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5 Facts CapitaRetail China Trust’s Investors Have To Know

For investors who believe in the burgeoning growth of China’s domestic consumer spending trends, a share like CapitaRetail China Trust (SGX: AU8U) could be a good way to stake a claim on that growth.

CapitaRetail China Trust’s a real estate investment trust with a portfolio of retail malls in China and is managed and 21.3% owned (as of 31 Dec 2013) by one of Asia’s largest shopping mall developers, owners, and managers, CapitaMalls Asia (SGX: JS8). Those two shares, in turn, partly belong to CapitaLand (SGX: C31), one of the largest real estate outfits in Asia.

CapitaRetail China Trust had recently released an informative presentation deck for the BAML ASEAN Stars Conference 2014. Here’s some important facts gleaned from it.

1) CapitaRetail China Trust’s portfolio

A REIT’s most important assets are its properties – it’s what generates the rental income that gets distributed to unit-holders of the REIT eventually after deduction of relevant expenses. As such, it pays for investors to know what are the properties CapitaRetail China Trust owns.

 

Appraised value as of 31 Dec 2013

Multi-tenanted malls

CapitaMall Xizhimen

RMB2.60 billion

CapitaMall Wangjing

RMB1.90 billion

CapitaMall Grand Canyon

RMB1.88 billion*

CapitaMall Qibao

RMB472 million

CapitaMall Saihan

RMB362 million

CapitaMall Wuhu

RMB251 million

Master-leased malls

CapitaMall Anzhen

RMB949 million

CapitaMall Erqi

RMB590 million

CapitaMall Shuangjing

RMB543 million

Malls undergoing upgrading works

CapitaMall Minzhongleyuan

RMB504 million

Total

RMB10.05 billion

*Value of CapitaMall Grand Canyon is estimated by management as it was acquired only on 30 Dec 2013.

Source: CapitaRetail China Trust’s BAML ASEAN Stars Conference presentation

If the value of CapitaMall Grand Canyon is excluded, the value of the REIT’s property portfolio had actually gained 2.8% from RMB7.95 billion at the end of 2012 to RMB8.17 billion.

Investors would also be pleased to know that the REIT’s portfolio occupancy rates have improved from 97.2% a year ago to 98.2% as of the end of 2013.

2) CapitaRetail China Trust’s debt profile

REITs usually have heavy amounts of borrowings and that’s true of CapitaRetail China Trust as well. For instance, its latest balance sheet shows it having S$712 million worth of total debt while having only S$105 million worth of cash.

Being heavily levered is not necessarily a bad thing for investors, especially if the borrowed-funds are being used to acquire productive assets with high rates of return. But, a debt-laden balance sheet does create financial risks for the REIT. In particular, a REIT with a high concentration of debt coming due in a narrow frame of time could find it hard to refinance its borrowings in a situation where credit markets worsen.

As such, it pays for investors to keep an eye out on a REIT’s debt-maturity profile. The table below makes it clear that CapitaRetail China Trust has rather evenly-distributed dates for its debt repayments.

Amount

Debt maturity date

S$271.5 million

2014

S$88 million

2015

S$100 million

2016

S$50.5 million

2017

S$183.1 million

2018

Source: CapitaRetail China Trust’s BAML ASEAN Stars Conference presentation

Investors might also want to note that majority of the REIT’s debt (61% as of 31 Dec 2013) have fixed interest rates, which can act as a buffer over the next few years if/when interest rates start rising across the globe.

3) Healthy operational stats at the REIT

The presentation deck highlighted the healthy operational statistics at CapitaRetail China Trust. For instance, the REIT experienced a positive rental reversion (i.e. an increase in rental rates to reflect prevailing market conditions) of an average of 13.8% in 2013 across more than 564 renewed leases.

In addition, shopper traffic and tenants’ sales – two important metrics that signals the health of a retail mall – were both up in 2013. The former grew by 5.4% year-on-year while the latter increased by 9.2%. So, CapitaRetail China Trust’s malls are not just seeing more shoppers, they’re also seeing more shoppers spending more.

4) Effectiveness of good management

A good retail mall manager with novel ideas to improve the quality of its malls can make a difference. In Oct 2013, CapitaMall Qibao opened Shanghai’s “first and only permanent Roof Farm” that’s targeted at kids and families. The opening was accompanied by a marketing blitz in “leading media and social networks” and eventually translated into a 13% year-on-year increase in shopper traffic for Dec 2013, which was a “new record” for the mall.

The REIT’s manager has also been adjusting the tenant mix at its malls in order to bring in more shoppers and the results have been good with increased sales.

5) Tailwinds on CapitaRetail China’s back

Given CapitaRetail China Trust’s strong exposure to the domestic consumption habits of Chinese residents, it’s perhaps not an exaggeration to say that the REIT’s long-term prosperity is intimately tethered to the economic well-being of China.

And on that front, there seems to be a healthy tailwind on the REIT’s back. For instance, the urbanisation rate in China has grown from 31% in 1995 to 49% in 2010 and has been forecasted to hit 56% and 61% in 2015 and 2020 respectively. In addition, since 2008, China’s urban disposal income has grown at a compounded annualised growth rate of 11.3% to RMB26,955.

If urban disposable incomes in China can continue is growth while the urbanisation rate forecasts come true, CapitaRetail China Trust is in a good position to lay claim to some of that pie.

Foolish Bottom Line

I can’t even begin to overstate the importance of the need to understand our investments. But while useful information can sometimes be hard to get our hands on, companies sometime do lend a helping hand with informative brochures or presentations.

Use such resources to know your investments a little bit better so that you can make even better decisions in the future.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.