CapitaLand China Trust (“CLCT”) (SGX:AU8U) used to focus on retail properties and malls in China but has expanded its mandate in 2020 to include office and industrial assets, including business parks, logistic facilities, data centres and integrated development.  

Last month, CLCT proposed to acquire a portfolio of four prime logistic assets in China’s key logistic hubs of Shanghai, Kunshan, Wuhan and Chengdu. 

The portfolio of four high-quality modern logistics properties has a total gross floor area (GFA) of 265,259 sqm with a committed occupancy of 96.3% and weighted average lease expiry (WALE) of 2.1 years as at Aug 31, 2021. 

(Source: Company presentation slides)

These properties are located near transportation nodes such as seaports, airports and railways, which serve the growing domestic logistical needs in China’s eastern, central and southwest regions. 

Major tenants are involved in logistics and warehouses to distribute goods from coastal cities to inner cities, as well as e-commerce players to deliver items to individual consumers. More than 80% of the leases have rental escalations in place. 

Why is CLCT expanding into logistic properties?

The proposed acquisitions represent a continuation of CLCT’s multi-stage portfolio reconstitution strategy to diversify from a “pure retail” play in order to “future-proof” its earnings profile against pandemics and shifts in consumer behaviour.  

With its first foray into China’s logistic sector, CLCT’s exposure to the new economy assets will now increase from 15.3% to 21.4% of its asset under management (AUM). This follows CLCT’s initial purchase of a portfolio of five business park properties in 2020.

(Source: Company presentation slides)

Does the acquisition make financial sense?

Here are the details, numbers wise:

  • First, the acquisition consideration of RMB1.68 billion represents a discount of 0.6% to total property values by independent valuation;
  • Second, the net property income will increase by 12.8% – this compares favourably to an increase in AUM of 8%; and
  • Lastly, the CLCT’s distribution per unit (DPU) will increase by 3.5% from 6.35c to 6.75c – which means that the acquisition is DPU accretive.  

(Source: Company presentation slides)

The acquisition will be funded 60% by debt and 40% by equity (private placement). A total of 128,756,000 net units will be issued at a price of S$1.165 per new unit to raise aggregate gross proceeds of approximately S$150.0 million from the private placement. 

In summary

CLCT is undergoing a major transformation as it adjusts to the new economy. The acquisition will enable CLCT to tap China’s strong demand for logistic properties, which is supported by conducive government policies and boosted by an accelerated growth in e-commerce. Furthermore, the foray into logistic assets should enhance CLCT’s portfolio strength and income diversification.

CLCT’s long term goal is to have 30% of its AUM in new economy assets and 40% in integrated developments/ commercial assets, while retail will be reduced to 30% by 2026. Hence, investors should keep an eye on this REIT and expect more acquisitions in the near future. 

(Source: Company presentation slides)

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