Capitaland China Trust (SGX: AU8U), a pure China-focused REIT that has recently changed its investment mandate from being a pure retail REIT to a mixed-asset REIT. With its new investment mandate, it has widened its investment scope to more real estate classes (office and industrial) as well as more geographic locations (Hong Kong and Macau). Let’s take a look at how well Capitaland China Trust (CCT) has done in FY2021, taking a deep dive into its FY2021 results, with its new investment mandate and the global economy moving into a post-covid situation.
1. Huge Growth in Gross Revenue and NPI
|Year on Year Difference||FY2021||FY2020|
|Gross Revenue||S$377.967 million (+79.5%)||S$210.525 million|
|Net Property Income (NPI)||S$250.427 million (+85.2%)||S$135.196 million|
As expected, there is huge growth in Capitaland China Trust’s Gross Revenue and NPI thanks to the newly acquired assets which performed exceptionally during the covid pandemic thanks to the nature of the asset class which is extremely resilient. On top of that, the original retail portfolio has been steadily improving its occupancy rate as well, from a low of 94.1% on 31 Dec 2020 to 96.3% on 31 Dec 2021. It is also good to note that CCT achieved >95% occupancy rate for most of its assets except CapitaMall Qibao and Grand Canyon.
Diving deeper into the portfolio, CCT saw a net positive rental reversion of 7% for its Business Parks portfolio and 2.7% for its Logistics Park portfolio. With its retail portfolio, as expected, CCT saw a net reduction of 3.4% in its rental reversion. As we can see, the new acquisition has already started to benefit CCT immensely, providing the portfolio with additional stability and diversification.
2. Strong Growth in Distributable Income and DPU
|Year on Year Difference||FY2021||FY2020|
|Distributable Income||S$135.516 million (+70.0%)||S$79.728 million|
|Distribution Per Unit (DPU)||8.73 cents (+37.5%)||6.35 cents|
As with the growth in Gross Revenue and NPI, CCT’s Distributable Income, as well as DPU, saw similar levels of growth as well with the Distributable Income growing by 70% while the DPU grew by 37.5%.
We can definite expect CCT’s management to continue this rate of growth moving into FY2022 through accretive acquisitions and AEIs.
3. Solid and Stable Financials
|As at 31 Dec 2021||As at 30 Sep 2021|
|Average Cost of Debt||2.62%||2.59%|
When we dive into CCT’s balance sheet, we can see that its aggregate leverage is relatively high at 37.7% but it is not surprising since the acquisition was done not too long ago, which was funded through debt and Equity Fundraising (EFR).
Also, the interest coverage ratio is strong at 4.9x, well above the minimum of 2.5x should a REIT choose to leverage up to 50%. CCT has also increased its cost of debt slightly from 2.59% to 2.62% as they rebalance their fixed rate to floating rate debts to a ratio of 77% to 23%. As a result of this allocation, CCT stands to gain/reduce a net S$0.8m p.a. in terms of impact on interest expense, assuming a 0.1% increase/decrease in the variable rate.
4. Growth Potential
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.
Capitaland China Trust 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.
As we can see from the FY2021 Results of Capitaland China Trust, it was a huge bounce back from the lackluster performance in FY2020. No doubt, it was caused by a black swan event and there was nothing much CCT could have done. It is also good that the management has taken a huge step and widened the investment mandate which has helped bring further stability to CCT’s overall portfolio. We can definitely expect FY2022 to be an exciting year for CCT should they choose to acquire more assets into their portfolio before interest rates are hiked even higher.
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