Partners set up a private equity fund to acquire GEMDALE PPT Industrial Park assets for exit and restructuring

During a period of deep industry adjustment, Gemdale Property successfully completed the divestment of real estate assets.

On the evening of July 31st, Gemdale Property announced the establishment of a private equity investment fund partnership enterprise (limited partnership) in Shenzhen Lingxin Industrial Park, jointly with partners, to acquire, hold, and operate all the equity of four industrial park projects located in Shanghai that the group intends to sell, with an expected net return of approximately 500 million RMB.

According to Gemdale Property, the four industrial park projects are all mature operating assets located in Songjiang, Jiading, and Baoshan districts of Shanghai, with a total leasable area of 439,000 square meters, maintaining an annual rental rate of over 90%.

Gemdale Property stated that each partner in the partnership enterprise has rich experience in investing and/or operating industrial parks. Each member can leverage their strengths through complementary advantages and resource integration within the partnership enterprise to achieve better business development.

It can be observed that insurance funds hold the majority of equity in the fund, with the presence of multiple state-owned enterprises behind the fund. Currently, insurance remains a key force in the real estate divestment channel.

Acquisition of Assets by the Fund

According to the announcement, on July 31, 2024, Gemdale Property signed a partnership agreement with various parties to jointly establish a private equity investment fund partnership enterprise (limited partnership) in Shenzhen Lingxin Industrial Park. The main business of this partnership enterprise is to acquire, hold, and operate all the equity of Gemdale's industrial park projects that the group intends to sell.

Industry park commentators learned that the main acquisitions are the four industrial park projects in Shanghai owned by Gemdale Property. The first is Gemdale Weixin Hongqiao Science and Technology Innovation Park, wholly owned by Gemdale Property, located in the G60 Science and Technology Corridor, the Dahongqiao Hub Radiation Zone, covering an area of approximately 48,000 square meters, with a total construction area of 65,000 square meters. It is an industrial complex integrating research and development platforms, production manufacturing, offices, and commercial facilities. As Gemdale Weixin's first professional biopharmaceutical park, the Hongqiao Science and Technology Innovation Park has a leasing area of over 90% for biopharmaceutical companies among its tenant enterprises.

The second is Gemdale Weixin Songjiang Intelligent Manufacturing Park, in which Gemdale Property holds a 50% stake, located in the national-level Shanghai Songjiang Economic and Technological Development Zone, covering an area of over 70,000 square meters, with a total construction area of approximately 110,000 square meters, serving as an industrial complex integrating research and development platforms, production manufacturing, and commercial facilities.

The third is Gemdale Weixin Jiading Intelligent Manufacturing Park, in which Gemdale Property holds a 42.50% stake, located in the Jiading International Automobile City sector of Shanghai, covering an area of approximately 80,000 square meters, with a total construction area exceeding 150,000 square meters. It is a high-end manufacturing industry innovation base focusing on new energy vehicles and automobile components, integrating intelligent manufacturing, production research and development, enterprise offices, and commercial facilities.

The fourth is Gemdale Weixin Baoshan Intelligent Manufacturing Park, in which Gemdale Property owns a 50% stake, located in the core area of Baoshan Industrial Park in Shanghai, covering an area of over 70,000 square meters, with a total construction area exceeding 110,000 square meters. It is a high-standard manufacturing industry base integrating intelligent manufacturing, research and development production, base innovation, and commercial facilities.

According to the partnership agreement, Gemdale Property holds the industrial park projects of Gemdale and intends to sell all the equity of the projects to this partnership enterprise. Based on the transaction arrangement, Shanghai Jindiwei (a subsidiary of Gemdale Property) needs to first invest in this partnership enterprise as a partner, with an investment cap of 300 million RMB, representing a 20% equity stake in the partnership enterprise The capital to be paid will be provided by internal resources of GEMDALE PPT. After the completion of the sale of the GEMDALE Industrial Park project, it is expected that GEMDALE PPT will receive a net payment of approximately 500 million yuan (excluding 300 million yuan invested in the joint venture).

After the establishment of the joint venture, Shanghai Jindiwei (or other designated subsidiaries of GEMDALE PPT) and other joint venture partners will hold 20% and 80% equity respectively. In terms of management structure, Shenzhen Capital Real Estate Fund Management will serve as the general partner and executive partner, with the executive partner responsible for (including) the operation, management, control, and decision-making of the joint venture; the remaining joint venture partners (including Shanghai Jindiwei) will be limited partners.

