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

profileSudhan P
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CapitaLand Retail China Trust 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).

CapitaLand Retail China Trust portfolio (Sept 2020)
Source: CapitaLand Retail China Trust investor presentation

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.

CapitaLand Retail China Trust expansion of investment strategy
Source: CapitaLand Retail China Trust presentation

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.

CapitaLand Retail China Trust tenant concentration
Source: CapitaLand Retail China Trust investor presentation

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.

CapitaLand Retail China Trust 1H2020 earnings
Source: CapitaLand Retail China Trust investor presentation

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:

CapitaLand Retail China Trust sponsor's new assets
Source: CapitaLand Retail China Trust presentation

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.

 FY2015FY2016FY2017FY2018FY2019CAGR
Distribution per unit (Singapore cents)
10.6010.0510.1010.229.90-1.7%

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.

Want to Discuss Further?

Why not check out the SeedlyCommunity and participate in the discussion surrounding stocks like CapitaLand Retail China Trust and many more!

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. 

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About Sudhan P
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
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