CRCT proposes to buy five business parks, remaining stake in mall for 4.95b yuan

THE manager of CapitaLand Retail China Trust (CRCT) has proposed to buy five business park properties and the balance 49 per cent interest in its Rock Square mall asset for an agreed property value of about 4.95 billion yuan (S$1.01 billion) from related parties.

The five business park properties are located in Suzhou, Xian and Hangzhou, while Rock Square is located in Guangzhou, the real estate investment trust's (Reit) manager said in a bourse filing on Friday. This makes the proposed acquisition CRCT's largest to date.

Total acquisition cost is estimated at about S$822.4 million, subject to post-completion adjustments, said the Reit's manager.

CRCT is looking to acquire a 51 per cent interest in the Ascendas Xinsu portfolio in Suzhou. In Xian, it is proposing to buy an entire stake in Ascendas Innovation Towers and an 80 per cent interest in Ascendas Innovation Hub.

Meanwhile in Hangzhou, CRCT has proposed to acquire an 80 per cent interest in Singapore-Hangzhou Science & Technology Park (SHSTP) Phase I and an 80 per cent interest in SHSTP Phase II.

Speaking to the media and analysts at a briefing on Friday, Tan Tze Wooi, chief executive of the manager said that business parks in China are "strongly supported" by the country's economic growth initiatives, and stand to benefit from the preferential policy support anchored by national and local government initiatives.

He added that the demand-led growth that business parks will see, particularly in the strategic and value-added industries, along with the decentralisation trend among various enterprises towards China's Tier 2 cities - where the targets are located - provide the "impetus for a favourable outlook of business parks", noting that they are also supported by "excellent transport, infrastructure and connectivity".

On its Rock Square proposed investment, the manager said the mall has achieved double-digit positive rental reversions in 2018, 2019 and the year-to-date September 2020. It continues to demonstrate resilience post the Covid-19 lockdown, it added.

Having full ownership of Rock Square will allow CRCT to fully capture the upside from asset enhancement initiatives (AEIs). Ongoing AEIs are expected to create more than 1,000 square metres of net lettable area over the next two to three years.

CRCT intends to finance the acquisition through an optimal mix of debt, equity and hybrid securities which will result in distribution per unit accretion, the manager said. The proposed acquisition is expected to be completed by Q1 2021.

Subject to unitholders' approval at an extraordinary general meeting to be convened at a later date, CRCT's enlarged portfolio will consist of 18 properties, with its gross floor area increasing by 76 per cent to about 1.8 million square metres. Assets under management will uplift by 28.5 per cent to about S$4.5 billion, while net property income will grow substantially by 54.1 per cent on a pro forma H1 2020 basis, he added.

The business parks will contribute more than 40 per cent in gross floor area to CRCT's enlarged portfolio post-acquisition.

Relative to the overall business parks market - which has a vacancy of about 15 to 20 per cent, the properties that CRCT are acquiring have an occupancy rate of more than 90 per cent, demonstrating their strong position in the marketplace and ability to command demand, said Mr Tan.

While leasing activities, especially in the first half of the year, have slowed as a result of the Covid-19 pandemic, the manager is positive that CRCT will see a better operating environment going into 2021, he added.

That being said, divestments can also be expected for some of the Reit's less competitive assets in its portfolio.

Wuhan's CapitaMall Minzhongleyuan, for instance, could be a "potential candidate", said You Hong, head of investment and portfolio management of the manager.

In the long run, Mr Tan said CRCT is looking to position itself as a "well diversified China Reit play", which means moving away from being just a retail-centric Reit.

The business parks and industrial space - which are under the new economy sectors, are areas that the manager is interested to further look at in terms of opportunity, "both in-house and external".

As at 2pm on Friday, CRCT units were trading up S$0.01 or 0.79 per cent at S$1.27.