In what could mark the start of a multi-billion dollar property fund platform for China's largest state-owned developer, Greenland Group is spinning off six hotels worth S$1.5 billion in first and second-tier cities as a listed Reit or a private fund here.
This comes under its earlier-announced S$5 billion asset securitisation plan in Singapore involving 19 Chinese hotels as it embarks on an asset-light strategy. The developer now carries some US$100 billion worth of investment assets on its balance sheet.
Following an agreement inked with Singapore's Amare Investment Management Group in March, both parties have since formed a joint venture to acquire Greenland's hotel assets in China and overseas.
Amare chief executive Alvin Cheng said Greenland is still working with banks and institutions, including the Singapore Exchange (SGX), to discuss the prospects of a Reit listing or a private fund.
Without committing to a timeframe, the former CEO in the Reit manager of Singapore-listed Lippo Malls Indonesia Retail Trust told The Business Times that "it will be soon".
Amare is a special-purpose vehicle set up by Singapore-based Glory Fund Management Group, chaired by private-equity veteran David Su.
Mr Cheng said all six hotels are profitable, located in strategic locations in Shanghai, Xi'an and Zhengzhou; they cater mainly to professional and business travellers. Managed by international hotel operators, these hotels are valued at S$700,000 per key and enjoy occupancies averaging 70 per cent.
Though China's anti-corruption campaign has taken a toll on banquets and feasts in hotels and the average daily rates (ADR) have come off slightly, the outlook for hotels in China remain positive, Mr Cheng said.
The continued growth of China's gross domestic product, the spending power of the middle class and number of foreign visitors will lend support to hotels managed by prominent brands, he added. One of the six hotels, Shanghai Marriott Hotel Luwan, is enjoying an ADR of 800 yuan and occupancy rate of over 80 per cent.
There is pipeline visibility for the Reit if it materialises, subject to regulatory approvals.
Besides the 19 Chinese hotels shortlisted for the fund, the joint venture is given the option to acquire two overseas hotels - Primus Hotel Sydney and Hotel Indigo Los Angeles - given Greenland's intention to make the fund platform a global one.
During the interview with BT, the management of Amare and Glory Fund cited a host of differences between a Singapore-listed Chinese company or S-chip and a Reit that owns Chinese assets.
Reits are not only subject to SGX rules but also regulatory requirements under the Monetary Authority of Singapore, which has lately tightened its rules for Reits and Reit managers, Mr Cheng pointed out.
Moreover, the underlying assets are held by an independent trustee on behalf of the investors and run by professional managers. "The venture we are entering into is a lot more regulated and therefore, should give investors comfort to invest in, versus some of the S-chips," he added.
But as with any foreign listings, investors tend to apply a risk premium on cross-border risks due to foreign-exchange risks and differences in regulations and governance, Mr Cheng said. "In developing markets, you always have asset prices running ahead of income levels, which is something we see across all cross-border Reits."
Naturally, investors would expect a higher yield from overseas assets, he added. "So, we will be watching out and looking at some comparables."
Greenland Group is about 46 per cent owned by the Shanghai government after its Shanghai A-share listing and owns 55 per cent of Hong Kong-listed Greenland Hong Kong Holdings Limited. With real estate as its core industry, its secondary businesses include hotels, retail, energy, finance, metro investment and construction.
Following an acquisition spree on overseas properties in recent years, its aggressive appetite for debt-funded growth and slowing sales collection back home have prompted Fitch Ratings and S&P to downgrade their credit ratings on Greenland Holding Group to non-investment grade.
Greenland group vice-general manager Wu Zhengkui told BT: "We do pay attention to these ratings and the underlying metrics, so we've undertaken steps to improve our financial indicators."
Apart from asset securitisations, Greenland is also restructuring its business capacities, particularly in the energy business, where margins are squeezed by a slowing Chinese economy. To improve its capital structure, Greenland now plans to raise 15.7 billion yuan (S$3.17 billion) through a private placement to expand its equity base.
This article was first published on July 06, 2016.
Get The Business Times for more stories.