CapitaLand’s CLCT Buys Four Mainland Warehouses From Quadreal for $260M

Singapore-listed CapitaLand China Trust Management (CLCT) has acquired four warehouse assets across key cities in China for RMB 1.68 billion ($260 million) as the company makes its first venture into the region’s logistics market in line with CapitaLand Group’s growing emphasis on expanding its exposure to the new economy sector.

CLCT told the Singapore stock exchange on Monday that it has agreed to acquire four logistics hubs in the mainland cities of Shanghai, Kunshan, Wuhan and Chengdu with a combined gross floor area of 265,259 square metres (2.86 million square feet).

“We are pleased to mark CLCT’s entry into China’s burgeoning logistics sector with a quality portfolio of logistics assets, in an investment that is aligned with China’s plans for a domestic consumption-driven, higher-value and service-led economy,” said CLCT chief executive Tan Tze Wooi. “The acquisition will enable CLCT to tap China’s strong demand for logistics properties, which is supported by conducive government policies and boosted by an accelerated growth in e-commerce.”

The vendor is identified in the stock announcement as QR Asia Logistics Master Holdco II Pte Ltd, a Singapore firm, which Quadreal Property Group representatives confirmed as a joint venture led by their firm. The real estate investment division of the British Columbia Investment Management Corporation had reportedly acquired three of the properties from LaSalle Investment Management, with the Shanghai asset coming from mainland fund manager CITIC Capital.

Serving the New Economy

In a press briefing this morning, You Hong, who heads investment and portfolio management for CLCT, portrayed the assets as serving a tenant base linked closely to China’s new economic direction. “These tenants are serving the domestic economy, which I think is very well articulated in the dual circulation strategy where China’s focusing a lot on,” You said.

CLCT’s initial logistics portfolio comes with an average committed occupancy rate of 96.3 percent and a weighted average period to lease expiry of 2.1 years as of 31 August.

By venturing into logistics, the manager of CapitaLand China Trust also sees the opportunity to own a lower-maintenance asset class, compared with the REIT’s earlier focus on retail.

“Given this kind of asset class, it’s stable (and) we have the tenants running the building on its own, I don’t foresee that it is going to be having an immediate capex need on our front,” Tan said. “(We also aim) to stabilise it first (and) understand the market.”

Major Mainland Hubs

The Shanghai asset, situated near Lingang port in Fengxian district, is a double-deck, lift-access warehouse with total gross floor area of 62,785 square metres and is currently leased to two domestic third-party logistics players. The property at 435 Haishang Road was built in 2010 and is 98.6 percent occupied.

CLCT said the property has access to a series of highways, railways, aviation and port, where many logistics firms base their inter-city distribution centres, including the Shanghai Ring Expressway and Yangshan port, the world’s largest sea terminal.

The Kunshan property is located just west of Shanghai in Jiangsu province and consists of three blocks of single-storey warehouses, along with ancillary buildings, covering a gross floor area of 43,945 square metres. Completed in 2017 as a LaSalle Logiport project, the asset in Bacheng district, along the commercial corridor from Shanghai to Nanjing, is 99.4 percent occupied.

The asset in Wuhan, capital of central China’s Hubei province, was completed in 2018 and comprises four blocks of single-storey warehouses with ancillary facilities spanning a gross floor area of 86,973 square metres.

Accessible via a network of airport, highway, railway and ports, the property is in Yangluo Economic Development Zone and has a 97.6 percent occupancy rate. The firm said it is currently anchored by an unnamed mainland e-commerce giant in China.

The final, and western-most property was completed during 2016 inside the Chengdu Airport Logistics Park at the city’s Shuangliu International Airport.

The project in the capital of Sichuan province consists of a single-storey warehouse and two double-storey ramped warehouses with a total gross floor area of 71,556 square metres, 90.5 percent of which is currently leased to “multiple tenants from the logistics and supply chain management and pharmaceutical sectors”.

Portfolio Expansion

Quadreal began marketing the portfolio during the first half of this year through an expression of interest exercise jointly conducted by JLL and CBRE, with initial EOI letters due on 7 July.

In March of this year Quadreal had already set up a new logistics joint venture in China with Warburg Pincus-backed New Ease with plans to invest up to $1 billion in developing and acquiring mainland warehouse properties.

Upon completion of the transaction, the newly acquired logistics hubs will expand CLCT’s combined assets under management to 20 from 16, Tan said. In terms of value, the logistics buy will boost the trust’s holdings by 8 percent to S$4.73 billion, making it the biggest multi-sector China-focused REIT listed in Singapore.

The acquisition will also increase the net property income of the entire portfolio by 12.8 percent to S$152.6 million and boost the proportion of its assets within the “new economy” segment to 21.4 percent, compared with 15.3 percent previously.

Tan is also expecting the venture to diversify the portfolio by increasing CLCT’s presence in Shanghai to 3.1 percent from 0.4 percent, while expanding its exposure to second-tier cities to 38.6 percent from 36.7 percent.

The deal has the additional benefit of extending the remaining weighted average period to land tenure expiry of CLCT’s portfolio by 1.94 years.

Debt-Led Deal

The company has incurred an overall acquisition cost of S$297.7 million ($219.6 million), which includes S$3.5 million in acquisition fees charged by the trust manager and S$2.6 million in other transaction costs.

On financing, 60 percent will be funded through debt while the remaining 40 percent will be sourced from private placements of new equity. This increases the distribution per unit accretive, or the REIT unitholder’s earnings per share, by 3.5 percent.

However, the costs may still be adjusted once the acquisition transaction has been completed towards the end of the year.

Reconfiguration Continues

The acquisition announced today follows CLCT’s late 2020 purchase of five business parks across the provincial cities of Suzhou, Xi’an and Hangzhou for RMB 4.95 billion ($770 million).

Under its five-year roadmap towards 2026, CLCT aims to expand and reshape its property portfolio so that 40 percent of its holdings will be in commercial and integrated developments, 30 percent in retail properties and 30 percent in new economy assets, which includes business parks, logistics and data centres.

While the company is committed to observing financial prudence in managing its balance sheet, Tan said CLCT will continue to “recycle” some of its existing assets and tap the debt markets to raise more funds and support its long-term growth.

“I think we are really repositioning our portfolio to be well aligned and being able to capture growth trends and be the proxy for China’s future economy,” he added.