“In the past, there was a lot of institutional and retail money [in China] going into real estate, but these days, everyone is a bit more careful. While the A-share market has rallied in the past few months, generally speaking, there’s still a lot of capital in China — this socalled abundant liquidity — looking for professionally managed platforms like a C-REIT,” says Puah to Singaporean media in Shanghai.
Hoping to tap this “abundance of liquidity” is CapitaLand Commercial C-REIT (CLCR), the latest name to have joined a growing list of C-REITs.
On Sept 29, CLI’s eighth listed fund opened 19.6% higher than its initial public offering (IPO) price at RMB6.84 ($1.24) on the Shanghai Stock Exchange (SSE).
CLCR raised RMB2.29 billion — some $409 million — by issuing 400 million IPO units at RMB5.718 per unit, exceeding the initial estimate of RMB2.14 billion by 7%.
See also: CapitaLand Investment’s dynamic growth proposition
The initial pop was not unexpected, and Puah says CLI priced the IPO “very fairly” and “at a reasonable level”. He explains: “We chose to really price it right, because we want our investors to know that we are not here for [a] ‘day one pop’. We are here for the long term.”
This is despite the C-REIT market being “very hot” right now, he adds. “Prices of C-REITs [have risen] from IPO [in the] range of between 30% and 80%.”
The distribution payout is similar to S-REITs; CLCR is required to distribute at least 90% of distributable income. Based on the IPO price, CLCR’s forecast distribution yield is 4.40% for FY2025 ending Dec 31 and 4.53% for FY2026. “We priced it in the mid-4% range. Our message to the market is that we are sensible, we are professionals and we are here for the long term,” says Puah.
See also: Food, fads and fans: ‘Emotional expenditure’ keeps Chinese shoppers hooked on malls
CLCR is China’s first international-sponsored retail C-REIT, and dramatic subscription figures released earlier in September show a level of confidence never before seen in the fledgling C-REIT market.
CLCR’s offline institutional tranche was oversubscribed 253 times, setting a new record among retail C-REITs. The IPO also saw strong retail interest, with the public tranche closing ahead of schedule and being 535.2 times subscribed.
Speaking in Mandarin at CLCR’s listing ceremony, Puah says the oversubscription “underscores the market’s dual recognition of CLI’s asset management capabilities and the resilience of China’s consumer market”.
In China, institutional investors participating in the bookbuilding exercise are referred to as offline institutional investors, while those subscribing through the public tranche are known as online institutional investors.
The majority of the IPO units were allocated to insurance companies, securities firms and “strategic capital investors”, according to CLI. Representatives from DBS and HSBC attended the Sept 29 listing ceremony.
According to CLI’s Sept 12 announcement, cornerstone investors took up 40.11% of the units, while offline institutional investors were allotted 27.92% in the bookbuilding tranche. Online institutional investors subscribed for the remaining 11.97%.
Only mainland Chinese investors can invest in CLCR. CLCT is a diversified multi-asset class vehicle targeting global investors, with an investment mandate that spans retail, office and industrial assets across Greater China; while CLCR invests exclusively in retail assets in mainland China, targeting domestic investors.
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CLI, CapitaLand China Trust (CLCT) and CapitaLand Development (CLD) collectively hold a 20% interest in the IPO units. CLCT, in particular, subscribed for a 5% strategic stake in CLCR at the IPO price of RMB5.718 per unit.
“When you combine CLCR and CLCT, what is interesting is that [CLCT] is a ‘REIT of REITs’,” says Puah. “We serve foreign investors wanting China exposure through its stake in CLCR; it serves a purely domestic, institutional and retail clientele, but when you switch over, we also have insurance capital that feels a bit like a CLCT, because it’s diversified, but it will then allow us to take on a little bit more risk.”
He adds: “That’s the beauty of the domestic-for-domestic strategy that we have. We have different platforms, and we are then able to serve a wider or more diversified capital pool.”
About the IPO portfolio
To seed CLCR’s IPO portfolio, CLI and CLD have divested CapitaMall SKY+ in Guangzhou for an undisclosed amount.
