Yuexiu REIT Announces 2020 Interim Results

Growth properties and office properties recorded growth despite pandemic

 Overall occupancy rate posted year-on-year growth 

Total revenue of RMB831 million met expectations

Growth properties performed well. Revenue from Wuhan Yuexiu Fortune Centre grew 33.6% year on year.

• Revenue from growth properties (include Wuhan Properties and Hangzhou Victory) reached RMB104.7 million, up 20.8% year on year. Of the matured properties, GZIFC Office recorded year-on-year growth of 1.2% in revenue to RMB244.9 million, and remained the largest contributor to the revenue from the portfolio of office buildings.
• Revenue from the overall portfolio of office buildings reached RMB468.4 million, up 3.5% year on year.
• Overall occupancy rate of the properties was approximately 92.1%, up by 1.6 percentage points compared with the 90.5% in same period in 2019. The occupancy rate of the matured properties was 94.5% and that of the growth properties was 86.7%.

Operating performance met expectations. Distribution to the unitholders was RMB0.099 per unit. Annualized distribution yield was 6.22%.

• Total revenue was RMB831.1 million for the first half of 2020. Net property income was RMB653.8 million.
• Portfolio valuation was RMB34.599 billion and remained stable. On 30 June 2020, net assets attributable to unitholders per unit was RMB4.38.
• Distribution to the unitholders was RMB0.0990 per unit, equivalent to HK$0.1098 per unit. Based on the closing price of HK$3.53 per unit as of 30 June 2020, the annualized distribution yield was 6.22%.

Operating costs were effectively managed. Property related taxes were reduced by 41% year on year.

• Yuexiu REIT actively controlled and reduced operating costs, especially at the hotels and serviced apartments which had been greatly affected by the epidemic. Total operating expenses were down by 34.5% year on year.
• Property related taxes were reduced by 41% year on year compared with those in the same period in 2019. The decrease was mainly due to tax relief provided by the PRC Government regarding the rent concessions provided by Yuexiu REIT to its tenants.
• Complied with corporate social responsibility and relieved the pressure on tenants whose businesses were adversely affected by the outbreak. Yuexiu REIT provided temporary rent concessions to certain tenants of office buildings, retail malls and wholesale malls to help them overcome difficult times.

Financial management remained sound and prudent; financing cost dropped by 107 basis points.

• Cash and cash equivalents and short-term deposit balance as at end of June 2020 amounted to approximately RMB1.444 billion, reflecting sufficient financial resources to meet financial commitments and working capital requirements.
• Proactive management of mature debts to alleviate impacts of market fluctuations. Due to the decline in market interest rates in late second quarter, overall financing cost (per annum) dropped from 4.20% at the end of 2019 to 3.13% at the end of June 2020.

Investment in REITs stands to benefit from interest-rate cutting cycle caused by quantitative easing undertaken around the world

• Quantitative easing undertaken around the world, a recovery in consumption and government policies to stimulate the economy bode well for business in the second half of the year. Firstly, investment in REITs stands to benefit from the interest-rate cutting cycle caused by quantitative easing undertaken around the world. Central banks in many countries have increased the supply of money, inducing a growing trend towards lower interest rates. The Hong Kong Interbank Offered Rate (HIBOR) that reflects the cost of funding in Hong Kong dollars has already hit a record low in recent years. Yuexiu REIT is poised to benefit from the interest rate cutting cycle and expects the costs of both existing financing and refinancing to decrease. Therefore, the refinancing of its debts which are due within a year can be carried out at even lower costs. This will result in a continued decline in the overall financing cost in the future.    

HONG KONG, CHINA - Media OutReach - 6 August 2020 - Yuexiu Real Estate Investment Trust ("Yuexiu REIT ", which together with Yuexiu REIT Asset Management Limited, is referred to as the "Fund", HKEX stock code: 00405) announced its interim results for the six months ended 30 June 2020.

Yuexiu REIT Asset Management Limited (the "Manager") proposed to declare an interim distribution of approximately RMB0.0990 per unit to the unitholders which is equivalent to HK$0.1098 per unit (2019 interim distribution: RMB0.1360, which was equivalent to HK$0.1546). Based on the closing price of HK$3.53 per unit as of 30 June 2020, the annualized distribution yield is 6.22%.

