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CapitaLand China Trust Is Reimagining The "New China" Economy In FY2025 · Investor Exchange

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  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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  Welcome back to the Deep Dive. Today, we're tackling a subject that tends to
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  split investors right down the middle.
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  We're looking at China. And specifically, through the lens of Singapore's biggest
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  China-focused landlord, Capital Land China Trust, or CLCT.
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  It's a really fascinating test case, isn't it? Because if you just read the
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  headlines, you'd think the Chinese economy is really struggling.
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  Right. But then you look at the documents we have today, the full year 2025
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  results, and the story on the ground is, well, it's a lot more nuanced.
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  The results just dropped. We've gone through the whole stack,
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  the press release, the financials, the slides. But you don't have to.
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  Exactly. And our mission today is pretty simple. We want to look at these results
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  strictly through an investor lens.
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  Which is the only lens that really matters for this. It is. And honestly,
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  when you first see the headline numbers, there's a bit of tension.
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  You see revenue down, net property income down.
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  Distribution per unit, DPU is down.
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  Right. But then you read the management commentary, and they're using words
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  like credible and resilient.
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  So is the glass half full or half empty? That is the multi-million dollar,
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  or maybe I should say multi-million renminbi question. I see what you did there.
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  Okay, let's unpack this. We have to start with the what? The big headline financials.
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  You have to. Because if I'm a unit holder, the first thing I'm looking at is that DPU.
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  For FY 2025, it came in at 4.82 Singapore cents. Which is a decline, a noticeable one.
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  FY 2024 was 5.65 cents. So on the surface, that's a drop. And the top line?
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  Same story. Gross revenue came in at about R&B $1,670 million,
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  down 9.1% year-on-year, and net property income, or NPI, followed down 9.4%.
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  Okay, so red numbers across the board. An investor might be starting to sweat
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  a little bit. Is the business shrinking?
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  Are tenants leaving? Well, this is where context is absolutely critical.
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  It looks bad if you just skim the surface, but there are two very specific,
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  almost mechanical reasons for this drop. Okay, so it's not that the remaining
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  assets are performing poorly.
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  Not necessarily, no. The biggest factor is divestment. Late last year,
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  in 2025, CLCT sold a major asset capital mall U-waiting.
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  Ah, right. The mall sale. Exactly.
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  When you sell a massive shopping mall, you get a big chunk of cash,
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  which is great, but you also immediately stop collecting rent from it.
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  So a big chunk of that 9% revenue drop is simply because the portfolio is physically
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  smaller than it was a year ago. Precisely.
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  It's not that the remaining malls are empty. It's that one of the engines was
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  removed from the car. And what's the second factor?
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  The one every Singaporean investor in overseas assets knows well.
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  Currency. The classic Forex headwind.
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  The renminbi, the RMB, was weaker against the Singapore dollar in 2025.
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  CLCT earns an RMB, but they paid distributions to you and me in sing dollars.
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  So even if they earn the same amount of RMB, it translates into fewer Singapore
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  dollars when it comes home. That's it.
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  So divestment and currency, those are the two main anchors. But despite that,
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  when we look at the yield based on the closing price at the end of 2025,
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  it's still sitting at 6.2%. Which, in the current interest rate environment
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  of 2026, is still a number that catches your eye.
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  The market has priced in some of this, you know. Okay, so that's the headline, Bad News Explained.
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  But let's get into the operational side, because this is where it gets really
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  interesting. What's happening inside the malls they kept?
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  This is where that narrative really shifts from shrinkage to resilience.
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  If you look at the retail portfolio occupancy, it actually went up.
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  It hit 97.2%. 97.2 percent.
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  That's practically full. It's very healthy. And it's not just that the shops
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  are full. Shoppers are there, too.
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  Tennis sales were up 2.1 percent year on year. And footfalls.
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  The number of people walking through the doors was up 2.7%. Yes,
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  so people are going and they are spending.
