Does CapitaLand Retail China Trust Have a Resilient Property Portfolio?

CapitaLand Retail China Trust (SGX:AU8U) is a Singapore-listed REIT that invests primarily in shopping malls in China. It has a portfolio of 11 shopping malls located across eight major cities in China.

An important consideration for REIT investors is the resilience of a REIT’s property portfolio. As such, I thought it would be useful to take a look into the pros and cons of CapitaLand Retail China Trust’s current property line-up.

Portfolio diversity

In terms of diversity, the fact that the trust’s properties are all located within a single country and property-segment is a massive negative to investors. This leaves CapitaLand Retail China Trust exposed to concentration risk and currency risk.

On the flip side, we can argue that the concentrated property portfolio is mostly by design. The REIT is leveraging on its Manager’s expertise in operating China retail malls, and has strategically chosen to invest in properties in the sector. The properties are also spread across multiple cities within the country, which helps to limits its overall geographical concentration risk.

Portfolio occupancy

Another important consideration when assessing the property profile of a REIT is the portfolio occupancy rate. A REIT that is able to maintain a high occupancy rate shows the REIT manager’s ability to attract and retain tenants.

CapitaLand Retail China Trust’s property portfolio has done very well in this respect. The REIT has been able to maintain a high occupancy rate of well above 90% in each of the last five years.

Annual shopper traffic

Shopper traffic can demonstrate to investors how attractive CapitaLand Retail China Trust’s properties are to shoppers, and is also a key factor in assessing whether a retail REIT has the  ability to increase its rent.

Once again, CapitaLand Retail China Trust has a stellar record in this respect. Annual shopper traffic has steadily increased over the past five years from 60.8 million in 2012 to 95.7 million in 2017. This represents a compounded annual growth rate of 9.5%.

The Foolish bottom line

So far, CapitaLand Retail China Trust has managed to increase its shopper traffic and maintain a high portfolio occupancy rate. China’s middle class population continues to grow at a quick pace, which should likely be a contributing factor to the REIT’s growth prospects.

Despite its relatively concentrated portfolio, CapitaLand Retail China Trust still seems well-placed to build on its rental income in the future. It is, however, important to note that the property portfolio is but a single aspect of the REIT to analyse. Investors also need to take into account other aspects of the REIT, such as its debt profile, reliability of management, and distribution per unit growth. Only then can we make a holistic investment decision.

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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.