CapitaLand Sells 3 China Shopping Malls to REIT for $430M

CapitaLand has entered into an agreement to offload three mainland community malls to CapitaLand Retail China Trust (CRCT) for RMB 2.96 billion ($430 million), according to an announcement to the Singapore stock exchange.

This is the second divestment of China retail assets by Singapore’s largest developer within three months, following a March sale of a closed mall in Wuhu.

The disposal of the trio of shopping centres in China – two in the Heilongjiang provincial capital in Harbin and another in the Hunan capital of Changsha – will generate a net gain of about S$37.6 million ($27.54 million) for the developer and unlock S$239.9 million for reinvestment.

“Asset recycling is a key part of CapitaLand’s strategy to enhance returns and rejuvenate our portfolio,” said Lucas Loh, president and chief executive officer of CapitaLand China, with the transaction expected to be completed in the third quarter of this year following approval by CRCT unitholders.

Under the terms of the deal, CRCT will acquire a 100 percent interest in each of the three CapitaLand units that currently hold the malls, based on values negotiated on a willing buyer and willing seller basis.

S$3.8B Shopping Mall Portfolio

“This is a strategic acquisition that will position CRCT for growth,” said Soh Kim Soon, chairman of CapitaLand Retail China Trust Management, which manages the trust.

The acquisition will boost the trust’s portfolio value by 18.6 percent to S$3.8 billion, as well as enlarging its footprint over 30 percent in terms of gross floor area, to around 950,000 square metres across 14 shopping malls in China.

Soon said in today’s announcement that the implied net property income yield of six percent for the target properties. ”offers a rare opportunity for CRCT to acquire three established malls in two fast-growing provincial capital cities.”  The yield for CRCT’s existing portfolio is 5.7 percent.

CapitaLand Banking on Growth

CapitaLand, which will continue to manage the three multi-tenanted malls, said that it will continue to benefit from the malls’ yields, while remaining committed to their future growth through its stake in the trust.

“Located near transportation hubs and serving large population catchments, CapitaMall Xuefu, CapitaMall Aidemengdun and CapitaMall Yuhuating are quality and mature assets that registered compound annual growth rates of 6.5 percent, 8.7 percent and 6.3 percent in tenants’ sales between 2016 and 2018 respectively,” said Tan Tze Wooi, chief executive officer of CapitaLand Retail China Trust Management.

Seven-year-old CapitaMall Xuefu, which has a gross rentable area of 104,294 square metres and connects directly with the Harbin metro, includes BHG Supermarket, CGV Cinema, and H&M as anchor tenants. Its occupancy rate at March 31 was 98.6 percent.

Nike, Adidas and Watsons are among the international brands leasing space in the other Harbin mall tabled for acquisition, CapitaMall Aidemengdun, which has 43,394 square metres of gross rentable area, and an occupancy rate of 98.6 percent.

The oldest mall of the trio, CapitaMall Yuhuating in Changsha, which is now 14 years-old and boasts Starbucks and Uniqlo among its occupiers, has a gross rentable area of 62,080 square metres and an occupancy rate of 98.1 percent.

An agency analyst familiar with China’s retail real estate environment explained to Mingtiandi that, given the slow growth of the retail market in the northeast of China, it would be a challenge to retain the high rental levels at CapitaMall Aidemengdun in Harbin, while the aging CapitaMall Yuhuating in Changsha needs to be updated in order to survive, due to its location in a traditional commercial area with few new properties.

CapitaLand Still Interested in Retail

The proposed divestment comes just three months after the Singapore giant, which will see its assets under management exceed $85 billion following its acquisition of Ascendas-Singbridge, entered into an agreement with an unrelated third party to divest a shuttered mall in Wuhu for RMB 210 million.

The five-storey CapitaMall Wuhu, in China’s Anhui province, had been closed since the second half of last year following the departure of its anchor tenant.

A year and a half ago, the developer added a mainland mall to its collection when CapitaLand Mall Asia and CapitaLand Retail China Trust (CRCT) partnered up to buy a 83,591 square metre mall in for RMB 3.36 billion in the southern Chinese mega-city of Guangzhou.

CapitaLand announced its commitment to ramping up its retail presence in Asia at the end of 2016, promising to add one million square metres of new retail space in China, Malaysia, and India by the end of 2017, a goal which it achieve in part by adding six malls in China equating to 852,000 square metres of gross floor area over the period.