Can You Find Yield Like CapitaLand Retail China Trust?

Listed on 8 December 2006, CapitaLand Retail China Trust (CRCT) is Singapore’s first SGX-listed REIT established to invest and derive income from a portfolio of retail malls located across China. As at 31 December 2018, CRCT had expanded its portfolio to 11 retail malls with a total asset amounting to S$ 3.0 billion.

In this article, I’ll cover its fundamentals, its latest financial results and evaluate its stock based on its current unit price of S$ 1.45 today. Thus, here are 10 main things to know about CRCT before you invest.

1. Total Assets
   CRCT has increased its total assets by CAGR of 10.4% to S$ 3.0 billion in 2018 from S$ 1.2 billion in 2009. It is attributed to CRCT’s acquisition of the following properties during the 10-year period:
   
   

No.	Retail Assets	Year	Acquisition Costs
1	CapitaLand Minzhongleyuan	2011	RMB 395 million
2	CapitaLand Grand Canyon	2013	RMB 1,740 million
3	CapitaLand Xinnan	2016	RMB 1,500 million
4	51% Stake in Rock Square	2017	RMB 1,714 million

Source: CRCT’s Annual Reports & Q4 2018 Report

1. Gross Revenue
   CRCT has achieved CAGR of 7.1% in gross revenue to S$ 229.1 million in 2018 from S$ 120.3 million in 2009. This is attributable to:
   
   – Additional Income from the 3 Malls Acquired as stated in Point 1.

– Positive Rental Reversions from Most of its Existing Properties.


However, on a year-on-year basis, CRCT’s gross revenue has dropped by 2.8% from S$ 229.2 million in 2017. This is mainly caused by:

– Divestment of CapitaLand Anzhen in July 2017.

– Lower Atrium Revenue recorded by CapitaLand Grand Canyon.
– Closure of CapitaLand Wuhu due to exit of its anchor tenant.

– Continuous Drag in Results from Minzhongleyuan.

Source: CRCT’s Annual Reports and Q4 2018 Report

1. Distributable Income
   CRCT has achieved CAGR of 7.1% in its distributable income to S$ 93.7 million in 2018 from S$ 50.6 million in 2009. On a year-on-year basis, it has recorded a growth of 9.4% in distributable income despite having a dip of 2.8% in gross revenue as stated in Point 2. It is because CRCT has derived joint venture (JV) income from its 51% interests in Rock Square which was acquired at end-2017.
   
   
   

Source: CRCT’s Annual Reports and Q4 2018 Report

1. Distribution per Unit (DPU)
   CRCT has increased its DPU marginally from 8.14 cents in 2009 to 10.22 cents in 2018. It is because its growth in distributable income had been diluted by an enlarged base of units during the period.
   
   
   

Source: CRCT’s Annual Reports and Q4 2018 Report

1. Balance Sheet Strength
   As at 31 December 2018, CRCT has a total debt outstanding of S$ 1.043 billion and thus, having gearing ratio of 35.4%. It has an average cost of debt of 2.73% per annum and has as much as 80% of its debt based on fixed interest rates, thus, is less impacted by a hike in interest rates.
   
   
   
2. Growth Prospect: Acquisition of Yuquan Mall
   On 1 February 2019, CRCT announced that it has entered into a bundle deal which involves:
   
   – Divestment of CapitaLand Saihan for RMB 460 million (S$ 98.0 million)
   – Acquisition of Yuquan Mall for RMB 808.3 million (S$ 159.6 million)
   
   
   Completed in 2016, Yuquan Mall is a 8-storey retail mall that comprises of 100,047 sq. m. of gross floor area (GFA), more than twice the size of CapitaLand Saihan of 41,938 sq. m. in GFA and enjoys direct connection to the upcoming NuoHeMuLe Station on Metro Line 2 at Hohhot, Inner Mongolia.
   
   
   

Source: Bundle Deal Presentations on 1 February 2019


CRCT expects to take over Yuquan Mall in 2H 2019 where it starts to do fit-out works and pre-leasing activities while it continues to operate the Saihan Mall. In 2H 2020, CRCT will officially launch Yuquan Mall and will complete the disposal of Saihan Mall. It is intended to lessen disruption arising from the completion of this bundle deal for the next 18 months.

1. Investment Risk 1: Wuhu & Minzhongleyuan
   The two shopping malls continue to have below 90% in occupancy rate and bringing in insubstantial amount of income presently as both malls are impacted by ongoing tenant mix adjustments. Combined, they have contributed S$ 6.6 million or 3.0% in CRCT’s gross revenue and incurred S$ 0.2 million in net property losses in 2018.
   
   
   
2. Investment Risk 2: Land Use Right Expiry  
   CRCT’s retail malls are leasehold properties where their land use rights would be expiring mostly between 2040 – 2050, which is some 20 – 30 years from today. It is unclear whether CRCT is allowed to renew these land leases and the premiums charged if CRCT is required to do so. Any changes in policies in regards to land leases would influence the market value of all retail properties owned by CRCT.
   
   
   
3. P/B Ratio
   As at 31 December 2018, CRCT has net assets of S$ 1.54 per unit. Thus, based on its current unit price of S$ 1.45, its current P/B Ratio is 0.942, slightly below its 9-year average of 0.992 (exclude P/B Ratio at 2008).
   
   
   

1. Dividend Yields
   For 2018, CRCT has declared and paid out 10.22 cents in DPU. Thus, its current dividend yield is 7.05% per annum based on its unit price of S$ 1.45. It is above its 9-year average of 6.67% per annum (exclude 2008).
   
   
   

VIA Verdict’s

CRCT has delivered sustainable growth in assets, revenue, distributable income and DPU for the last 10 years. As compared to most retail REITs listed in SGX, its current dividend yield of 7.05% is among the highest. For now, it has a portfolio of assets (apart from Minzhongleyuan and Wuhu) which have a track record for contributing stable income to CRCT and has potential to grow for the next 1 – 2 years as soon as it launches Yuquan Mall in 2H 2020.

So, should I invest in CRCT? The answer lies in how you view:

– The future prospects of Minzhongleyuan and Wuhu.

– Land Use Rights which mostly expire in 20 – 30 years time.

– Other retail REITs listed in SGX in comparison to CRCT.

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