Nan Fung deal lifts mainland China exposure

Move to buy controlling stake in Forterra Trust for HK$1.2b enables the private developer to make more inroads into the commercial sector

PUBLISHED : Tuesday, 23 July, 2013, 12:00am
UPDATED : Tuesday, 23 July, 2013, 4:25am

Nan Fung Group, one of the largest privately owned developers in Hong Kong, is acquiring the controlling stake in a property trust focused on commercial property development on the mainland, signalling its determination to expand across the border.

Singapore-listed Forterra Trust yesterday announced Nan Fung and its affiliates had agreed to acquire 29.98 per cent of Forterra Trust for S$2.98 per unit, in a deal running into more than S$203 million (HK$1.25 billion). It has also agreed to buy 100 per cent of Oriental Management Services for about £17.47 million (HK$206.7 million).

Oriental Management is the parent company of Forterra Real Estate, the trustee manager of Forterra Trust, and Treasury Holdings (Shanghai), the property manager of Forterra Trust.

Shares in Forterra Trust jumped 35 per cent to close at S$2.20 yesterday.

The company said Nan Fung considered Forterra Trust an attractive real estate investment vehicle to gain further exposure to the mainland commercial property sector.

Based in Shanghai, most of Forterra's retail and office properties are in the city. The trust also owns warehouses in Beijing and is developing a mall in Qingdao.

A project called The HQ in Shanghai's Changning district is one of its major developments. Plans for an expansion at the site include a 19-storey grade A office tower atop a seven-storey retail podium.

Nan Fung has been actively expanding on the mainland. In 2006, it teamed up with HSBC to set up the HSBC NF China Real Estate Fund to develop property projects on the mainland. It also partnered Sino-Ocean Land to acquire sites on the mainland after it became Sino-Ocean's second-biggest shareholder in 2010.

In March this year, Nan Fung Development managing director Donald Choi Wun-hing said about 30 per cent of the company's assets were on the mainland and the rest in Hong Kong. He also said the company planned to increase its investments on the mainland to a level similar to that in Hong Kong.

Alan Chiang Sheung-lai, head of residential, at DTZ, for greater China, said: "There is oversupply of commercial projects on the mainland. Many new commercial developments are finding it difficult to lease. But Nan Fung would be able to secure quality and enjoy a guaranteed rental income with the acquisition of the trust.

"It is difficult for Hong Kong developers to acquire development sites on the mainland due to the complicated procedure. That has made many developers team up with local partners."