Mitsui Buys 45% of Ascendas-Singbridge Shanghai Assets

Singapore’s Ascendas-Singbridge announced on Thursday that it has inked a deal with Mitsui & Co to sell 45 percent of its Ascendas Innovation Place and Ascendas Plaza projects in Shanghai to the Japanese conglomerate.

Mitsui acquired its stake in the two projects for around JPY 18 billion ($162.2 million), according to Japanese financial research provider DZH Financial Research. Sources at Ascendas-Singbridge disputed the reported figure, but were unable to comment directly on the valuation due to confidentiality reasons.

The transaction gives Mitsui a minority stake in a pair of recently upgraded Shanghai office assets at a time when more foreign capital is entering the mainland commercial real estate market and allows Ascendas-Singbridge to recycle capital from its China portfolio.

Signing a Shanghai Partnership

Under the deal, phrased as a 55:45 partnership in an Ascendas-Singbridge statement, the companies will collaborate to upgrade both buildings, and “work closely together on areas like leasing and investment.”

The price per square metre of the space is below the Grade A averages for Xuhui and Huangpu districts (where the buildings are located), where assets have hovered around RMB 50,000 to 80,000 ($7,379-11,807)  per square metre respectively in recent years, according to James Shepherd, managing director and head of research for Greater China at Cushman & Wakefield.

At the valuation claimed in the Japanese account, the sale would indicate an average per square metre price of $5,232.50 (RMB 35,400) for the two properties, although DZH account did not indicate if Mitsui would also be taking on responsibility for any debt associated with the projects.

He Jihong, Chief Investment Officer of Ascendas-Singbridge Group, said the office transaction would position the company “to capture the growing demand for modern, quality workspaces in China.” The transaction comes a month after CapitaLand announced it would acquire Ascendas-Singbridge from state-owned Temasek in a S$11 billion transaction.

Huangpu Innovation Place

In purchasing a stake in Ascendas Innovation Place, Mitsui gets a foothold in the 24,883 square metre tower located at 686 Jiujiang Road, close to People’s Square. Ascendas had acquired the 14-storey asset in March of 2017 for a reported $195 million from AEW Capital Management.

The Singaporean group had officially reopened the building in November 2018, after renovating it to include Ascendas-Singbridge Group’s flexible workspace offering, thebridge, along with upgrades to the facade and public areas that lead to the building’s conventional office spaces.

Occupancy rates in the 2004-vintage office building, which is home to tenants including Walt Disney and financial advisory firm Mercer, averaged 80 percent in the fourth quarter of 2018, according to data from the research division of Savills, roughly on par with the 81 percent average in the traditional Huangpu district submarket.

Average rents for mid-zone floors in the building were roughly RMB 8.5 to RMB 9 per square metre per day, slightly lower than the RMB 9.9 per square metre asking rate for grade A office space in the area, according to Savills.

Huangpu is becoming an office hotspot in Shanghai as tight commercial supply suggests rentals will remain relatively firm over the coming years, according to C&W’s Shepherd. Approximately 780,729 square metres of space (about 50 percent of the current total) will be added to the district in the next five years through five major projects, he added.

Xujiahui’s Ascendas Plaza

Ascendas Plaza, which serves as Ascendas-Singbridge Group’s China headquarters, is located on Tianyaoqiao Road in the Xujiahui commercial hub, and is expected to complete renovations which will add co-working space and additional commercial facilities to the 14-year-old building in the second quarter of this year.

At the end of last year, the 30-storey Grade A building posted a 97 percent occupancy rate — two percentage points above the average for Xujiahui, with tenants including German cookware maker Fissler, according to Savills.

Average asking rents in the 44,000 square metre building range from RMB 7.5 to 8.5 per square metre per day — lower than the RMB 10.2 average rate for Xujiahui, according to Cushman & Wakefield data.

Within the next four years, two phases of Sun Hung Kai’s ITC project will add 350,000 square metres of office space to Xujiahui, which is equivalent to 68 percent of the current total, according to Cushman & Wakefield’s Shepherd. “The launch of further high quality product is likely to cause office rentals to trend upwards in this district,” he added.

Building on a Mitsui Relationship

This Shanghai deal will be the fourth cooperation between Mitsui and Ascendas-Singbridge, and the first since the CapitaLand acquisition.

The two companies began working together as far back as 2012, when they joined to develop the 67,490 square-metre Fusionopolis Phase 5 in Singapore. Since then, they have joined hands to develop the Nusajaya Tech Park in Malaysia, and to redevelop 79 Robinson Road in Singapore’s CBD, a project they announced in March of 2017.

“Ascendas-Singbridge Group and Mitsui share many similarities in our investment and operational philosophy in real estate sector,” said Ascendas-Singbridge’s He.

Huangpu Opens Up to Foreign Players

Ascendas-Singbridge’s partial divestiture of its Shanghai office towers, comes less than three months after Gaw Capital Partners purchased the 50,219 square metre Ocean Towers office building in Huangpu for RMB 3 billion, signaling a growing demand from foreign investors for grade A assets in the area.

Huangpu has always been a sought-after office market, said Cushman & Wakefield’s Shepherd, “but in recent years foreign investors have struggled to deploy capital there in the face of aggressive local competition and due to a lack of tradable product or buildings that are genuinely available for sale.”

A tighter lending environment in China, however, has created a more even playing field for foreign investors and “created some excellent opportunities” for them, according to the veteran analyst.