Soho China is said to be looking to sell a RMB 61 billion ($8.6 billion) portfolio of commercial properties in Beijing and Shanghai, with potential buyers including Blackstone and Singapore sovereign wealth fund GIC.
The portfolio is said to consist of the developer’s eight core commercial assets in the two cities, which includes the Zaha Hadid-designed Soho Galaxy in the Chinese capital.
The Beijing-based developer, which is helmed by husband and wife power-couple Pan Shiyi and Zhang Xin, is said to have packaged up an initial trio of assets valued at $3 billion – two in Beijing and one in Shanghai – which it is marketing to the US private equity giant and Singaporean sovereign wealth fund GIC, according to sources cited in Bloomberg and Caixin. A separate report in Sina.com indicated that the three properties are Guanghua Road Soho and tower three of the Zaha Hadid-designed Wangjing Soho in Beijing, along with Soho Fuxing Plaza, which was completed in Shanghai in 2015.
With Pan having declared in June his intention to shift to a build to sell model, Soho is reported to be planning to offload the other five assets within two years. Caixin indicated that a joint venture acquisition by Blackstone and GIC of two Soho projects in Beijing and a third in Shanghai is now in the final stages of talks, however, Mingtiandi has been informed that such a deal is not imminent.
In 2018 Soho had sold off two towers of Sky Soho in Shanghai for RMB 5 billion after finding a buyer to pay RMB 4.6 billion for Hongkou Soho in 2017. Just last month Soho had disposed of a portfolio of parking assets, including the underground space at Soho Galaxy, to a fund managed by LimeTree Capital for $761 million.
Blackstone declined to comment on the reported sale, while Soho China had not replied to an enquiry from Mingtiandi at the time of publication.
Soho Shifts Back to Selling
Soho China’s share price surged following the reports, rising from HK$2.30 on Wednesday afternoon to close at HK$2.71 on Thursday.
In a stock exchange announcement published on Thursday morning, Pan said that the company was not in a position to confirm any information that would need “to be announced in order to avoid the creation of a false market” in Soho China’s securities, while acknowledging that the developer has discussed potential transaction opportunities “from time to time” as part of its ordinary course of business.
Soho China has sold at least six of its properties within the last six years, including the RMB 3.2 billion Soho Century Plaza disposal in 2016, and its 2013 sale of two Hongkou district projects and a Jing An district site in Shanghai for a combined RMB 5.57 billion.
The move to offload its core assets indicates that Pan may be ramping up a shift in direction that he hinted at four months ago when he announced the company wanted to sell 20,000 square metres of office space in Beijing and Shanghai.
At that time, Pan said that the company, which has struggled to generate revenues from office leasing, was going to address an overlarge investment portfolio by shifting focus from investing in rent-yielding assets to a develop-and-sell approach.
The company’s profit dropped 59 percent last year to RMB 1.9 billion – from RMB 4.8 billion in 2017. For 2019, Soho’s profit for the first half of the year almost halved from last year, falling from RMB 1.1 billion to RMB 567 million, despite revenue growing by five percent.
Offering Buyers RMB 1.7B Rental Income
The eight properties in the developer’s core commercial portfolio – four each in Beijing and Shanghai – offer a combined leasable area of 693,403 square metres (7.5 million square feet).
The Beijing properties include the 200 metre tall landmark retail and commercial complex Wangjing Soho and a retail-focused development in tourist hotspot Qianmen Avenue.
The assets in Shanghai include another landmark building – the zig-zag shaped Gubei Soho designed by KPF, which was completed last year.
Located in the city’s Changning district, Gubei Soho comprises a 38 storey office tower and 12 storey retail podium, with a combined leasable area of 112,154 square metres.
Overall annual passing rent last year for the eight assets was RMB 1.74 billion, representing a 4 percent increase on the RMB 1.7 billion in 2017.
Occupancy rates at the end of June stood at an average of 94 percent in the developer’s Beijing properties and 81 percent in Shanghai, down from 98 percent and 94 percent respectively last year.
Should Pan and Zhang need to reach out to Blackstone as they market their office assets, they should have some high level contacts at the fund manager, with former Soho China president Yan Yan having joined Blackstone as a managing director during 2018.
If Soho China manages to find buyers for the eight properties, the potential owners may have to settle for acquiring not quite the whole package following the reported sale of the properties’ co-working spaces – dubbed Soho 3Q – to flexible space operator Dream Star this week.
Selling as the Market Softens
The move by the 24-year-old developer comes amid a downturn in the commercial market in mainland China that has seen offices commercial landlords in China’s major cities scrambling for tenants.
Property consultancy firm Cushman & Wakefield, in its third quarter report of 2019, said that vacancy rates in central Shanghai stood at 12.9 percent, up from 9.1 percent at the same point last year.
The citywide vacancy rate in the Beijing core market stood at 5.6 percent during the same period, up from 3.4 percent in the third quarter last year.
With 2.42 million square metres of new office supply due to be added to Beijing’s office stock in 2020 and six million square feet to be launched in Shanghai over the next three years, the property services firm predicted continuous pressure on the market in both cities.