Valuation of the properties in the portfolio remained stable. On 30 June 2020, portfolio valuation of Yuexiu REIT maintained at approximately RMB34.599 billion.

Occupancy rate remained at relatively high level on the back of the stability of the high-quality customer base. Overall occupancy rate of the properties was approximately 92.1%, up by 1.6 percentage points compared with the 90.5% in the same period in 2019, whereas the occupancy rate of the matured properties was 94.5% and that of the growth properties was 86.7%.

In response to the unfavorable impacts of the current situation in the first half of 2020, Yuexiu REIT has formulated more reasonable and targeted leasing policies to effectively address business risks. Yuexiu REIT looks for the industrial momentum of the office building business formats in each city, and implement customers positioning with the "Four Icons" focusing on industries, types of business, products and services. Retail malls look for the consumption momentum of various projects, and empower tenants with the "Ten Major Operating Systems", denoting: 1. Business flow and asset value management, 2. Leasing contracts management WALE, 3. Management on the efficacy of leased area of tenants, 4. Tenants rent-to-sale ratio management, 5. Tenants format structure and value contribution management, 6. Primary and premium tenants as well as turnover rent tenants management, 7. Tenants operating costs-to-lease management, 8. Management on warning mechanism for different business risk levels of tenants, 9. Full-process precision marketing management, and 10. Members value management. Professional markets implement online and offline integration to create a new stylish fashionable brand of "Heart of Fashion". The hotel and serviced apartments focus on the drive for the PRC internal consumption to create new business and leisure experiences.

GUANGZHOU INTERNATIONAL FINANCE CENTER ("GZIFC")

While under siege by the pandemic, GZIFC received high accolade and recognition from the government in terms of its pandemic containment by applying the Building Owners and Managers Association International ("BOMA") system's emergency management guidelines to prevent and control the pandemic, established a paradigm for local resumption of work and production, acquired a good reputation and solidified its leading place in the market.

In the first half of the year, leasing demand for grade-A offices in Guangzhou was weak. The Manager flexibly adjusted business solicitation policies by enhancing expansion channels, gaining a good reputation in property management, and managing property agents aimed at making pre-emptive moves in the market, with newly contracted leasing areas amounting to approximately 15,000 square meters with the occupancy rate of the offices increasing to 94.0% by the end of the first half of the year from 91.6% in January. The Manager bolstered cooperation with government agencies and renowned services institutions, successfully brought in seven premium tenants with rental transactions going in line with market trends. Although rental prices for office buildings in Guangzhou decreased to some extent, due to the unrelenting efforts of the managers, the average rent for GZIFC offices recorded a premium of 17% when compared with projects in similar areas.

The Manager smoothly solicited business for the GZIFC Shopping Mall and brand adjustments. The culmination of these efforts are manifested by the successful completion of Basement Level 1 majoring in light-catering brands, as well as popular catering brands at Level 4 to 3, and the unit rent increased by 10- 30% when compared with previous tenants. In terms of operating merchants in the thawing period coping with pressure and challenges, the Manager provided necessary operating relief measures. A smooth transition for the shopping mall's comprehensive operations was achieved through wide-ranging promotion and assistance coupled with digital online marketing in the early and mid-to-late stages of the pandemic. As of June 2020, the turnover per square metre of the GZIFC Shopping Mall returned to 85% of previous year's level.

In the first half of the year, the hotel industry was particularly hardest hit by the pandemic. Four Seasons Hotel appropriately adjusted downward the room rate in response to the pandemic, managed cost control and improved overall income through a combination of multi-channel promotions, focusing on a steady improvement in occupancy rates as its core goals, which resulted in revenue recovering from almost a stagnant 3% in February to 62% at the end of the first half of the year. In addition, the occupancy rate was 10 percentage points higher than that of the competing brands at the end of the period. The multi-channel marketing deployed by Ascott Serviced Apartments steadily attracted and increased long-term tenancy, and the number of short-term tenants gradually picked up due to the strengthening of online travel agency (OTA) channel promotions. Ascott Serviced Apartments at GZIFC ranked first both in operating revenue and GOP % for Ascott China.

