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ADIA explores a $2bn retail portfolio sale in China – Exclusive

The $828bn sovereign wealth fund had already been in the market before the outbreak of covid-19, which has only added further strain to the challenged sector.

Abu Dhabi Investment Authority, the world’s third-largest sovereign wealth fund, is currently exploring a sale of its $2 billion retail portfolio in China, PERE can reveal.

PERE understands the portfolio is currently held in a separate account managed by Macquarie Capital, according to four sources close to the situation. Three of the sources said the portfolio has a total of five retail assets, which were built over the past five to six years. ADIA had recently started exploring a sale of the entire portfolio, according to two of the sources.

ADIA and Macquarie declined to comment on the matter.

The potential sale has not come as a surprise as the sovereign wealth fund has been adopting a capital recycling strategy by selling certain assets in certain markets, according to its 2018 annual report. In the report, the investor pointed out that “the strong demand for industrial and residential assets was offset by an equally steep decline in retail and stagnating prices for offices.” Going forward, it predicted the retail sector would encounter “some of the greatest challenges” in the face of the rapid development of e-commerce.

Retail has also been one of the hardest-hit sectors since the outbreak of covid-19 as the sector relies heavily on tourism and human flow, according to industry reports. For example, a Colliers report pointed out that 88 percent of the retailers surveyed had experienced a decline in revenue because of the pandemic in China. The real estate firm explained the drop was due to the “reduced business hours and increased control measures implemented in most retail malls or shops.”

The investor has not disclosed its current sector allocations within real estate. But as it is re-evaluating its retail exposure, it will focus on logistics where it expects a growing demand for “larger” and “technologically superior” warehouses due to the rise of e-commerce, according to the annual report. ADIA had increased its real estate investments in China by 30 percent in the two years leading up to July 2019. It made an additional $750 million commitment to Prologis in Q4 last year to invest in logistics in China. Over time, ADIA has devoted a total of $3 billion in the logistics development mandate with Prologis in China, according to a PERE report.