CapitaLand on June 11 announced that its subsidiary and associated companies have entered into an agreement with CapitaLand Retail China Trust (CRCT) to divest their interests in three companies that hold three malls in China – CapitaMall Xuefu and CapitaMall Aidemengdun in Harbin and CapitaMall Yuhuating in Changsha.
The divestment of the three companies is based on an agreed value of RMB2,960 million (about S$589.2 million) for the three malls held by the companies.
The agreed value was negotiated on a willing-buyer and willing-seller basis. The sale will generate for CapitaLand proceeds of about S$239.9 million and a net gain of about S$37.6 million.
The transaction, which is conditional upon CRCT unitholders’ approval, is expected to be completed in 3Q 2019.
Mr Lucas Loh, President & CEO of China, CapitaLand Group, said: “Asset recycling is a key part of CapitaLand’s strategy to enhance returns and rejuvenate our portfolio. The sale of CapitaMall Xuefu, CapitaMall Aidemengdun and CapitaMall Yuhuating to CRCT allows us to realise their property investment value and unlock capital for reinvestment.”
“Post divestment, we will continue to benefit from the malls’ strong and steady yields and participate in their future growth through CapitaLand’s stake in CRCT. The malls will also continue to be managed by CapitaLand. We remain confident in the retail prospects of Harbin and Changsha, which are fast-growing provincial capital cities with favourable long-term outlook. As the sponsor of CRCT, CapitaLand is positive on the impact that the proposed transaction will have on CRCT in terms of rejuvenating its portfolio and strengthening its foundation for growth.”
In support of CRCT, CapitaLand has indicated it intends to take up its pro-rata entitlement, should relevant equity fund raising be included as part of the funding for CRCT to acquire the three companies. As at the date of announcement, CapitaLand owns approximately 38.04% of CRCT’s units, including its indirect interests in CapitaLand Mall Trust, which owns about 12.29% in CRCT.
With a total gross floor area (GFA) of 248,282 square metres (sq m), the three multi-tenanted malls with established anchor tenants and specialty retail mix will expand CRCT’s portfolio GFA by 30.7% and boost the number of leases in its portfolio by 52% – thereby enhancing CRCT’s portfolio diversification and creating new synergies among its multi-tenanted malls.
At 99.0%, the occupancy of the three malls is well above the market average, reflecting their popularity with retailers and entrenched market leadership.
Mr Soh Kim Soon, Chairman of CRCTML, said: “This is a strategic acquisition that will position CRCT for growth. With an attractive implied net property income (NPI) yield of 6.0%, higher than CRCT’s existing portfolio NPI yield of 5.7%, the proposed transaction offers a rare opportunity for CRCT to acquire three established malls in two fast-growing provincial capital cities. Post-acquisition, CRCT’s enlarged portfolio will comprise 14 shopping malls, up from the current 11, providing it with a larger footprint and scale to create portfolio synergies. CRCT’s portfolio size will grow by about 18.6% to S$3.8 billion, while NPI will enjoy an uplift of 22.8% to RMB959.3 million on a pro forma basis.”
Mr Tan Tze Wooi, CEO of CRCTML, said: “The proposed acquisition represents a continuation of CRCT’s reconstitution efforts starting 1Q 2019 to boost its portfolio mix, enhance income quality and add new growth drivers. It is in line with our acquisition growth strategy to create a quality portfolio of malls that caters to evolving aspirations and lifestyle needs of Chinese consumers.”
“Located near transportation hubs and serving large population catchments, CapitaMall Xuefu, CapitaMall Aidemengdun and CapitaMall Yuhuating are quality and mature assets that registered CAGR of 6.5%, 8.7% and 6.3% in tenants’ sales between 2016 and 2018 respectively. Well-established in their respective catchments, the malls have demonstrated resilient performance over the years through market cycles. Upon acquisition, they will add immediate strengths to CRCT’s portfolio, while offering significant scope for repositioning and asset enhancement in the next few years as anchor leases reach expiry.”
“The addition of these three assets will increase the contribution of multi-tenanted malls to CRCT’s portfolio gross revenue by 1.8% to 93.5%, while the maximum gross revenue contribution by the top two properties within CRCT’s portfolio will decrease from 44.9% to 36.0% on a pro forma basis. The accretive acquisition will rejuvenate and strengthen CRCT’s portfolio, consolidating its market leadership as the largest S-REIT focusing on China malls. As the only REIT focused on China malls in CapitaLand Group, CRCT is well-positioned to continue benefitting from its sponsor’s strong asset pipeline.”
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