Canada's biggest pension fund has taken its spending on real estate projects in China to $681 million in a fortnight, after snapping up a major stake in a shopping mall in the northeastern city of Dalian.
In a $162 million deal, the Canada Pension Plan Investment Board (CPPIB) bought 40% of the mall from Malaysian property group Pavilion, underscoring a long-term bet on the rising value of property used by China's burgeoning middle class.
“The investment announced in the last few weeks reinforce our long-term commitment to China, an important market for a long term investors like us,” said Jimmy Phua, CPPIB’s Asia head of real estate investments, in an email response to AsianInvestor questions.
The latest acquisition comes after the fund invested $375 million for a 25% stake in Raffles City China Investment Partners III on October 24. The company is a private vehicle managed by Singapore’s CapitalLand. On October 20 CPPIB paid $144 million for a 49% stake in a shopping mall joint venture with Chongqing-based Longfor Properties. The three property acquisitions reflect CPPIB’s long term positive view on China, which has led it to make investments in the country a more important constituent of the fund’s portfolio.
Asked if CPPIB planned to increase its China property investments, Phua noted: “We will continue to pursue attractive investment opportunities both in China and other part of Asia,” without offering further details.
CPPIB’s real estate exposure in Asia, including China, Japan, Korea and Australia, stood at C$8.7 billion as of June 30. Therefore these new investments are set to add to this total.
Asset interest
CPPIB’s latest three deals suggest the fund has added a total of $681 million to its C$9.9 billion total exposure to mainland China assets, which include real estate, public equities, private and real estate investment funds and direct investments. China investments represented 3.5% of the fund’s total assets as of June, which includes its $500 million equity investment in Postal Savings Bank of China last December.
Also in December last year, CPPIB made an additional investment of $1 billion in its equity allocation to Goodman China Logistics Partnership (GCLP), a joint venture established in 2009 in purpose to develop logistics assets in China. The Canadian fund has now invested a total of $2.6 billion, or 45 logistics projects in 16 mainland China cities, through GCLP, Phua noted.
CPPIB did not disclose its expected return on the latest three China property partnerships, but its annual report offers a few hints.
The fund allocated a total of $40.8 billion, or 14.6% of its total asset under management into global estate as of March, according to its annual report. This exposure generated a nominal return of 11.8% during the 2016 fiscal year. This level of return stands in contrast to its overall portfolio, which generated a nominal return of just 3.4% over the same time period.