As of June 2020, when compared with direct competitors, the average occupancy rate for the Four Seasons Hotel was higher by 3.3 percentage points, average daily rent was higher by 34.4%, and RevPAR was higher by 48.6%, which further consolidated its benchmark position in the market. Compared with direct competitors, the average occupancy rate of Ascott Serviced Apartments was higher by 14.2 percentage points, average daily rent was higher by 44.7%, and RevPAR was higher by 77.3%, it is continuously in a leading position in the market

WUHAN PROPERTIES

Wuhan is the hardest hit area in ​​the epidemic, and the management team at Yuexiu Fortune Centre coped with the problem by stepping up its tenancy recruitment, expanding the pool of potential tenants, and selecting premium customers by setting appropriate rents. New contracts for approximately 29,000 square meters were signed in the first half of the year, which contributed to the expansion in leased area for existing high-quality customers. In terms of contract renewal, it adopted flexible and pragmatic leasing policies and transformed from passivity to taking initiative, which successfully secured lease renewal intention from 75% of tenants with expiring leases throughout the year, effectively guaranteeing stability among customers with expiring tenancy. With the successive promulgation of various macro policies, the recovering environment in Wuhan after the pandemic has been unceasingly ameliorated, and enterprises have quickened resuming both work and production, and the demand for industries in Internet technology, healthcare, and environmental sanitation has increased, indicating that long-term stable and favorable development has basically unchanged. Recently, Wuhan Yuexiu Fortune Centre was shortlisted for the Royal Institution of Chartered Surveyors (RICS) China Summit 2020 Business Project of the Year, and won the Certificate of Outstanding Contribution in the Fight Against Pandemic in 2020.

Wuhan Properties were among the first commercial real estates to resume operation. Even during the pandemic period, the Starry Victoria Shopping Centre continued operation. The Manager took the initiative to seek changes and establish an online shopping mall to realise online and offline operations, and adopted wellplanned countermeasures to assist and stabilise operations in stages and across multiple levels. The turnovers per square metre of the shopping mall returned to 85% of the previous year's level. They also created shopping festivals and improved the abundance in membership bonus point redemption, increased collection outlets and catering merchants, attracted customers to purchase on site, and enhanced the operating ambience in the shopping mall.

WHITE HORSE BUILDING

Following the government's instructions in fighting against COVID-19, White Horse postponed the opening after the Spring Festival. After the opening, White Horse provided tenants with anti-pandemic supplies, arranged disease detection measures like temperature measurement and track record report to prevent the spread of the pandemic. Through these responsive actions, White Horse set an example in being the first to recover in the business district, and at the end of the first half of the year, its customer flow recovered to 60% of the same period in the previous year. Then in June, customers increased by 23% month-on-month; and the opening rate was about 90%, higher than the standard in the business district. The Manager flexibly adjusted strategies for solicitation of business, reserved 384 target customers and maintained customers reserve through multiple channels, such as self-media promotion, customer reserve transformation, and acquisition of product information in competitive market. They also introduced timely supportive operation measures to stabilise existing high-quality core customers in the field, so as to further prepare for lease renewals on all four floors to be due in the second half of the year and actively formulated plans to optimise and adjust the first floor operating positioning. The Manager also focused on building the atrium operating area with a goal to build a Fashion Center (時尚之心) and improved varieties of brands on the floor, established online and offline marketing modes to boost clothing sales, drove consumption, and helped merchants resume normal operations.

SHANGHAI YUE XIU TOWER

With the changes in market, the Manager took charge in implementing flexible and effective leasing policies, and created the core competitiveness of Yue Xiu Tower by upgrading its products and services. In the first half of the year, newly-signed tenant volume for the building increased with a renewal rate amounted to 70%, and the overall occupancy rate was higher than the market level; it successfully introduced five high-quality targeted customers, which effectively ensured the tenant structure and operating revenue for the building.

