CapitaLand Retail China Trust (SGX: AU8U) Will Be Expanding Its Investment Strategy: Here's What It Means for Investors

CapitaLand Retail China Trust (SGX: AU8U) is Singapore’s first and largest China shopping mall REIT with a portfolio of 13 retail malls, as of 30 June 2020.

The REIT’s sponsor is blue-chip property firm, CapitaLand Limited (SGX: C31).

Its portfolio mix could change, though, as the REIT’s manager has announced that its investment strategy will be expanded.

Here’s what investors should know about the move and what they can expect.

CapitaLand Retail China Trust’s Expansion of Investment Strategy

Prior to the announcement, CapitaLand Retail China Trust’s investment mandate was restricted to investing in properties that are used mainly for retail purposes.

But by the end of this month, its investment strategy will be expanded to include the following:

• Office buildings; and
• Industrial assets (including business parks, logistics facilities, data centres, and integrated developments).

With the expanded investment strategy, the REIT will also have enhanced growth potential as it will be the dedicated Singapore-listed REIT for CapitaLand’s non-lodging China business, with acquisition pipeline access to CapitaLand China’s assets.

What Does This Mean for Unitholders?

With a new pipeline of assets to acquire from CapitaLand, CapitaLand Retail China Trust can capture growth in other asset classes that it currently doesn’t have a footing in.

It will also help the REIT to diversify its portfolio and reduce tenant concentration.

As of 30 June 2020, 20% of CapitaLand Retail China Trust’s asset value was contributed by just one mall — CapitaMall Xizhimen in Beijing — and this is a risky proportion.

By diversifying into more resilient asset classes like data centres and logistics, the REIT will also become less susceptible to adverse effects to any one particular property type, as COVID-19 has revealed. 

For CapitaLand Retail China Trust’s first half of 2020, its business has certainly be affected by the pandemic.

The prospect for the data centre sector is particularly bright.

As mentioned in the Keppel DC REIT analysis, rapid cloud adoption (accelerated due to the pandemic), smart technologies, big-data analytics, and 5th generation (5G) mobile network deployment are tailwinds for this industry.

The following shows the various types of assets CapitaLand Retail China Trust can acquire from its sponsor:

Summary

I feel the expansion of investment strategy is an overall positive for CapitaLand Retail China Trust’s unitholders.

It could help to arrest its falling distribution per unit (DPU) that has happened over the past few years.

As of 30 June 2020, CapitaLand Retail China Trust’s gearing ratio stood at 33.6%, which gives it ample debt headroom to lever up for acquisitions.

I’m particularly excited to learn more about the various industrial assets that the REIT can acquire in the future.

At CapitaLand Retail China Trust’s unit price of S$1.17, it has a price-to-book (P/B) ratio of 0.7x.

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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock.