SINGAPORE (June 11): CapitaLand Retail China Trust (CRCT) is acquiring three malls in China from sponsor CapitaLand.  

The three malls are CapitaMall Xuefu and CapitaMall Aidemengdun in Harbin and CapitaMall Yuhuating in Changsha.

CapitaLand Retail China Trust Management Limited (CRCTML), the manager of CapitaLand Retail China Trust (CRCT), entered into an agreement with a subsidiary and associated companies of CapitaLand to acquire 100% interests in three companies that hold three malls in China.

With a total gross floor area (GFA) of 248,282 sqm, 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%.

CRCTML says the accretive acquisition will diversify CRCT’s footprint in China from eight cities to 10 and enable it to gain exposure to two rising provincial capital cities with strong economic fundamentals and long-term growth potential, namely Harbin in Heilongjiang Province, north China and Changsha in Hunan Province, central China.

The acquisition of the three companies is based on an agreed value of RMB2,960 million ($589.2 million) for the three malls held by the companies. CRCT’s total acquisition outlay is estimated at $505.4 million, subject to post-completion adjustments.

For CapitaLand, the sale will generate proceeds of about $239.9 million and a net gain of $37.6 million.

CRCT intends to finance the proposed acquisition via a combination of debt and equity. The financing plan details will be decided at a later date.

The transaction, which is conditional upon CRCT unitholders’ approval at an extraordinary general meeting, is expected to be completed in 3Q19.

At 99%, the occupancy of the three malls is well above the market average, reflecting their popularity with retailers and entrenched market leadership, says CRCTML.

Soh Kim Soon, Chairman of CRCTML, says: “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 $3.8 billion, while NPI will enjoy an uplift of 22.8% to RMB959.3 million4 on a pro forma basis.”

Tan Tze Wooi, CEO of CRCTML, says, “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.”

“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.”