It is understood that in this transaction, GEMDALE PPT will divest a portion of the equity in the industrial park mainly to accommodate the exit of other shareholders, as the new state-owned company entering the picture requires a controlling stake. After the transaction is completed, the four industrial parks will continue to be managed by GEMDALE Industrial Park under the brand name Jindiwei.

The backers behind the scenes

The backers behind the fund are state-owned companies and insurance companies.

The maximum investment size of the fund is set at 1.5 billion yuan, with a contribution deadline of September 30, 2029. The equity structure of the joint venture shows that Nanjing Taibao Xinhui Zhiyuan will invest 825 million yuan, accounting for 55% equity; Zhonghong Life Insurance will invest 344.85 million yuan, accounting for 22.99% equity; Shanghai Jindiwei will invest 300 million yuan for a 20% stake; Hongtu Chuangye will invest 30 million yuan for a 2% stake; Shenzhen Capital Real Estate Fund Management, as the general partner, will invest 150,000 yuan for a 0.01% stake.

Among them, Shanghai Jindiwei is an indirect subsidiary of GEMDALE PPT; Shenzhen Capital Real Estate Fund Management is controlled by Shenzhen Innovation Investment Group Co., Ltd., with the largest shareholder being Shenzhen State-owned Assets Supervision and Administration Commission, and Futian Investment Control also holding shares; Hongtu Chuangye is wholly owned by Shenzhen Capital Real Estate Fund Management; Zhonghong Life Insurance is jointly owned by Hongli Life Insurance (International) Co., Ltd. and China National Chemical Corporation Financial Co., Ltd.

Nanjing Taibao Xinhui Zhiyuan, holding the largest stake, is a private equity investment fund, with Taibao Private Equity Fund Management Co., Ltd. as the fund manager, a subsidiary of China Pacific Insurance.

It can be observed that insurance companies remain important players in real estate divestments.

Based on the pursuit of stable long-term returns, optimizing investment portfolios, and the need for asset-liability matching management, insurance companies continue to be important channels for real estate divestments.

Some analysts point out that in the context of continued downward interest rates and the difficulty in finding high-quality assets in the market, insurance companies tend to invest in projects with stable returns and longer durations, such as commercial office buildings, logistics real estate, and industrial parks, to achieve asset preservation and appreciation.

On the other hand, the current real estate market is undergoing a deep adjustment period, with the industry accelerating its clearance, more asset disposals, and attractive real estate asset prices, especially in prime locations in first and second-tier cities, which may have strong potential for appreciation in the future.

For example, on January 1, 2024, Xinhua Insurance announced the establishment of a 10 billion yuan fund with China International Capital Corporation to invest in enterprises holding real estate assets; and AIA Life Insurance acquired 2.4 billion yuan to acquire 95% equity of Beijing Kaidexingmao Project China Life System invested 686 million yuan to subscribe for Huaxia CR Commercial REIT; China Life Group spent 3.1 billion to acquire nearly half of the equity of Yidigang Yitigang Phase II in Beijing and other projects.

Some cases show that most of the transaction projects are assets in core areas of first-tier cities such as Beijing and Shanghai.

GEMDALE PPT holds assets including industrial parks, commercial offices, rental housing, and sales-type residential properties. In the field of industrial parks, in 2016, a platform focusing on the development, construction, and operation management of industrial parks was established—GEMDALE VISION, focusing on life sciences, artificial intelligence, cultural creativity, and other fields, aiming to build an exquisite international full-industry platform with high standards.

Currently, GEMDALE VISION has achieved a nationwide layout, entering core cities in the East China, North China, Northeast China, Central China, South China, and Western regions, and has also entered the U.S. market. By December 2023, it had entered 19 cities, developed and operated 42 industrial projects, with a management area of approximately 4.15 million square meters.

However, the downturn in the real estate market also has a significant impact on commercial properties. In the first half of the year, GEMDALE PPT's cumulative contracted sales amounted to approximately 9.798 billion yuan, with a total sales area of approximately 747,100 square meters. Recently, the company issued a profit warning for the first half of the year, as the impairment provision for joint ventures and the impairment provision for developing properties increased, expecting a loss attributable to shareholders of the company of around 2 to 2.3 billion yuan in the first half of 2024