4 FTSE ST China Index Real Estate Stocks Affected By China’s Regulatory Clampdown: Sasseur REIT (CRPU); CapitaLand China Trust (AU8U); EC World REIT (BWCU); YanLord Land (Z25)

FTSE ST China Index is one of the China-themed indices in the FTSE ST Index series. The index aims to capture the performance of the 20 largest Chinese-listed companies on SGX by market capitalisation. All stocks listed on the FTSE ST China Index, across 10 sectors, have at least 50% of their sales revenue or operating assets from Mainland China.

On top of their crackdown on technology giants, the entertainment sector (against K-pop), video games, the China government is also taking action to address housing speculation and cracking down on the real estate market. They did so by making easy credit for China’s real estate market less readily available. This method has proved effective as the National Bureau of Statistics figures showed that new home prices in 70 cities in China, excluding state-subsidised housing, only rose 0.3% from June to July, the slowest growth in six months.

With Singapore having significant stakes in China, these market trends could have an impact on some real estate companies that have significant China exposure. In this week’s edition of 4 Stocks This Week, we look at 4 real estate stocks on the FTSE ST China Index. The table below reflects the total market capitalisation and close price based on 17 September 2021.

Sasseur REIT (SGX: CRPU)

Sasseur REIT (SGX: CRPU) was the only retail S-REIT that showed positive return in 2020 with an occupancy rate of 93.5% across their four outlet malls in China, and a portfolio valuation of S$1.651 billion. It focuses on the development and operation of retail outlet malls in China and hence leverages on offering unique lifestyle experiences and the industrial climate of retail outlets.

Growth was initially expected due to the projection of the fast-growing retail outlet sector to become the world’s largest by 2030. Unfortunately, the ongoing crackdown on the property sector is expected to have a spillover effect on the economy which could lead to growth instability. Unfortunately, the ongoing crackdowns in China may dampen the retail sector despite the group’s current retail portfolio occupancy of 94.1%.

That said, the outlets enjoy a competitive edge and a product mix of luxury and high-end brands, sold at large discounts. If the expectation of a fast-growing middle-class population and high demand for luxury brands in China with annual spending of US$111 billion holds true, this will also bode well for Sasseur REIT’s performance.

CapitaLand China Trust (SGX: AU8U)

CLCT (CapitaLand China Trust) (SGX: AU8U) is Singapore’s largest China-focused REIT. With a geographically diversified portfolio of S$4.3 billion in total assets, CLCT currently has a total GFA (gross floor area) of approximately 1.8 million square metre across 11 cities in China. CLCT aims to invest in income-producing real estate and real estate-related assets in China, Hong Kong and Macau that are used primarily for retail, office and industrial purposes (including business parks, logistics facilities, data centers and integrated developments).

With over half of their GFA in the retail sector, CLCT aimed to leverage their omnichannel platforms and loyalty programme such as CapitaStar (which are also adopted in CapitaLand malls in Singapore) to drive organic growth through customer-centric initiatives. Unfortunately, the ongoing crackdowns in China may dampen the retail sector despite the group’s current retail portfolio occupancy of 94.1%.

However, CLCT also allocated close to half of their GFA to business parks, which is aligned with China’s economic growth initiative and the 14^th Five-Year-Plan. Hence, CLCT’s value creation strategy could allow them to hinge on the growing demand for these industry-driving business centers and achieve long-term resilience.

EC World REIT (SGX: BWCU)

EC World REIT (SGX: BWCU) is the first specialised and e-commerce logistics REIT listed on SGX. It has a portfolio of eight quality properties located in China primarily for e-commerce, supply-chain management and logistics purposes, as well as real estate-related assets.

With properties within China’s largest e-commerce clusters, EC World REIT enjoyed an increase in gross revenue by approximately 10% from FY2019 to FY2020. However, the change in the Chinese government’s goals may affect the group’s performance. Apart from the crackdown on real estate, EC World REIT’s 27% tenancy operation in e-commerce could also be affected by the recent crackdown on technology companies, which has already wiped billions of tech stocks.

Despite the impact of the crackdown, this could be limited due to the diverse industries that their tenants operate in. In fact, their biggest proportion of tenancy of 37% is from delivery, logistics and distribution. In addition, the group recognizes the volatility of the current situation and aims to proactively manage the portfolio to work towards sustainability.

YanLord Land (SGX:Z25)

YanLord Land (SGX: Z25) is a real estate developer focusing on developing high-end fully-fitted residential, commercial and integrated property projects in Singapore and China. The group has 6 major economic regions in China across 18 cities including Shanghai and Shenzhen, which account for over 97% of their landbank distribution.

In terms of revenue, the Group recorded an increase of 28.1% to RMB23.918 billion in FY 2020, of which, RMB20.960 billion was contributed from property development. This large contribution can be attributed to the increase in total GFA and ASP (average selling price) by 14.0% and 23.6% respectively from FY2019 to FY2020. However, with the China government’s bid to cool down its property market, this main source of revenue may be dampened.

That said, YanLord Land still enjoys a diversified source of revenue from property investments, hotel operations, and property management. The improving performances in these other areas of income growth, the group’s continuation of their prudent financial management, and their strategic commitment to penetrate high-growth cities through land acquisition, may bolster the negative impacts caused by the crackdown.

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