Mall S-REIT Ventures Into Chinese Office Properties

CHINA – Singapore-listed CapitaLand Retail China Trust (CRCT) is acquiring 5 business parks across 3 tier-two cities in China, as well as the remaining 49 percent stake it doesn’t already own in Rock Square mall in Guangzhou for a total of RMB4.95 billion (approx. S$1 billion), according to a Singapore Exchange (SGX) filing released on Friday evening (6 November, SGT).

This represents CRCT’s biggest acquisition to date, and is strategic as China is the first major economy to recover from the effects of the COVID-19 pandemic, said the trust’s manager, CapitaLand Retail China Trust Management Ltd.

The office acquisitions consist of a 100 percent stake in Ascendas Innovation Towers in Xi’an. This business park comes with 2 23-storey office towers with a 5-storey podium and 3-storey standalone building in Xi’an Software Park.

With a gross floor area (GFA) of 118,495 sq m and committed occupancy of 91.4 percent as of 30 September 2020, the commercial property’s tenants include Ping An, DHC, and Dahua. The site’s leasehold tenure is until February 2064.

Another Xi’an business park being purchased is an 80 percent interest in Ascendas Innovation Hub. This comes with 2 6-storey office towers within the heart of Xi’an Software Park.

With a GFA of 40,547 sq m and committed occupancy of 93.1 percent, the commercial property’s lessees include UnilC, Zhao Xin, and Credit Ease. The land’s tenure is until May 2051.

The 3rd and 4th business park being acquired is an 80 percent stake in both Phase I and Phase II of the Singapore-Hangzhou Science & Technology Park, an integrated business park in the Hangzhou Economic & Technological Development Area.

The 1st phase and 2nd phase has a GFA of 101,811 sq m and 130,261 sq m respectively, as well as committed occupancy of 93 percent and 93.7 percent. Tenants include Hangzhou Lelong Technology, Zhejiang Hebenye Enterprise Management, and Tao Da Group of Companies. Phase I and II’s land tenure is until September 2056 and July 2060.

Finally, the last business park being bought is a 51 percent interest in Ascendas Xinsu Portfolio, which consists of 6 locations with 61 buildings including business parks, and an industrial portion, all of which are situated in Suzhou Industrial Park.

The portfolio has a GFA of 373,334 sq m and committed occupancy of 90.3 percent. Occupants include Nexteer Automotive, TDK Electronics, and Beckman Coulter Laboratory Systems. The land tenure ranges from December 2046 to 2057.

The group of commercial properties have an implied net property income (NPI) yield of 5.8 percent. The assets, which collectively have a GFA of 852,727 sq m, are being acquired by CRCT at a discount of 1.3 percent and 1.4 percent based on valuations by CBRE and JLL.

The Ascendas Innovation Hub (100% stake) and Ascendas Innovation Towers (80% stake) are respectively valued at MB298 million and RMB759 million.

The 80 percent stake in both Phase I and Phase II of the Singapore-Hangzhou Science & Technology Park are valued at RMB641 million and RMB767 million.

Finally, the 51 percent stake in the Ascendas Xinsu Portfolio is valued at RMB2.3 billion.

CRCT plans to fund the commercial property acquisitions via a mix of debt, equity and hybrid securities. The transaction, which is subject to obtaining the approval of the trust’s unitholders, is anticipated to be completed by the first quarter of 2021.