FORTUNE PLAZA & CITY DEVELOPMENT PLAZA

Fortune Plaza adopted planning beforehand to renew expiring leases due this year and completed concluding contracts with key customer in advance. It held fast to take the initiative in maintaining solicitation of business and leasing to stabilise operation. City Development Plaza shouldered the pressure in the first half of the year, actively resolved operating risks, strictly controlled tenant quality, seized market opportunities in March and April to realise a rapid transformation of tenants, introduced a number of renowned enterprises.

VICTORY PLAZA

The Manager focused on launching key support and assistance measures to enhance customer flow after the pandemic through online marketing and "Weekend Markets", helping the primary shops return to normal sales levels as soon as possible. Currently, their sales volumes are recovering. The overall efficiency of the shopping mall returned to over 65% of the previous year's level and the turnover per square metre of the catering industry has rebounded to 97%. In the first half of the year, activities for solicitation of business were held in spite of the prevailing market slump, integrated project positioning successfully eliminated risky tenants and introduced numerous leading brands in the industry. It laid a foundation for the overall upgrading and refurbishment of some floors, and renewals with quality customers for leases due in the second half of the year.

HANGZHOU VICTORY

The Manager seized each and every opportunity to solidly solicit business and leasing renewals; therefore, the number of visitors and project occupancy rates reached all new highs. The Manager was also successful in renewing more than 3,000 square meters for major customers, which brought a strong guarantee in terms of overall project stability, ultimately succeeded in bringing in a World's Top 500 enterprise to further optimize its tenant structure.

Active promotion of asset appreciation projects to achieve value preservation and appreciation of properties

In the first half of the year, the Manager continued to invest in a number of asset upgrading and refurbishment projects that were undergoing construction, which included the Green Image Improvement Project for the southern square of the Four Seasons Hotel, image improvement project for Ascott Serviced Apartments, replacement of air conditioning fan coil units at the City Development Plaza, renovation of external walls of the White Horse Building, replacement of sanitary fittings in public washrooms at the Shanghai Yue Xiu Tower, renovation of units on the 65th and 66th floors at the Wuhan Yuexiu Fortune Center, power supply and installation of a surveillance and management system for energy consumption, as well as the installation of power-off interlayer devices in the elevators at Wuhan Properties. In total, they all amounted to an estimated investment of approximately RMB 20 million, aiming at continuously improving equipment safety and business environments across all projects.

Proactive management of maturing debts to alleviate impacts of market fluctuations

The Manager proactively managed the maturing debt, and withdrew a HK$2.1 billion 5-year loan under a syndicated loan of HK$5.2 billion in the first half of the year to replace maturing bank loan and meet Yuexiu REIT's operational needs. At the same time, it maintained reasonable financing structures and exchange rate and interest rate exposures to alleviate any impacts from market fluctuations on fund performances

Outlook

Mr. Lin Deliang, Chairman, Executive Director and CEO of Yuexiu REIT said, "In the first half of 2020, China's macroeconomy was hit by COVID-19. In response to the changes in the market and the pressure faced by tenants in different industries during the pandemic, Yuexiu REIT formulated more reasonable and targeted leasing policies, including rent concessions, to effectively mitigate business risks. This also shows our commitment to working closely with tenants in both good and hard times. As a result, all performance indicators gradually stabilized and showed a sign of recovery. In the second half of the year, the Manager will continue to closely monitor the situation and press ahead with multi-pronged management measures with a firm hand to preserve the value of the properties and enable them to appreciate. All this is aimed at providing steady returns to Yuexiu REIT's unitholders."

About Yuexiu REIT

Yuexiu Real Estate Investment Trust ("Yuexiu REIT", HKEX stock code: 00405) was listed on the Stock Exchange of Hong Kong Limited on 21 December 2005. It is the first listed real estate investment trust in the world investing in properties on the mainland of the People's Republic of China. Yuexiu REIT's properties portfolio consists of eight high-quality properties including Guangzhou International Finance Center, White Horse Building, Fortune Plaza, City Development Plaza, Victory Plaza, Shanghai Yue Xiu Tower, and Wuhan Properties (including "Wuhan Yuexiu Fortune Centre", "Starry Victoria Shopping Centre" and certain Carpark Spaces) and Hangzhou Victory, with a total area of ownership of approximately 973,000 square meters.