On 30 July 2024, CapitaLand China Trust (“CLCT”) have announced their half year result for 2024. The results are well-managed, given that majority of the metrics remained unchanged from the previous quarter. DPU have remained relatively unchanged as well when compared to the DPU in the second half of 2023, which may be an indication of stabilization. Take note that the Shanghai Fengxian Logistics Park remains under repositioning evaluation since the loss of their tenants in the previous quarter, and investors should keep an eye out to see what management’s plans for the logistics park are.
Website: Financial Statements And Related Announcement::Half 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 | -19.5% | No Info |
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. Notably the decrease was due to a fall in net property income, where although net property income in RMB saw a decrease by 4.9%, when translated to SGD the drop is 8.7%. With other expenses remaining relative constant, the amount dropped contributed to the fall in amount available for distribution. The metric is Unfavorable. Take note however that DPU have remained relatively stable when compared to the second half of 2023, which may be an indication of stabilization.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 88.4% | 88.0% |
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 remained relatively constant at 88.4% as of 30 June 2024. This metric is Unfavorable as it is below my expected healthy occupancy rate of 95%. Take note that the Shanghai Fengxian Logistics Park is still under repositioning revaluation.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 40.8% | 40.8% |
Gearing ratio remained unchanged at 40.8% as of 30 June 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 | 3.0x |
The adjusted interest coverage remained unchanged at 3.0 times as of 30 June 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 | 3.4 years |
Weighted average term to maturity of their debt remained unchanged at 3.4 years as of 30 June 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 | 0.58 | 0.56 |
The Price to Book (“P/B”) ratio currently stands at 0.58. This is computed using the closing share price of SGD0.695 on 2 August 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.
Dividend
| Year | Yield | Total |
|---|---|---|
| 2024 | 8.65% | SGD 0.060 |
| 2023 | 10.27% | SGD 0.071 |
| 2022 | 8.49% | SGD 0.059 |
| 2021 | 10.81% | SGD 0.075 |
| 2020 | 8.30% | SGD 0.058 |
As expected, the payout in the second half of 2024 is similar to the payout in the first half of 2024. The total dividend for the calendar year 2024 is SGD0.060 per share.
With a closing share price of SGD0.695 as of 2 August 2024, this translates to a dividend yield of 8.65%. For my benchmark, a general reasonable range would be around an average of 5.75% in the current environment. The dividend yield is Favorable.
Website: Reasonable Dividend Yield 2024Q3 – 5.75%
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 1 August 2024 kept its key interest rate at 5.25% to 5.50% ever since raising it on 26 July 2023. However, citing “some further progress” toward its 2% inflation goal, Fed Chair Jerome Powell at the press conference said a rate cut in September is “on the table,” provided the inflation data continues to be encouraging.
Website: Fed recap: Chair Powell gives the September rate cut signal traders were hoping for
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 | $1,849,100 |
| Debt Not Hedged (%) | 24.0% |
| Debt at Floating Rate Exposed | $443,784 |
| 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 | -$2,219 | -1.9% |
| + 100 bps | -$4,438 | -3.9% |
| + 150 bps | -$6,657 | -5.8% |
| + 200 bps | -$8,876 | -7.8% |
| + 250 bps | -$11,095 | -9.7% |
| + 300 bps | -$13,314 | -11.7% |
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 | -19.5% | Unfavorable |
| Occupancy | 88.4% | Unfavorable |
| Gearing Ratio | 40.8% | Unfavorable |
| Interest Coverage | 3.0x | Favorable |
| Debt Maturity Profile | 3.4 years | Favorable |
| Price to Book Ratio | 0.58 | Favorable |
| Overall | Neutral |
Overall, the metrics indicate that it continues to remain Neutral to invest in CLCT, and it seems to have stabilized at these levels. 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): 2024 First Quarter Business Update
