HONG KONG, March 30, 2023 /PRNewswire/ — China Merchants Commercial Real Estate Investment Trust (“CMC REIT” or “the Trust”, HKEX stock code:1503), announced its annual results for the year ended 31 December 2022.
During the reporting period, total revenue of CMC REIT for the Reporting Year was RMB431.7 million, a decrease of RMB1.1 million over the revenue for 2021. This decrease in income was primarily due to the rental relief package aimed at tenants that are individuals or small enterprises provided to tenants. During the year, CMC REIT restructured its outstanding debt, using low-interest RMB loans to replace expiring HKD debts. This helped to avoid exchange risks resulting from currency mismatches and potential large exchange gains or losses.
The final distribution per unit for the period is HK$0.1307, which represents an annual distribution yield of 7.0%. Together with the paid interim distribution per unit of HK$0.1307, the total distribution per unit for the Reporting Year amounted to HK$0.2614, equivalent to a distribution yield of 13.1%, based on the closing price of CMC REIT on 30 December 2022 (being HK$1.99).
Total net borrowings of CMC REIT were RMB4,053 million, equivalent to a gearing ratio of 37.4%. This ratio is lower than the permitted limit of 50% as stipulated by the Code on Real Estate Investment Trusts (the “REIT Code”). Gross liabilities (excluding net assets attributable to unitholders) as a percentage of gross assets were 62.6% (2021 year end: 47.0%).
CMC REIT has obtained a new secured offshore loan facility of up to HKD4,500 million maturing on 15 December 2025 and a new secured onshore loan facility of RMB100 million. As at 15 December 2022, CMC REIT had drawn down RMB4,022 million (equivalent to HKD4,445 million) from the new offshore loan facility and RMB31 million from the onshore facility to repay all its preexisting debt. The above loan rollover has replaced all HKD loans with RMB loans, eliminating the previous currency mismatch and its associated currency risk.
In 2023, the Manager plan to further optimize the debt structure, by adjusting the maturity of our loans to diversify this maturity risk. At the same time, to reduce interest expense, we will explore new financing channels using cross-border RMB to capitalize on lower RMB interest rates.
As at 31 December 2022, net assets attributable to Unitholders amounted to RMB3,659 million (31 December 2021: RMB4,007 million) or RMB3.24 per Unit, equivalent to HKD3.63 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 December 2022. As the change in appraised value of our properties was marginally positive in 2022, the main cause for the decrease in NAV per Unit was the depreciation of the RMB against HKD.
Over the Reporting Year, the occupancy rate of the overall property portfolio decreased from 87.7% as at 31 December 2021 to 83.2% as at 31 December 2022. Three properties within the Shekou Net Valley have improved in terms of occupancy but not the remaining two properties. Disruption from the asset enhancement initiative at Garden City Shopping Centre has caused the occupancy rate there to collapse 18.3 percentage points to 72.2%, this is understandable. At the same time, New Times Plaza was affected by very weak demand for high-end office premises and its occupancy rate weakened by 7.9 percentage points to 84.0%. At the same time, Onward Science & Trade Centre’s occupancy rate remain at 70%.
As at 31 December 2022, the passing rent of our properties saw increases all around as compared to a year ago, with the exception of Cyberport Building. In particular, the passing rent at Technology Building improved by over RMB10.2/sq.m. due to its transition to a singletenant building. There was a spillover effect on Technology Building 2, which saw its passing rent increase by RMB4.0/sq.m.
Three properties within the Shekou Net Valley
Technology Building has been the bright spot of our portfolio ever since it secured Shenzhen Qianhai Shekou Free Trade Zone Hospital as its main tenant. It managed a 100% occupancy rate throughout 2022 and as Shenzhen Qianhai Shekou Free Trade Zone Hospital has continued to take over the leases of expiring tenants at higher rents, over 2022 Technology Building recorded an 8.5% increase in passing rent to RMB129.8/sq.m.
Operations at Technology Building 2 and Cyberport Building also saw significant improvements in 2022. Although small and medium-sized firms have been heavily impacted by the ongoing epidemic, the main target tenants of Technology Building 2 and Cyberport Building, both buildings saw a significant increase in their occupancy rates. At Technology Building 2 the occupancy increased 9.3 percentage points to 90.5% while at Cyberport Building the occupancy increased 14.6 percentage points to 85.9%. The rental rates of Technology Building 2 increased by 3.4%.
