Developer CapitaLand has entered a joint venture to buy part of a prime office building in Shanghai.
The block will be a seed asset for a value-add fund the firm is setting up "to invest in commercial real estate in key gateway cities in Asia", it announced yesterday.
The acquisition will immediately contribute to recurring income.
The 50:50 joint venture with an unrelated third party will acquire about 70 per cent of Pufa Tower for 2.75 billion yuan (S$546 million).
It will be CapitaLand's first office property in Shanghai's core central business district of Lujiazui in the Pudong New Area.
The deal will take the number of CapitaLand's owned or managed commercial properties in the Chinese financial capital to 21, spanning close to 1.9 million sqm in gross floor area (GFA).
Pufa Tower has 34 storeys and three basement-level car parks.
Once the acquisition is completed, CapitaLand and its joint venture partner will own levels eight to 19 and levels 21 to 32 with a total GFA of 41,773 sqm, as well as 61 carpark spaces 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 district has the highest office rents in the city, with increases expected over the next few years in view of a sharp decline in Pudong's office supply from 2019, said CapitaLand.
Mr Lucas Loh, CapitaLand's president for China and investment management, noted: "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... potential in enhancing its asset value by upgrading specifications, tenant mix and improving operational efficiencies."
Mr Loh added that tapping third-party equity, as in this deal, can 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."