CapitaLand Retail China Trust (SGX: AU8U) is the first REIT listed in Singapore’s stock market that focuses on shopping malls in China. At the end of 2017, it had a portfolio of 10 shopping malls located across seven major cities in China. Over the past five years from 2012 to 2017, the REIT has managed to grow its portfolio from nine properties valued at around RMB 7.2 billion, to 10 properties with a value of RMB 11.9 billion. (It’s worth noting that the REIT acquired a mall in Guangzhou, China – Rock Square – on 31 January 2018 to bring its total…
CapitaLand Retail China Trust (SGX: AU8U) is the first REIT listed in Singapore’s stock market that focuses on shopping malls in China.
At the end of 2017, it had a portfolio of 10 shopping malls located across seven major cities in China. Over the past five years from 2012 to 2017, the REIT has managed to grow its portfolio from nine properties valued at around RMB 7.2 billion, to 10 properties with a value of RMB 11.9 billion. (It’s worth noting that the REIT acquired a mall in Guangzhou, China – Rock Square – on 31 January 2018 to bring its total property count to 11 currently.)
Having said that, a REIT’s portfolio growth can often be misleading as the growth may have been funded through equity injections – such as rights offerings or private placements – which may have a net dilutive effect on unitholders. To get a better gauge on how CapitaLand Retail China Trust has grown value for its unitholders over the past five years, I have decided to look at three key performance indicators.
Net asset value per unit
The first metric I will look at is the net asset value (NAV) per unit, which measures the current book value of a single unit. It is calculated by taking the REIT’s total assets less total liabilities and dividing the remainder by the number of outstanding units the REIT has. Mathematically, it can be represented by the following equation:
Net asset value per unit = (Total assets – total liabilities) / (Number of outstanding units in existence)
CapitaLand Retail China Trust has grown its NAV per unit from S$1.31 in 2012 to S$1.60 in 2017. This translates to a compounded annual growth rate of 4.1%. The improvement in the NAV per unit has been achieved through the appreciation of the value of the REIT’s existing portfolio, and the acquisition of a new mall in 2013.
Net property income per unit
The net property income (NPI) per unit illustrates the earnings capacity of the REIT. Once again, CapitaLand Retail China Trust has managed to grow its NPI per unit, from 14.2 Singapore cents in 2012 to 16.7 Singapore cents in 2017. So, there was growth of around 3.3% per year. However, its NPI per unit has remained stagnant between 2015 and 2017. This was partly due to higher property taxes and foreign currency fluctuations in 2016.
Distribution per unit (DPU)
Distributions are perhaps the most important thing for any REIT investor. A REIT’s ability to grow its DPU over time is essential for generating good long-term returns for its unitholders.
CapitaLand Retail China Trust has managed to increase its DPU from 9.54 Singapore cents in 2012 to 10.10 cents in 2017. This translates to a CAGR of 1.1%.
The Foolish bottom line
The per unit information of a REIT is more useful than merely looking at the REIT’s overall performance as it takes into account any dilution that may have occurred during the period under study. From what we have seen, CapitaLand Retail China Trust has delivered mixed performances in this regard. Despite growing in all three aspects above, the growth has only been in the low single digits.
But, there are certain catalysts that could potentially reward unit holders in the future.
Firstly, as mentioned earlier, the new acquisition Rock Square will only start contributing net property income in the first quarter of 2018. Secondly, CapitaLand Retail China Trust has a low gearing ratio of just 28.4% (as of 31 December 2017) and a high interest coverage ratio of 5.8 times; these numbers mean that the REIT has built up a large enough asset base over the years to increase its debt load for more yield-accretive acquisitions in the future. Thirdly, CapitaLand Retail China Trust saw positive rental reversions of 5.6% in 2017. The full effect of this rental reversion will be felt in 2018.
Overall, despite experiencing a low rate of growth over the last five years, CapitaLand Retail China Trust looks like it is now in a good position to grow value for its unitholders 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 contributor Jeremy Chia doesn’t own shares in any companies mentioned. The Motley Fool Singapore has a recommendation for CapitaLand Retail China Trust