China has re-opened its economy. However, China economy has been slowing down and the property sector has been hit badly. CapitaLand China Trust (CLCT) share price has not been spared.
CLCT share price has fallen by 19.57% year to date. Many investors has been wondering will the share price recover? In this article, there are 3 key things investors need to know before buying or does dollar cost averaging this REIT.
Financial Metrics
CLCT reported net property income increased by 5.3% to RMB 1,293.7 million for full year ended 31 Dec 2023. However, DPU dropped by 10.1% to 6.74 cents.
Gearing ratio is relatively high at 41.5% while adjusted interest cover is low at 3.1x. Hence, investors who wish to buy or dollar cost average have to consider carefully this two metrics.
In addition, given the decline in DPU due to high interest rates and high cost of debt will put further pressure in its share price.
New Economy Assets
CapitaLand China Trust ventured into new economy assets by acquiring 5 business park properties in 2020 and 4 logistics properties properties in 2021. The acquisition seems untimely with the slowing China economy.
In its results ended 31 Dec 2023, CLCT reported overall portfolio valuation only dipped slightly by 0.9%. The dip in valuation seem minimal. However, if one were to look closely, the logistics properties valuation dropped more than 4% with the Wuhan Yangluo logistics park valuation dropped by 7.0%.
This is a cause for concern if the valuation were to drop further, it will certainly affect its gearing ratio. Will CLCT suffer a similar fate as the US office REITs?
Portfolio Occupancy
CLCT retail occupancy is healthy at 98.2%. However, the new economy assets did not fare as well. The business park occupancy is much lower at 91.0%. The worse hit is the Singapore-Hangzhou Science Technology Park Phase I with the occupancy at 72.4%.
The logistics park occupancy is even worse than the business park occupancy at 82.0%. The occupancy at Shanghai Fengxian Logistics Park is very low at 60.3%!
With the much lower occupancy for the business park and logistics properties, CapitaLand China Trust DPU will be affected going forward. Hence, investors need to be careful when investing in this REIT.
Conclusion
CapitaLand China Trust share price has declined 19.57% year to date and has drop by more than 35% for the past one year and is very near record low. The price and valuation certainly looks enticing to buy.
However, investors who want to buy or DCA this REIT has to consider the following factors:
- Declining DPU with deteriorating financial metrics and portfolio occupancy
- Declining portfolio valuation will affect its already high gearing ratio
- The non-performance of the new economy assets
- Slowly Chinese economy
Of course, investors who want to buy into this REIT will say it is for the long term and surely the Chinese economy will recover. However, given the uncertainty, will it be wise to see things turning around before buying?
More importantly, how patient are you in waiting or rather how many years are you willing to wait for the share price to recover? Further, how sure are you that the DPU will stop declining and start rising so that at least you have increasing dividends while you wait?
You can view the REIT website here.
