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Monday, August 24, 2020

CapitaLand Retail China Trust Analysis @ 24 August 2020

Basic Profile & Key Statistics

CapitaLand Retail China Trust is a pure retail REIT that invests in 13 retail properties in China. 


Lease Profile

Occupancy is healthy at 93.4%. WALE is short at 2.2 years where the highest lease expiry of 28% falls in the year 2021. All of its income is received in RMB. Weighted average land lease expiry is short at 24.05 years.


Debt Profile

Gearing is healthy at 33.6%. Cost of debt and fixed-rate debt % are moderate at 2.8% and 82.9% respectively. Unsecured debt % is high at 93.5%. Interest cover ratio is slightly high at 4 times. WADE is moderate at 2.75 years where the highest debt maturity of 22.8% falls in the year 2022.


Diversification Profile

Top geographical contribution is moderate at 57.5%, top property contribution is slightly high at 24.4%. Top tenant and top 10 tenants contributions are low at 4.1% and 17.6%. 


Key Financial Metrics

Property yield is low at 4.5%. Management fee is high in which unitholders receive S$ 5.81 distribution for every dollar paid. Distribution on capital is slightly low at 3%. Distribution margin is low at 40.4%. 


Related Parties Shareholding

As compared to SREITs median, sponsor and manager holding a higher stake while directors of REIT manager holding a lesser stake.


Trend

If we look at pre-COVID time, DPU is on a slight downtrend while distribution margin is on an uptrend. NAV per unit is on a slight downtrend but improved in 2Q 2020 due to divestment gain from Capitamall Erqi.



Relative Valuation

i) Average Dividend Yield  - Average yield at 6.59%, apply the past 4 quarters DPU of 7.79 cents will get S$ 1.18.

ii) Average Price/NAV - Average value is at 0.93, apply the latest NAV of S$ 1.635 will get S$ 1.52.


Author's Opinion

 Favorable Less Favorable
Unsecured DebtWALE
Well Spread Debt MaturityIncome Received in RMB
Top Tenant & Top 10 Tenants ContributionWeighted Average Land Lease Expiry
Distribution Margin UptrendProperty Yield
 Management Fee
 Distribution Margin

2Q shopper traffic has increased by 25.9% as compared to 1Q 2020. Tenant sales have also increased month on month since March, albeit drop slightly in June due to COVID 2nd wave in Beijing which was quickly abated. Its latest acquisition, Yuquan mall is expected to open by the end of 2020. In July, China also reported 2Q 2020 GDP grew by 3.2% year-on-year and 11.5% quarter-on-quarter. Moving forward, CRCT performance is likely to be improved.


The above analysis information is extracted from SREITs Dashboard, you are welcome to use the information there for your analysis. You could also refer SREITs Data for an overview of Singapore REITs. If you like my sharing, please join the Facebook group - REIT Investing Community where you could read, share, and discuss REITs related topics. Please also invite your like-minded friends to the group. 


*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee the accuracy, completeness, and reliability. It should not be taken as financial advice or statement of fact. I shall not be held liable for errors, omissions as well as loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.

6 comments:

  1. Hi Vince. May I know how you calculated your weighted average land lease expiry? Compared to your 24.05 years, I got a higher value of 29.6 years.

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    Replies
    1. There are 4 properties having 2 land use rights within same property. I am conservative and took the shorter years. I believe you are taking the longer years for your calculation. I re-calculated with both low and high value, my value should be 24 year (have corrected) and higher 1 would be 29.27 years, which is close to yours.

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    2. I see... thanks for the clarification! It's funny how a single property can have 2 land use rights.

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    3. Sometimes this is because of different phase of acquisition or construction. Happened got other REIT too. Generally, I take the conservative site, unless the area is very small.

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  2. Hi Vince, if the WALE is 2.2 years and 28% of the leases expire in 2021, isn't there a high risk that a number of tenants do not renew their leases, affecting the REITs performance next year

    ReplyDelete
    Replies
    1. Hi Mark,
      Retail WALE generally is short. For SREITs, median value of highest lease expiry within 5 years is 26.4%, so 28% is slightly high. There will always be risk of no renewal or renewal at lower rate. So I think what you could do is refer to the trend section to assess how a REIT perform previously.

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