In addition, CLCT is divesting CapitaMall Yuhuating in Changsha into CLCR for RMB813.8 million, at an exit yield of about 6.2%. CLI expects the divestment to be legally complete by end-October.
CapitaMall Yuhuating is a community mall located in Changsha’s Yuhua District, accessible via two adjacent subway stations on two lines as well as a future subway station on a third line.
Opened in 2005, CapitaMall Yuhuating has four storeys above ground and one basement level, with a gross floor area (GFA) of 75,431 sq m (811,932 sq ft) and a 40-year lease that ends on March 3, 2044. The mall recently completed an asset enhancement initiative (AEI) in 2023.
Meanwhile, CapitaMall SKY+ is located in Guangzhou’s Baiyun Central Business District, directly connected to Baiyun Park subway station. Opened in 2015, it has six storeys of retail space above ground and four basement levels, divided between retail and carpark floors.
CapitaMall SKY+ has a GFA of 92,974 sq m, including underground parking space. Its 40- year lease for “commercial, tourism and entertainment” purposes will expire on March 30, 2051; while its 50-year lease for “carpark and other uses” will expire a decade later on March 30, 2061.
The two malls have a combined value of approximately RMB2.6 billion. They span a total GFA of 168,405 sq m and have an overall committed occupancy rate of 96% as at March 31.
The two assets chosen for CLCR are “classic” malls that “serve their communities”, says Puah. They have a “captive community” within a 3km radius, he adds, a core principle of CLI’s retail strategy.
CapitaMall SKY+ reportedly serves a population catchment of about 5.7 million people within a 5km radius; while CapitaMall Yuhuating has a catchment of approximately 700,000 within a 3km radius.
“When you have a mall in Shanghai, for example, serving tourists and the community, you’ll see a dip when consumption levels fall. But when we are principally serving a local community, that’s where our numbers are much more robust,” says Puah.
As the sponsor and the asset manager of CLCR, CLI will continue to operate CapitaMall SKY+ and CapitaMall Yuhuating. Additionally, CLI says it will support the growth of CLCR and CLCT through its ability to offer a “quality pipeline of potential assets”.
In China, CLI manages 43 operational retail properties across 18 cities with total retail assets under management of approximately $18 billion. According to Puah, 95% of these 43 malls are located in Tier 1 and Tier 2 cities.
“In China, we have a very good reputation,” says Puah. “People trust us for the way that we have managed our malls… Since retail C-REITs have been introduced, we very, very much fit like a hand in glove.”
Shopping spree
The China Securities Regulatory Commission (CSRC) and National Development and Reform Commission (NDRC) have progressively launched C-REITs across five different sub-sectors: infrastructure, industrial, rental housing, elderly care facilities and consumption.
As at Sept 19, prior to CLCR’s debut, the 74 C-REITs have a total market capitalisation of some RMB221 billion.
Retail C-REITs were launched in March 2024 under the broader “consumption” or “consumer infrastructure” labels. Since then, 10 retail C-REITs have listed, but only with one retail asset each, in line with Chinese regulations.
Among them is Harvest Wumart Consumer REIT, which listed on the SSE in March 2024 with an underlying supermarket asset located in the central urban area of Beijing.
CLI group CEO Lee Chee Koon said in May that CLCR’s listing had been in the works for almost two years. “The Chinese ecosystem — they start new things but it’s always ‘cross the river by feeling the rocks’. I don’t think there’s a need to rush to be in the first wave.”
Things will “continue to improve” as more C-REITs get listed and as the regulators start to adjust, to make it more market-friendly, Lee adds in an interview with The Edge Singapore. “I don’t think there was a need to rush; we wanted to make sure that we understood the rules of the game.”
CLCR, along with its peers, faces a one-year moratorium from its listing date, which blocks new acquisitions. Puah says regulators could be looking at halving this period. “For now, we are just waiting [to see] whether we can start to inject more stabilised, quality assets after six months, rather than a year.”
