On 30 January 2024, CapitaLand China Trust (“CLCT”) have announced their full year result for 2023. There is a slight decrease in their property valuation by 0.9%, from RMB24.6 billion to RMB24.4 billion as of 31 December 2023. When translated to SGD, the decrease becomes more significant as SGD strengthened against RMB in 2023. The downtrend in valuation overall may continue, especially as China continues to grapple with the property crisis. This is something investors will need to keep in mind as although the share price decreased over the last few quarters making it cheaper to invest in, the net asset value of CLCT have also been decreasing. It may take a while before CLCT can recover to their former premium.
Website: Financial Statements And Related Announcement::Full Yearly Results
Photo source: https://www.clct.com.sg/
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.
Key Metrics
Distribution Per Unit (“DPU”)
| Metrics | Current | Previous |
|---|---|---|
| Distribution Per Unit | -10.1% | No Info |
DPU has decreased by 10.1% to SGD0.0674 for the full financial year 2023 compared to SGD0.0750 in the previous financial year. Consistent with previous quarters, the decrease in DPU is mainly due to foreign exchange translation, as noted that in their local currency RMB, net property income has increased by 5.3%. However when translated to SGD, net property income decreased by 2.9%.
While the fall in DPU due to RMB translation is not unexpected given Singapore’s exchange rate policy, this metric is Unfavorable as of 31 December 2023.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy (Management) | 91.4% | 93.1% |
Occupancy rate has decreased to 91.4% as of 31 December 2023. The main decrease came from their logistics park, while their retail and business parks remain relatively constant. This metric is Unfavorable as it is below my expected healthy occupancy rate of 95%.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 41.5% | 42.4% |
Gearing ratio stands at 41.5% as of 31 December 2023. While there have been improvements this quarter, the metric is currently still Unfavorable as their high gearing results in significant interest and less room to navigate.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 3.1x | 3.0x |
The adjusted interest coverage stands at 3.1 times as of 31 December 2023. The metric is Favorable as the interest coverage is above my preference of 3.0 times. This metric is likely to be maintained at these levels over the next few quarters, as the Federal Reserve on 20 March 2024 have voted to hold interest rates at a 23-year high for a fifth consecutive meeting, while signalling that it still expects to make three cuts this year. This was after increasing the interest rates to a range between 5.25% and 5.50% on 26 July 2023.
Website: US Federal Reserve holds key rate, pencils in 3 cuts this year
Should the interest rate may increase further, CLCT may be subjected to significant change in their cost of debt in the near future. In their presentation they have mentioned that 82% of their debt is also on fixed rates.
I have thus performed a sensitivity analysis using the information as of 31 December 2023:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $1,956,400 |
| Debt Not Hedged (%) | 18.0% |
| Debt at Floating Rate Exposed | $352,152 |
| Distributable Income FY2023 | $113,863 |
Interest rate sensitivity analysis as below:
| Change in Interest Rates | Decrease in Distributable Income (SGD’000) | Change as % of FY2023 Distribution |
|---|---|---|
| + 50 bps | -$1,761 | -1.5% |
| + 100 bps | -$3,522 | -3.1% |
| + 150 bps | -$5,282 | -4.6% |
| + 200 bps | -$7,043 | -6.2% |
| + 250 bps | -$8,804 | -7.7% |
| + 300 bps | -$10,565 | -9.3% |
Do note the above is my estimation which may be different from management’s estimation. Nonetheless, if the interest rates were to increase by the basis points above, CLCT may experience a fall in DPU accordingly.
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.5 years | 3.5 years |
Weighted average term to maturity of their debt remains unchanged at 3.5 years as of 31 December 2023. This is 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 | 0.61 | 0.68 |
The Price to Book (“P/B”) ratio currently stands at 0.61. This is computed using the closing share price of SGD0.735 on 22 March 2024 and the net asset value per share of SGD1.21 as of 31 December 2023. 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.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2024 | 4.08% | SGD 0.030 |
| 2023 | 9.71% | SGD 0.071 |
| 2022 | 8.03% | SGD 0.059 |
| 2021 | 10.22% | SGD 0.075 |
| 2020 | 7.85% | SGD 0.058 |
The dividend payout is on a downtrend and 2024 is likely to be lower than 2023. It is more reasonable to forecast that the payout in the second half of 2024 will be similar to the payout in the first half of 2024 than using 2023 as a base. Therefore, using the first payout of SGD0.030 per share in 2024, the expected dividend when annualised for the calendar year 2024 is SGD0.060 per share.
With an expected dividend payout of SGD0.060 per share for the calendar year 2024 and closing share price of SGD0.735 as of 22 March 2024, this translates to a dividend yield of 8.16%. For my benchmark, a general reasonable range would be around an average of 5.25% to 6.25% in the current environment.
Website: Reasonable Dividend Yield 2024Q1
The dividend yield is Favorable. 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 such as decrease in valuation due to depreciation of RMB against SGD.
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 continued to depreciate against SGD during this quarter.
In the previous quarter, 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 | -10.1% | Unfavorable |
| Occupancy | 91.4% | Unfavorable |
| Gearing Ratio | 41.5% | Unfavorable |
| Interest Coverage | 3.1x | Favorable |
| Debt Maturity Profile | 3.5 years | Favorable |
| Price to Book Ratio | 0.61 | Favorable |
| Overall | | Neutral |
Overall, the metrics indicate that it remains neutral to invest in CLCT. Their DPU is on a notable downtrend, and this might not change over the next few quarters given the uncertainty in the market, especially with the ongoing property crisis in China. Investors will need to assess their risk appetite in relation to the sentiments.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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Website: CapitaLand China Trust (SGX: AU8U): 2023 Third Quarter Business Update
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