Leading China courier to list HK$6.1b real estate assetsmoney-glitz | Avery Chen 3 May 2021
China's courier giant SF Holdings, also known as SF Express, is planning a listing of its real estate investment trust in Hong Kong this month.
The Shenzhen-listed express delivery company has spun off three logistics properties in Hong Kong and mainland China, which were appraised at a combined HK$6.1 billion as of March 31, into SF Real Estate Investment Trust. The REIT has started pre-marketing for its Hong Kong initial public offering that could raise US$300 million (HK$2.34 billion), Reuters' IFR reported earlier.
The REIT Manager, an indirect wholly-owned subsidiary of SF Holdings, was incorporated in Hong Kong in October last year. The firm said it intends to provide 100 percent of the annual distributable income to investors. Net profit plunged by nearly 85 percent to HK$26.88 million in 2020, due to a loss in fair value of investment properties of HK$53.84 million.
SF Holdings said the REIT listing would help put the logistics assets into good use and strengthen cash flow to support expansion.
The company is also weighing a Hong Kong secondary listing to raise US$5 billion, or a separate listing of its main courier business, according to Bloomberg. SF Holdings has been sacrificing profit amid a price war with domestic rivals. It incurred a net loss of 989 million yuan (HK$1.19 billion) in the first quarter, compared with a gain of 907 million yuan a year ago.
SF REIT's portfolio includes three properties in Hong Kong, Foshan in Guangdong province and Wuhu in Anhui province with aggregate gross lettable area of 307,617.5 square meters. Its Hong Kong property, SF Centre, contributed nearly 90 percent of net property income last year. The 15-story tower next to Kwai Tsing Container Terminal No. 9 in Tsing Yi, was valued at HK$5.29 billion as of March 31, with a total gross lettable area of about 1.73 million sq ft, more than half of gross lettable area of the firm.
However, the Hong Kong segment recorded a net loss of HK$38.9 million last year, compared with a net profit of HK$141.6 million a year ago, affected by gloomy sentiment in the local leasing market amid the Covid-19 pandemic and global trade tensions. The occupancy rate of SF Centre dropped to 92 percent as of April 21 from 97.2 percent at the end of 2019. The average monthly rent also slid to HK$104.9 per sq ft last year from HK$113.3 in 2018. The fair value of Hong Kong property was negatively affected by "prolonged leasing decision making process of tenants'', the company said.
The REIT Manager said it remains optimistic about the Hong Kong logistics leasing market, helped by increased demand for cross-border logistics and express delivery services amid the rise of the e-commerce sector. But it is also facing growing competition from express counterparts and e-commerce giants including Alibaba (9988) and JD.com (9618). Cainiao Network, the logistics arm of Alibaba, led a joint venture investment of US$1.5 billion to build a new logistics hub at Hong Kong International Airport in 2018. The mega project will begin operations in 2023, which is projected to lift up the vacancy rate of SF Centre, the REIT Manager warned.
SF REIT heavily relies on its parent. Nearly 80 percent of total revenue came from SF Holdings' connected tenants last year.
Its finance costs also increased significantly, rising by 64 percent to HK$118.43 million last year. To reduce costs, the company's predecessor, SF Fengtai, drew down loans from SF Holdings in 2018 to replace certain bank borrowings.
Billionaire Wang Wei, the founder of SF Holdings, chairs the REIT Manager. Hubert Chak, former finance director of Link Real Estate Investment Trust (0823), is chief executive.