On 30 October 2024, CapitaLand China Trust (“CLCT”) announced their third quarter business update for FY2024. It is a small business update, though it is noted that the overall portfolio occupancy rate continues to decrease. This may continue to have a downward pressure on DPU, which in turn lowers the share price.
It is worth noting that in an investor day presentation, Capitaland Investment said that it wants to reduce its exposure in China to 10-20 per cent of its expected SGD200 billion in funds under management by 2028. This might indicate that there will be no significant changes to the business and portfolio for CLCT over the next few quarters.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
Website: General Announcement::3Q 2024 Business Updates
Website: CapitaLand warns of potential China divestment losses
Photo source: https://www.clct.com.sg/
Financial Highlights
Distribution Per Unit (“DPU”)
| Metrics | Current | Previous |
|---|---|---|
| Distribution Per Unit | No Update | -19.5% |
| Rating | Unfavorable | Unfavorable |
Based on the announcement on 30 October 2024, DPU was not included in the business update for the third quarter of FY2024.
This metric was Unfavorable in the previous quarter as DPU for the first half of 2024 dropped by 19.5% to SGD0.0301 per share as compared to SGD0.0374 per share for the same period in the previous financial year.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 87.6% | 88.4% |
| Rating | Unfavorable | Unfavorable |
Management have provided the occupancy rate for this quarter of 91.4%. Do note however, that this excludes the Shanghai Fengxian Logistics Park which is still under repositioning revaluation. If the logistics park was included, portfolio occupancy would be 87.6% as of 30 September 2024. This metric remains Unfavorable as it is below my expected healthy occupancy rate of 95%.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 41.6% | 40.8% |
| Rating | Unfavorable | Unfavorable |
Gearing ratio increased to 41.6% as of 30 September 2024. This metric remains Unfavorable as their high gearing results in significant interest and less room to navigate.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 3.0x | 3.0x |
| Rating | Favorable | Favorable |
The adjusted interest coverage remained unchanged at 3.0 times as of 30 September 2024. The metric remains Favorable as the interest coverage is around my preference of 3.0 times.
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.4 years | 3.4 years |
| Rating | Favorable | Favorable |
Weighted average term to maturity of their debt remained unchanged at 3.4 years as of 30 September 2024. This metric remains Favorable and it allows them sufficient time to refinance their debts as they fall due.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 0.60 | 0.58 |
| Rating | Favorable | Favorable |
Based on the announcement on 30 October 2024, Net Asset Value (“NAV”) was not included in the business update for the third quarter of FY2024.
The Price to Book (“P/B”) ratio currently stands at 0.60. This is computed using the closing share price of SGD0.715 on 6 December 2024 and the net asset value per share of SGD1.19 as of 30 June 2024. The metric is Favorable as you are paying at a discount to their book value. Nonetheless, there is a key thing to note which will be elaborated below.
As of 6 December 2024, the Market Capitalization is approximately SGD1,230 million.
Website: Yahoo Finance: CapitaLand China Trust (AU8U.SI)
Dividend
| Year | Yield | Total |
|---|---|---|
| 2024 | 8.41% | SGD 0.060 |
| 2023 | 9.99% | SGD 0.071 |
| 2022 | 8.25% | SGD 0.059 |
| 2021 | 10.50% | SGD 0.075 |
| 2020 | 8.07% | SGD 0.058 |
With the total dividend for the calendar year 2024 amounting to SGD0.060 per share and a closing share price of SGD0.715 as of 6 December 2024, this translates to a dividend yield of 8.41%. For my benchmark, a general reasonable range would be around an average of 5.00% in the current environment. The dividend yield is Favorable.
Website: Reasonable Dividend Yield 2024Q4 – 5.00%
Take note however that this is a China REIT listed in SGD on SGX, investors may require a higher return to compensate the higher risks.
Interest Rate Sensitivity
The Federal Reserve on 7 November 2024 have further slashed interest rate by a quarter point to a range of 4.50% to 4.75%. This is in line with earlier expectations for future rate cuts, which will benefit REITs in general.
Website: Federal Reserve cuts interest rates by a quarter point
The Federal Reserve has subsequently announced on 15 November 2024 that they will cut their key interest rate slowly and deliberately in the coming months, in part because inflation has shown signs of persistence, and the officials want to see where it heads next.
Website: Powell says Fed will likely cut rates cautiously given persistent inflation pressures
CLCT have provided the interest rate sensitivity analysis as below. Should the interest rate for the SGD and RMB denominated loans change by another 1.0%, using FY2023 DPU of 6.74 cents as a base, DPU is expected to change by 1.8% and 2.1% respectively.
| Change in Interest Rates for SGD Loan | Change in DPU (cents) | Change as % of FY2023 DPU |
|---|---|---|
| 50 bps | 0.06 | 0.9% |
| 100 bps | 0.12 | 1.8% |
| 150 bps | 0.18 | 2.7% |
| 200 bps | 0.24 | 3.6% |
| Change in Interest Rates for RMB Loan | Change in DPU (cents) | Change as % of FY2023 DPU |
|---|---|---|
| 50 bps | 0.07 | 1.0% |
| 100 bps | 0.14 | 2.1% |
| 150 bps | 0.21 | 3.1% |
| 200 bps | 0.28 | 4.2% |
Key things to note
Singapore Exchange Rate Policy
In view of the current high inflation environment, Singapore adopts an exchange rate policy in order to manage the inflation and ensure price stability as a sound basis for sustainable economic growth. This policy is different from those used by other countries. As a result of this policy, RMB has depreciated against SGD over the last few quarters.
In one of the earlier quarters, CLCT’s financials have shown improvement when denominated in RMB, where net property income and valuations of the leasehold properties have increased. However when translated to SGD this cause DPU and asset valuations to decrease. Singapore is likely to continue with their exchange rate policy over the next few years to manage the macro-economic conditions. Investors should therefore take note and assess their risk appetite accordingly.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | No Update | Unfavorable |
| Occupancy | 87.6% | Unfavorable |
| Gearing Ratio | 41.6% | Unfavorable |
| Interest Coverage | 3.0x | Favorable |
| Debt Maturity Profile | 3.4 years | Favorable |
| Price to Book Ratio | 0.60 | Favorable |
| Overall | Neutral |
Overall, the metrics indicate that it continues to remain Neutral to invest in CLCT. However, with the continued fall in occupancy, it may result in further decline in DPU. Investors will need to assess their risk appetite.
Background
CLCT is Singapore’s largest China-focused real estate investment trust (“REIT”). CLCT’s portfolio constitutes of shopping malls, business parks and logistics parks. CLCT was listed on the Singapore Exchange Securities Trading Limited (SGX-ST) on 8 December 2006. The REIT’s objective is to invest on a long-term basis, in a diversified portfolio of income-producing real estate and real estate-related assets in mainland China, Hong Kong and Macau that are used primarily for retail, office and industrial purposes (including business parks, logistics facilities, data centres and integrated developments).
CLCT is managed by CapitaLand China Trust Management Limited (“CLCTML”), a wholly owned subsidiary of Singapore-listed CapitaLand Investment Limited (“CLI”), a leading global real estate investment manager with a strong Asia foothold.
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