CapitaLand China Trust enters logistics sector with plan to acquire 4 China properties

CapitaLand China Trust entered a deal in October 2021 to acquire a Chengdu logistics property. Credit: CapitaLand InvestmentCapitaLand China Trust entered a deal in October 2021 to acquire a Chengdu logistics property. Credit: CapitaLand Investment

CapitaLand China Trust plans to acquire a portfolio of four logistics assets, located in the  logistics hubs of Shanghai, Kunshan, Wuhan and Chengdu for around 1.68 billion yuan, or around S$297.7 million, marking its entry into a new property segment, the China-focused trust said in a filing to SGX Tuesday.

Tan Tze Wooi, CEO of the trust’s manager, said the acquisition is in line with CLCT’s near-term focus on new economy assets.

“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,” Tan said in the statement.

“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,” Tan added.

The deal is expected to boost the proportion of new economy assets in the enlarged portfolio to 21.4 percent from 15.3 percent by asset value, CLCT said. Under its five-year acquisition growth roadmap, CLCT plans to reach a portfolio mix of 40 percent in commercial/integrated developments, 30 percent in retail properties and 30 percent in new economy assets, including business parks, logistics and data centers, by 2026, the filing said.

The trust pointed to its omni-channel retailing strategy for its retail malls, which are largely focused on B2C, or business-to-consumer, segment, noting the entry into the logistics sector will allow it to expand to B2B, or business-to-business, and C2C, or customer-to-customer, segments of China’s domestic consumption.

The Covid-19 pandemic has accelerated the growth of China’s e-commerce market, with online sales penetration growing to 24.9 percent from 20.7 percent over 2019 to 2020, compared with around 2 percent growth per annum over 2015-2019, the filing said, citing data from Forrester.

CLCT said it plans to finance the deal with a mix of debt and equity.

On a pro forma basis, assuming the deal was completed on 1 January 2020, the acquisitions are expected to be distribution per unit (DPU) accretive by 3.5 percent, the trust said. The properties are projected to increase net property income by 12.8 percent on a pro forma basis, the filing said.

The properties are located in key logistics hubs near transportation nodes such as seaports, airports and railways, and are anchored by a strong domestic tenant base, the filing said. More than 80 percent of the leases have rental escalations in place, with stepups of 3 percent to 5 percent a year, the filing said.

An independent valuation by CBRE put the aggregate open market valuation of the properties at 1.69 billion yuan, the filings said.

The deal also includes 9.6 million yuan in rental support for the Chengdu and Wuhan properties to cover vacancy and rent free provided to existing tenants, CLCT said.

The sellers of the properties are third parties QR Asia Logistics Master Holdco I and QR Asia Logistics Master Holdco II, the filing said

The acquisition is expected to be completed by the end of the year, the filing said.