Why does CLCT want to expand into logistics properties?

....... one of the ((CLCT' s) risks (of concentrating on the retail mall industry) is the rising trend of e-commerce which can become a threat to the malls,

eMarketer has also reported that in 2021, bricks-and-mortar sales would likely fall by 9.8%, after an 18.6% drop last year.

If this trend continues, CLCT having majority of its portfolio concentrate in retail malls will surely be affected and is definitely something CLCT investors should look out for
This could be one of the reasons why CLCT has decided to expand its investment portfolio to other assets classes instead of relying solely on retail.

Hence, expanding to new economy assets such as logistics properties allows CLCT to adjust to the new trend and to hedge against a possible fall in mall rental rates. CLCT has been consistent with this acquisition.

CLCT&rsquo s exposure to the new economy assets will increase from 15.3% to 21.4% of its asset under management (AUM) after the acquisition of these 4 logistics properties is completed.

For the 4 logistics properties under consideration, the major tenants are involved in logistics and warehouses to distribute goods from coastal cities to inner cities, as well as e-commerce players to deliver items to individual consumers.

But CLCT is not stopping here and we should see more acquisitions in the near future. Their goal is to have 30% of their AUM in new economy assets and 40% in integrated developments/commercial assets.   Retail will be reduced to 30% by 2026.

Conclusion

CLCT has been making moves to adjust to the new economy. A possible fall in mall rental rates is a risk for them, so they are hedging their bets by expanding into logistics assets. Moreover, this acquisition will be DPU accretive and enjoy a slight discount on the valuation. 

CLCT is undergoing a major transformation and investors should keep an eye on this REIT as it continues to evolve with our changing world!

 

 

 

Does the acquisition make financial sense?

Here are the details, numbers wise:

• First, the acquisition consideration of RMB1.68 billion represents a discount of 0.6% to total property values by independent valuation
• Second, the net property income will increase by 12.8% &ndash this compares favourably to an increase in AUM of 8% and
• Lastly, the CLCT' s distribution per unit will increase by 3.5% from 6.35c to 6.75c &ndash which means that the acquisition is DPU accretive.  
  
  The acquisition will be funded 60% by debt and 40% by equity (private placement). A total of 128,756,000 net units will be issued at a price of S$1.165 per new unit to raise aggregate gross proceeds of approximately  S$150.0 million  from the private placement. 
  
  In summary
  
  CLCT is undergoing a major transformation as it adjusts to the new economy. The acquisition will enable CLCT to tap China&rsquo s strong demand for logistic properties, which is supported by conducive government policies and boosted by an accelerated growth in e-commerce. Furthermore, the foray into logistic assets should enhance CLCT&rsquo s portfolio strength and income diversification.
  
  CLCT&rsquo s long term goal is to have 30% of its AUM in new economy assets and 40% in integrated developments/ commercial assets, while retail will be reduced to 30% by 2026. Hence, investors should keep an eye on this REIT and expect more acquisitions in the near future. 

Why is CLCT expanding into logistic properties?

The proposed acquisitions represent a continuation of CLCT&rsquo s multi-stage portfolio reconstitution strategy to diversify from a &ldquo pure retail&rdquo play in order to &ldquo future-proof&rdquo its earnings profile against pandemics and shifts in consumer behaviour.   

With its first foray into China&rsquo s logistic sector, CLCT&rsquo s exposure to the new economy assets will now increase from 15.3% to 21.4% of its asset under management (AUM). This follows CLCT&rsquo s initial purchase of a portfolio of  five business park properties  in 2020.

CapitaLand China Trust Enters Into China&rsquo s Logistics Sector

CapitaLand China Trust (&ldquo CLCT&rdquo ) (SGX:AU8U) used to focus on retail properties and malls in China but has expanded its mandate in 2020 to include office and industrial assets, including business parks, logistic facilities, data centres and integrated development.   

Last month, CLCT proposed to acquire a portfolio of four prime logistic assets in China&rsquo s key logistic hubs of Shanghai, Kunshan, Wuhan and Chengdu. 

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, 2021. 

These properties are located near transportation nodes such as seaports, airports and railways, which serve the growing domestic logistical needs in China&rsquo s eastern, central and southwest regions. 

Major tenants are involved in logistics and warehouses to distribute goods from coastal cities to inner cities, as well as e-commerce players to deliver items to individual consumers. More than 80% of the leases have rental escalations in place.