CapitaLand Selling Stakes in $7.2B China Raffles City Portfolio to Ping An

Singapore’s CapitaLand has agreed to sell partial stakes in six of the nine mixed-use Raffles City developments in China to mainland insurance giant Ping An, as Southeast Asia’s largest developer and the region’s second-largest fund manager continues to turn its focus to assets serving the tech economy.

The developer expects to collect net proceeds from its sale of the stakes — which include slices of combined retail, office and residential projects in Shanghai, Beijing, Hangzhou, Ningbo and Chengdu — of more than S$2 billion ($1.5 billion), CapitaLand said Monday in a release. Post-transaction, the developer will retain effective stakes ranging from 12.6 to 30 percent in each asset.

“We are pleased to welcome Ping An as a strategic partner on board our established Raffles City platform,” said CapitaLand group CEO Lee Chee Koon. “CapitaLand will continue to hold stakes in and provide asset management services for these six Raffles City developments.”

The total value of the portfolio is RMB 46.7 billion ($7.2 billion), with the Canada Pension Plan Investment Board announcing on Monday that it expects to generate net proceeds of C$800 million ($650 million) from the same sale. CPPIB has been a key partner in CapitaLand’s Raffles City investment funds, which backed the mixed-use portfolio.

“We first invested in Raffles City China shortly after we opened our Hong Kong office in 2008,” said Guy Fulton, head of real estate for Greater China at CPPIB. “As China’s economy and real estate market expand and mature, this is an ideal time to monetise the investment for other opportunities in the country.”

Selling Out of the Centre City

CapitaLand currently has a 45 percent stake in a joint venture that serves as the holding entity for Raffles City Changning in western Shanghai, and a 55 percent stake in Raffles City China Income Ventures Ltd, the holding entity for the other five properties. Unrelated third parties hold the remaining ownership in the 1.15 million square metre (12.3 million square foot) portfolio, the company said in a filing with the Singapore Exchange.

The properties in the sale are a set of centre-city developments, including Raffles City Shanghai and Changning in China’s commercial capital, Raffles City Beijing and Raffles City Chengdu, as well as Raffles City Hangzhou and Ningbo in eastern China’s Zhejiang province.

By valuation, the assets consist of 48 percent office, 47 percent retail and 6 percent lodging, with both Raffles City Hangzhou and Beijing including rental residential components. The newest of the properties, Raffles City Hangzhou, was completed in phases in 2017 and 2018, with Raffles City Shanghai ranking as the oldest after having been brought to market in 2003.

The divestment will leave CapitaLand with a 12.6 percent stake in the 139,593 square metre Raffles City Shanghai, a 25 percent stake in Raffles City Changning and a 30 percent stake in each of the other four assets.

Portfolio Rejig

The sale is part of an ongoing portfolio reconstitution that involves a pivot away from some of CapitaLand’s ageing retail and office holdings and towards new-economy asset classes, with the company having declared last November that it would more than triple its holdings in these areas to over $1.1 billion during the next few years.

In its presentation explaining the Raffles City divestment, CapitaLand said the asset sale was a continuation of that shift to tech-charged holdings, with the company referencing its $560 million purchase in April of a four-building data centre campus in Shanghai’s Minhang district as part of that transformation.

In October, CapitaLand had broadened the remit for its CapitaLand Retail China Trust (CRCT) to include industrial and business park properties, with that Singapore-listed REIT following up in early November by acquiring a set of China tech park assets.

Fund Management Future

For now, CapitaLand is maintaining its level of shareholding in the remaining three Raffles City projects in China, the oldest of which dates to 2017.

In addition to its wholly owned Raffles City Chongqing, the developer holds a 20.8 percent stake in Raffles City The Bund and a 30.4 percent stake in Raffles City Shenzhen through Raffles City China Investment Partners III, a private fund in which CPPIB had invested $375 million for a 25 percent stake at the vehicle’s launch.

Under a restructuring announced in March, CapitaLand is seeking to boost investment returns by listing its capital-efficient, fee-generating investment management unit and privatising its capital-intensive, slower-moving development business.

The new approach is transforming the Temasek Holdings-controlled conglomerate from a property developer with an investment management arm to an investment manager with a closely held development component.

Raffles City Chongqing will be an asset under privatised CapitaLand Development once the restructuring is complete, according to Monday’s stock exchange filing.

Lee said CapitaLand’s recent registration as a private equity fund manager in China would enable RMB-denominated capital raising and allow the company to provide fund management services in the country.

“With multiple recycling vehicles and strategies, as well as diverse capital sources, we are confident of our next stage of growth as an asset-light, capital-efficient global real estate investment manager with a focus in Asia,” the group CEO said.

The completion of the Raffles City stake sales will bring CapitaLand’s year-to-date gross divestment to S$11.2 billion, he said, or more than three times the full-year divestment target of S$3 billion.

Note: This story has been updated to clarify that $7.2 billion is the value of the six properties involved in the portfolio, with CapitaLand expecting to realise $1.5 billion in proceeds from its stake sale. Mingtiandi regrets the error.