CapitaLand China Trust - OCBC Investment 2021-10-27: Increasing Exposure In New Economy Assets

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CAPITALAND CHINA TRUST (SGX:AU8U)

CapitaLand China Trust - Increasing Exposure In New Economy Assets

• Improved retail sentiment.
• Foray into China’s logistics sector.
• Increased exposure in new economy assets to 21.4% of asset value.

CapitaLand China Trust's 9M21 NPI grew 81.1% y-o-y

• CapitaLand China Trust (SGX:AU8U)’s 9M21 NPI grew 81.1% y-o-y, driven by
  1. new contribution from addition of business parks,
  2. 100% ownership of Rock Square,
  3. improved retail performance, and
  4. lower rental reliefs granted.
• Retail occupancy improved 1.3 ppt q-o-q to 96.7% while business park occupancy rate rose 2.7 ppt q-o-q to 96.7% in 3Q21.
• We expect business park occupancy rates to remain strong, supported by 100% return to office community in China, demand and policy support for business parks.

9M21 tenants’ sales and shopper traffic recovered to 82% and 73% of pre-COVID-19 levels, respectively

• CapitaLand China Trust’s tenants’ sales and shopper traffic improved 27.3% y-o-y and 22.6% y-o-y in 9M21, recovering to 82% and 73% of pre-COVID-19 levels respectively. The recovery was largely led by recovery in Beijing malls in 3Q21, but offset by weaker performances in non-Beijing malls due to resurgence of COVID-19 cases.
• CapitaMall Xuefu was closed from 21 Sep to 5 Oct 2021 under the local government’s directives.
• While the recovery of retail performance is dependent on the COVID-19 situations, the government’s effective containment of infections and faster recovery of reopened malls are likely to limit the risks of any resurgence of COVID-19.

Proposed acquisition of a portfolio of four logistics properties in China

• CapitaLand China Trust announced the proposed acquisition of a portfolio of four logistics properties in Shanghai, Kunshan, Wuhan and Chengdu, which are key logistics hubs in China. The acquisition is based on an aggregate agreed property value of RMB1.7b (~S$350.7m), and an implied NPI yield of 5.0%. Total acquisition cost is ~S$297.7m which will be financed through a private placement (completed on 13 Oct) and debt financing.
• The acquisition is expected to be DPU accretive with pro-forma FY20 DPU increasing 3.5% while pro-forma FY20 NAV will decrease 1.4% on enlarged unit base.
• Post-acquisition, gearing is expected to increase from 35.9% to 38.2%. The proposed acquisition will enable CapitaLand China Trust to tap on China’s strong demand for logistics properties and is in-line with CapitaLand China Trust’s strategy to increase portfolio diversification.
• Post-acquisition, the proportion of new economy assets in CapitaLand China Trust’s portfolio will increase from 15.3% to 21.4% by asset value.
• After adjustments and factoring in the acquisitions, we maintain our fair value estimate at S$1.56 for CapitaLand China Trust.
• See
  • CapitaLand China Trust's Share Price,
  • CapitaLand China Trust's Target Price,
  • CapitaLand China Trust's Analyst Reports,
  • CapitaLand China Trust's Dividend History,
  • CapitaLand China Trust's Announcements,
  • CapitaLand China Trust's Latest News.

ESG Updates for CapitaLand China Trust

• CapitaLand China Trust’s social and governance scores rank below the industry average. As a CapitaLand-sponsored REIT, CapitaLand China Trust aligns its sustainability management approach with that of CapitaLand Limited.
• While CapitaLand China Trust benefits from CapitaLand’s 2030 Sustainability Master Plan, there is a lack of broad measures for CapitaLand China Trust to reinforce its own environmental performance.
• While CapitaLand China Trust undertook resource efficiency projects, e.g. installing LED lightings and water-efficient sanitary fittings at its malls, the REIT did not specify the scope of its green-certified properties.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-10-27

SGX Stock Analyst Report BUY MAINTAIN BUY 1.56 SAME 1.56