In 2022, the COVID-19 situation had constantly improved, and the government gradually relaxed the control measures coupled with the international travelling restrictions of several countries were lifted off, resulting in swiftly recovering foreign and domestic tourism sectors. The wide-spreading economic recovery, coupled with the Russia-Ukraine conflict having comparatively less effect on Thailand, also saw a recovery in trade and the service sectors alongside improvements in private consumption and domestic investments. However, a handful of risks remain to require close monitoring, namely rising inflation, interest rates, energy costs, and costs of living, as they affect businesses both in terms of income and up-front cost, whereby the Thai economy grew by 2.6% in 2022 or an increase from 1.5% in 2021.
For the management of CPN Retail Growth Leasehold REIT (“CPNREIT”), the REIT Manager has been focusing on generating revenue alongside managing costs and liquidity maintenance, controlling operational efficiency-expenditure and sufficient cash flow for business management and operations, including continuous growth under the CPNREIT investment policy, as well as creating sustainable returns for trust unitholders by prioritizing trust-investment management of the following assets:
The REIT Manager and the property manager have jointly and continuously taken care of and developed the shopping center to increase the number of visitors and attract both Thai and foreign tourists since the relaxing of COVID-19 prevention measures and people returning to normal life, the country reopening to welcome tourists alongside government measures to stimulate tourism, by continuously organizing marketing and sales promotion activities and organizing a grand year-end campaign at shopping centers to promote sales to lessees and partners, resulting in a substantial reduction in rental discounts to tenants, coupled with ongoing cost control measures to maintain profitability. CPNREIT still maintained the occupancy rate of shopping centers more than 90% and a lease renewal rate above 90% of the expired lease area, also the occupancy rate of Hilton Pattaya rose to 85% in the second half of 2022.
The overall market for commercial real estate offices began showing signs of recovery as well, although some organizations still allowed employees to work from home. However, the ratio of employees returning to work in office buildings began to increase steadily with new lease contracts seeing. The occupancy rate of office buildings was at 86%, a slight increase from the previous year.
In 2022, CPNREIT reported total income of THB 4,886.7 million, an increase of THB 1,359.5 million or 38.5%yoy, reflecting a recovery across all property categories ;- shopping malls seeing lower rental discount, higher rental income from promotion area, and increasing rental income from consignment, office buildings showing higher occupancy rate driven by new tenants, and Hilton Pattaya presenting significantly improvement in occupancy rate as well as the room rate at the end of 2022 reached its pre-COVID-19 level. At the same time, total expenses increased by 10.9%yoy, due mainly to recording interest expenses on lease liabilities from Central Rama 2 (renewal period) under the Thai Financial Reporting Standard No. 16 for Leases (“TFRS 16”), a non-cash item, alongside property management expenses that increased with rising energy costs and land and building taxes without a 90% discount like the previous year, and increased interest expenses under rising interest rate environment. In addition, CPNREIT recorded a gain from changes in the fair value of leasehold investments mainly from Central Rama 2, resulting in the net profit of THB 2,111.2 million, an increase of 143.8%yoy.
Given the improved performance, the REIT Manager has considered the payment to trust unitholders in total of THB 1.1369 per unit, an increase of 88.5%yoy, comprising of distribution of return of THB 0.8221 per unit and payment in form of capital reduction of THB 0.3148 per unit.
At the end of 2022, CPNREIT reported total assets of THB 80,316.8 million, increased by 1.7%yoy, and total loans and debentures of THB 23,001.4 million, resulting in net assets per unit of THB 12.9582, a reduction from THB 13.1691 per unit at the end of 2021. Interest-bearing debt (excluding lease liabilities) to asset ratio stood at 28.6%.
CPNREIT was affirmed credit rating at ‘AA’ with a ‘Negative’ outlook by TRIS Rating Co., Ltd., reflecting its high-quality assets as well as predictable cash flow from leasing revenue and services performed under conservative contracts and financial policies.
In 2022, although the REIT Manager had not made the additional investment in the remaining assets, namely Central Surat Thani and Central Ubon, under the resolution of the Extraordinary General Meeting of Unitholders No. 1/2019. Nevertheless, the REIT Manager has continued to follow the investment policy stated in the trust deed to create income base growth and return to CPNREIT with additional asset investments considering quality assets, solid performance, and high-potential locations. The REIT Manager will proceed the investment at the right time and valuation with appropriate capital structure aiming to maximize the ability to generate consistent returns to CPNREIT and trust unitholders over the long-term.
Optimizing asset quality being a key factor in increasing return on CPNREIT’s asset performance, therefore, in 2022 the REIT Manager approved the renovation plan for Central Pattaya to modernize and increase the competitiveness of the shopping mall by developing and improving the merchandise mix with various New Special Zones added to facilitate the number of shoppers, of whom are expected to increase significantly, given the THB 181.4 million investment budget. The renovation is scheduled to be completed by the third quarter of 2023.
As the REIT Manager and property managers take into account the Environment Social Governance (ESG), CPNREIT has been recognized for its outstanding sustainability following its sustainability assessments from S&P Global, known worldwide as a standard for analyzing and making investment decisions, and has been recognized as a Member in the S&P Global Sustainability Yearbook 2023 for the second year. CPNREIT has also participated in the Global Real Estate Sustainability Benchmark (GRESB) assessment and rating for the second year running.
The REIT Manager would like to thank all trust unitholders for their trust and support in good and bad times. The REIT Manager has determination to manage CPNREIT for sustainable growth that generates stable returns for the trust unitholders by operating under good corporate governance principles.
