CapitaLand Retail China Trust Analysis @ 10 November 2020

Basic Profile & Key Statistics

CapitaLand Retail China Trust (CRCT) was a pure Retail REIT with 13 properties in China. With the recently expanded mandate, CRCT investment is expanded to other sectors which include office, industrial and logistics in China, Hong Kong and Macau.

Performance Review

There is no financial statement released in this quarter due to the adoption of half-yearly reporting.

3Q 2020 shopper traffic and tenants sales have recovered to 89% and 91.9% respectively as compared to 3Q 2019. 

AEI for Rock Square which is expected to increase an additional more than 1000 sqm of NLA over the next 2 to 3 years.

Lease Profile

Occupancy is moderate at 93.7%. WALE is short at 2.4 years where the highest lease expiry of 31.8% falls in 2021. Weighted average land lease expiry is short at 23.75 years.

Debt Profile

Gearing increases from 33.6% to 34.7%. Cost of debt is moderate at 2.8% despite a high level of unsecured debt at 93.9%. Fixed rate debt is moderate at 80%. Interest cover ratio is slightly low at 3.7 times. WADE is long at 3.19 years where the highest debt maturity of 22.4% falls in 2024.

Diversification Profile

Top geographical contribution is moderate at 56.3%. Top property contribution is high at 24%. Top tenant and top 10 tenants contributions are low at 4.1% and 17.6% respectively.

Key Financial Metrics

Property yield and distribution margin are low at 4.3% and 38.7% respectively. Management fee is not competitive in which unitholders receive S$ 5.59 for every dollar paid to the manager. Distribution on capital is slightly low at 2.9 %. 

Trends

Uptrend - Distribution Margin

Flat - NAV per Unit

Downtrend - DPU, Interest Cover Ratio, Property Yield

Relative Valuation

i) Average Dividend Yield  - Average yield at 6.56%,  apply the annualized past 4 quarters DPU of 7.14 cents will get S$ 1.09. 

ii) Average Price/NAV - Average value at 0.92, apply the latest NAV of S$ 1.631will get S$ 1.50.

Author's Opinion

Favorable	Less Favorable
High Unsecured Debt	All income received in RMB
Long WADE	Short WALE
Well Spread Debt Maturity	Short Weighted Average Land Lease Expiry
Low Top Tenant & Top 10 Tenants Contributions	High Top Property Contribution
Distribution Margin Uptrend	Low Property Yield
	Low Distribution Margin
	Non-Competitive Management Fees
	DPU Downtrend
	Interest Cover Ratio Downtrend
	Property Yield Downtrend

CRCT shopper traffic and tenant's sales have almost recovered to pre-COVID level. Yuquan Mall which is targeted to open in the end of 2020 should also improve CRCT performance. All these improvements would be reflected in the 2H financial result. On 6 Nov 2020, CRCT announced for the first proposed acquisition after the expanded mandate.

CRCT proposed to acquire 5 business parks and the remaining 49% interest in Rock Square.

Method of funding would be from a combination of internal resources, debt, perpetual securities and equity fund raising. This acquisition is DPU accretive at 5.1% increase, where the 4.34 cents is calculated by excluding one-off rental rebate of S$17.9 million provided to tenants, pre-termination compensation of S$3.5 million received by CapitaMall Erqi and retained distributable income of S$1.8 million. 

However, this acquisition is dilutive to NAV per unit in which NAV per unit dropped by 4.6%, based on the issue price of S$ 1.13 to raise S$ 300 million. 

More detail for this acquisition would be provided by CRCT in due time. An EGM would be held to get unitholders' approval for this acquisition.

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*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee accuracy, completeness, and reliability. It should not be taken as financial advice or a 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.