Should You Invest In CapitaLand China Trust [Fundamental Analysis]

In this article, we'll be conducting a fundamental analysis of CapitaLand China Trust and its suitability to achieve the following investment objective: To deliver a stable dividend yield of 5% to 6% per year while having a high degree of capital preservation ability.

Information Is Accurate Up To May 24

Business Description

CapitaLand China Trust (previously known as CapitaLand Retail China Trust) is a diversified REIT that was listed in 2006 and owns 9 retail properties and 9 industrial properties in China.

What I Like About CLCT:

Long track record and strong sponsor

What I Do Not Like About CLCT:

Bulk of the debts are denominated in SGD which creates FX risks that may result in poorer performances in an event where SGD strengthens against RMB as 100% of CLCT operations is based in China and denominated in RMB.
Remaining underlying land lease is very short for the majority of their portfolio (2040s) which is a cause for concern as the scale of the impact upon expiry on the net asset value is unknown as there has been no precedence. (Figure 10)

Updates From Recent Performance (FY 2023 & Q1 2024)

General Comments:

Financial health of CLCT has deteriorated due to lower property valuation and higher borrowing costs.
Investors might want to pay attention to this area. (Figure 4 & 5)
Retail properties' occupancy rate exceeded pre-COVID levels boosted by increased shopper traffic and tenant sales.
Logistic properties' occupancy rate experienced a significant decline · Business Park occupancy remained resilient (>90%) despite the current depressed market conditions (Market Average: 67.9%)

Positive Headwinds:

China’s consumer recovery is expected to contribute to the top and bottom-line stability of CLCT.
Cost of borrowing is likely going to remain stable in 2024 as there is low refinancing requirement.

Negative Headwinds:

Poor investor sentiments, property headwinds and economic woes in China is posing a problem in terms of both fundamental recovery and also investor demand that will facilitate the price recovery. Unfortunately, it is unlikely that the headwinds will alleviate in the short run.

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- Work In Progress -

Daniel is a Licensed Independent Financial Consultant with MAS and a Certified Financial Planner (CFP®).

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