CapitaLand, through its associates, has entered into agreements to divest its share of interest in the companies which hold five business park properties and Rock Square mall in China to CapitaLand Retail China Trust (CRCT).

CapitaLand’s effective stake comprises a 23% interest in Ascendas Xinsu Portfolio, Ascendas Innovation Towers and Ascendas Innovation Hub, an 80% interest in Singapore-Hangzhou Science & Technology Park Phase I and Phase II, and a 49% interest in Rock Square.

The agreed value of the properties amounts to some RMB8.13 billion ($1.65 billion), which represents a 2.9% premium to CapitaLand’s valuation in December 2019.

The proposed divestment, which is subject to the approval of CRCT’s unitholders, is expected to be completed by 1QFY2021.

Upon the completion of the divestment, CapitaLand is expected to receive proceeds of about S$541.7 million and realise an estimated gain of S$35.6 million. ACBPF 4, managed by CapitaLand, will draw to a close after fully divesting all its assets.

Upon CRCT’s acquisition of the properties, CapitaLand will enter into a 49:51 joint venture with the former on Ascendas Xinsu Portfolio at an agreed property value of RMB2.27 billion on a 100% basis.

The divestment is done in view of the redevelopment potential of the site and is in line with CapitaLand’s overall strategy to continue investing in business parks with development or redevelopment potential, says the group in an SGX filing on Nov 6.

Ascendas Xinsu Portfolio comprises six locations with 61 buildings, including business parks and an industrial portion in Suzhou Industrial Park. The portfolio has a total gross floor area (GFA) of 373,334 sqm.

The acquisition follows the recent expansion of CRCT’s investment mandate to cover multi-assets used primarily for retail, office and industrial use. The transaction is based on an agreed property value of RMB4.95 billion ($1.01 billion) with an implied net property income (NPI) yield of 5.8%, representing a discount of approximately 1.3% and 1.4% to the valuations by independent valuers appointed by HSBC Institutional Trust Services.

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CRCT says it intends to finance the acquisition through a mix of debt, equity and hybrid securities which will result in distribution per unit (DPU) accretion.

“The proposed divestment of the five business park properties in China to CRCT is the latest illustration of the robust asset pipeline and value creation opportunities arising from CapitaLand’s combination with Ascendas-Singbridge last year. Recycling these quality assets into CRCT will enable CapitaLand to unlock capital, realise development profits and tap recurring yield through our fund management platform,” says Lee Chee Koon, group CEO of the CapitaLand Group.

“As the largest unitholder of CRCT, CapitaLand is confident that the transaction will propel CRCT onto a higher growth trajectory as the largest China-focused real estate investment trust (REIT) in Singapore with investments across retail, business park and industrial assets.”

“This dovetails with our commitment to support the long-term growth and continual success of CapitaLand-sponsored REITs. Moving forward, CapitaLand will continue to participate in the growth of the five business park properties and Rock Square mall through our stake in CRCT. We will also continue to receive recurring income from leveraging our operational expertise to manage the properties,” Lee adds.

“Benefiting from strategic policy support, Chinese business park properties aligned with the government’s economic growth initiatives have demonstrated resilience and strong market performance over the years,” says Soh Kim Soon, chairman of CRCT’s manager.

“The acquisition is thus strategic and timely, enabling CRCT’s foray into China’s highly resilient business park sector at an attractive valuation. This will pave the way to enhance CRCT’s long-term resilience, diversification and growth,” Soh adds.

As at Nov 6, CapitaLand has a deemed interest of some 36.23% in CRCT, making this an interested person transaction.

Shares in CapitaLand and units in CRCT closed $2.63 and $1.26 respectively on Nov 5.