CRCT to buy five business parks, remaining stake in mall for $1.01 billion

Having full ownership of Rock Square will allow CRCT to fully capture the upside from asset enhancement initiatives.
Having full ownership of Rock Square will allow CRCT to fully capture the upside from asset enhancement initiatives.PHOTO: CAPITALAND

SINGAPORE (THE BUSINESS TIMES) - 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 ($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 (Nov 6).

Total acquisition cost is estimated at about $822.4 million, subject to post-completion adjustments.

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.

Tan Tze Wooi, chief executive of the manager said the acquisition is the Reit's largest to date and represents a transformative milestone in continuing efforts to diversify and strengthen CRCT's portfolio.

The manager said business parks in China's Tier 2 cities - where the targets are located - are registering high occupancy rates and strong rental growth, due to their increasingly attractive industrial environments as well as strong regional government support.

Thus, the proposed acquisition will allow CRCT to have exposure to these markets where it does not have a presence in. Moreover, the business parks are located in well-established industrial and high-tech zones near city centres and enjoy excellent connectivity with proximity to transportation hubs such as railway stations and airports.

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.

If completed, 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 $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.

CRCT units were trading flat at $1.26 as at 10.42am on Friday.