Results for the third quarter of 2024 are in line with our expectations

CICC Prologis REIT announced results for the third quarter of 2024: the third quarter achieved fund-level revenue of 108.2 million yuan, profit before interest, tax, depreciation and amortization of 66.56 million yuan, and an allocable amount of 88.26 million yuan, which is in line with our expectations.

Operations were under slight pressure in the third quarter. In terms of occupancy rate, as of September 30, 2024, the overall average occupancy rate of ProREIT's underlying assets declined by 0.7ppt to 84.94% month-on-month. Among them, occupancy rates for the Dianshan Lake, Jiangmen Heshan, Beijing Airport and Qingdao Qianwan Port projects declined 4.6ppt, 4.8ppt, 4.9ppt, and 11.5ppt to 90.9%, 81.3%, 90.7%, and 77.8%, respectively. In terms of rent, the quarter-end contract rent and property management service fee (excluding tax) effective average rent unit price fell 1.8% month-on-month to 37.52 yuan/m2/month. Overall, the decline in rental rates and rents led to an 8% and 12% month-on-month decline in fund revenue and EBITDA in the third quarter to 108.2 million yuan and 66.56 million yuan, respectively.

Managers actively managed, and progress was made in leasing for some projects. According to the “Business Situation Progress” 1 released on August 6, as of the end of October 2024, the Dianshan Lake project had completed a total reduction of 93% of the tenant's rent-free area after major tenants returned their leases. Based on the current contract situation, the manager expects this incident to affect 1.34% of the 2024 recruitment letter's forecast fund revenue. Furthermore, according to the three-quarter report, under the active management of the manager, Prologis Zengcheng, Dianshan Lake, Jiangmen Heshan, and Chongqing projects have signed partial lease agreements. The occupancy rates after considering the area that have already been signed but have not yet been leased are 100%, 95.3%, 90.2%, and 71.9%.

Cumulative allocations can be distributed to meet the manager's predictions. In the third quarter of 2024, Zhongjin Prologis REIT achieved an allocable amount of 88.26 million yuan, and a cumulative allotable amount of 267.14 million yuan was achieved in the first to third quarters, reaching 75% of the manager's 2024 forecast.

Development trends

Supply and demand pressure remains, so keep an eye on subsequent improvements in occupancy rates. Currently, the warehousing and logistics sector is still in the cyclical adjustment stage, and the overall operating pressure of the project still exists. Looking ahead, we believe that managers may continue to use methods such as “price for volume” and management adjustments to improve business performance. It is recommended to continue to pay attention to the project's subsequent occupancy rate performance.

Profit forecasting and valuation

Keeping the 2024-2025 distributable forecast of $357.5 million and $358.54 million unchanged, and maintaining the holding rating, we expect a target total return of 2.0% for 12 months. The current stock price of 3.48 yuan trades at 1.0 times the 2024 year-end P/NAV and 1.0 times the year-end 2025 P/NAV, corresponding to 5.3% 2024 dividend rate and 5.3% 2025 dividend rate.

risks

Rental rates for some assets have been slow to improve; completion of available allocations in 2024 falls short of expectations.