1. The operation was steady, moderate and positive. The occupancy rate increased across the board in the first quarter, and the average occupancy rate rose to 92.1%

Recently, China Merchants Commercial Real Estate Trust (01503.HK) released operating data for the first quarter.

According to the announcement, as of March 31, 2024, the average occupancy rate of the China Merchants Bureau's commercial real estate portfolio rose to 92.1%, compared to 86.8% in the same period last year. Among them, the average occupancy rate for office buildings was 91.8%, and the occupancy rate for retail property Garden City was 93.4%.

From this series of data for the first quarter, it is easy to see that through flexible market strategies, continuous property upgrades, efficient operation, and active market promotion, China Merchants Commercial Real Estate Trust continued to show a steady pace of growth in a competitive market.

Judging from the overall occupancy rate situation, it can be seen that it is showing a marked upward trend, which shows the attractiveness and competitiveness of the company's projects in the market, as well as encouraging changes brought about by continuous optimization of operations.

Specifically, the overall occupancy rate of office buildings is stable, with rents rising and falling between projects, highlighting the positive actions of China Merchants Commercial Housing Trust in maintaining and strengthening relationships with tenants.

Among them, the most prominent ones are the Science and Technology Building Phase II. Both are basically in a state of full rent. At the same time, rents for science and technology buildings have risen against the market, showing their strong market competitiveness.

(Source: Company Announcements)

Furthermore, in terms of retail properties, Garden City's occupancy rate increased sharply, up 19.7 percentage points to 93.4% at the end of the previous quarter, but rents fell by 14.4%. This change is related to the preferential conditions and rent strategies adopted by the mall to reopen. Although rental income has declined in the short term, in the long run, by attracting well-known major stores and optimizing the tenant mix, Garden City is expected to gain greater potential for growth in terms of increasing traffic and sales in the future.

In response, the company also stated that during the year, it will continue to increase customer traffic and enhance the competitiveness of shopping malls through marketing and promotion, activities, and better customer service, thereby increasing tenants' sales and laying the foundation for future rent income increases.

In fact, in addition to ensuring a low vacancy rate in terms of tenant management strategies, China Merchants Commercial Real Estate Trust also demonstrated its ability to seize market opportunities in terms of financial strategy.

In the past year, China Merchants Commercial Housing Trust successfully replaced a large amount of debt using the RMB low interest rate window, thus drastically reducing comprehensive financing costs. In 2022, the company's comprehensive financing rate was 3.55%; by 2023, it had dropped to 3.18%. Among them, in July 2023, the company completed the early replacement of a merger and acquisition loan of 2.4 billion yuan, drastically reducing the original interest rate from 3.55% to 2.93%. Furthermore, all of the company's original Hong Kong dollar loans were converted to RMB loans. This series of measures has not only significantly reduced financing costs and improved financial efficiency, but also effectively enhanced the company's financial stability, providing shareholders with higher dividend returns and capital appreciation opportunities.

It is undeniable that in the current market environment, China Merchants Commercial Real Estate Trust, as an enterprise focusing on commercial asset operations, is undoubtedly facing a series of pressures and challenges.

On the one hand, in terms of commercial operations, the company needs to deal with factors such as pressure on rental income, uncertainty about lease renewals, increased market competition, and changes in the macro environment, which may have a significant impact on the company's operations. On the other hand, rising operating costs and pressure on financing costs are also challenging the company's financial health.

However, judging from the company's various initiatives, it is easy to see that China Merchants Commercial Real Estate Trust is actively dealing with these challenges with a positive attitude. It has not only continued to monitor market trends and optimize the tenant mix, but has also made various efforts to improve service quality, strengthen cost control, and respond to policy support.

As mentioned in the previous annual report analysis article “China Merchants Commercial Real Estate Trust (01503.HK): Asset Enhancement Unleashes Growth Momentum, Resilient Growth Shows Value Potential”, by combining active tenant management strategies with refined and digital management of assets, China Merchants Commercial Real Estate Trust can not only protect the quality and value of its underlying assets, but also adapt more quickly to market changes and continuously create steady and impressive performance returns.

