Carlyle in advanced talks to buy into Vanke’s China shopping malls, say sources-Reuters

(Reuters) – Global private equity firm Carlyle Group is in advanced talks with China Vanke Co Ltd, the country’s largest property developer, to buy stakes in nine of its shopping malls, two people with direct knowledge of the matter told Reuters.

One of the sources said the deal was valued at between 6 and 7 billion yuan (776.37 million to 0.90 billion pounds), while the other said it could be worth up to 10 billion yuan. Both declined to be named as details of the discussions were private.

A non-binding memorandum of understanding could be signed as early as Thursday, the people said. The location of the malls was not disclosed.

Both Carlyle and Vanke declined to comment.

The deal would give Carlyle access to China’s commercial real estate market where properties carry yields of around 4.5 to 6 percent. Rental margins of commercial properties are at around 60-80 percent, higher than the 30-50 percent of residential projects.

Vanke would also benefit from the deal, which would help it quickly generate returns as a slump in the residential market, and a slowing economy, tightens liquidity for Chinese developers.

China Resources Land (0688.HK: Quote, Profile, Research), another big property developer, has also said it was looking into financial tools such as real estate investment trusts and property funds to generate cash.

“Relying solely on cash contribution from residential projects is difficult to support a further and faster development of our commercial projects,” China Resources Land Chairman Xiangdong Wu told a news conference last week.

Private equity firms can provide capital through financing or structure investment funds with developers, but some companies have also acquired whole buildings or taken equity stakes in developers.

Blackstone Group LP (BX.N: Quote, Profile, Research) in November bought a 40 percent stake in unlisted Shenzhen-based shopping mall group SCP Co Ltd for around $400 million.

Shopping malls, however, see slower return on invested capital than other commercial properties as they depend on rental income rather than on one-off sales.