China Merchants Commercial Real Estate Investment Trust ("CMC REIT" or "REIT", Hong Kong Stock Exchange stock code: 1503) announced the interim performance for the six months ending June 30, 2024.

Despite the challenging environment, REIT's operating performance remained positive during the reporting period. Driven by a year-on-year increase of 9.7% to RMB 238.4 million in rental income, the total income of CMC REIT during the reporting period was RMB 266.3 million, an increase of 11.9% compared to the same period in 2023. Including cash payments received under distribution commitments per unit, the interim distribution per unit during the reporting period was HKD 0.06 (equivalent to RMB 0.055). Based on the closing price of the unit on June 28, 2023, it represents an annual distribution yield of 11.0%.

As at June 30, 2024, the net asset value per unit held by the unit holders was RMB 320.1 million or RMB 2.84 per unit, equivalent to HKD 3.11 per unit calculated based on the middle rate of foreign exchange published by the People's Bank of China on June 28, 2024. The closing price of the unit on June 28, 2024 was HKD 1.09, a discount of 65.0% to the net asset value per unit.

The overall rental rate of the property portfolio has increased to over 90%.
During the reporting period, the overall rental rate of the property portfolio increased from 86.8% to 92.7%, a rise of 5.9 percentage points from December 31, 2023. The main reason was the large-scale leasing of new tenants, including block orders stores, after the upgrade and renovation of Garden City, which increased its rental rate by 11.3 percentage points. The average rental rate of the office remained stable at 94.7% due to the strategy of "trading price for quantity."

In order to increase the rental rate, REIT has offered many favorable terms and conditions in lease negotiations for renewals and extensions. At the same time, in order to restore rental rates as soon as possible after the upgrade and renovation of Garden City, REIT has offered significant rental concessions to Garden City.

New Era Square.
In this challenging environment, New Era Square agreed to let some tenants settle in at a rent level lower than the market level, resulting in an increase of rental rate from 89.6% at the end of 2023 to 92.3%, an increase of 2.7 percentage points.

Tech Tower, Cyber Tower, and Cyber Tower 2.
The three office buildings in the Nonghu High-Tech Industries Development Zone performed well during the reporting period. As the core asset of the REIT, Tech Tower's performance remained impressive while maintaining a full occupancy rate. Its current rental rate per square meter also increased from RMB 133.6 at the end of 2023 to RMB 137.4. Cyber Tower 2 also performed strongly, with an increase of 3.4 percentage points in its rental rate from the end of the previous year, making it the second fully leased office building. Its current rental rate (per square meter) slightly decreased from RMB 124.1 to RMB 122.7. As for Cyber Tower, due to the entry of some technology companies, its rental rate increased by 9.7 percentage points and its current rental rate slightly decreased.

Digithub.

China Merchants Hanghua Technology and Trade Center.
Due to the downward trend of the market rental rate and the fierce competition among Class A office buildings in Beijing, in order to ensure rental rates, China Merchants Hanghua Technology and Trade Center, like New Era Square, adopted the strategy of "trading price for quantity." This significantly increased its rental rate by 9.2 percentage points to 91.1%, marking the first time since its acquisition to overcome the 90% barrier.

Garden City.
After the upgrade and renovation, Garden City's operating performance has improved. At the beginning of 2024, with the entry of many commercial shops, its rental rate increased significantly by 11.3 percentage points to 85.0% from 73.7%. At the same time, due to the entry of many large area and low-rent block orders stores, as well as REIT's ongoing efforts to attract new commercial shops at favorable prices, its current rental rate (per square meter) decreased to RMB 126.3. REIT will use various methods, such as hosting events and increasing publicity efforts, to increase traffic to Garden City and gradually restore its rental rates.

Outlook
The market interest rates will enter a period of gradual reduction, and the central banks of the European Union and the United Kingdom have begun to lower their benchmark interest rates, while the Federal Reserve of the United States is also expected to find it difficult to maintain high interest rates in the long term. Property holders and tenants will see a decrease in visible future financing costs. With China's continued deepening of reforms, the long-term prospects for sustained expansion of the Chinese economy are bullish. In the short term, the prospects for office buildings are still full of challenges. The manager will continue to monitor the office markets in these two areas, strengthen communication with project management teams, and formulate more flexible leasing strategies to ensure the stable operation of their office buildings.

In the retail property market, 700,000 square meters of new retail space in shopping centers will be introduced to the Shenzhen market in the second half of the year. However, as there is no new supply around the Garden City, it is expected that it will not be affected by these retail projects. In the second half of the year, the Garden City aims to improve its occupancy rate. In order to restore rental income to pre-epidemic levels, the REIT will increase the number of events held in the mall; to enhance the mall's promotional effects and operate shuttle bus services to and from the Shenzhen Bay Port.

In terms of fund management and governance, the manager continues to aim at the goal of open source spending. The refinancing last year is expected to save CNY 15 million in interest expenses for this year, and in the market environment of continuous interest rate cuts in the Renminbi, the manager also continues to explore further possibilities of reducing interest costs. In addition, the manager will continue to focus on adding high-quality commercial assets in Hong Kong and mainland China to the REIT fund portfolio, to further enhance the diversity of the investment portfolio and the stability of income.

About China Merchants Commercial REIT
China Merchants Commercial REIT (1503.HK) is a Hong Kong collective investment scheme formed in the form of a unit trust fund and has been approved under the Securities and Futures Ordinance Section 104. China Merchants Commercial REIT was initiated by the well-known state-owned enterprise China Merchants Shekou Industrial Zone Holdings Co., Ltd. (001979.SZ), and was listed on the main board of the Hong Kong Stock Exchange in December 2019. It is the first successfully listed REIT fund in Hong Kong since 2014, and also the first state-owned enterprise REIT fund listed in Hong Kong. China Merchants Commercial REIT is a real estate investment trust fund established to own and invest in high-quality revenue-generating commercial properties in China, focusing on (i) the Greater Bay Area of Guangdong, Hong Kong, and Macau (excluding two China Merchants Land cities, Foshan and Guangzhou); and (ii) Beijing and Shanghai. The REIT is managed by the REIT manager and currently holds six high-quality properties, five located in Shekou, Shenzhen and one in the capital Beijing. The REIT manager aims to provide unit holders with stable distributions and long-term sustainable distribution growth.

For more information on China Merchants REIT, please visit the company's website.