Henderson Land to launch $10b reit

PUBLISHED : Wednesday, 01 March, 2006, 12:00am
UPDATED : Wednesday, 01 March, 2006, 12:00am

Hong Kong's fourth property trust will include 25 office and retail properties

Shau Kee Financial Enterprises and Henderson Land Development are planning a May launch for a real estate investment trust comprising about 25 office and retail properties worth $10 billion, sources say.

The preliminary portfolio of the reit includes offices in areas such as Wan Chai, Sheung Wan and Mongkok and retail properties in new towns such as Tseung Kwan O and Sheung Shui.

The portfolio had an aggregate gross floor area of about 1.7 million square feet and an average occupancy rate of about 90 per cent, sources said, adding the net property income was about $300 million last year.

It is understood that the six most valuable properties in the portfolio - 248 Queen's Road East, Bonham Trade Centre, Golden Centre, Java Road 108 Commercial Centre, Metro City Phase I and Sheung Shui Centre Shopping Arcade - will contribute about 70 per cent of the reit's rental income.

Although the 25 properties are more or less evenly split between the two firms, the most valuable ones, including Metro City Phase I and Sheung Shui Centre, belong to Shau Kee Financial, the private investment arm of Henderson chairman Lee Shau-kee.

The reit, which is looking to raise about $4.68 billion, will be Hong Kong's fourth since the launch of the Link Reit in November last year.

Shau Kee Financial and Henderson planned to become significant shareholders in the reit, the sources said. The two companies declined to comment.

Given that the United States may lengthen its interest-rate rise campaign and the three listed reits - Link, Prosperity Reit and GZI Reit - have turned into growth plays rather than yield plays, the new investment trust could set the benchmark for yields.

One source said the six most valuable properties in the portfolio provided a rental yield of about 4 per cent, which was below market expectations of 6 per cent.

However, many leases are due for renewal in the next two years when the rents are expected to rise more than 20 per cent, pushing rental yields to about 5 per cent by the first quarter next year. This will make it competitive with the other reits but may not be enough to lure investor interest.

The Link closed at $17 yesterday, representing a yield of 3.63 per cent, which is lower than Prosperity Reit's 4.87 per cent and GZI Reit's 5.66 per cent.

'The Lee-Henderson reit should provide at least 5 per cent to 6 per cent yield, taking into account the rising interest-rate environment,' an analyst said.

To boost the yield, it is understood the reit may adopt a financial arrangement such as interest swaps.

Macquarie, Deutsche Bank and HSBC have been mandated to arrange the reit sale.