The third-largest Reit market is Hong Kong with a market capitalisation of US$8.5 billion

ING officials said recently they expect the fund to raise at least US$200-US$300 million within the first six to 12 months in ING Asia Pacific Real Estate Securities Fund in Hong Kong.      Mr Pica, the fund's manager, said some of its top holdings included Hong Kong-listed China Overseas Land & Investment Ltd and China Resources Land Ltd, as well as Sun Hung Kai Properties Ltd and Hang Lung Properties Ltd.  - 2008 February 25

HK Reits get a new lease of life

Hong Kong's neglected real estate investment trust (Reit) market is stirring to life and may finally do what it's supposed to - give investors stability, a decent yield and, possibly, clear prospects for growth.

A high-profile acquisition by office landlord Champion Reit, and the imminent listing of a hotel Reit by developer Far East Consortium, may help revive investor interest.

The reputation of Hong Kong's Reits has been sullied by investor perceptions that they were used by wily developers to offload second-rate assets at inflated prices, and marred by the byzantine financial engineering that accompanied their deals.

As new Reit markets emerged across Asia, with investors enjoying fat dividends from rental income and capital gains from rising property prices, Hong Kong Reits were given the cold shoulder.

'It seems like a lot of Reits are like a second concubine - it's whatever leftover product you have,' said Far East Consortium chief executive David Chiu.

'But we're saying to the market that we're putting all the hotels we have in,' he said about the group's latest offering, a listing of its hotel Reit. 'You either like it or not, but it's all of them.'

After a year's lull in new Reit listings, Far East has lined up an initial public offering (IPO), packaging all seven of its hotels in the city into the Hong Kong Hotel Trust, and moving away from complex financial engineering.

Earlier this month, Champion Reit said it would dismantle the complicated financial structure linked with its IPO, and also bought a 56-storey block in Hong Kong's Kowloon district.

Hong Kong's biggest developer, Sun Hung Kai Properties, is also considering resurrecting a planned office trust, while Swire Pacific wants to spin off its Festival Walk shop and office complex, bankers say.

Hong Kong's Reit market made an explosive start in late 2005 when investors flocked to a US$2.4 billion IPO by Link Reit, drawn by pledges to revamp and squeeze more profit from 151 government-owned malls.

But the city's six other Reits, including two with mainland Chinese assets, have fared worse on the secondary market, with their yields pushed up to between 8 and 10 per cent now from 5 to 6 per cent at their IPOs.

However, their share prices stabilised despite turbulent markets in the last six months, while Japanese and Singapore trusts slumped, and they now offer big and steady spreads over the 3.1 per cent yield given by 10-year bonds.

Comparable spreads for Reits in Japan and Singapore are much lower, at around 3.5 percentage points.

But high yields and cost of capital mean Hong Kong Reits often struggle to find acquisitions that are 'yield accretive' - or lift investor returns.

However, by using loans, a convertible bond issue, and new equity raising, Champion's Reit has managed to buy Langham Place from the Reit's sponsor, Great Eagle (Holdings), for US$1.6 billion.

The deal is getting a belated thumbs-up from analysts after initial suspicions the trust was paying too much.

'Don't overreact, this is a positive deal,' wrote BNP Paribas analyst Andy So, when Champion's share price slumped 5 per cent a day after the deal was announced.

He said the purchase would lift distribution per unit, despite dilution from the share sale, and praised the unwinding of financial engineering that had been unpopular with investors.

The trust had employed interest rate swaps and a dividend waiver by Great Eagle, that artificially lifted yields at the time of the IPO.

It now wants to unwind and simplify that structure.

With Champion embarking on a global roadshow to raise equity for the deal, a banker who worked on the transaction predicted it would herald a new beginning for Hong Kong Reits. -- 2008 February 28    Reuters

Li and GZI in REIT face-off
Investors will soon face a choice of betting on the mainland's better, if riskier, growth prospects or the relative security and stability of Hong Kong as two large real estate investment trusts vie for their affections in the race to close deals before the Christmas holidays

Investors will soon face a choice of betting on the mainland's better, if riskier, growth prospects or the relative security and stability of Hong Kong as two large real estate investment trusts vie for their affections in the race to close deals before the Christmas holidays.

