China Merchants Commercial REIT Announces 2022 Interim Results

Total Revenue was RMB 175 million

Overall Occupancy Rate of Property Portfolio was 84.2%

HONG KONG, Aug. 31, 2022 /PRNewswire/ — China Merchants Commercial Real Estate Investment Trust (“CMC REIT” or “the Trust”, HKEX stock code:1503), announced its interim results for the six months ended 30 June 2021.

In the first half of 2022, Shenzhen and Beijing were both placed under lockdown due to the pandemic, and the office market remained lackluster as office users were more cautious about office expansion. In the first half of 2022, the office rental market in Shenzhen faced some pressure in both occupancy rate and rent, the Trust’s total revenue for the reporting period was RMB175.0 million, a decrease of approximately RMB36.8 million over the revenue for the 2021 relevant period. The rental relief provided to tenants in 2022 is the main reason of this decrease in total revenue.

Including cash payments received under the DPU Commitment, the interim distribution per unit for the Reporting Period is HK$0.1307 (equivalent to RMB0.1141), which represents an actual distribution yield of 10.1%, based on the closing unit price on 30 June 2022 (being HK$2.58).

The market value of our portfolio increased from RMB6,746 million as of 31 December 2021 to RMB9,498 million as of 30 June 2022. This increase of RMB2,752 million was primarily due to the injection of Onward Science & Trade Center, valued at RMB2,730 million in Beijing. The remaining increase of RMB22 million was due to the properties located in Shenzhen.

As at 30 June 2022, net assets attributable to unitholders amounted to RMB3,899 million (31 December 2021: RMB4,007 million) or RMB3.46 per Unit, equivalent to HKD4.05 per Unit (“NAV per Unit”) (31 December 2021: RMB3.55 per Unit, equivalent to HKD4.34) based on central parity rate as announced by the People’s Bank on 30 June 2022. The closing unit price of HKD2.58 on 30 June 2022 was at a 36.3% discount to the NAV per Unit.

Business Performance

During the Reporting Period, the aggregate occupancy rate of the total property portfolio dropped from 87.7% on 31 December 2021 to 84.2% on 30 June 2022, mainly because of the lower occupancy rate of Onward Science & Trade Center in Beijing which was newly acquired. The impact of the new Beijing property becomes evident once we examine the property by geography – the five existing properties in Shenzhen recorded an occupancy rate of 86.5%, representing a decrease of 1.2% from that in the end of 2021. By property nature, the occupancy rate of the four Shenzhen office buildings in aggregate rose from 86.9% in the end of 2021 to 87.0%, while the occupancy rate of Garden City Shopping Centre fell by 6 percentage points to 84.5%.

During the Reporting Period, passing rents within the property portfolio were stable with minimal fluctuations.

New Times Plaza

Despite the ongoing COVID-19 pandemic and the release of several grade-A office buildings in the Nanshan district of Shenzhen, New Times Plaza was able to rise to the challenge. The prevailing rent rose by RMB2.8/sq.m. to RMB182.2/sq.m., and the occupancy rate rose by 0.4 percentage points to 92.3% over the Reporting Period. Given the supply/demand situation, the Manager will focus on maintaining the occupancy rate as New Times Plaza’s principal lease management objective.

Cyberport Building, Technology Building and Technology Building 2

The operating statistics at Technology Building have been admirable ever since it acquired its new anchor tenant – Shenzhen Qianhai Shekou Free Trade Zone Hospital. The occupancy rate has been maintained at 100% since 30 June 2021, while the passing rent has also been rising steadily as the hospital continues to takeover space from expiring tenants at higher rents. Over the past 6 months the passing rent has risen from RMB119.6/sq.m. to RMB122.3/sq.m..

On the other hand, the Covid-19 crackdown on the online commerce and cross-border e-commerce sectors has dampened demand for office space throughout the Shenzhen Net Valley, and this has had an impact on our properties in the area without an anchor tenant. We have prioritized the backfilling of vacancies at Cyberport Building, the newer of our two remaining properties, and the occupancy rate there has recovered by 4.6 percentage points to 75.9%. This new letting however has caused the passing rent to decline by RMB1.3/sq.m., to RMB125.6/sq.m. The occupancy rate of Technology Building 2 fell by 4.4 percentage points from the end of last year to 76.8% currently. As exiting tenants were paying lower rents, this has had the effect of boosting the passing rent by RMB0.8/sq.m., to RMB116.9/sq.m..

Garden City Shopping Centre

Over the Reporting Period, the occupancy rate of Garden City Shopping Centre fell by 6.0% percentage points to 84.5%, mainly because of two reasons. Firstly, because of the recurring epidemic in Shenzhen, all shops were closed for 7 to 30 days, and some tenants even chose to terminate their lease prematurely. Secondly, we did not arrange the renewal of some expiring leases so that certain areas have been left vacant as part of the upcoming assets enhancement plan. Those spaces are expected to achieve much higher rents after the renovations are completed. The overall passing rent declined RMB3.5 to RMB173/sq.m..

Onward Science & Trade Center

CMC REIT acquired a majority stake in Onward Science & Trade Center on 30 June 2022. The property is strategically located within the China World Trade Center CBD. The China World Trade Center CBD in the Chaoyang district of Beijing is one of the most famous international business districts in China, and its occupants are world leading financial, media, IT, consulting and service companies. As Onward Science & Trade Center is at the tail end of asset enhancement works, going forward the occupancy rate and passing rent are expected to improve.

Outlook

Affected by the COVID-19 pandemic, businesses are more cautious about expansion, and demand continues to be suppressed. Moreover, there are many office and industrial buildings under construction in Shenzhen, which will be incrementally launched into the market. This substantial volume of supply will make the Shenzhen office market increasingly challenging. The situation is similar in Beijing. In the early years the government released a large number of commercial sites within CBD area with expected completion by 2025. Thus whether in Shenzhen or Beijing, oversupply matched with suppressed demand can be expected in short to medium term for the office market. As for the market for retail properties, the uncertain economic outlook and poor consumer demand has weakened the confidence of retailers. Consequently, leasing demand for retail space will remain dampened.

Currently, of the 6 properties owned by CMC REIT only Technology Building has no plans for asset enhancement. The other 5 have either completed or are undergoing asset enhancement initiatives. This will improve building quality and enhance market competitiveness, resulting in higher rents and revenue for unit holders. However, due to controlling measures for COVID-19, some projects have been delayed. In particular, the launch date of Metro Line 12 which runs near our Shenzhen properties has been postponed to the second half of 2022, directly affecting the completion of asset enhancement at Garden City Shopping Centre.

Besides the above mentioned impacts, most of the world is continuing to tighten monetary policy in response to high inflation, which subsequently impedes the development of the REIT sector. For example, in the first half of 2022, the US Federal Reserve Board raised interest rates thrice followed by a 0.75% hike in July. This tightening of monetary policy and the high interest rate environment have increased financing costs, suppressing the further expansion of REIT industry.

The Manager will closely track the market dynamics, expand marketing channels, and gain equilibrium in rent level and occupancy rate, to create high quality stable benefits to unit holders. The Manager will also work more closely with operation and property managers, to speed up the asset enhancement initiatives progress along with the development of Metro Line 12, in the hope that the overall constructions of Garden City Shopping Centre could be completed in 2023, when a brand new image will be released to the market.

About CMC 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 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). It will initially focus on: (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 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.

For more information about China Merchants Commercial REIT, please visit its corporate website: http://www.cmcreit.com/.

SOURCE China Merchants Commercial Real Estate Investment Trust

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