Hui Xian's interim profit exceeds expectations
With its successful listing on the Hong Kong stock exchange in April this year, Hui Xian Real Estate Investment Trust (Reit) broke new ground. It was the first yuan-denominated equity initial public offering (IPO) outside the mainland and, at the same time, it was the first reit offering anywhere in the world denominated in yuan.
The maiden interim results announced for the period from listing on April 29 to the end of June show that its profit exceeded expectations. In line with the numbers presented in its offering circular forecast, Hui Xian Reit reported total revenue of 404 million yuan (HK$465 million). Net property income was 279 million yuan, 5.3 per cent ahead of the pre-listing projection. Total distributable income reached 202 million yuan, 4.7 per cent higher than the initial forecast.
There will be a debut interim distribution of 0.0403 yuan per unit. This represents an annualised distribution yield of 4.83 per cent, based on the closing unit price of 4.83 yuan on June 30. It is also higher than the 4.26 per cent that was forecast, based on the IPO offering price of 5.24 yuan.
'A number of reits have now listed in Hong Kong and they are widespread in other markets,' says Kam Hing-lam, chairman of Hui Xian Asset Management, the manager of Hui Xian Reit. 'What is different with [ours] is that it represents an attractive investment proposition for two distinct markets.'
He notes that investors can benefit from the regular yields typically delivered by reits that generate steady income from a stable property portfolio. There is another way to invest in yuan-related products and gain exposure to the currency.
Through a co-operative ownership structure, Hui Xian Reit's main income derives from Oriental Plaza, one of the most iconic commercial complexes in Beijing. It includes offices, apartments, a shopping mall and an upmarket hotel. Oriental Plaza has established a solid track record in terms of brand recognition, high occupancy rates and impressive financial performance.
This strong performance is expected to continue. The grade A office development, at about 300,000 square metres, is achieving close to 100 per cent occupancy. The 613 serviced apartments enjoy an occupancy rate of 93.1 per cent. There is a waiting list of 280 prospective tenants for units in the shopping mall. And the 825-room Grand Hyatt Beijing has built a reputation as a leading international business hotel.
All this gives Hui Xian Reit a strong financial platform, unconstrained by funding issues. It has been possible to effect the early retirement of outstanding loans to become completely debt-free. Cash on hand stood at 535 million yuan as of June.
The applicable Hong Kong code requires reits to pay out at least 90 per cent of distributable income. To fund acquisitions, there are two main options - external borrowing, or raising equity from existing shareholders, or by placing shares. Regulations allow borrowing of up to 45 per cent of gross asset value, meaning Hui Xian Reit has the capacity to borrow 10 billion yuan.
'This greater financial flexibility and borrowing capacity will strengthen [our] acquisition and expansion capabilities,' Kam says. 'We will proactively seek additional assets that are yield accretive and boost overall returns.' The initial target is to find properties that complement the four types of business in the portfolio. 'However, we would also consider other rental properties, such as industrial buildings, car parks, or other types of real estate,' Kam says.