Spring Asset Management Limited, manager of Spring Real Estate Investment Trust (“Spring REIT”), announced on 29th April that Spring REIT will acquire a 68 percent interest in “Huamao Place”, a high-end shopping mall in the central business district (CBD) of Huizhou, China, for approximately CNY 1,637 million (USD 247,719). This acquisition marks Spring REIT’s first investment in a retail property asset in the PRC and its first investment in the Greater Bay Area.
The acquisition price is based on the agreed property value of CNY 2,442 million (USD 369,535), which represents a discount of 9.3 percent to the appraised property value of CNY 2,691 million (USD 407,215) as at the valuation date.
Mr. Leung Kwok Hoe, Kevin, CEO and an Executive Director of Spring Asset Management Limited said, “The acquisition of Huamao Place is fully in line with Spring REIT’s strategy to invest in yield-accretive and income-producing real estate assets with long-term growth potential. Upon completion of the acquisition, Spring REIT’s pro forma DPU would have improved by 12.9 percent for the year ended 31st December 2021. Huamao Place will complement Spring REIT’s existing assets with a new presence in the Greater Bay Area, allowing us to diversify the portfolio and capture the growth potential from the region’s robust economic growth and increasing strategic importance to the PRC. The acquisition marks a key step forward in our growth journey, and represents our firm commitment to managing Spring REIT in the best interests of unitholders and delivering sustainable long-term returns.”
“We are pleased to form a joint venture with Huamao Property who will retain 32 percent interest in the target company, and to partner with its team of industry veterans who have secured Huamao Place, a consistent market leader over the past decade with demonstrated resilience in economic downturn. With its prime location and unique market positioning, we are confident that Huamao Place will continue to champion Huizhou’s vibrant retail scene and grow with the wider Greater Bay Area,” Mr. Leung continued.
The Greater Bay Area’s economy and retail industry are expected to experience stable growth in the next five years. The shopping mall industry in the Greater Bay Area as well as in Huizhou City is estimated to increase rapidly, driven by further economic development, ongoing urbanisation, continuous consumption upgrades, expanding retail facilities and continued government support.
Huamao Place is a landmark asset in the heart of Huizhou, and ranked 1st in terms of gross merchandise value in Huizhou in 2021, according to China Insights Consultancy (“CIC”). The average monthly rent of Huamao Place grew at a CAGR of 7.8 percent during the period from 2018 to 2021, outpacing that of retail properties in first-tier cities such as Beijing and Shanghai.
Huamao Place has consistently maintained a high occupancy rate since its opening. As at 31st December 2021, Huamao Place had a high occupancy rate of 96.3 percent, exceeding the average occupancy rate of approximately 80 percent in 2021 for shopping malls in Huizhou. In addition, approximately 83.6 percent of the gross lettable area is on fixed rent or higher of fixed rent or turnover rent terms, providing a reasonable revenue cushion in case of an economic downturn, as well as growth potential by tracking tenants’ sales in good years.
Huamao Place houses a selection of international and domestic top-tier brand names such as Estee Lauder, Lancôme, Hugo Boss and BOSE, which are rarely seen in shopping malls in Huizhou. The shopping mall has also introduced chain restaurant brands (for example, Pizzahut and Haidilao hot pot) as well as leisure and entertainment facilities (such as virtual reality theme park, cinema, beauty and health clubs, etc.), which enhance shopping experiences that are difficult to be replaced by online retail channels.
Historically managed by staff of Huamao Group who have extensive experience in the commercial and retail real estate sector in the PRC, Huamao Place has been positioned as an iconic landmark in Huizhou with an exceptional track record over the past decade. Following the acquisition, key management staff of the property manager and building manager will be selected from the same team to ensure continuity and effective management of day-to-day operations of Huamao Place.
The acquisition is subject to approval by independent unitholders at the extraordinary general meeting (EGM).