On 24 April 2024, CapitaLand China Trust (“CLCT”) have announced their first quarter business update for 2024. The key update this quarter is the loss of their tenants at the Shanghai Fengxian Logistics Park, which resulted in the total committed occupancy of the logistic park portfolio to decrease to 67.6%. Although management did not directly disclose the total occupancy of CLCT, they have provided the Net Lettable Area (“NLA”) and committed occupancy of the respective portfolios. A re-computation will identify that the loss of these tenants resulted in the total occupancy of CLCT to have decreased to 88.0%. This is something to keep in mind as the unoccupied logistic park will translate to a lower net property income until they find new tenants.
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 | No Info | -10.1% |
Based on the announcement on 24 April 2024, DPU was not included in the business update for the first quarter of 2024.
The metric was Unfavorable as of 31 December 2023 as DPU has decreased by 10.1% to SGD0.0674 for the full financial year 2023 compared to SGD0.0750 in the previous financial year.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 88.0% | 91.4% |
Based on the announcement on 24 April 2024, occupancy was not directly provided by management in the business update for the first quarter of 2024.
In the section “Portfolio at a Glance” in their business update, management have provided the Net Lettable Area (“NLA”) and committed occupancy of the respective portfolios. From there, we can calculate that the occupancy rate has decreased to 88.0% as of 31 March 2024. This metric is Unfavorable as it is below my expected healthy occupancy rate of 95%.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 40.8% | 41.5% |
Gearing ratio decreased to 40.8% as of 31 March 2024. This metric currently remains Unfavorable as their high gearing results in significant interest and less room to navigate.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 3.0x | 3.1x |
The adjusted interest coverage decreased to 3.0 times as of 31 March 2024. The metric remains Favorable as the interest coverage is around my preference of 3.0 times. However, as it continues to decrease, will need to monitor over the next few quarters.
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.4 years | 3.5 years |
Weighted average term to maturity of their debt shortened slightly to 3.4 years as of 31 March 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 | 0.56 | 0.61 |
Based on the announcement on 24 April 2024, Net Asset Value (“NAV”) was not included in the business update for the first quarter of 2024.
The Price to Book (“P/B”) ratio currently stands at 0.56. This is computed using the closing share price of SGD0.675 on 24 May 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 | 4.44% | SGD 0.030 |
| 2023 | 10.58% | SGD 0.071 |
| 2022 | 8.74% | SGD 0.059 |
| 2021 | 11.13% | SGD 0.075 |
| 2020 | 8.55% | 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 a closing share price of SGD0.675 as of 24 May 2024, this translates to a dividend yield of 8.88%. For my benchmark, a general reasonable range would be around an average of 5.50% to 6.50% in the current environment. The dividend yield is Favorable.
Website: Reasonable Dividend Yield 2024Q2
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 2 May 2024 has signalled that US borrowing costs are likely to remain higher for longer, as it wrestles with persistent inflation across the world’s biggest economy. This was after increasing the interest rates to a range between 5.25% and 5.50% on 26 July 2023.
Website: Federal Reserve chair Jay Powell signals interest rates will remain higher for longer
Should the interest rate may increase further, CLCT may be subjected to significant change in their cost of debt in the near future. The debt profile of CLCT is as below:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $1,864,900 |
| Debt Not Hedged (%) | 25.0% |
| Debt at Floating Rate Exposed | $466,225 |
| Distributable Income FY2023 | $113,863 |
Using the above information, interest rate sensitivity is as below:
| Change in Interest Rates | Decrease in Distributable Income (SGD’000) | Change as % of FY2023 Distribution |
|---|---|---|
| + 50 bps | -$2,331 | -2.0% |
| + 100 bps | -$4,662 | -4.1% |
| + 150 bps | -$6,993 | -6.1% |
| + 200 bps | -$9,325 | -8.2% |
| + 250 bps | -$11,656 | -10.2% |
| + 300 bps | -$13,987 | -12.3% |
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.
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 Info | Unfavorable |
| Occupancy | 88.0% | Unfavorable |
| Gearing Ratio | 40.8% | Unfavorable |
| Interest Coverage | 3.0x | Favorable |
| Debt Maturity Profile | 3.4 years | Favorable |
| Price to Book Ratio | 0.56 | Favorable |
| Overall | | Neutral |
Overall, the metrics indicate that it remains Neutral to invest in CLCT. Take note however that their logistics parks continue to see a downtrend in occupancy. This might translate to lower DPU in the next few quarters. 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 Full Year Result
