Clct Divest Capitamall Yuhuating 88 Premium Subscribe 5 Ipo Units Capitaland Commercial C Reit
CapitaLand China Trust (CLCT) has announced their plans to purchase 5% of the total IPO units in the upcoming CapitaLand Commercial C-REIT (CLCR), which is set to be listed on the Shanghai Stock Exchange (SSE). In a bourse filing on Sept 8, CLCT stated that the final price of each IPO unit is RMB5.718 ($1.03). This price was determined through a book-building process with an offer price range of RMB4.756 to RMB5.932 per unit.
The total offering size for CLCR is RMB2,287.2 million, which is a premium of 7% over the estimated offering size of RMB2,137.5 million. On Aug 28, CLCT entered into a strategic investor placement agreement with the CLCR manager following approval from the China Securities Regulatory Commission on Aug 27.
When CLCR lists on the SSE, it will become CapitaLand Investment’s (CLI) eighth listed fund and the first international-sponsored retail C-REIT in China. According to CLI’s Aug 27 announcement, the initial portfolio of CLCR will consist of two retail assets: CapitaMall SKY+ in Guangzhou and CapitaMall Yuhuating in Changsha. These two properties have a total gross floor area of 168,405 sqm and a combined committed occupancy of 97%.
The proposed transaction involves CLCT divesting CapitaMall Yuhuating to CLCR, while CLI and the unlisted CapitaLand Development (CLD) will also divest CapitaMall SKY+. As the sponsor and asset manager of CLCR, CLI will continue to operate both properties after the listing. CLCT, CLI, and CLD will be “strategic investors” in CLCR and will collectively hold at least a 20% stake in the C-REIT.
Based on the final IPO unit price, the price for the divestment of CapitaMall Yuhuating is RMB813.8 million, which is a premium of 8.8% over the floor price of RMB748.0 million. The exit yield for this transaction is expected to be 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, while the net proceeds would be around RMB663.4 million, after accounting for the proposed subscription and relevant transaction costs. Out of CLCT’s gross proceeds, approximately $20.6 million will be used for the proposed subscription of 5% of CLCR’s IPO units.
According to CLCT, the proposed transaction is expected to be 1.0% accretive to their 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. This would result in net proceeds of approximately $50.0 million. The remaining net proceeds are expected to be used to pare down debt.
On a pro forma basis, the proposed transaction is expected to increase CLCT’s net asset value (NAV) per unit to $1.11 from $1.09, while their aggregate leverage is estimated to fall to 42.3% from 42.6%. The net proceeds from the proposed divestment would amount to approximately RMB663.4 million, and assuming they are used to pay down debt, the aggregate leverage for CLCT would decrease from 42.6% as at March 31 to 41.2%.
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Gerry Chan, CEO of the manager of CLCT, states that the investment in CLCR offers a strategic opportunity for CLCT to enter the growing C-REIT market. He adds that this allows them to unlock value from their mature assets and gives them more financial flexibility to pursue income diversification and enhance their portfolio quality. Chan also mentions that this aligns with their growth strategy as a diversified, multi-asset class REIT, while CLCR will focus exclusively on retail assets.
Chan also highlights that while CLCT’s investment mandate covers the Greater China region, CLCR’s focus will be on Mainland China. With almost two decades of proven track record, CLCT is well-positioned to leverage this new platform and continue their strategy of building a balanced portfolio that capitalizes on China’s rapidly evolving consumption- and innovation-led economy.