CapitaLand China Retail REIT Recaptures 89% of 2019 Traffic

CapitaLand Retail China Trust (CRCT) has reason for optimism after its portfolio of mainland China shopping malls enjoyed a surge in third-quarter footfall and tenant sales.

Shopper traffic in the quarter recovered to 89 percent of year-earlier levels as tenant sales reached 91.9 percent of year-ago figures, according to a release from the largest trust of mainland China malls listed on the Singapore exchange.

CRCT reported “sustained operational improvements post-COVID” as traffic leapt 34.7 percent and tenant sales climbed 25.8 percent from the second quarter.

Nationwide Drive

CRCT’s upbeat report was in line with data from China’s National Bureau of Statistics showing that retail sales of consumer goods rose 3.3 percent year-on-year in September and edged up 0.9 percent year-on-year in the third quarter — the first positive quarterly growth this year.

To add to the good tidings, CRCT pointed to a strong balance sheet “with financial flexibility for stability and growth”, noting that all refinancing requirements due in 2020 and 2021 were complete. The REIT’s gearing as of the end of September was 34.7 percent, well within the regulatory limit of 50 percent for the debt-to-equity gauge.

CRCT’s portfolio includes 12 malls throughout the mainland, including four CapitaMall locations in Beijing. Occupancy across the entire portfolio was 93.7 percent at the end of September, up from 93.4 percent in June but down from the 98.3 percent level recorded a year earlier.

The trust’s next addition to its portfolio, Yuquan Mall, is scheduled to open in December in Hohhot, the capital of Inner Mongolia. Despite a soft leasing environment due to the impact of the COVID-19 pandemic, the mall is already 94 percent pre-leased with a mix of high-quality tenants, according to CRCT. The destination lifestyle mall, promises lush indoor gardens and greenery to enhance the shopping experience.

Rock Square Revamp

CRCT also unveiled a plan to extract further value from marquee property Rock Square, an 83,591 square metre (899,766 square foot) mall in Guangzhou.

After what CRCT termed an “extensive reconfiguration” in 2019, the mall plans to add more than 1,000 square metres of net lettable area in the next two to three years. When factoring in a rearrangement of space to suit smaller, higher-yielding food and beverage tenants, CRCT expects a 15 percent return on investment from the asset enhancement effort.

CRCT made Rock Square its first mall in the southern mega-city in late 2017, when it teamed up with CapitaLand’s retail division to purchase the five-storey structure from US investment manager PGIM for $511 million.

CRCT holds a 51 percent stake in the asset, with CapitaLand retaining the remaining 49 percent of the mall in Guangzhou’s Haizhu district.

“Given Rock Square’s significant scale and strategic location with excellent transport links, the acquisition presents a rare opportunity to increase our exposure to the high-growth retail market in a first-tier city,” CapitaLand Mall Asia CEO Jason Leow said at the time of the purchase.

Looking ahead, CRCT aims to expand its investment mandate beyond retail assets to become a multi-asset China-focused REIT platform. Leveraging its relationship with Southeast Asia’s largest developer, CapitaLand, CRCT said it would identify and capture opportunities in China’s new economy sectors, across asset classes including business parks, logistics and industrial.