From a commercial perspective, the bigger a REIT is, the better, says Ervin Yeo, CLI’s group chief strategy officer and CEO of commercial management. “When you have more assets, you can stomach more movements, and you don’t have a concentration risk.”
The earliest retail C-REITs, which have spent a year and a half on the market, are preparing to grow their portfolios. The sponsor of China Resources Mall REIT, which listed on the Shenzhen Stock Exchange in March 2024, has identified and announced its next injection of assets, says Puah.
CLCR is the first retail C-REIT to list with two assets in its IPO portfolio. Puah believes this concession will allow CLCR to show that “scale and diversity is important”. “We bring forward this message to the regulator, but we are still bound by national rules.”
Puah adds: “The market appreciates us as well, because we clearly have a pipeline… If I’m a C-REIT investor, I would definitely look towards someone — a sponsor — who is able to add scale and diversity, because that really enhances the performance of the C-REIT.”
By choosing a mall each in Guangzhou and Changsha — unofficially recognised as a Tier 1 and a top Tier 2 city respectively — CLCR displays a “balance” that is important for any successful REIT, says Yeo in a separate interview with The Edge Singapore.
“[CapitaMall Yuhuating] in Changsha is very suburban [and] very defensive [with] no one in the near vicinity. It is very stable, which ultimately is what you want to see in a REIT, because it is a securitised product,” says Yeo. “The people buying the REITs are your retail investors and it’s their retirement money; just like [for] CICT — many of the unitholders are retirees who see this as part of their retirement income. They are not looking at a 50% increase [in unit price]; they are looking at stable, consistent earnings. That’s something that we also look at.”
Beyond CLCR, CLI is “very open” to working on a ninth listed fund, says Puah, but the “first order of business” is to “make sure CLCR trades well”. “We are always looking out for how the market changes [and] how the market evolves. We are in the business of running the largest REIT franchise in Asia Pacific. So, if there’s a chance for me to add to [CLI’s] REITs [funds under management], yes, we will do it.”
Rules and ROFRs
CapitaMall SKY+ is the retail component of an integrated development that comprises a 200m-high, 45-storey tower with residential and office elements. Could these components be injected into CLCR?
So far, the C-REITs have not crossed the “clearly defined” sub-sectors laid out by regulators, says Puah. “While it may possibly change in the years to come, right now, it’s very specific.”
This means CLCR is unlikely to expand into owning a diversified portfolio of assets across retail, office and industrial assets like CLCT in the near term. That said, regulators are softening their stance as the C-REIT market matures, Puah adds. “If the other components are less than 30% of the total GFA, then NDRC, over the last year or so, has relaxed it a little.”
CLI’s Hongkou Plaza integrated development in northern Shanghai, for example, comprises Grade-A offices and a retail mall. “The mall is a lot bigger and the office component is less than 30%. Hence, it can technically qualify for CLCR,” says Puah.
Another CLI asset, Minhang Plaza, has a slightly larger office component, he adds. Located in the centre of Minhang district, southwest of Shanghai, the integrated development comprises an eight-storey shopping mall and a 32-storey office tower. “Technically, it can go into CLCT, but it cannot go into CLCR.”
CLI owns 50% of Hongkou Plaza and Minhang Plaza with the rest held in a CLI-managed private fund. CLCT has a right of first refusal (ROFR) over these assets.
Still, current regulations are subject to change or review over time, says Puah. “It is my is my belief that Chinese regulators will recognise that there are such things called integrated assets, and they will go out to either create a new C-REIT class or they would just use the retail one to bend a little bit more, and then the integrated assets can find its way into the retail C-REITs. But for now, it’s very strict.”
CLCT has a ROFR in place since CLI’s entry into China. “That ROFR stays,” Puah stresses. “We have about RMB18 billion worth of assets that fall under that ROFR; that ROFR stays with CLCT… We will continue to look for opportunities to grow CLCT outside the ROFR.”
