Beijing-based China Fortune Land Development (CFLD) announced that it has agreed to sell a Beijing commercial project to Ping An Insurance for a consideration of RMB 5.829 billion ($830 million) as the developer shifts toward an asset light approach in concert with its second largest shareholder.
In a filing to the Shanghai Stock Exchange on 17 August, CFLD said that, under the terms of the agreement, it will sell 100 percent of the equity in the project in the Lize Financial Business District in southern Beijing, along with associated debts, to Ping An, giving the financial services firm rights to a 21,103 square metre site.
The deal calls for CFLD to develop a commercial building of up to 155,000 square metres on the plot between the west Second and Third Ring Roads in Fengtai district, which the developer will also operate and manage following completion.
CFLD Becomes Developer for Hire
According to the deal terms, Ping An will be paying RMB 5.387 billion of the compensation for the target project in equity while taking on another RMB 442 million in debt.
In developing the commercial tower, CFLD has ensured that post-development expenses will not exceed a maximum of RMB 1.525 billion, with with the post-development expenses to be provided by Ping An to the developer in the form of a shareholder loan with the builder to be responsible for any costs in excess of the loan amount.
Ping An has also agreed to pay CFLD for developing and managing the project, which includes a fixed fee and performance incentive.
In its statement, CFLD, which is best known for developing industrial townships, called the agreement with Ping An its first attempt to explore development as a service and said the deal is in line with the company’s efforts to explore “new sectors, new models and new territory.”
In a briefing with analysts earlier this year, CFLD’s company secretary, Lin Chenghong, had anticipated this month’s agreement with Ping An as a way for the company to continue to grow while limiting its capital expenditures.
“With CFLD already holding some large projects which are still in the early stages of development, we will focus on a light asset model which will neither affect the group’s cash flow nor have any conflict with CFLD’s investment in industrial townships,” Lin said at the time.
Supporting an Emerging Finance Hub
Occupying a 4.36 square kilometer section of Fengtai district, Beijing’s Lize Financial Business District is an emerging financial development zone about five kilometres south of the Financial Street commercial hub in China’s capital.
The district has been envisioned by the Beijing government as a transportation node, leveraging the zone’s proximity to the Beijing West railway station around six kilometres to its north west, and the Beijing South railway station seven kilometres to its east.
Beijing’s metro line 10 passes through the west of the district while the east-west routed line 14, which is due to be completed this year, set to serve the district, along with the planned line 16.
CFLD Sales Fall in 2019
The income from the project sale could relieve some pressure on CFLD, which has faced a challenging 2019.
In the first half of this year, the developer recorded sales revenue of RMB 64 billion, representing a 22.42 percent decrease year on year and bringing the developer down to the 22nd position among China’s top 100 developers from the number 11 spot that the company held during 2018.
CFLD spent RMB 5.928 billion in land acquisition in the first six months of this year and the group said recently that it does not plan to spend more than RMB 20 billion on land purchases in the second half of the year.
In February, Ping An Group increased its stake in CFLD to 25.25 percent, less than seven months after it acquired nearly one fifth of the developer to become its second largest shareholder.
CFLD founder and CEO Wang Wenxue said last year that, armed with Ping An’s ample cash reserves and some fresh leadership from the insurer, the company aims to join the ranks of China’s top three developers, and is ready to venture beyond its traditional specialty in building industrial townships.