CapitaLand China Trust: Retail outlook may improve in 2H22

CapitaLand China Trust's 51 percent-owned Rock Square mall, located in Guangzhou in China. Credit: CapitaLand China TrustCapitaLand China Trust's Rock Square mall, located in Guangzhou in China. Credit: CapitaLand China Trust

CapitaLand China Trust (CLCT) said the retail outlook in China may improve in the second half of this year.

The REIT’s retail assets “started on a good note” in January and February of this year, with rebounding traffic and sales, but toward March, a spike in Covid-19 cases caused a “slight pause in recovery,” CLCT said in minutes of last month’s annual general meeting (AGM), which were filed to SGX Wednesday.

“The extent, duration and frequency of Covid-19 resurgences would affect retail business confidence and consumer sentiment. As such, retail would go through a bit of short-term volatility,” the REIT said.

CLCT said its direct exposure to the lockdown in Shanghai was limited to around 3 percent of the REIT’s business, with the two affected properties CapitaMall Qibao, and Fengxian logistics park. Including greater Shanghai, the lockdown exposure rises to around 4 percent and wasn’t considered material, the REIT said.

Shanghai’s nearly two month lockdown to stem the spread of Covid-19 was expected to end on 1 June, according to media reports. The city, which has a population of around 25 million, locked down as part of China’s zero-Covid policy.

The REIT’s rental reversion for its retail assets in 2020 was a negative 4 percent, and in 2021, narrowed to a negative 3.4 percent, CLCT said.

“As the retail outlook remained uncertain due to the possibility of Covid-19 resurgences, retailers would require more support in the first year of their leases as they would incur additional costs when committing to new concepts,” the REIT said in answer to shareholder questions. “There was a need to be more flexible in structuring lease terms in the first year, and mathematically, that could potentially be a slight negative impact to CLCT’s retail revenue.”