Top homebuilder China Vanke and its commercial property platform SCP Group (SCPG) have entered a deal to buy a portfolio of 20 mainland shopping malls from Singapore’s CapitaLand for RMB 8.37 billion ($1.3 billion). The two parties are teaming up with Triwater Asset Management Holdings to acquire the malls’ project companies and debt from CapitaLand unit CapitaMall, SCPG announced on Friday.
The assets changing hands are spread across 19 mostly lower-tier cities in China and cover a total gross floor area of 884,000 square metres, averaging 40,000 square metres each. The purchase will expand SCPG’s retail portfolio to 120 malls, as Vanke, China’s third-largest developer by sales in 2017, ramps up its commercial real estate footprint.
CapitaLand said it expects to reap net proceeds of about S$660 million ($497 million) and a net gain of around S$75 million ($56 million) from the transaction, which awaits regulatory approval and is targetted for completion in the second quarter of the year. Southeast Asia’s largest developer says the deal will allow it to sharpen its focus on core metropolitan areas on the mainland, including Beijing and Shanghai. CapitaLand last year launched a flurry of new retail properties in key Chinese cities last year, as well as spending $511 million to acquire a mall in Guangzhou last November.
Vanke’s partner in the acquisition, Triwater, is said to be a subsidiary of mainland private equity firm Hopu Investment Management, which joined the developer in the purchase of Singapore’s Global Logistic Properties (GLP) last year.
Vanke Bets Big on Provincial Retail Markets
“As China’s urbanisation accelerates and demand for a better living standard grows, we are very optimistic about the value of the commercial property market,” commented Leo Ding, chairman and CEO of SCPG and senior vice president of Vanke in the statement.
SCPG plans to upgrade and reposition the CapitaMall-branded properties, which are scattered across the country in Guangdong province (Dongguan, Foshan, Maoming, Zhanjiang, and Zhaoqing); Hunan province (Yiyang); Jiangxi province (Nanchang); Fujian province (Quanzhou and Zhangzhou); Jiangsu province (Yangzhou); Henan province (Anyang and Zhengzhou); Shandong province (Weifang and Zibo); and Sichuan province (Chengdu, Deyang and Yibin); as well as Beijing and Chongqing.
Most of the malls were co-developed with CapitaLand. Following the deal, SCPG now holds or manages 120 commercial projects across China, spanning 10 million square metres, and has more than RMB 80 billion ($12.3 billion) of assets under management across 58 cities, according to the statement.
Vanke joined with unnamed partners to acquire SCPG (SZITIC Commercial Property Co) from US private equity giant Blackstone in September 2016, contributing about $583 million of its funds to the $1.9 billion deal. Blackstone in 2013 had picked up a 40 percent stake in SCPG, at the time an owner of mid-sized community shopping malls.
CapitaLand Levels Up Its China Mall Portfolio
“We will continue to invest in dominant assets in core Chinese city clusters, where we already enjoy a competitive advantage,” commented Lim Ming Yan, President and Group CEO of CapitaLand Limited in a separate statement on the deal. “The rejuvenated portfolio will enable CapitaLand to respond more effectively to the paradigm shifts in Chinese consumer behaviours, and strengthen our position as we continue to tap the growth in China’s rapid urbanisation.”
The 20 malls CapitaLand is selling account for about four percent of its total shopping mall portfolio and seven percent of its China retail footprint as of last June. The divestment will shrink the company’s China mall platform from 36 to 22 cities, allowing CapitaLand to concentrate on larger assets in prime urban centres.
CapitaLand expects its net property income from China malls to grow in 2018 even after the disposal, due to strong yields from the six malls it opened last year and the recent acquisition of the 84,000 square metre Rock Square in Guangzhou. In another move to optimise its portfolio, CapitaLand says it shed a mall in the Shanghai satellite city of Kunshan last month.
The Singapore-listed firm opened retail developments in Shenzhen, Shanghai, Hangzhou, Suzhou and Wuhan last year. The properties have an average floor area of 130,000 square metres and include the 300,000 square metre Suzhou Center Mall, CapitaLand’s largest-ever shopping centre, which was launched in November.