The Manager has established a healthy tenant cycle for our three properties in Net Valley and expect them to continue to outperform our other properties in 2023.
New Times Plaza
There was a marked fall in occupancy at New Times Plaza in the second half of 2022 from 92.3% to 84.0% as several leases were not renewed when they expired. In Shenzhen COVID-19 has severely weakened demand for high-end office buildings, and this coupled with the looming supply of new Grade A office space in adjacent areas has made it very challenging to retain expiring tenants or find replacement tenants for them. As the expiring rent rates of exiting tenants was relatively low, the passing rent at New Time Plaza actually increased to RMB184.4/sq.m., representing an increase of 2.8% from the end of 2021. As the asset enhancement initiatives for the lobby and common areas of New Times Plaza have essentially been completed, in 2023 the management will strive to rebuild occupancy through additional channels for sourcing tenants and the use of more flexible leasing terms.
Garden City Shopping Centre
In 2022 Garden City Shopping Centre saw a decrease in occupancy rate of 18.3 percentage points from 90.5% to 72.2%. This was mainly due to two factors: firstly, the reemergence of the epidemic in Shenzhen has had a great impact on retailers and many have opted to downsize or exit their businesses; and secondly, the commencement of the upgrading and renovation works for Garden City Shopping Centre, has also deterred some tenants from renewing their leases. The works are being carried out in three phases with each phase covering approximately one-third of the Mall’s floor area. In addition the Manager have left some shops vacant with a view of introducing new tenants of higher quality upon completion of the renovation works.
Onward Science & Trade Center
A majority stake in Onward Science & Trade Center was acquired by CMC REIT on 30 June 2022. The property is located within the prosperous business district in Beijing. In order to cope with the escalating negative impact of COVID-19 in the second half of the year, the leasing team of the property mainly focused on maintaining stability, and minimizing any inconvenience to tenants. The occupancy rate as of 31 December 2022 declined marginally by 0.4 percentage point to 70.0% from that as of 30 June 2022, while the passing rent remained stable at RMB319.3/sq.m. The occupancy rate at Onward Science & Trade Center is expected to recover with the gradual recovery of the China economy in 2023.
Strong inflationary pressures globally continue to push interest rates higher. Despite a slowing in the rate at which the US interest rate have been increasing, high financing costs have become a headwind for corporate expansion. On the other hand, China eased its epidemic prevention and control policy in early 2023, bringing new impetus to the market. This is a promising development, but the economy will take time to recover and will remain relatively volatile in the short term.
The commercial real estate market is in flux, with tenants in some emerging sectors, such as biopharmaceuticals, exhibiting increased demand for space, but also tenants in some sectors reducing their leased areas on renewal or even surrendering their leases. A large number of commercial projects were delayed in 2022 due to the epidemic, and this will cause a peaking of supply in 2023 increasing pressure on the leasing market. 2023 will pose significant challenges in terms of passing rent and occupancy rate for both office and retail assets.
The Manager has been actively renovating and upgrading CMC REIT’s properties to enhance their competitiveness in the new Metro Line 12 post-epidemic era. Asset enhancement initiatives at New Times Plaza, Technology Building 2 and Cyberport Building have been completed. Garden City Shopping Centre South has also completed its upgrade, and was officially reopened to the public on 15 January 2023. It is expected that the remainder of Garden City Shopping Centre will be fully upgraded by the end of year. The Manager is hopeful that the relaunch of a fully renovated Garden City Shopping Centre under a brand-new image will add value for CMC REIT.
Mr. HUANG Junlong, Chairman and Non-executive Director of CMC REIT, said, “We believe that China’s first-tier cities will continue to attract talent and migrants from neighboring cities and become even bigger centers of regional economic activity and consumption. This will continue to support the demand for space of our properties in Shenzhen and Beijing in the long run. The Manager will closely monitor market conditions and adjust its operating strategies flexibly to help its properties generate high-quality returns for CMC REIT’s unitholders.”
Mr. HUANG Junlong stated, “the Manager will review the capital structure of CMC REIT from time to time, with a view to further optimizing the debt structure and exploring further reduction of debt costs by using cross-border RMB to prepare for further asset acquisitions.”
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/.