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  But here's the part that I found absolutely fascinating. We always hear about
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  Chinese consumption, but what are they actually buying? The breakdown in the report is wild.
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  I think I know a statistic you're talking about. Oh, you know it. Toys and hobbies.
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  Sales in that category just exploded up 52.3% year on year. It is a remarkable
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  number. It's the Popmark culture, right?
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  Collectible toys, blind boxes. it feels like this is what's driving traffic.
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  It validates a very specific thesis about the Chinese consumer.
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  People worried they'd stop spending, but the data shows they are spending just
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  differently on small luxuries, on hobbies.
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  A 52% jump is.
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  That's not a small change. It's like the lipstick effect, but for 2025 China,
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  it's the plastic toy effect.
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  That's a very apt comparison. And it wasn't just toys.
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  Jewelry and watches were up 18.3%. Which usually signals a flight to safety.
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  People buying gold. Exactly. When you're uncertain, you buy gold.
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  So you have this barbell effect spending on cheap thrills like toys and on safe
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  stores of value like gold.
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  And then F&B was up 5.8%. People still have to eat. They do.
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  So for an investor, this shows the mall managers are curating the right tenants.
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  They're pivoting to where the money is actually flowing.
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  Speaking of pivoting, we should touch on the downtime.
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  Yeah. Part of the revenue drop was deliberate, wasn't it? Yeah. Because of AEIs.
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  Asset enhancement initiatives, yes. Which is just read, speak for renovations,
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  right? Yeah. Essentially, yes.
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  At places like Rock Square and Capital Mall Gizemann, they closed off sections
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  to upgrade them. It seems a bit counterintuitive.
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  Our revenue is down. Let's close some shops.
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  It's short-term pain for long-term gain, isn't it?
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  You take the hit on rent for six months, you renovate, and then you can lease
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  that space out at a higher rate to better tenants. Okay, so retail is the bright spot.
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  Toys and gold are saving the day. But we have to look at the other side.
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  CLCT isn't just malls anymore. They have new economy assets.
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  Business parks and logistics.
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  And here the story is a bit tougher. It's a mixed bag. How so?
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  Let's look at the business parks first.
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  Occupancy is at 86.7%. That feels okay, but not great compared to 97% in retail.
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  It's an improvement from Q3, but yes, it's facing headwinds.
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  The issue here isn't the assets themselves, it's supply.
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  There's just a lot of office and business park space coming online in China.
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  So too much supply, not enough demand. That pushes rents down.
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  Exactly. And that flows through to valuations. The portfolio value dipped by
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  0.8 percent and the valuers specifically cited supply-demand imbalances in this sector.
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  But wait, I saw that logistics parks revenue actually grew by 5.0 percent.
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  How can revenue be up but the valuation be under pressure? Yeah.
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  That feels contradictory.
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  And that's a crucial concept for investors.
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  Operationally, the logistics parks are doing great. Three out of four are fully
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  leased. They're making more money.
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  But when a valuer looks at an asset, they're looking at the future.
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  They're looking at market assumptions for rent growth five, 10 years from now. Ah, I see.
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  So because the broader market is flooded with supply, they're saying future
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  rent growth will be slower.
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  So the asset is worth a little less today, even if it's full. You've got it.
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  So the cash flow is there, but the balance sheet value takes a slight hit.
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  For an income investor, the 5% revenue growth is arguably the more important
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  number. That makes sense.
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  Okay, let's zoom out a bit. We've covered the assets. But there's a strategic
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  element in these documents that I think is unique to CLCT, this whole S-Rite-C-Rite connection.
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  This is, in my opinion, the most important part of their long-term play.
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  Okay, break it down for us. It sounds like alphabet soup.
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  An S-Rite is a Singapore-Rite, like CLCT.
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  A C-Rite is a Chinese-Rite, listed in China.
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  What CLCT has done is position itself as a bridge between the two.
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  And the sale of that mall, you waiting, was part of this.
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  Precisely. They didn't just sell it to anyone. They sold it into a specific C-rate platform.
