CAPITALAND RETAIL CHINA TRUST (SGX:AU8U)
CapitaLand Retail China Trust - Strategic Move To Diversify Portfolio
- Maiden acquisition after expansion of investment mandate.
- Implied NPI yield of 5.8% for the acquisitions.
- DPU accretive.
Proposed acquisition of five business parks + the balance 49% interest in Rock Square
- CapitaLand Retail China Trust (SGX:AU8U) announced the acquisition of interests (51%-100%) in five business park properties in China and the balance 49% interest in Rock Square for an agreed property value of RMB 4,945m (~S$1.01b) with an implied NPI yield of 5.8% (higher than CapitaLand Retail China Trust’s existing yield of 4.3%).
- Total acquisition cost is ~S$822.4m which will be financed through a mix of debt, equity, perpetual securities and internal cash resources. The acquisition is expected to be DPU accretive with pro-forma FY19/1HFY20 DPU increasing 2.8% and 5.1% respectively while pro-forma FY19 NAV will decrease 4.6% on enlarged unit base.
- Post-acquisition, CapitaLand Retail China Trust's gearing is expected to increase from 34.7% to 37.9%.
Capturing growing demand and policy support for business parks
- The proposed acquisition will enable CapitaLand Retail China Trust to reduce its exposure to Beijing from 48% to 36% and establish its footprint in three high-growth economic zones in Suzhou, Hangzhou and Xi’an. The addition of five busines parks is believed to be a strategic move to benefit from China’s economic growth initiatives, preferential policy support, decentralisation to Tier 2 cities and strong growth of key tenant industries.
- Management shared that performances of the five business parks were resilient even amid COVID-19, with occupancy all above 90% which was higher than industry average of 80-85% with retention rate of ~70% and WALE of 2-3 years.
- Management expects strong rental reversions for the five business parks with potential double digits for Hangzhou, and single digit for Suzhou and Xi’an’s properties.
Increasing portfolio diversification and resilience
- See CapitaLand Retail China Trust Share Price; CapitaLand Retail China Trust Target Price; CapitaLand Retail China Trust Analyst Reports; CapitaLand Retail China Trust Dividend History; CapitaLand Retail China Trust Announcements; CapitaLand Retail China Trust Latest News.
- The proposed acquisition will pave the way to enhance CapitaLand Retail China Trust’s long-term resilience and diversification. Post-acquisition, CapitaLand Retail China Trust’s AUM will increase 28.5% with a reduced exposure to retail (Retail: 57%, Business Parks: 26%, and Industrial 17%).
- Moving ahead, CapitaLand Retail China Trust will remain a China-play REIT with targeted asset allocation of 40%/30%/30% in integrated developments/retail/new economy asset class. Pending approval at an EGM, our fair value estimate remains at S$1.35.
Chu Peng
OCBC Investment Research
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https://www.iocbc.com/
2020-11-09
SGX Stock
Analyst Report
1.35
DOWN
1.440
