BHG Retail Reit to pay 328.3m yuan for China shopping centre, subject to unitholders' vote

BHG Retail Real Estate Investment Trust (BHG Retail Reit) is buying a mall in China that was indirectly owned by the parent of the Reit manager, in a deal inked on Monday and announced the next day.

The Reit will pay 328.3 million yuan (S$65.2 million) for Hefei Changjiangxilu Mall, to be funded through borrowings, with the manager noting that the proposed acquisition is expected to raise distribution per unit (DPU) for the enlarged portfolio.

According to pro forma financial effects provided for illustration, the acquisition could have nudged DPU up from 2.74 Singapore cents to 2.75 cents for the first half of 2018.

Reasons cited for the deal included the property's occupancy rate of 99.4 per cent, with a weighted average lase expiry of 2.6 years by gross rental income and five years by committed lettable area.

The mall has a net lettable area of 27,221.63 square metres (293,011 square feet) and a gross floor area of 48,003.09 sq m, with a net property income yield of 6 per cent in the first half of 2018 and 5.2 per cent for the full year in 2017, according to the manager's announcement.

The property in Hefei, in Anhui province, was completed in 2010 and the land use rights run out in 2043.

The manager said that the price tag offers "an attractive value proposition" at a discount to independent valuations by Knight Frank Petty, commissioned by the trustee, and Cushman & Wakefield, which it commissioned. It added that the mall would raise the Reit's exposure to the growing city of Hefei.

BHG Retail Reit will seek approval from unitholders for the transaction, as the mall's sponsor is an interested person and party of the Reit, said the manager.

The acquisition is expected to cost 348.4 million yuan in all, including an acquisition fee payable to the manager, as well as other fees and expenses involved in the transaction.