UPHOLDING PRUDENT CAPITAL MANAGEMENT Our disciplined approach to capital management enables us to maintain a healthy financial position and stable cost of debt among China focused S-REITs. During the year, we pioneered a landmark initiative as the first S-REIT to launch FTZ offshore bonds. Due in 2026, the RMB600 million bonds have a three-year tenor, offering a coupon rate of 3.8% per annum. This allowed us to achieve approximately 100 basis points (bps) in interest savings through early refinancing of our existing SGD-denominated offshore debt. The bonds broadened our funding sources, while optimising our capital structure to fuel long-term growth. In 2023, we expanded our RMB-denominated facilities to 20%, an improvement from 13% as at 31 December 2022. Having refinanced our 2023 loans ahead of schedule, we have also secured the refinancing for borrowings due in 2024 well in advance of their maturity dates. As part of risk management, we will continue to look at ways to optimise our onshore and offshore debt mix to increase our natural hedge while strengthening overall financial position. At the close of 2023, around 82%6 of our total term loans were on fixed rates, providing certainty on interest expenses. Interest coverage ratio of 3.3 times7 remained well above the regulatory requirement of 2.5 times8 while gearing came in at 41.5%9. Should the net proceeds from the divestment of CapitaMall Shuangjing be used to pare down debt, CLCT’s gearing would have improved to approximately 40% as at 31 December 2023. In addition, we maintained a well-staggered debt maturity profile and our average term to maturity stood at 3.5 years. As testament to CLCT’s increasing green focus, we significantly raised the proportion of our Sustainability-Linked Loans from 13% of our total debt in FY 2022 to 31% this financial year. SCALING NEW HEIGHTS IN SUSTAINABILITY At CLCT, we believe that a sustainable approach to business is integral to our long-term success. In alignment with CapitaLand’s 2030 Sustainability Master Plan, we constantly strive to minimise our environmental impact, while contributing to the communities we operate in. We reached numerous sustainability milestones during the year and have detailed these accomplishments under the “In Conversation with CEO” and “Sustainability Highlights” sections. OUTLOOK China’s GDP expanded by 5.2%10 while retail sales grew by 7.2% in 202311. Chinese policymakers are actively implementing targeted measures to bolster economic growth and most of the country’s largest provinces have set growth targets of 5% or more in 202412. At the beginning of 2024, China’s central bank announced a 50 bps cut to bank reserves, which will provide RMB1 trillion of long-term liquidity to the financial market13. In February 2024, China decreased the five-year loan prime rate (LPR) by 25 bps to 3.95%, the first cut since June 202314. Additionally, China is focusing on promoting consumption15 and boosting investments in the private sector16, which are anticipated to bode well for the country’s economic climate. Although market volatility and uncertainty remain, we maintain a positive outlook on the country’s opportunities in the long term. Underpinned by our proactive capital and asset management, CLCT’s diversified portfolio positions us to capitalise on business and consumption flows as the macroenvironment and consumer confidence improve. At the same time, we will actively look out for opportunities to rebalance our portfolio and strengthen our financial capacity, while seizing investment prospects to propel our portfolio reconstitution efforts. 6 Excludes Money Market Lines and onshore RMB loans. The fixed to floating ratio rose from 71% to 82%, reflecting the impact of the FTZ Bonds and Cross Currency Interest Rate Swap (CCIRS) on the total debt composition. 7 Ratio is calculated by dividing the trailing 12 months EBITDA over the trailing 12 months interest expense (exclude finance lease interest expenses under FRS 116) in accordance with MAS guidelines. 8 With effect from 1 January 2022, S-REITs are required to have a minimum ICR of 2.5 times before they are allowed to increase their leverage to beyond the prevailing 45% limit (up to 50%). 9 In accordance with the Property Funds Appendix, the aggregate leverage is calculated based on the proportionate share of total borrowings over deposited properties. 10 CNN, China’s economy grew by about 5.2% in 2023, Premier Li says, 16 January 2024. 11 China National Bureau of Statistics 12 Bloomberg, China’s provinces mostly target GDP growth of 5% or more in 2024, 24 January 2024. 13 Reuters, China cuts bank reserves to defend markets, spur growth, 24 January 2024. 14 The Straits Times, China cuts mortgage reference rate by most on record to revive property market, 20 February 2024. 15 Xinhua, China plans to further boost consumption for economic recovery, 19 January 2024. 16 The State Council of the People’s Republic of China - China pledges more support for private sector, 18 January 2024. ANNUAL REPORT 2023 15 Financials Framework Portfolio Performance Leadership Overview
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