sustained expansion of the Chinese economy in the longer term are promising. In the shorter term the outlook for office assets remains challenging. The manager will continue to keep an eye on the office market, strengthen communication with the onsite management teams and develop more flexible letting strategies to ensure smooth operations at its office buildings.

As for the retail property market, the manager expects an addition of 0.7 million square meters of new retail space at shopping centers to open in Shenzhen in the second half of the year. However, as there will be no additional supply near Garden City Shopping Centre, these new retail projects should not have much impact on us. In the second half of the year, the Garden City Shopping Centre targets to bring up its occupancy rate. To help rental income recover faster to pre-COVID levels , we will be increasing the number of events to be held at the mall to improve the publicity of the shopping mall and operating a shuttle bus service to and from Shenzhen Bay Port.

In terms of fund management and governance, the manager still aims to broaden its sources of income while reducing expenditure. Last year's refinancing is expected to save interest expenses of nearly RMB15 million during this year, and the manager continues to explore the possibility for further reducing interest expenses in a market environment where RMB interest rates continue to fall. In addition, the manager will continue to focus on adding quality commercial assets in Hong Kong and Mainland China to the REIT's investment portfolio, to further boost the diversity and income stability of the investment portfolio.

About China Merchants Commercial REIT
China Merchants Commercial REIT is a Hong Kong collective investment scheme constituted as a unit trust and authorised under section 104 of the SFO. China Merchants Commercial REIT was launched by a well-known state-owned enterprise: China Merchants Shekou Industrial Zone Holdings Co., Ltd. (1979.SZ). It was listed on the Main Board of the Hong Kong Stock Exchange in December 2019, marking the first successful listing of a REIT in Hong Kong since 2014. It is also the first REIT to be managed by a state-owned corporation of the People's Republic of China. China Merchants Commercial REIT is a REIT formed to primarily own and invest in high quality income-generating commercial properties in the PRC (including Hong Kong and Macao but excluding the CML Cities). Its initial focus is: (i) the Greater Bay Area (other than Foshan and Guangzhou, being two of the CML Cities), which is where the initial five Properties are situated; and (ii) Beijing and Shanghai. China Merchants Commercial REIT holds six high-quality properties, with five located in Shekou, Shenzhen, and one located in Beijing. It is managed by the REIT Manager whose key investment objectives are to provide Unitholders with stable distributions, sustainable and long-term distribution growth, and enhancement in the value of China Merchants Commercial REIT's properties.