CapitaMalls Asia to Acquire New Mall in China

Ser Jing - CapitaMalls Asia to Acquire New Mall in China (pic) Earlier this morning, retail mall developer and owner CapitaMalls Asia (SGX: JS8), a subsidiary of real-estate developer Capitaland (SGX: C31), announced that it had won a tender to acquire Grand Canyon Mall in the South of Beijing, China, subject to regulatory approval.

CapitaMalls Asia won the tender by offering a price of RMB1.74b (approximately S$357m) for the mall, which is valued at RMB1.83b. The total cost for the transaction would amount to RMB1.82b, after factoring in acquisition-related-expenses.

The Grand Canyon Mall is located in the Fengtai district within Beijing and has a gross floor area (excluding its car park) of 70’000 square metres. The mall has a land-lease that expires on Aug 2044.

Retail spending within the Fengtai district has grown by 14.5% annually from RMB37b in 2006 to RMB83b last year. In addition, the Chinese Government has also earmarked South Beijing for further development.

Some of these key developments include; building Beijing’s 2nd international airport in the South of the capital city, a project that’s currently in progress; the Lize Business Centre, a business hub that will house multinational-corporations and government agencies such as General Electric, the Shanghai Stock Exchange and Beijing Municipal Commission of Urban Planning, among others.

Those are just some of the long-term growth trends taking place in Fengtai and South Beijing that CapitaMalls Asia is banking on as a key driver for growth in the Grand Canyon Mall.

As it currently stands, CapitaMalls Asia’s bid-price for the mall gives it an annualised net-property-income (NPI) yield of only 3.5% based on unaudited accounts for January to April 2013. But, the company’s targeting an eventual NPI yield of 7-8% in the future by raising rents based on the fact that Grand Canyon Malls’ expiring rents from July 2013 to 2017 are all significantly below market averages, which leaves room for rent-increases.

CapitaRetail China Trust (SGX: AU8U), a real estate investment trust (REIT) specialising in retail malls in China, would be the chosen vehicle as the eventual acquirer of the Grand Canyon Mall. CapitaMalls Asia owns around 55% of the REIT and this arrangement was done to free up the company’s balance sheet for future opportunities.

Funding for the acquisition of the mall is expected to come from internal funds and external borrowings.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.