Hong Kong to Start Selling $2.8 Bln Property Trust (Update3)
Nov. 10 (Bloomberg)
bloomberg.com
-- The Hong Kong government plans to raise $2.8 billion selling shares in the city's first real estate investment trust taking advantage of rising property prices to plug a deficit, officials involved in the sale said.
The real estate investment trust will include 180 properties, made up of 950,000 square meters of retail space for shops and 79,000 parking spaces. Hong Kong's Housing Authority plans to start briefing investors on the sale on Nov. 15, luring investors with better yield than overseas rivals.
Hong Kong's retail sales grew 8.7 percent in September from a year ago to HK$15 billion ($1.9 billion) and the surge in spending will boost rental values, investors including Dennis Lai said. Hong Kong property prices have rebounded after a six-year slump and economic growth is forecast to more than double to 7.5 percent this year from 2003.
``The timing of the sale isn't bad as property prices and retail sales have rebounded, rendering better prospects for rental income,'' said Lai, who helps manage $5 billion in Hong Kong for Allianz Dresdner Asset Management.
The Housing Authority will use the proceeds to cut its deficit, which it projected in July will be HK$5.5 billion in March 2006. Spokeswoman Florence Chiu declined to comment.
A REIT is a company that buys and manages real estate, or loans backed by real estate, using money invested by its shareholders.
Dividends
Hong Kong's REIT may pay HK$433 million in dividends for the period from its planned sale on Dec. 16 to March 31, at an annualized yield of 6.8 percent. The yield is expected to rise to about 7.2 percent in 2006 assuming a dividend payment of HK1.57 billion, the officials said, asking not to be identified.
The REITS, managed by Link Management Ltd., plans to list on the Hong Kong stock exchange on Dec. 16. The company plans to pay 100 percent of its profit as dividends to investors, higher than the 90 percent required by Hong Kong's securities regulator.
The amount raised in the IPO will depend on the level of discount offered or the premium to net asset value at which the company decides to sell the properties, the officials said.
The company named Victor So as chief executive officer and Alfred Li as chief financial officer, they said. Li was previously an executive director at Hang Lung Properties Ltd. and So held a similar position at Sun Hung Kai Properties Ltd., Hong Kong's biggest developer by market value.
Management
Peter Wong, chief executive of Standard Chartered Plc's Hong Kong operations is chairman and a non-executive director.
The company appointed Anthony Neoh, a former chairman of Hong Kong's Securities & Futures Commission; Mun Leong Liew, president of CapitaLand Ltd., and Teck Koon Kee, chief executive of CapitaLand's commercial unit, as non-executive directors.
The Link REIT properties, which serve 40 percent of Hong Kong's population, had HK$3.5 billion of revenue for the year ended March 2004, with retailers contributing 73 percent of total sales, the officials said. The stores and car parks are valued at HK$30.8 billion by government surveyors and have a net asset value of HK$21.8 billion.
The company's 10 largest properties generated 21 percent of its rental revenue last year and occupancy was steady at around 90 percent in the past three years, the officials said.
The company forecasts its operating costs relative to profit will fall as it expects the rent on existing leases to rise as the economy improves and management of the properties gets better after the IPO. Its cost to income ratio may fall to 40 percent by March 2005 from 54 percent a year earlier.
Bank Loan
Link Management's debt to total gross assets was 28 percent after it took bank loans totaling about HK$8.6 billion to finance its operations, the officials said. The Hong Kong securities regulatory has capped the ratio at 35 percent.
The Hong Kong Housing Authority needs to offer investors a higher yield than that paid by four Singapore rivals because the retail premises it is selling are mostly located in low-income and government-subsidized housing estates, where rents are lower, said Wong Leung Sing, senior research manager at Centaline Property Agency in Hong Kong.
``Their portfolios aren't as good as those run by the private sector and this may restrict the rental income growth.'' said Renault Kam, who helps manage $1.5 billion at Atlantis Investment Management Ltd. in Hong Kong.
Goldman Sachs Group Inc., HSBC Holdings Plc and UBS AG are arranging the sale. Edward Naylor, a spokesman at Goldman, John Ryan at HBSC and Mark Panday at UBS declined to comment.
The trust, called the Link REITS, pays a higher return than Hong Kong billionaire Li Ka-shing's Singapore-listed Fortune REIT, which pays a dividend of 5.3 percent.
Singapore Rivals
Fortune, the owner of malls in Hong Kong, has gained 26 percent since its listing last year and has a dividend yield of 5.3 percent. CapitaMall Trust, Singapore's biggest property fund, surged 74 percent since its initial public offering in 2002 and may pay a yield of 5.45 percent this year.
CapitaCommercial Trust will pay a yield of 3.2 percent based on the estimates of four analysts surveyed by Thomson Financial. Ascendas Real Estate Investment Trust surged 85 percent since its November, 2002, listing and will pay investors a yield of about 5.7 percent for the year ending next March. The yields of the Singapore REITs have fallen since listing as their share prices increased.
CapitaLand, Southeast Asia's biggest developer by sales, plans to invest $180 million in the Hong Kong REIT, the officials said. CapitaLand controls CapitaMall and CapitaCommercial Trust.
Hong Kong land sales were suspended for the 18 months to May, as part of measures to stabilize property prices. The result was a deficit at the Housing Authority. With the sales resuming, prices have soared. In October Cheung Kong (Holdings) Ltd. and Sun Hung Kai, Hong Kong's largest developers, bought two residential sites at an auction for a record $14.1 billion.
To contact the reporter on this story:
Cathy Chan in Hong Kong at kchan14@bloomberg.net.
To contact the editor responsible for this story:
Bill Austin in Tokyo at at billaustin@bloomberg.net
Last Updated: November 10, 2004 01:55 EST |
