Capitaland China Trust (SGX: AU8U), a pure China Retail REIT which has recently updated their mandate, widening their investment scope to more real estate classes as well as more geographic locations. With China being the first country to face Covid-19 as well as the first country to start recovering from the pandemic, let’s take a look at the FY2020 Results of Capitaland China Trust and how well it fared during the recovery.
1. Expected Drop In Gross Revenue and NPI
| Year on Year Difference | FY2020 | FY2019 |
|---|---|---|
| Gross Revenue | RMB 1.056 billion (-12.2%) | RMB 1.202 billion |
| Net Property Income (NPI) | RMB 0.678 billion (-18.8%) | RMB 0.835 billion |
As expected, there was a drop in the Gross Revenue and NPI due to the drastic lockdown measures in China, whereby no one was allowed to even leave their house during the period. Subsequently, China eased the lockdown measures as we moved into Q2 of FY2021.
Of course, the retail sector was badly affected by the lockdown measures and as such, we can see how much it affected CCT. A drop of 12.2% in Gross Revenue and 18.8% in NPI is well in line with expectations as the REIT only started to see signs of recovery towards 2H FY2020.
2. Drop In Distributable Income and DPU
| Year on Year Difference | FY2020 | FY2019 |
|---|---|---|
| Distributable Income | S$79.73 million (-25.2%) | S$106.55 million |
| Distribution Per Unit (DPU) | 6.35 cents (-35.9%) | 9.9 cents |
As with the drop in Gross Revenue and NPI, CCT’s Distributable Income as well as DPU took a huge hit as the REIT had to stay very conservative and withheld a portion of the distributable income. the drop of 25.2% and 35.9% respectively seems pretty reasonable seeing as how badly the REIT was affected during the year.
Moving into FY2021 and the redistribution of the retained DPU, we can expect to see a solid recovery for FY2021 as we move into a post-pandemic economy. We can expect the retail sector to recover back to pre-covid levels by FY2022.
3. Solid and Stable Financials
| As at 31 Dec 2020 | As at 31 Dec 2019 | |
|---|---|---|
| Aggregate Leverage | 31.8% | 36.7% |
| Interest Coverage | 3.7x | 5.0x |
| Average Cost of Debt | 2.76% | 2.98% |
On a good note, CCT’s gearing is very low at 31.8% giving them plenty of room to grow should they target acquisition in the near future. The interest coverage ratio is also well above the minimum 2.5x should the REIT want to gear up to 50% and the average cost of debt has been cut down from 2.98% to 2.76%.
4. Growth Potential
As we talk about a lower gearing and potential acquisition possibilities, let’s take a look at CCT’s growth potential for the near future.
With the updated investment mandate, they can acquire not just retail malls but also, office and industrial properties. Not to mention, they can also acquire across Hong Kong and Macau as well, not restricted to just China assets. This huge change widens CCT’s range of possible acquisitions, especially from their sponsor, Capitaland.
CCT can now leverage on a much bigger pipeline from its Sponsor, with more than 80 assets that could be pipelined into CCT just in China alone, not adding in assets that are in Macau and Hong Kong. This definitely presents a huge upside for CCT in the long run and investors should start taking advantage of it before it runs much higher.
Read Also: Capitaland Retail China Trust Has Finally Made Their 1st Acquisition After Expanding Their Mandate
Final Thoughts
As we can see from the FY2020 Results of Capitaland China Trust, it was pretty bad due to the effects of the pandemic but given that it was a black swan event, there was nothing much CCT could have done. It is good that the management has taken a huge step and widening the investment mandate which can help bring further stability to CCT’s portfolio. Recently, I shared an article on my Top 4 REITs That Beat CPF SA In 2021, and CCT made it on the list. I definitely have high hopes for Capitaland China Trust and will continue to hold on to my positions, perhaps even accumulate more should the price drop to attractive levels.