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  And why does that matter to the average investor listening? Two big reasons.
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  First, it proves you can actually sell and get your money out,
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  which is a big fear with China real estate.
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  Second, it lets them recycle capital. So they sell a mature,
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  stable mall, cash out at a good price, and now they have a war chest to buy
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  something with higher growth potential.
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  They're trying to trade up, sell the old car to buy a faster,
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  newer one, and they have a built-in exit route that other REITs don't.
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  But there's a timing mismatch, isn't there?
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  You sell the car, but you haven't bought the new one yet, so you lose the income
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  in the meantime. That is exactly the problem they faced in 2025.
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  And that brings us to something you probably spotted in the footnotes.
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  The distribution top-up.
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  It sounds like a bonus, but it's really more of a band-aid, isn't it?
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  It's a smoothing mechanism.
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  The managers took some of the gains from the sale and are giving it back to
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  unit holders for the second half of 2025.
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  So they're saying here's some of the profit to make up for the lost rent while
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  you wait for us to buy a new asset. Exactly.
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  It buys them time and keeps the yield attractive. But investors need to know it's a one-off.
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  They need to find a new income-generating asset soon. Right.
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  It's a bridge, not a permanent floor.
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  Let's look at the balance sheet. Debt is always a killer for REITs.
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  How are they looking? Surprisingly good. They actually decreased their cost of debt.
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  It went down to 3.32% from 3.51%. How did they manage that when rates have been high?
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  By switching more of their debt to renminbi, interest rates in China have been lower.
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  They refinanced expensive SGD loans into cheaper RMB loans. And I see here that
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  RMB-denominated debt is now 60% of their total.
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  Which is a very smart move. It's called a natural hedge. Explain that for us.
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  Well, your assets are in RMB. Your rent comes in RMB. so if your debt is also
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  in RMB, you're insulated.
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  If the RMB weakens, your asset value goes down, but your debt value also goes down in FGD terms.
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  It aligns the two sides of the balance sheet and makes the read much safer.
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  That makes total sense. So what does 2026 hold? What are they saying about the
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  year ahead? The macro picture is stable but gradual.
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  China's GDP grew 5.0% in 2025. It's not the old double-digit growth, but it's still massive.
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  Retail sales grew 3.7%. So the environment is supportive, but not a rocket ship. Right.
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  The managers are talking about a gradual recovery for opportunities they're
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  looking to expand retail in tier one and two cities. They know that's their
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  crown jewel right now. And finishing those renovations. Yes.
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  Just getting those malls back
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  online will boost revenue. That's the low-hanging fruit. And the risks.
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  What should we be watching? That supply pressure in business parks is not going away in 2026.
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  They'll have to fight to keep that occupancy up. And currency. Always a wild card.
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  If the RMB weakens further, it will eat into the deep hue, no matter how well the malls are doing.
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  So bringing it all together, FY 2025 was a transition year. They sold an asset,
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  restructured their debt, renovated their malls.
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  The headline numbers looked down. But the engine room, the actual shops and
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  logistics hubs, seems to be running pretty well.
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  The signal is that Chinese consumers are buying 52% more toys and occupancy
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  is at 97%. So for the listener, here's the final thought.
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  The whole strategy relies on capital recycling, selling old stuff,
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  to buy new stuff. They've done the sell part, they have the cash.
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  But they haven't done the buy part yet.
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  So the real question is, do you believe the management team can find a high-quality
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  asset in 2026 that can replace the income they lost?
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  Because that top-up distribution won't last forever. The clock is ticking.
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  Precisely. They built the bridge with the C-Rite platform.
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  Now they have to actually cross it and bring back the goods.
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  That's the story of Capital and China Trust for FY 2025.
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  Thanks for joining us on this deep dive. Always a pleasure. And just a reminder
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  before we go, this content is intended to serve strictly and only as an informational,
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  independent, objective summary of recent events and should in no way be interpreted,
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  construed or relied upon by any party.