CapitaLand Retail China Trust - OCBC Investment 2020-11-09: Strategic Move To Diversify Portfolio

CAPITALAND RETAIL CHINA TRUST (SGX:AU8U) | SGinvestors.io 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






Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2020-11-09
SGX Stock Analyst Report BUY MAINTAIN BUY 1.35 DOWN 1.440



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