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Karen Chan

Developer aims for aggressive returns growth of up to 40pc next year in a bid to attract investors

Soon-to-be-listed Prosperity Reit, a spin-off of Cheung Kong (Holdings), is targeting aggressive rental growth of 30 to 40 per cent next year  to attract investors.

The real estate investment trust of seven non-core commercial properties in fringe districts contributed net  income of $150 million to $160 million last year.

Cheung Kong executive director Justin Chiu Kwok-hung said the rental for the seven properties was  at $8 to $10 per square foot and there was big room for organic growth.

'When we say 30 per cent increase in rental, we are talking about $10 to $13 per square foot, which is still significantly lower than the rental in the core business district,' Mr Chiu said.

'The industrial-office market is very active because of its potential upside.'

He said the retail story was failing to convince a jaded market already disappointed by Disney, which brought only limited benefits to retailers, adding that investors would not be interested in grade A offices which provided only 3 per cent rental yield.

According to sources, Prosperity Reit, which aims to raise up  to US$250 million in a public offering, will provide a yield of 5 per cent to 5.3 per cent. 'It is easier to sell the industrial office  concept because that's where the growth story is,' Mr Chiu said.

To ensure operational efficiency, he said it was ideal to have a reit with assets of US$1 billion and  poised for  acquisitions.

Mr Chiu said the group had no intention of injecting only Cheung Kong projects into Prosperity Reit.  There were acquisition opportunities in Kowloon Bay, Kwun Tong, Kwai Chung, Wan Chai, Yau Ma Tei and Tsuen Wan through  sales and leases.

Prosperity Reit aims to provide a stable income and low delinquency ratio. The occupancy rate and delinquency ratio for its seven projects are 92 per cent and 0.1 per cent, compared to Link Reit's 6  per cent in delinquency.

While the float comes as the government-backed Link Reit is also expected to relaunch its $33.8 billion property assets on the market, industry watchers are speculating that the Prosperity Reit will overtake the Link Reit to be the first reit to list in Hong Kong.

Mr Chiu said he did not know which reit would list first, since it was subject to regulatory approval. 'We are not competing with Link Reit, our size is only 10 per cent  of Link with assets of $4.4 billion, we are only complementary to Link.' With a handful of developers exploring new means to raise funds through reits, some analysts believe the reit market in Hong Kong will grow to between $50 billion and  $70 billion over the next two years, providing a more mature market for international investors.

'Together, we are trying to build up Hong Kong as the reit hub,' Mr Chiu said.

Mr Chiu said it was not easy for the Housing Authority to increase  rentals for its Link Reit properties.

The authority plans to renovate all  washroom facilities in  its retail properties but Mr Chiu said the public would not be willing to pay for that. 'The tenants are just asking for more, but don't want to pay more,' he said.

He added that even if the authority renovated all its shopping centres, it was unlikely to attract luxury brands.



Cheung Kong reit sets rent-rise target