Odds are high once its rental income is steady and asset size exceeds $1b
YING Li International Real Estate may spin its assets into a real estate investment trust (Reit) by 2013 once its rental income is steady and asset size exceeds $1 billion.
Mr Fang: He says the group may tie up with other established players, such as Macquarie Pacific Star, to tap their expertise
This could materialise when its current project International Financial Centre (IFC) is completed and revalued on a mark-to-market basis.
‘We wish to go into an asset-light model. We are talking to established international players to eventually securitise our assets – to inject our properties into a Reit,’ Ying Li chief executive Fang Ming told BT yesterday in an interview.
The group may tie up with other established players, such as Macquarie Pacific Star, to tap their expertise, he added. The Reit could potentially be held by a 50-50 joint venture.
Ying Li’s current asset size is slightly less than three billion yuan (S$612.0 million). The IFC, an integrated commercial project now being constructed, and the Future International Building – the highest building in Jiangbei district – would be natural candidates for the Reit, he added.
IFC’s retail component is expected to be completed in June next year, while the entire development is expected to be completed by the end of next year. The usual gestation period for Ying Li’s projects is about one to two years.
No rental contracts have been inked for the 36,920 sqm of retail space at IFC yet but Ying Li is working with the project’s broker Jones Lang LaSalle to get the right mix, Mr Fang said. Some names that could soon be spotted at the upcoming iconic development include Louis Vuitton, Liberty Insurance, and China Development Bank.
Given the shortage of Grade A office space in Chongqing, demand for the 108,388 sqm of office space in IFC is also expected to be strong, Mr Fang said.
But until the IFC is completed, revenues and profits are expected to be muted. Other high-end properties for residential, retail and office uses will be rolled out from 2010 to 2013.
Still, the group expects to stay in the black, he added. Its earnings are expected to be stronger in 2010 and 2011 when the IFC comes on stream.
Ying Li’s net profit for the second quarter ended June 30 plummeted to 278,000 yuan from 491.39 million yuan in the second quarter and net profit for the first half slumped to 751,000 yuan from 501.83 million yuan despite stable rental income. A key factor was that it enjoyed ‘other income’ of some 499 million yuan in Q2 2008 relating mainly to a non-recurring negative goodwill.
Mr Fang explained that group earnings were dented by the costs of building IFC and San Ya Wan Phase 2 project – a mixed development with residential and retail components.
It has since secured a 50 million yuan loan facility from OCBC for working capital and 450 million yuan of project financing loan from China Construction Bank for IFC. This followed a private placement last month that raised gross proceeds of $30 million to fund the development of IFC and repay loans.
Mr Fang noted that Ying Li’s current gearing of 8 per cent is still one of the lowest among developers in Asia. Further capital requirements will come from rental income from IFC and pre-sales of residential units.
According to him, Ying Li is the only Chongqing property developer in the consortium that is working with the Singapore government on the possibility of developing Wuyi road into a world-class financial centre. A delegation from Chongqing is coming to Singapore next month to discuss this.
Source: Business Times, 15 Oct 2009
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