The battle pits Guangzhou Investment, the Guangdong provincial capital's largest property developer, against Cheung Kong (Holdings), the flagship company of Hong Kong's richest man, Li Ka-shing. Together the two initial public offerings could raise as much as HK$3.4 billion.

Guangzhou Investment plans to raise up to HK$1.6 billion by selling shares in the revenue streams of four mainland properties. It's offering 583 million units in a trust dubbed GZI REIT that will be priced to yield not less than 7 percent, a rich payout meant to compensate for the perceived higher risk of investing in mainland real estate.

The company plans to buy between 30 percent and 50 percent of the REIT for its own account, a stake typical of REITs in more developed markets such as Singapore, according to a market source. Guangzhou Investment begins its roadshow next Thursday, with pricing set for December 15 and trading slated to begin December 21.

Cheung Kong is looking to raise as much as HK$1.9 billion by offering shares in the revenue streams of seven Hong Kong buildings. The REIT, dubbed Prosperity, will go to market with an indicative price range of HK$2 to HK$2.16 per unit, yielding a much lower 5.31 percent to 5.73 percent, according to people familiar with the deal.

Retail orders will be accepted beginning early next week with pricing scheduled for Thursday. Trading begins on December 16.

Fund managers are attracted to GZI because of China's long-running economic boom. "There's the growing consumerism of Guangzhou with the people there seeing a rise in their standards of living," said Andy Mantel, managing director of Pacific Sun Investment Management.

When combined with the higher yield, that might make this seem like a one-horse race. Yet fund managers said GZI's yield might still not be sweet enough to overcome investor doubts about the wisdom of investing in mainland securities, especially in a product where many buyers are looking for predictable yield, not the possibility of quick capital gains.

"Investors may expect an even higher yield to compensate," said Phillips Securities director Louis Wong.

REIT investors, since they are buying the rental income stream, are most concerned with whether a property can maintain high occupancy rates over the long haul. Though volatility is no stranger to Hong Kong's property market, Guangzhou has a history of seeing asset prices soar only to plunge just as precipitiously when returns fail to materialize, fund mangers said.

Such doubts, and the greater transparency and stronger market-making mechanisims on offer in Hong Kong, offset a good part of the fatter yield Guangzhou plans to offer. "Over the course of the coming year there will be less uncertainty and doubt" here than on the mainland, Wong said.

Regardless of which deal proves most attractive to investors, both will get a boost from - and have been timed to coincide with - the Housing Authority's Link REIT, which rose 15 percent on its debut last Friday and has climbed another 2 percent since then.

Citigroup, HSBC and DBS are arranging the sale for GZI while Cheung Kong has hired JPMorgan and Merrill Lynch. - by Tim Lee Master     THE STANDARD     2 Dec 2005

Li flagships to take 29pc of Prosperity REIT offer
Cheung Kong (Holdings) and Hutchison Whampoa will subscribe up to a combined 29 percent in Prosperity REIT, a portfolio of seven properties worth HK$4 billion that is expected to become the first real estate investment trust to be listed in Hong Kong

Cheung Kong (Holdings) and Hutchison Whampoa will subscribe up to a combined 29 percent in Prosperity REIT, a portfolio of seven properties worth HK$4 billion that is expected to become the first real estate investment trust to be listed in Hong Kong

The firms, controlled by Li Ka- shing, are obligated to subscribe for up to 18.58 percent and 10.42 percent of the total units.

Cheung Kong shareholders have the preferential right to subscribe to one unit of the trust for every 32 shares of the company, it said Sunday.

Cheung Kong said an application has been lodged with the stock exchange for the proposed listing of the trust, which will buy the properties from it and Hutchison for HK$4 billion, a discount of about 11.9 percent to the valuation appraised by an independent surveyor as of the end of last month.

Cheung Kong, Hong Kong's largest developer by market value, will reap HK$2.43 billion from the sale, representing about 1.3 percent of its shareholders' equity as of the end of June.

The properties consist of three office buildings, three industrial and office premises and an industrial property, with a total gross rentable area of 1.2 million square feet.

Those include the Metropolis Towers, a 15-story office tower in Hung Hom; MLC Millennia Plaza, a 32-story office building in North Point; the commercial component of the Harbourfront Landmark development in Hung Hom.

