facebookWhy CapitaLand China Trust (SGX: AU8U) Is Primed for Further Growth

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CapitaLand China Trust logistics asset acquisition Seedly

Why CapitaLand China Trust (SGX: AU8U) Is Primed for Further Growth

profileSudhan P

CapitaLand China Trust (SGX: AU8U) (CLCT) is Singapore’s largest China-focused real estate investment trust (REIT).

The REIT’s sponsor is Singapore-listed CapitaLand Investment (SGX: 9CI), a leading global real estate investment manager.

CapitaLand China Trust, which was previously known as CapitaLand Retail China Trust, expanded its investment strategy last year to include office and industrial properties.

With the expansion, CapitaLand China Trust is making its maiden foray into the China logistics space by acquiring four logistics assets.

Here’s what you should know about CapitaLand China Trust’s entry into the attractive logistics sector.


TL;DR: CapitaLand China Trust’s Acquisition of Logistics Assets

Here are the key highlights from CapitaLand China Trust’s announcement:

  • CapitaLand China Trust is acquiring a portfolio of four prime logistics assets in China
  • The REIT’s total cost of the acquisition is estimated at around S$297.7 million
  • CapitaLand China Trust intends to finance the acquisition through a mix of debt and equity
  • Based on the method of financing, the acquisition is expected to be distribution per unit accretive by 3.5%
  • The purchase is expected to be completed by end of 2021

Expanding Into the New Economy Asset Class

CapitaLand China Trust is acquiring a portfolio of four prime logistics assets in Shanghai, Kunshan, Wuhan and Chengdu for RMB1.68 billion.

They are located in key logistics hubs in China and are within CapitaLand’s five core city clusters.

Source: CapitaLand China Trust Investor Presentation

The acquisition increases CapitaLand China Trust’s exposure to new economy asset classes, following the REIT’s maiden purchase of a portfolio of five business park assets from January to June this year.

CapitaLand China Trust’s total cost of the acquisition is estimated at around S$297.7 million.

The REIT intends to finance the acquisition through a mix of debt (at 60%) and the remaining 40% from a private placement.

Based on the proposed method of financing, the acquisition is expected to be distribution per unit (DPU) accretive by 3.5% (based on certain assumptions).

The acquisition is expected to be completed by the end of this year.

Tan Tze Wooi, chief executive of the REIT’s manager, commented on the latest foray:

“We are pleased to mark CLCT’s entry into China’s burgeoning logistics sector with a quality portfolio of logistics assets, in 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.”

Diversification of Portfolio and Strong Tenant Mix

Following the acquisition, CapitaLand China Trust will have a higher exposure to the business park and logistics sector, taking up 21.4% of total assets under management (AUM).

Right now, retail takes up 84.7% of total AUM, while business parks occupy the remaining 15.3%.

The acquisition will also increase its presence in Shanghai and China’s higher growth Tier 2 cities.

The four logistics assets to be acquired have strong tenants within the domestic logistics and warehouse, pharmaceuticals, manufacturing and e-commerce space as well.

According to CapitaLand China Trust’s presentation deck, some of its key tenants include established e-commerce platforms and China’s leading technology-driven supply chain and logistics supply provider.

Source: CapitaLand China Trust Investor Presentation

Leases With Built-In Rental Escalations

Another plus point of the acquisition is that over 80% of the leases have built-in rental escalations in place, with a step-up ranging from 3% to 5% per annum.

This means that CapitaLand China Trust will receive higher rental payments from its tenants on a yearly basis overall.

Source: CapitaLand China Trust Investor Presentation

CapitaLand China Trust’s top 10 tenants will be further diversified to include three new logistics tenants.

Post-acquisition, five of CapitaLand China Trust’s tenants will be from the new economy asset classes of business parks and logistics.

Parting Thoughts

I like CapitaLand China Trust’s strategy of reducing its reliance on retail properties and diversifying its portfolio to include the growing logistics facilities and data centres sectors.

The latest proposed acquisition of four logistics assets is also part of its longer-term plan.

Under CapitaLand China Trust’s five-year acquisition growth roadmap, the REIT plans to achieve a balanced portfolio mix of:

  • 40% in commercial/integrated developments,
  • 30% in retail properties, and
  • 30% in new economy assets (including business parks, logistics and data centres) by 2026.

With a post-acquisition gearing ratio of around 38%, there’s still plenty of debt headroom for CapitaLand China Trust to gear up further for inorganic growth.

At CapitaLand China Trust’s unit price of S$1.26, it has a price-to-book ratio of 0.8x and a distribution yield of 6%.

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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer doesn’t own shares in any companies mentioned. 

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About Sudhan P
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
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