Capitaland China Trust ($1.25, halted) announced that it will spend S$297.7 million to acquire 4 assets in Shanghai, Kunshan, Wuhan and Chengdu, in its first foray into the China logistics sector. In a briefing on Tuesday (Oct 12) following the announcement, Tan Tze Wooi, CEO of CLCT’s manager, hailed the entry into the “resilient” logistics sector as a step towards increasing the REIT’s exposure to “new economy” assets such as business parks, logistics and data centres.
The addition of the 4 prime logistics assets will push CLCT’s new economy assets to 21.4% of its assets under management. This is up from the 15.3% currently, a er the REIT in the first half of this year completed the acquisition of five business park properties in Suzhou, Xian and Hangzhou.
The REIT in September last year expanded its investment mandate beyond the retail sector. Tan said the latest proposed acquisition is in line with CLCT’s 5-year acquisition growth roadmap for 30% of its portfolio to constitute new economy assets, while 40% will comprise commercial and integrated developments, and the remaining 30% will be in retail properties.
“We are definitely excited to steer CLCT in (this) strategic direction. Within one year from our mandate expansion, we have added business parks, and now we have added logistics,” Tan said. “We are really repositioning our portfolio to be well aligned and to be able to capture growth trends and be the proxy for China’s future economy. In China’s ‘dual circulation’ strategy, boosting consumption expenditure is 1 big objective and strengthening the logistics sector becomes 1 of the key enablers to achieve this goal,” said Tan.
Mr Tan added, “In particular, the ‘Global 1-2-3 Logistics Circle’ programme was introduced to modernise and expand China’s transportation and logistics network. These policies led to the establishment of key logistics hubs where our proposed acquisition assets are located, referring to China’s aim for 1-day domes c delivery of goods within China, 2-day delivery from neighbouring countries, and 3-day delivery to major global cities.”
The proposed acquisition is based on an aggregate agreed property value of 1.7 billion yuan (S$350.7 million), representing around 0.6 per cent discount to the properties’ independent aggregate valuation. Based on pro-forma estimates, the manager expects the acquisition to raise CLCT’s net property income by 12.8 per cent to S$152.6 million and distribution per unit by 3.5 per cent to 6.57 Singapore cents. This is assuming the proposed deals were completed on Jan 1, 2020 and CLCT had held and operated the properties for the financial year ended Dec 31, 2020.
The 4 logistics properties have a total gross floor area of 265,259 square metres, a total committed occupancy of 96.3% and weighted average lease to expiry of 2.1 years as at Aug 31. Three of the properties were completed between 2016 and 2018, while the 4th was completed in 2010. Post-acquisition, the proportion of new economy assets in CLCT’s enlarged portfolio will rise to 21.4 per cent from 15.3 per cent by asset value. The REIT’s assets under management will also increase 8 per cent to S$4.7 billion.
To partially fund the acquisition, the REIT manager has proposed a S$120 million private placement of about 103 million new units at an issue price of between S$1.165 and S$1.199 per new unit, with an op on to raise an additional S$30 million. The issue price of between S$1.165 and S$1.199 represents a discount of between 4.1 per cent and 6.9 per cent to the REIT’s volume-weighted average price of S$1.2509 per unit for trades done on Oct 11, up to the time the placement agreement was signed on Oct 12.
The remaining 60% of the total acquisition cost will be funded via debt financing. Post-transaction, CLCT’s gearing ratio is expected to rise to 38.2 per cent, from 35.9 per cent currently. “We want to maintain some financial prudence in managing our balance sheet to support our growth. So I think we are comfortable with a 40 per cent gearing profile,” Tan said.
“As to how we’re going to fund future growth, I think you can take reference from what we have been doing: It’s always that ability to recycle some of our assets, unlocking value for some of the assets that we feel are at the asset cycle. So this continues to be an active approach,” he added.
CLCT’s market cap stands at S$1.9bln and currently trades at 14.9x forward PE and 0.8x PB. Dividend yield stands at 5.3% and consensus target price stands at S$1.54, representing 23.2% upside from current share price. We maintain an “Accumulate” rating on CLCT.