Others include Modern Warehouse, a 27-story industrial and office building in Kwun Tong; the Trendy Centre, a 30-story industrial/office building in Lai Chi Kok; Prosperity Centre, a 26-story industrial and office building in Kwun Tong; and New Treasure Centre, a 30-story industrial building in San Po Kong.

The timetable for Prosperity Trust's listing hasn't been unveiled. Sing Tao Daily reported earlier that Cheung Kong plans to list its REIT on November 21, ahead of the Link REIT listing, a portfolio of Housing Authority shopping centers and parking garages, expected to go public on November 24.

HSBC Institutional Trust Services (Asia) will act as Prosperity REIT's trustee.

The manager will be ARA Asset Management, a Cheung Kong 30 percent-held unit that also manages its two Singapore real estate investment trusts, Fortune REIT and Suntec REIT.

Analysts say the planned secondary listing of Fortune REIT, a portfolio of 11 malls and properties across Hong Kong, is unlikely to beat the Link REIT and Prosperity REIT to become the first real estate trust listed in Hong Kong. Under regulatory guidelines, to qualify for a Hong Kong listing, a REIT should be under local legal jurisdiction. Fortune REIT is domiciled in Singapore.

Shares of Cheung Kong fell 1.24 percent Friday to close at HK$79.60. - by Amy Gu and Raymond Wang    THE STANDARD    31 Oct 2005

Global funds poised for return
REITs likely to be the preferred investment vehicle as foreign buyers show renewed interest in Hong Kong real estate

International funds are poised to make a push into the Hong Kong property market, but real-estate experts say the funds are likely to be very selective and cautious in their investments.

Some of the funds are making their debut in Hong Kong's real- estate sector, while others are planning to add to their investments in the industry, the realtors say.

Real Estate Investment Trusts (REITs) are expected to be a popular investment vehicle for the funds as the new initiatives are launched by local developers.

REITs are funds that hold a pool of rental properties with set incomes.

The head of the London-based Royal Institution of Chartered Surveyors, said international funds were refocusing on Hong Kong property following the seven-year slump.

He said a half a dozen international investment funds from Britain, the United States and Australia, with total equity of up to $5 billion, were planning to make forays into Hong Kong's office, residential and retail property sectors.

Deka-ImmobilienGlobal, a German fund established in 2002 by Deka Immobilien Investment, had shown an interest in making its first raid on Hong Kong's grade-A office and retail space.

Johannes Haug, head of the international department at Deka Immobilien Investment, said that the fund planned to invest 30 per cent of its cash pool of 2 billion (about HK$19.34 billion) in the Asia-Pacific region. Tokyo, Seoul, Singapore and Hong Kong were top of their preferred investment destinations.

Meanwhile, Australia-based Macquarie Real Estate Asia views Hong Kong as one of the most lucrative property markets in Asia.

Craig Wallace, managing director of Macquarie Real Estate Asia, said foreign investors were convinced that Hong Kong's property market had gone through a cyclical correction and was now on an early upward cycle.

"Most foreign investors showed no interest in Hong Kong's property market six month ago, but their views have changed," Mr Wallace said.

Macquarie Real Estate Asia owns property in Asia worth US$500 million - about 20 per cent of it in Hong Kong and the remainder equally distributed in Japan and South Korea.

Mr Wallace said the company was interested in forming a joint venture with local developers to enter the mass housing market, where he believes supply will fall short in 2005.

Mr Brooke said most of the funds were likely to invest in REITs.

The Securities and Futures Commission introduced rules in July allowing REITs in Hong Kong covering assets such as car parks, shopping centres, office blocks, hotels, recreation parks and serviced apartments.

The trusts can also include overseas assets.

"A lot [of them] are getting ready," said Mr Brooke, citing as examples the Housing Authority's portfolio, MTR Corp's property project and the government's office assets.

The Housing Authority plans to sell HK$20 billion worth of car parks and shopping centres through a REIT-like vehicle before 2005.

Sun Hung Kai Properties has also expressed its intention to launch REITs.

British developer Grosvenor said it planned to develop luxury projects in Hong Kong in anticipation of the sector's rosy outlook.

Grosvenor made its investment debut in Hong Kong with the acquisition of a 15 per cent stake in local medium-sized developer Asia Standard International for less than $400 million.

It later teamed up with Asia Standard International and Ayala Land of the Philippines to build the 21-unit luxury housing block Grosvenor Place in Repulse Bay, which soon will go on sale.


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