[SINGAPORE] CapitaLand China Trust (CLCT), a CapitaLand Investment subsidiary, is set to raise up to 748 million yuan (S$134.9 million) through the divestment of CapitaMall Yuhuating, a mature retail asset in Changsha. This is part of its participation in the proposed listing of CapitaLand Commercial C-Reit (CLCR) on the Shanghai Stock Exchange.
CLCT will dispose of its entire interest in CapitaMalls Hunan Commercial Property, the entity that owns CapitaMall Yuhuating, to Changsha Kaiting Consulting & Management.
The trust will sell the asset at a floor price of 748 million yuan, based on independent valuations. Gross proceeds from the transaction are expected to reach 738.5 million yuan, with net proceeds of about 595.3 million yuan after deducting transaction costs and the subscription amount.
From the gross proceeds, CLCT intends to allocate around S$20.7 million to subscribe for 5 per cent of the commercial real estate investment trust’s (C-Reit) initial public offering (IPO) units. The subscription will be subject to a five-year lock-up period.
The manager noted on Thursday (Jun 12) that if CapitaMall Yuhuating is divested at the floor price, the exit net property income yield would be 6.8 per cent. Assuming the net proceeds are used to reduce debt and buy back units, the distribution per unit accretion is projected at 0.4 per cent.
CLCT’s manager views the transaction as a key step in realising value from a mature asset, while continuing to maintain exposure to China’s retail sector through its stake in CLCR. The move is also expected to strengthen its balance sheet, potentially reducing aggregate leverage from 42.6 per cent to 41.4 per cent.
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In addition to improving financial flexibility – through the use of the proceeds for debt repayment, unit buybacks or working capital – CLCT’s participation in CLCR gives it a new platform for future asset recycling, as well as access to China’s onshore capital markets and a broader investor base.
The manager also noted that the C-Reit market in China has been gaining momentum.
“As at Jun 10, there are currently 66 listed C-Reits with total market capitalisation of approximately 201.7 billion yuan.”
This is due to the Chinese government ramping up efforts to boost consumer spending. Consumption-related C-Reits have achieved strong post-IPO average unit price increases of more than 50 per cent, demonstrating the potential for capital appreciation, added the manager.
As at 9.53 am on Thursday, units of CLCT were flat at S$0.695.
