Yuan-denominated property investment trust cuts payout ratio to aid expansion

Hui Xian, the trail-blazing yuan-denominated real estate investment trust in Hong Kong launched by tycoon Li Ka-shing, has cut its payout ratio by 1 percentage point in a bid to shore up capital for future expansion.

It said the distributions to unitholders amounted to 781 million yuan, a payout ratio of 97 per cent for the six months to June, down from 98 per cent during the same period in 2015 and 100 per cent in 2014.

The amount available for distribution rose 8.1 per cent from a year ago to 805 million yuan.

“We would like to keep some cash for acquisitions and asset enhancements,” said Tom Cheung Ling-fung, executive director and chief executive of Hui Xian Asset Management, which runs Hui Xian Reit.

Hui Xian Asset Management is 40 per cent owned by Citic Securities International, 30 per cent by Li’s property arm Cheung Kong Property Holdings and 30 per cent by ARA Asset Management, according to the company’s 2015 annual report.

Cheung said Hui Xian, which manages a property portfolio of 1.03 million square metres in the mainland, has been looking for acquisition opportunities.

As at June 30, it had cash reserves and bank balances of 6.24 billion yuan and a gearing ratio of about 21 per cent.

“We have been participating a number of tenders for hotels, retail and office properties. But we lost as our bids were less aggressive than rivals,” he said on July 29.

The acquisitions need to meet company requirements of whether they would improve distributions to unitholders and for growth potential, Cheung said.

“Whether the acquisitions will further expand our foothold in mainland cities will also be considered,” he said. “ We have seen nearly 100 projects since we were listed.”

The reit was launched as a spin-off of Li’s Beijing Oriental Plaza in 2011 and gradually grew through acquisitions. In 2014, it acquired a retail-office development, Chongqing Metropolitan Oriental Plaza, in Chongqing for 3.91 billion yuan. In November 2011, it had paid 980 million yuan for a 70 per cent stake in Shenyang Lido, which holds the land use rights and building rights in Sheraton Shenyang Lido Hotel. In January 2013, the reit appointed France’s Sofitel Luxury Hotels as the manager of the hotel and renamed it Sofitel Shenyang Lido.

Cheung said the reit has completed renovating the retail complex at Beijing Oriental Plaza.

The 60,000 square metre site, formerly occupied by three tenants, has been divided into 46 smaller shops.

“It will increase our rental income as we can charge higher rent per square metre for smaller shops,” he said.

For the six months to June 30, Hui Xian said the average monthly passing rent was 1,258 yuan per square metre, up 5.6 per cent from last year.

Net property income at the firm was 1.09 billion yuan, a year-on-year rise of 6.3 per cent in the first half on total revenue of 1.57 billion yuan.

He said the annualised distribution yield rose to 9.1 per cent in the first-half this year, up from 7.9 per cent last year.