However, if CLCT decides to pass on any assets, they “fall back into the pipeline that is suitable for CLCR”, he adds. “CLCR has a wider pool. [CLI] has 43 retail-centric assets right now. It’s $18 billion worth of [assets in the] pipeline… that’s why we have never really seen the two as competing; we have always seen it as complementary.”
‘Conservative’ start
Under the C-REIT regime, CLCR, as a public fund, is required to own its two assets through an asset-backed securities (ABS) plan. Both the fund and the ABS must be managed by licensed financial institutions.
For CLCR, the fund is managed by China Asset Management (ChinaAMC) while the ABS is managed by CITIC Securities.
CLCR will wholly use the net proceeds from the CLCR offering to subscribe for the ABS, becoming the sole owner.
“This is peculiar to China,” says Puah. “The underlying assets, by law, cannot be owned by the C-REIT; the C-REIT can only own a security.”
CITIC Securities, as the ABS manager, will receive a fee of 0.01% p.a. of CLCR’s net asset value (NAV). ChinaAMC, as the fund manager, will receive a fee of 0.20% p.a. of CLCR’s NAV. Management fees are paid once a year.
“The big difference between CLCT and CLCR is that in China, a lot more of the total fees that is given for running of this instrument right goes into the asset level, a lot less on the — borrowing Singapore terms — REIT manager level. So to us, overall, it still makes a lot of sense,” he adds.
Another rule stipulates that the total asset value of a C-REIT shall not exceed 140% of its net asset value, translating to an effective aggregate leverage limit of 28.6%.
“The [Chinese] government feels that this is a REIT product [and] it should [have] a slightly lower risk profile,” says Puah. “The government does not want so much leverage.”
This may change over time, Puah adds. “In Singapore, we have REITs with gearing ratios at 40% or even 45%. But in China, they are starting very conservatively at 28.6%.”
Retail sub-fund to come
Alongside the listing of CLCR, CLI has announced the close of the first sub-fund, China Business Park RMB Fund IV, under its inaugural onshore master fund in China — the CLI RMB Master Fund.
Established in May with a major domestic insurance company as co-investor, the Master Fund has RMB5 billion in total equity commitment and invests in a series of sub-funds that acquire income-producing assets with longterm growth potential.
In a Sept 29 announcement, CLI says the China Business Park RMB Fund IV closed with an equity commitment of RMB529 million from the Master Fund.
As part of its capital recycling strategy, CLI has divested an unspecified business park into this sub-fund. CLI also plans to launch a second sub-fund focused on retail assets in 4Q2025 with a target equity commitment of RMB900 million.
In May, CLI outlined plans for sub-funds that will invest in business parks, retail, rental housing and serviced residences “across Tier 1 and top Tier 2 cities”.
CLI also mentioned that future sub-funds “may also invest in special opportunities in other sectors such as data centres, logistics parks and offices”.
As interest rates come off, insurance capital is shifting from government treasuries towards real estate, says Puah.
For example, core private equity funds are further up the risk curve, he adds, and are not limited to retail assets. “They can invest in a wider range of asset-types such as rental housing and industrial parks, but not to the extent of undertaking development or major AEIs.”
For private equity funds invested in industrial and business park assets, CLI can take on projects that “require a little bit of tweaking”, such as light AEIs, adds Puah. These AEI help meet growing leasing demand, especially from the smart manufacturing and artificial intelligence sectors.
CLI received a RMB fund manager licence in 2021 to raise local currency private equity funds. Since then, CLI has raised a total of RMB54 billion across its eight onshore funds.
CLCR’s listing and the continued growth of CLI’s RMB Master Fund demonstrate “strong momentum” in its capital recycling journey and pivot to an asset-light business model, says Puah.
Overall, CLI has recapitalised approximately RMB5 billion of assets in China year to date. China has a lot of liquidity, says Puah. “It’s just [about] what products you bring to the table and how you work with them.”
Photos and infographic: CapitaLand Commercial C-REIT, CapitaLand Investment, Jovi Ho/The Edge Singapore
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Food, fads and fans: ‘Emotional expenditure’ keeps Chinese shoppers hooked on malls
