Yuhuating, in Changsha, will help form the initial portfolio of CLCR, which will also consist of CapitaMall SKY+ in Guangzhou.
CLCT will also subscribe to a 5% strategic stake in CLCR’s IPO, alongside CLI and CapitaLand Development, which will collectively hold over 20% of initial IPO units as required under regulations.
"We see this as a forward-looking and strategic move for CLCT, offering a differentiated growth path via CLI’s broader ecosystem," says DBS.
"Over time, the success of CLCR could help narrow the yield spread between the two platforms. However, if CLCT continues to trade at a steep discount to book, questions around its long-term structure or potential privatisation may resurface.
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According to DBS, the inclusion of Yuhuating, one of CLCT’s smaller assets, appears to be a “test case” to gain exposure to the onshore REIT market.
With the net proceeds of some $107 million, CLCT can reduce its gearing by 1.2ppt to 41.4% but by doing so it may be DPU-dilutive given its low borrowing costs.
Rather, DBS believes that unit buybacks will feature more prominently as a capital recycling channel, especially with CLCT trading at just 0.6x P/B, to enhance NAV and support unit price.
CLCT units, as at 2.49 pm, trades at 68 cents, down 0.73%.
