CapitaLand China Trust (CLCT) will subscribe for 5% of the total number of IPO units in the upcoming CapitaLand Commercial C-REIT (CLCR), set to be listed on the Shanghai Stock Exchange (SSE).
The final price of each IPO unit is RMB5.718 ($1.03), according to a Sept 8 bourse filing by CLCT. This was determined via a book-building process at an offer price range of RMB4.756 to RMB5.932 per unit.
This translates to an offering size of RMB2,287.2 million, which represents a premium of approximately 7% over the estimated offering size of RMB2,137.5 million.
CLCT entered into a strategic investor placement agreement with the CLCR manager on Aug 28, after receiving approval from the China Securities Regulatory Commission on Aug 27 to list CLCR on SSE.
CLCR will be CapitaLand Investment’s (CLI) eighth listed fund and China’s first international-sponsored retail C-REIT upon its listing.
According to CLI’s Aug 27 announcement, CLCR’s initial portfolio will comprise two retail assets: CapitaMall SKY+ in Guangzhou and CapitaMall Yuhuating in Changsha.
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The pair of properties have a total gross floor area of 168,405 sqm and an aggregate committed occupancy of 97%, according to CLI.
CLCT has proposed to divest CapitaMall Yuhuating to CLCR, while CLI and the unlisted CapitaLand Development (CLD) have proposed to do the same with CapitaMall SKY+. As the sponsor and asset manager of CLCR, CLI will continue to operate CapitaMall SKY+ and CapitaMall Yuhuating post-listing.
CLCT, CLI and CLD will be “strategic investors” in CLCR and will collectively hold at least a 20% stake in the C-REIT.
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Based on the final IPO unit price, the final price for the divestment of CapitaMall Yuhuating to CLCR is RMB813.8 million. This is an approximately 8.8% premium over the floor price of RMB748.0 million and approximately 3.7% over the valuation of CapitaMall Yuhuating as at end-2024.
The exit yield is approximately 6.2% based on CapitaMall Yuhuating’s actual net property income (NPI) for FY2024 ended Dec 31, 2024 of RMB50.7 million.
The gross proceeds from the proposed divestment would be approximately RMB813.5 million. After accounting for the proposed subscription and the relevant transaction cost, the net proceeds from the proposed divestment would be approximately RMB663.4 million.
Approximately $20.6 million of CLCT’s gross proceeds will be used for the proposed subscription of 5% of CLCR’s IPO units.
If the proposed transaction had been completed on Dec 31, 2024, it is expected to be 1.0% accretive to CLCT’s distribution per unit (DPU) on a pro forma basis, assuming 72,463,768 units are repurchased by the manager under the unit buyback mandate at an average price of 69 cents per unit. Accordingly, the net proceeds used for the repurchase of 72,463,768 units is approximately $50.0 million. This also assumes the remaining net proceeds are used to pare down debt.
Pro forma, the proposed transaction is expected to increase CLCT’s net asset value (NAV) per unit to $1.11 from $1.09, while CLCT’s aggregate leverage is expected to fall to 42.3% from 42.6%.
After accounting for CLCT’s IPO subscription and transaction cost, net proceeds are estimated to be approximately RMB663.4 million. Assuming net proceeds are used to pare down debt, aggregate leverage would decrease from 42.6% as at March 31 to 41.2%.
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Gerry Chan, CEO of the manager of CLCT, says: “CLCR offers a strategic opportunity for CLCT to enter the expanding C-REIT market. It provides a platform to unlock value from our mature assets, bolstering our financial flexibility to pursue income diversification and enhance portfolio quality. This aligns with our growth strategy as a diversified, multi-asset class REIT, anchored by a broad portfolio of retail properties, business parks and logistics parks; while CLCR will focus on retail assets.”
Chan adds: “CLCT’s investment mandate covers the Greater China region, including Hong Kong and Macau, whereas CLCR will concentrate exclusively on Mainland China. With nearly two decades of proven track record, CLCT is well-placed to leverage this new platform and advance our strategy of building a balanced portfolio that capitalises on China’s fast-evolving consumption- and innovation-led economy.”
Units in CLCT closed 0.5 cents lower, or 0.65% down, at 77 cents on Sept 5.
