CIC's acquisition above the guide price of the Celsius shopping centre portfolio shows just how far the Chinese are prepared to go to secure a European platform.

CIC's acquisition above the guide price of the Celsius shopping centre portfolio shows just how far the Chinese are prepared to go to secure a European platform.

In its first big splash in the French real estate market, China Investment Corporation (CIC) has forked out more than the asking price for a portfolio of 10 shopping centres together with asset manager AEW Europe.

The duo is understood to have bid €100 mln over the maximum €1.2 bn guide price set by vendor CBRE Global Investors, effectively trumping offers by a number of European heavyweight investors. Other bidders are understood to have included Wereldhave and Unibail-Rodamco, and a partnership of Belgium's AG, Altarea-Cogedim and French insurer Predica.

'The acquisition of such a high-quality portfolio is an important achievement for our platform and enables us to significantly increase our existing €5.5 bn European retail footprint representing more than 2 million m2,' said Raphael Brault, head of separate accounts and fund management at AEW Europe.

Fund wind-down
CBRE Global Investors hired Morgan Stanley in January this year to sell the 221,000 m2 shopping centre portfolio owned by its Retail Property Fund France Belgium (RPFFB) as part of the fund’s termination programme. The vehicle was set up as a 10-year closed-end fund in 2003 and later extended its term by a further two years, setting its liquidation deadline at end-2015.

‘We made the choice of selling the assets as a portfolio rather than individually. We thought in the current market there would be many institutions and large operators with the appetite and the capacity to conclude a large-ticket deal. Also, this solution had the advantage of being more time-efficient,’ commented Marc Reijnen, fund manager of RPFFB at CBRE Global Investors.

The market response to the portfolio was ‘huge’, Reijnen added. ‘It was a highly competitive process with more bids than we had anticipated. The process was dominated by European parties, but there were also offers from Northern American investors and from Asian players.’

The 10-property Celsius portfolio comprises eight malls in France, which account for about half of the fund's value, and two shopping centres in Belgium. The French malls include the 45,000 m2 La Vache Noire in Arcueil, Daumesnil in Paris, a 60% stake in Mayol in Toulon, near Marseille (the other 40% is owned by Klépierre), the Marques Avenue de Troyes as well as Bosquet in Pau and other smaller assets below 10,000 m2.

In Belgium, the fund owns a 50% interest in Wijnegem (the remaining 50% is owned by AXA) and 100% of the Waasland retail gallery near Antwerp, two of the country’s most successful shopping centres which are believed to be valued at a total of €600-700 mln. (Waasland also includes a Delhaize supermarket and a C&A store not included in the transaction).

In total, the sale of the Belgian and French portfolio was expected to fetch some €1-1.2 bn, depending on the valuation of the French malls, which perform less well than the Belgian properties. The package currently has an average occupancy rate of 96%. 'The fund has delivered an exceptional performance for the limited partners,’ Reijnen noted.

Asset management and rotation
‘Active asset management and asset rotation have resulted in a total return well in excess of the target internal rate of return of 9.5% to our clients over the 12-year lifetime of the fund. It was not easy to deliver this performance during the crisis, but two factors helped us greatly: the fund’s limited leverage which was never above 50%, and the sustainable level of rents, which resulted in few defaulting tenants.’

During its life the fund acquired and sold a total of 26 retail assets, many of which were refurbished or extended to create additional value. ‘Clearly,’ added Reijnen, ‘there has been a difference in performance in the last few years between the larger centres and the smaller assets which have seen their occupancy rate fall slightly.’

Last year, the fund sold a 50% stake in the Espace René Coty shopping centre in the northern French port city of Le Havre to Dutch insurance Group Nationale-Nederlanden for €63 mln. The mall was held in a joint venture with Klépierre.

China’s CIC has been expanding its clout in Europe both through direct and indirect investments in recent years. Last year, the €500 bn sovereign wealth fund completed the acquisition of Chiswick Park in west London for around £780 mln (€940 mln), in one of the UK’s largest single-asset deals in the past five years. CIC also owns a stake in Blackstone, having invested $3 bn into the private equity group before its initial public offering in 2007.

DEAL FACTIFILE
BUYER: CIC and AEW Europe
VENDOR: CBRE GI’s RPFFB
ASSET: eight shopping centres in France and two in Belgium
VALUE: €1.3 bn
M2: 221,000 m2
ADVISORS: Clifford Chance, Etude Cheuvreux and Mazars to AEW Europe and CIC.
Morgan Stanley, White & Case, Loyens & Loeff, PWC, Allez and Associes and Fairway for RPFFB.
RISK PROFILE: core-plus

Virna Asara
Southern Europe correspondent