CapitaLand China Trust: FY23 Results – Woes from logistics segment seeping in
- Full year NPI of RMB1,293.7m (+5.3%) and distributable income of S$113.8m (-9.4% y-o-y) on higher interest cost and forex; FY23 DPU of 6.74 Scts (-10% y-o-y) below estimates
- Retail and business parks performance stable with positive reversions, while woes from logistics segment (7% of AUM) increase on supply risk
- Shuangjing mall divestment proceeds to be used to pare down debt to c.40%; Portfolio valuation stable at -0.9% y-o-y in RMB terms
- We currently have a BUY call, estimates under review
FY23 Results
- CLCT reported full year FY23 revenue of RMB1,912.5m (+3.3% y-o-y) and NPI of RMB1,293.7m (+5.3% y-o-y).
- Distributable income for the year declined 9.4% y-o-y to S$113.8m due to the impact of higher interest cost and forex translation.
- Correspondingly, FY23 DPU of 6.74 Scts (-10% y-o-y) was below our estimates of 7.14 Scts.
- Retail segment performance: Occupancy rose 0.7 ppt q-o-q to 98.2%, with flat reversions of +0.2%, supported by a 42% y-o-y increase in same-store tenant sales and 46% y-o-y increase in traffic flow.
- Business park performance was stable with a 0.2ppt improvement q-o-q to 91.0% with positive reversions of +1.6%.
- The logistics segment saw increasing weakness with negative -20.5% reversions, occupancy ending the year at 67.8% and kept to the small c.7% exposure (by AUM) that CLCT has in the asset class.
- Valuation: Portfolio valuation is down 0.9% in local currency terms, primarily led by logistics assets which saw a y-o-y decline of 4.3%, as opposed to retail (-0.7% y-o-y) and business parks (-0.3% y-o-y).
- Capital Management: Gearing ended the year at 41.5% (further reduced to c.40% through recycling of divestment proceeds), average cost of debt rose 2 bps q-o-q to 3.57% with ICR ratio healthy at 3.3x.
Long term directive unchanged despite short term pains in logistics segment. The divestment of Shuangjing Mall has successfully de-risked a supermarket tenant within the portfolio, which was also one of CLCT’s top tenants in terms of GRI contribution. While we were wary of tenant default risk in the portfolio, CLCT had shared that tenant default risk has improved over the past year, in comparison to the pandemic years earlier. Short term pains within the logistics segment may continue to see strong negative reversions (-15% to -20% reversions) in upcoming renewals within CLCT’s Shanghai and Chengdu logistics assets, heightened by supply-side risk and a general decline in market rents for logistics properties. Logistics segment risk is shielded by its relatively smaller footprint within CLCT’s overall portfolio, at 7% of AUM, balanced by relatively stable performance from retail and business parks. Long term directive still in place despite short term pain points from the logistics segment. CLCT's long term goal of an asset class exposure of 40:30:30 within integrated development: retail: new economy to align to the overall performance of China.
Right time to explore potential share-buyback. Divestment proceeds from Shuangjing mall will be partly used to pay down debt to bring gearing down to c.40%. The remaining divestment proceeds can be rechannelled accretive acquisitions or potentially share buy backs, which we see as the right move to support share price NAV at below book levels (0.6x price-to-book). CLCT’s existing share buy back mandate allows the company to buy back up to 2.5% of total issued units in a single year, or slightly above 41million units and c.S$34m in quantum based on CLCT’s last traded price.
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COMPANY-SPECIFIC / REGULATORY DISCLOSURES
- DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd ("DBSVS"), DBSVUSA, or their subsidiaries and/or other affiliates have a proprietary position in CapitaLand China Trust recommended in this report as of 31 Dec 2023.
- DBS Bank Ltd, DBS HK, DBSVS, DBSVUSA, or their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued share capital in CapitaLand China Trust recommended in this report as of 31 Dec 2023.
- DBS Bank Ltd, DBS HK, DBSVS, DBSVUSA, or their subsidiaries and/or other affiliates beneficially own a total of 1% or more of any class of common equity securities of CapitaLand China Trust as of 31 Dec 2023.
Compensation for investment banking services:
- DBS Bank Ltd, DBS HK, DBSVS their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from CapitaLand China Trust as of 31 Dec 2023.
- DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for CapitaLand China Trust in the past 12 months, as of 31 Dec 2023.
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