Rooting For CapitaLand Retail China Trust (AU8U)!

INTRODUCTION

CapitaLand Retail China Trust (CRCT) is a 100% retail REIT - 12 x shopping malls in China. Due to the covid-19 crisis, CRCT's price has dropped to the lowest in over a decade! In my opinion, CRCT is an ignored gem at the current valuation - I'll explain the key reasons.

DIVERSIFICATION

From 2015 - 2019, CRCT's diversification profile has been improving - the numbers don't lie. In particular, CRCT's management has recognised the impact of e-commerce and made an effort to reduce the amount of exposure to department stores. As a result, CRCT's largest tenant - BHG Group - has seen a reduced contribution of 4.1% to GRI. These are testament to the sound management of concentration risk.

DEBT

The fact that the gearing and interest coverage ratios have been consistently at healthy levels is testament to the prudence of CRCT's management. This was reflected in CRCT's latest results too!

GROWTH

I believe that CRCT has potential to grow for a couple of reasons:

• China will remain amongst the fastest-growing economies
• China is increasingly reliant on domestic consumption for growth
• CRCT's management has been active in doing AEI
• CRCT's management has been active in doing capital recycling
• CRCT's management has been able to engage yield-accretive acquisitions

VALUATION

• Historical P/B
• Historical average = 0.96
• Historical high = 1.09
• Historical low = 0.76
• Historical yield
• Historical average = 6.71%
• Historical high = 8.10%
• Historical low = 6.02%
• Current P/B = 0.70
• Current yield = 8.84%

I have based the historical P/B and yield on information from 1/1/15 - 31/12/19. The numbers speak for themselves...