Ahead of the upcoming AGM on Tuesday, I decided to take some time to browse the annual report. It definitely has not been the best of time to be a CLCT shareholder over the past few years. China’s zero-covid stance have resulted in a start-stop recovery and DPU has not recovered to pre-pandemic period.

Besides the drop in DPU, I was surprised by the drop in its total assets and net asset value last year. A look at the portfolio valuation, it shows an increase in valuation in RMB but decrease in SGD. Looks like the strong Singapore dollar last year has resulted in this drop. Forex probably also has a negative impact on the DPU. This is a risk to bear when investing in REITs with overseas properties.

The transformation from a pure retail REIT to one that consists of retail, business parks and logistics parks over the past 2 years has made it more resilient. However, it is still early days with 76.4% of the portfolio still consisting of retail properties.

Images from Maybank IBG China Re-opening Theme Corporate Day 2023 presentation slides, 4 April 2023

The other item that caught my attention was the very short WALE for its business parks and logistics park. They are even shorter than the retail’s WALE. As seen from the given information, its business parks WALE is only 1.7 years and most of the lease for its logistics park is expiring this year!

This is not something I am accustomed to with industrial and logistics REITs. A fast check shows that CapitaLandAscendas Reit WALE for its Singapore and Australia properties are 3.5 years and 3.2 years respectively. I am not sure if this is peculiar to China properties or if this is just temporary since they only acquired the assets not too long ago.

While I believe the lease will be renewed or replaced, I do hope that the management can provide some information on this during the AGM or when providing business update for Q12023.

What do I expect in the coming year? (Not a recommendation)

Given the positive guidance from the leaders and barring any unforeseen circumstances, I am expecting a higher DPU for FY2023. It’s hard to say if it will be higher than FY2021’s 8.73 cents. Occupancy should be good with positive rental reversion but higher interest rate and operating expenses will be dampers.

Nonetheless, I am going to harness a guess. I think DPU will be somewhere between 8.5 to 9.0 cents for FY2023. That will translate to a price of $1.31 to $1.38 if we are looking at a yield of 6.5%.

At the time of writing, CLCT takes up 1.5% of my portfolio.