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The Edge: CapitaLand China Trust enters into China logistics sector with $350.7 mil acquisition of prime logistics properties

Felicia Tan Published on Tue, Oct 12, 2021 

The manager of CapitaLand China Trust (CLCT) has proposed to acquire a portfolio of four prime logistics assets in China’s key logistics hubs of Shanghai, Kunshan, Wuhan and Chengdu on Oct 12.

The cities are also within CapitaLand’s five core city clusters of Beijing/Tianjin, Shanghai/Hangzhou/Suzhou/Ningbo, Guangzhou/Shenzhen, Chengdu/Chongqing/Xi’an and Wuhan.

The logistics assets were acquired through three conditional share purchase agreements with QR Asia Logistics Master Holdco I to acquire all the issued shares of Wuhan Logistics, ABM KS Investment and Forum Court Limited.

CLCT, on the same day, entered into a conditional share purchase agreement with QR Asia Logistics Master Holdco II to acquire all the shares of Hanson Logistics (also known as the Shanghai acquisition).

The acquisition marks the REIT’s first foray into China’s logistics sector and increases its exposure to new economy asset classes.

The acquisition consideration of RMB1.68 billion ($350.7 million) represents a discount of 0.6% to the total valuation by an independent valuer appointed by CLCT.

CLCT’s total cost to the acquisition is estimated to be at $297.7 million, subject to post-completion adjustments. It intends to finance the acquisition through a mix of debt and equity.

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.

Three of the properties were completed between 2016 and 2018, while the fourth was completed in 2010.
The 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.

The properties are also fitted with high-tech and modern features tailored to meet a wide range of e-commerce and logistics requirements, as well as anchored by a strong domestic tenant base.
More than 80% of the leases have rental escalations in place.

According to the manager, the acquisition is expected to be distribution per unit (DPU) accretive by 3.5% on a pro forma basis.

The acquisition is expected to be completed by end 2021.

Tan Tze Wooi, CEO of the manager, says the entry into China’s burgeoning logistics sector is an “investment that is aligned with China’s plans for a domestic consumption-driven, higher-value and service-led economy”.

“The acquisition will enable CLCT to tap China’s strong demand for logistics properties, which is supported by conducive government policies and boosted by an accelerated growth in e-commerce. The continuing favourable supply-demand dynamics in China’s logistics properties market with robust net absorption are expected to sustain rental growth for prime logistics assets,” he says.

“The acquisition is in line with CLCT’s investment strategy and near-term focus on new economy assets. Post-acquisition, the proportion of new economy assets in CLCT’s enlarged portfolio will rise to 21.4% from 15.3% by asset value. Assets under management (AUM) will increase by 8.0% to $4,73 billion, reinforcing CLCT’s leadership as the largest multi-asset China-focused real estate investment trust in Singapore by AUM,” he adds.

In addition, Tan says the acquisition will enhance CLCT’s net property income (NPI) by 12.8% based on the NPI of the FY2020 ended Dec.

“Given the longer land tenure of China’s logistics properties at 50 years at inception compared with retail assets at 40 years at inception, the remaining weighted average land tenure expiry of CLCT’s enlarged portfolio will positively extend by 1.94 years post-acquisition,” continues Tan.

Units in CLCT closed flat at $1.25 on Oct 11.

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