It is foreseeable that through this series of measures, China Merchants Commercial Housing Trust will continuously improve operational efficiency, consolidate healthy financial conditions, enhance market competitiveness, and achieve steady growth in a changing market environment.

2. Continued policy support, new investment opportunities under the accelerated recovery of the REITs market

Recently, a number of favorable policies have injected new vitality into the REITs market.

Earlier, the new “National Nine Rules” issued by the State Council mentioned REITs several times, with special reference to measures such as promoting the high-quality development of the real estate investment trust fund (REITs) market, studying and formulating regulations on the management of real estate investment trust funds, and implementing and improving tax policies for real estate investment trust funds, demonstrating the determination of senior management to speed up the construction and improvement of the REITs market system and promote the high-quality development of the REITs market.

In response, CICC pointed out that REITs have been mentioned three times in this programmatic document, showing that the government attaches importance to building a REITs market system. Under the guidance of the State Council, it is worth looking forward to the follow-up promotion of REITs management regulations and tax policies. Both aspects are conducive to increasing the investment value of REITs, and the tax policy is also conducive to increasing the enthusiasm of participants at both ends of investment and financing.

Meanwhile, on April 19, the China Securities Regulatory Commission announced five measures, including easing the scope of eligible products for stock ETFs under the Shanghai-Shenzhen-Hong Kong Stock Connect, including REITs in the Shanghai-Shenzhen-Hong Kong Stock Connect, supporting the integration of RMB stock trading counters into Hong Kong Stock Connect, and optimizing mutual fund recognition arrangements and supporting leading companies in the mainland industry to go public in Hong Kong. Among them, the move to include eligible REITs from the Mainland and Hong Kong in the Shanghai-Shenzhen-Hong Kong Stock Exchange has attracted even more attention. Relevant industry opinions point out that this move is expected to bring more incremental capital to REITs in the two regions, and the optimization of the Shanghai-Shenzhen-Hong Kong Stock Connect mechanism will also help improve the overall stability and pricing efficiency of the market.

Judging from market performance, mainland public REITs and Hong Kong Stock Exchange REITs have recently begun a strong rebound, stimulated by a series of positive news. Among them, on May 2, REITs related to the Hong Kong Stock Exchange also rose collectively. Judging from the data as of May 20, Hong Kong Stock Exchange-related REITs all showed increases in the past 10 days. Among them, China Merchants Commercial Housing Trust increased by nearly 15% in the past 10 days.

(Data as of May 20, source: Futu Market)

The continuous rise shows the restoration of market confidence. In response, relevant analysis indicates that the recent strong performance of REITs products, based on valuation restoration after the previous market decline, and under the dividend investment boom, the high dividend rate of REITs has attracted investors' attention. With the support of policies and a gradual recovery in market confidence, it is expected that capital outflows from the previous period will return, bringing more growth potential to the REITs market.

3. Conclusion

Looking at the present, as global capital's willingness to allocate Chinese assets continues to rise, the Hong Kong stock market's bullish market expectations continue to be fulfilled, and the REITs market is picking up at an accelerated pace under warm policies. The combination of a series of benefits will also push related REITs assets to usher in new investment opportunities.

In this context, as a member of the REITs market that continues to perform steadily, China Merchants Commercial Real Estate Trust will also benefit from the recovery of the overall market and gain its own “alpha” with its ability to continue to deliver performance growth.

Judging from the dividend rate performance, up to now, the dividend rate of China Merchants Commercial Housing Trust has reached 8%. This is not only significantly higher than the interest rate on one-year deposits, but also superior to the yield on most treasury bonds and even the yield of most wealth management products. In a context where high-dividend strategies are receiving increasing attention from the market, this performance has shown sufficient appeal.