Income investors are generally seeking to invest in stable companies that can sustain dividend payments for a long period of time. In Singapore, real estate investment trusts (REITs), as a group, fits this description.
But there are more than 40 REITs listed in Singapore. So which one should investors consider now? In this article, I’ll explore one REIT that may be attractive to income investors, namely CapitaLand Retail China Trust (SGX: AU8U), or CRCT. As a quick introduction, CRCT is a Singapore-based REIT investing in retail real estate in China. Its shopping malls are located in China, Hong Kong, and Macau.
Strong track record
Investors make money from REIT investments in two ways – an increase in the share price and sustainable distribution per unit (DPU) payouts. Both factors, in turn, are driven by how well a REIT can sustain the income of its existing assets, as well as grow its assets, over the long term.
Since its IPO in 2007, CRCT has grown its net property income (NPI) from S$46.5 million to S$147.4 million. This translates to a compound annual growth rate (CAGR) of 11.1%. Similarly, DPU has grown over the years, up from 6.72 cents in 2007 to 10.22 cents in 2018 (CAGR of 3.9% during the period).
Though the past record is no guarantee of future performance, there are reasons for investors to remain optimistic about CRCT, mainly due to its strategically-located properties (located in key cities and well-connected to public transport) that should benefit from China’s consumption growth.
As a large developing country, China offers significant opportunities for long-term investors to participate in its economic growth. CRCT is uniquely-positioned to benefit from this long-term growth trend since it primarily invests in mainland China.
There are two main tailwinds that CRCT is riding on at the moment, which is the growth in gross domestic production (GDP) and an increase in consumption. Below is a chart on the historical consumption trend in China:
Source: CapitaLand Retail China Trust Presentation
From the above, we can see that total retail sales and per capita annual disposal income have grown at 15.2% and 10.9%, respectively, between 2005 and 2017. Thus, as China continues to grow its GDP, the local Chinese population will have more income to spend on consumption. This will undoubtedly benefit CRCT’s malls. Moreover, CRCT can also acquire new malls across China to grow its property portfolio.
In sum, I think CRCT is a candidate worthy of further research for income investors, mainly due to its strong historical performance as well as future growth potential.
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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 Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore has recommended shares of Capitaland Retail China Trust.