Shui On Said Selling Corporate Avenue One to HK’s Link REIT for RMB 7.4B

Cash-strapped developer Shui On Land is said to be close to concluding a deal to sell the first phase of its Corporate Avenue commercial complex in Shanghai for RMB 7.4 billion ($1.19 billion).

The buyer of the prime real estate asset is reportedly Hong Kong’s Link REIT, and if confirmed, the acquisition would be the biggest yet for a mainland commercial property. The price record to date for a single property in China has been the $1.15 billion that China’s Bank of Communications paid to buy a Pudong office building from two companies controlled by Hong Kong billionaire Li Ka-shing in 2013.

Shui On has had the property, which is composed of a pair of office buildings next to its landmark Xintiandi development, on the market for several months as the company struggles to bail out its balance sheet in the face of slower sales and rising costs.

Nearing RMB 90,000 Per Square Metre

If Shui On’s sale of the 83,000 square metre office building is confirmed, it would mean that the Link REIT is paying over RMB 89,000 per square metre for the commercial real estate asset. The rate per square metre for the fully occupied project in Shanghai’s Huangpu district is significantly more than the RMB 65,000 per square metre that Li Ka-shing’s Hutchison Whampoa and Cheung Kong Holdings received when they sold the Oriental Financial Center to the Bank of Communications two years ago.

The impending sale was first reported by mainland news outlet, thepaper.cn yesterday, citing sources close to the deal. In response to the report, Shui On Land issued a statement noting that, “The Company is in discussions with potential purchasers in relation to the Possible Disposals but no legally binding agreement has been entered into by the Company and its subsidiaries with any person or entity to consummate the Possible Disposals.”

Inquiries by Mingtiandi to Shui On and Link REIT were not responded to in time for publication. The potential sale of a Shanghai commercial complex to Blackstone which was reported in thepaper.cn in late May has yet to have been confirmed by the parties involved.

According to figures from Cushman & Wakefield office rentals at Corporate Avenue phase one currently average around RMB 12 per square metre per day, and the building is fully occupied. The property consultancy rates the building as among the top performing office properties in Shanghai.

The art deco-inspired complex is home to high profile multinationals such as PricewaterhouseCoopers, whose name emblazons one of the two buildings in Corporate Avenue One. The complex was completed in 2004, soon after Shui On changed the face of Shanghai’s downtown with its Xintiandi project.

Shui On Selling Most Its Assets Surrounding Xintiandi

Should the sale succeed, it will be the latest in a string of asset disposals and share sales for Shui On, which once figured among the most prominent real estate developers on the mainland.

In late May Shui On Group subsidiary SOCAM sold the Four Seasons Hotel in Pudong to local Chinese developer BM Holdings for RMB2.3 billion ($371 million). During the same month, SOCAM sold off its stake in a cement joint venture for HK$2.55 billion ($329 million).

In a press conference in May, Shui On chairman Vincent Lo said that the company is also trying to sell the third phase of Corporate Avenue in Shanghai, as part of efforts to raise RMB 10 billion ($1.6 billion) through asset disposals.

Already in 2013, Shui On had sold one of the two buildings in phase two of Corporate Avenue to China Life Insurance for RMB 3.32 billion ($545 million), as part of an earlier series of asset sales.

In August last year Shui On sold two Shanghai hotels near Xintiandi for a total of RMB 2.7 billion ($439 million) to Hong Kong-listed developer Great Eagle Holdings, which is controlled by Lo’s older brother and other family members. Should the sale of Corporate Avenue phase one go through, the developer will now have sold off a majority of its assets surrounding the iconic Xintiandi retail and entertainment complex.

While Shui On’s stock price has recovered by just under nine percent since the beginning of the year, the company is still working its way out from a debt burden incurred as it suffered longer than expected delays in bringing new residential projects to market and encountered weaker than expected new sales during China’s year-long housing slump.

Link REIT Hoping for Second China Deal

For the Link REIT, Corporate Avenue would be only its second acquisition of an asset on China’s mainland.

In March of this year the REIT, which is Asia’s largest in terms of market capitalisation, acquired a Beijing shopping mall for RMB2.5 billion (US$403 million) as its first mainland asset.

By the end of 2014 the Link REIT already had invested in more than one million square metres of retail space in Asia, but earlier this year the Hong Kong-based trust suspended plans to acquire a Shenzhen mall from China Vanke after failing to agree on terms with the mainland developer.