After nearly a decade, it's finally here: Shanghai-based property giant Shui On Land (0272) has filed an application to spin off its famous Xintiandi division in Hong Kong under the name of Shui On Xintiandi.

Shui On Xintiandi will mainly operate three businesses: commercial property investments, property management and asset management.

The company did not reveal the size of the offering, but Bloomberg last month reported that the initial public offering could raise at least US$500 million (HK$3.9 billion).

The spin-off was actually a long-sought goal of the developer which is controlled by Hong Kong billionaire Vincent Lo Hong-shui and entailed nearly nine years of planning.

Shui On Land announced its intention to separately list Xintiandi back in 2012, but the IPO did not materialize.

In 2013, Brookfield agreed to invest US$500 million and take a 21.7 percent stake in the subsidiary, but the Canadian asset manage exited in late 2018, leaving the unit once again wholly owned by Shui On.

"The most important thing is that the price of the assets may discount too much if we choose to go public separately," Lo had said during a results briefing in 2019.

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Shui On is famous for its Shanghai Xintiandi, an urban renewal project completed in 2001 which has become a cultural and lifestyle landmark in the city.

Shui On subsequently developed similar projects in other cities across China, which includes Chongqing, Nanjing and Wuhan.

A portfolio of Shui On's 13 commercial properties, including Shanghai Xintiandi, will be transferred to Shui On Xintiandi.

The properties have a total gross floor area of about 2 million square meters, with retail properties accounting for 64.4 percent and office space taking up the remaining 35.6 percent.

Shui On Xintiandi is still quite dependent on the Shanghai market, with seven of its 13 commercial assets located in Shanghai as of June this year, accounting for 52.7 percent of the gross floor area.

Its portfolio is worth 53.14 billion yuan (HK$63.98 billion) based on Knight Frank's independent valuation, with Shanghai accounting for 71.9 percent of this figure.

Going forward, the company may continue to be dependent on these commercial properties concentrated in Shanghai, it says. As a result, it warns of the risk in the prospectus, saying that the geographical concentration may involve a higher level of risk.

Rental income generated from its property portfolio has become the main source of revenue for Shui On Xintiandi, contributing to more than 66 percent of the total revenue over the past three years. This enables the property investment segment to account for nearly 77 percent of the total revenue. Property management accounts for 17 percent of the total revenue while asset management contributes less than 4 percent.

Shui On Xintiandi recorded a 23.83 percent rise in revenue to 1.38 billion yuan in the first half. It turned in a first-half net profit of 404 million yuan, compared with a loss of 953 million yuan in the same period last year. The loss, it says, was mainly caused by the decrease of fair value of its investment properties due to Covid-19 outbreak.

Its parent Shui On Land also posted a first-half net profit of 1.08 billion yuan after a net loss of 1.66 billion yuan last year.

Lo, the 73-year-old billionaire who founded Shui On group in 1971, will act as chairman and non-executive director of Shui On Xintiandi. And his daughter Stephanie Lo Bo-yue will become vice chairman and executive director.

Morgan Stanley and UBS have been appointed as the joint sponsors in the proposed spin-off.

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