SINGAPORE - CapitaLand has entered a 50:50 joint venture to acquire a prime office building in Shanghai as a seed asset for a value-add fund which CapitaLand is setting up "to invest in commercial real estate in key gateway cities in Asia", it announced on Monday morning (Jan 7).
The acquisition will immediately contribute to the group's recurring income.
The joint venture with an unrelated third party will acquire about 70 per cent of Pufa Tower for 2.75 billion yuan (S$546.3 million). The operational office property is CapitaLand's first office property in Shanghai's core central business district (CBD) of Lujiazui in Pudong New Area. The deal will take the number of CapitaLand's owned or managed commercial properties in Shanghai up to 21, spanning close to 1.9 million square metres (sq m) in gross floor area (GFA).
Pufa Tower is 34 storeys tall, with three basement car park levels. Post-transaction, CapitaLand and its joint venture partner will own levels eight to 19 and levels 21 to 32 with a total GFA of 41,773 sq m, as well as 61 car park lots with property title. Pufa Tower's ground floor lobby and refuge floor on level 20 are co-=owned with Shanghai Pudong Development Bank, which owns the rest of the building.
The Lujiazui CBD has the highest office rents in the city, with rents expected to continue trending upwards over the next few years in view of a sharp decline in Pudong's office supply from 2019, said CapitaLand.
Said its president for China and investment management, Lucas Loh: "Continual high demand for quality commercial properties in China's top tier cities, coupled with low supply, have made the renewal of ageing commercial assets a compelling investment strategy in these markets. Pufa Tower is a prime asset to be seeded into the commercial value-add fund we are raising."
"We see significant potential in enhancing its asset value by upgrading specifications, tenant mix and improving operational efficiencies," he added.
"By tapping on third party equity, we are driving capital efficiency to provide CapitaLand with the financial impetus to further accelerate our growth."
Pufa Tower has not had a major renovation since its completion in 2002, with the interior finishes offering "room for improvement", said CapitaLand China chief investment officer Puah Tze Shyang.
"After acquisition, we will focus on extracting greater value from the property through a comprehensive asset enhancement initiative."