CapitaLand Retail China Trust (CRCT) (SGX: (AU8U) is a Singapore-based real estate investment trust (“REIT”) which has a diversified portfolio of income-producing real estate used primarily for retail purposes and located in China. CapitaLand Retail China Trust has a market capitalisation of S$1.42 billion.

With that, here are 7 things you need to know about CapitaLand Retail China Trust.

Stock Information

TICKER SYMBOL: SGX: AU8U
1

MARKET CAP: S$1.45 billion

INDUSTRY: REIT

The Business

CapitaLand Retail China Trust’s portfolio comprises of eleven properties strategically located in prime locations in seven cities across China. Many of these properties are located near the CBD or in densely populated areas. A brief overview of the property portfolio can be seen below.

Source: CapitaLand Retail China Trust presentation slides

From the table above it can be seen that collectively the 11 properties have a valuation of RMB 12.7 billion. Out of the 11 properties, 6 are multi-tenanted, 3 are master leased and 2 are under stabilisation, which means they are not fully utilised yet.

The mix of properties in CapitaLand Retail China Trust’s portfolio thus allows it to give investors a stable distribution while it continues to grow with 3 malls under stabilisation. This allows investors to enjoy growth with less risk.

Having looked at its property portfolio, let’s move to look at is shopper traffic and tenant sales.
1- Excluding 3 master-leased malls and CapitaMall Xian which was acquired on 30 Sep 2016

Source: CapitaLand Retail China Trust presentation slides

While it is seen that shopper, traffic decreases slightly on a year on year basis. Excluding the malls which are under stabilization, shopper traffic increased 1.6%. The situation regarding tenant sales was different, it saw sales increasing 3.1% year on year for the portfolio and 2.6% of the malls, excluding those under stabilization.

Moving to occupancy rates, CapitaLand Retail China Trust has been enjoying high occupancy rates for the last 5 quarters with occupancy consistently about 94%. This is a healthy occupancy rate for a retail mall which often sees tenants coming and going as customers’ taste change.

Source: CapitaLand Retail China Trust presentation slides

 Lastly, looking at CapitaLand Retail China Trust’s gearing and interest costs, it has been careful not to over leverage itself. Its gearing stands at 35.3%. It has also managed to negotiate favourable interest rates with the banks, with the average cost of debt coming in at a reasonable 2.81%

Source: CapitaLand Retail China Trust presentation slides

Overall in 2016, CapitaLand Retail China Trust registered a net property income of RMB 669.7 million and distributable income of RMB 86.7 million.

Key Opportunities

Long portfolio lease expiry

The diagram below shows CapitaLand Retail China Trust’s portfolio lease expiry by year.


Source: CapitaLand Retail China Trust presentation slides

The diagram above shows CapitaLand Retail China Trust has a weighted average lease term to expiry (WALE) of 5 years by rental income and 7.4 years by net lettable area. Having such long-term leases is highly beneficial for investors as it allows for stability in distribution.

Its predictable cash flows allows CapitaLand Retail China Trust to better plan its finances. This means it could plan more acquisitions and better growth over the long term for the REIT. Investors should also note, that REIT’s with long-term leases usually trade at above their book value as market deemed them to be more stable. However, CapitaLand Retail China Trust is unique in this case. Maybe due to its geography risk with its assets mostly in China, it has traded below its book value once in a while in its history. During those time, it could offer investors a good opportunity of investing in them.

Diverse tenant and trade mix

The below diagram shed light on CapitaLand Retail China Trust’s trade and tenant mix. The first part of the diagram shows rental break down by trade groups. It can be seen that no one trade group makes up more than 28% of rental. Also, approximately 46% of CapitaLand Retail China Trust’s rental income comes from Food & Beverage, department store and supermarket tenants which are relatively resilient.

The second part of the diagram, shows net lettable area by trade mix. It is no surprise that Department stores and supermarkets take up the most space in shopping malls. These tenants are usually the anchor tenants of the malls as well.

Having good anchor tenants are important as it attracts customers into the mall. In CapitaLand Retail China Trust’s case with its properties located in the CBD or in densely populated areas, having department stores and supermarkets in their malls is hugely beneficial. This is because it will attract customers as everyone needs to buy groceries and other living essentials.

Source: CapitaLand Retail China Trust presentation slides

Key Risks

Online retail is picking up

All CapitaLand Retail China Trust’s assets are shopping malls, this is in direct competition with the growing online sales and move to online sites. China’s adoption of online retail is seen from the strong growth that Alibaba and Tencent have enjoyed over the last few years. This trend looks set to continue well into the future. However, with the move to more (O2O) online to offline platforms of integrating the experiences between online and offline shopping, the death of shopping malls might not happen as quickly as many people predict. But we need to wait and see how this plays out.

Economic Slowdown

China has been going through an economic slowdown in the last couple of years, this is what many people believe but the data suggests otherwise. However, a slowdown affects consumer consumption and this is a direct threat to CapitaLand Retail China Trust. Whether it is currently facing a slowdown or not is something that can be debated.

Valuation

CapitaLand Retail China Trust currently trades at a Price to book (P/B) ratio of 1.0 and spots a 6.3 %distribution yield for its investors. While P/B is on par with its five-year average but its distribution yield is slightly higher than its last 5-year average.

Investor Relations

Investor Relation Material:

(Ms) Leng Tong Yan
Manager, Investor Relations
CapitaLand Retail China Trust Management Limited
168 Robinson Road #30-01 Capital Tower Singapore 068912

DID : (65) 6713 2888
Fax : (65) 6713 2999
Email: leng.tongyan@capitaland.com

Top Shareholders (31st March 2017)

  1. HSBC (Singapore) Nominees Pte Ltd 20.13%
  2. Retail Crown Pte. Ltd. 96%
  3. DBS Nominees (Private) Limited 19.45%

Financials

Income Statement

Balance Sheet

What Do You Think Of CapitaRetail China Trust As An Investment? Will You Invest In it? Share Your Views Below

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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Ketz’s personal capacity. It does not in any way represent those of his employer and other related entities. Ketz does not own any companies mentioned.

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