Property

LT Commercial Real Estate Limited: Exploration of a Textbook Case of REITs Development in Mainland China

Unprecedented Issuance of REITs by Lerthai without Sovereign Ratings

BEIJING, Aug. 10, 2017 /PRNewswire/ -- LT Commercial Real Estate Limited ("LT Commercial Real Estate" or the "Company"; stock code: 112.HK) is pleased to announce that China Lerthai Group, the controlling shareholder of the Hong Kong-listed LT Commercial Real Estate Limited ("Lerthai Group") successfully launched its REITs (Real Estate Investment Trust) product, called the "Shijiazhuang Lerthai Center REITs", in mainland China on the 3 August 2017.

China Lerthai Group, the controlling shareholder of the Hong Kong-listed LT Commercial Real Estate Limited (Stock Code: 112), joined forces with GSUM, the leading Chinese company in the REITs field to launch an REITs product without sovereign ratings  - the product was then traded on the Shenzhen Stock Exchange the same day. The Shijiazhuang Lerthai Centre is the underlying asset of the REITs product and has been under operation for more than four years by the Group, creating a consistent source of revenue.  It is a product which achieved a number of 'first' titles under its belt well before its issuance, including the 'First REITs without sovereign ratings', 'First REITs from Hebei Province' and 'First REITs from a non-first-tier city'. It also earned the accolade - 'The most cost-effective REITs of its kind'. 

According to specialists' opinions, the launch of the product, which was modeled on international REITs standards, will greatly contribute to the development of the domestic REITs market and will also set an ideal example for non first tier cities in attracting financial support for high quality commercial property. The issuance also increases the development of equity REITs and channeling investments back to securities as underlying assets. Yan Yun-song, Deputy Director of the Bond Department of the China Securities Regulatory Commission, said that - 'This is indeed a matter of great significance. We are on the right path, which warrants further exploration.'

Lerthai prefers commercial real estate creating quality products

As the leader of this REITs project, Li Yan, who is also Executive General Manager of GSUM, disclosed that the issue size of the product was worth RMB 3.5 billion, of which, senior A1 security accounted for 28.57% at a value of RMB 1 billion, senior A1 security accounted for 60% at RMB 2.1 billion, and equity accounted for 11.47% at RMB 400 million. CCXR granted the AAA rating to the project's senior A1 security, and AA+ rating to the senior A2 security. The REITs product also attracted the attention of commercial banks, security firms and fund companies, and as a result was 1.3 times oversubscribed, which which far outdid recently launched products of a similar nature.

This then raises the question: How did the product manage to secure approval from ratings agencies without a sovereign rating? The main reason behind this is that the product comes with underlying assets and a consistent income while its design is marked by creativity and original management. Built on top of the city's first subway station, Shijiazhuang Lerthai Centre, which serves as the underlying asset of the REITs product, is situated in the heart of the city's business district. Opened in 2012, the Centre covers over 620,000 m², with a shopping center comprising 380,000 m². Its occupancy rate has long consisted over 95% with more than 400 prestigious tenants. On the day it opened, 58 world-famous brands found their way into the city of Shijiazhuang. On special event days, the average pedestrian traffic can easily reach over the 100,000 mark. Since its inception, the Centre has been renowned as the city's popular landmark. At the same time, the Shijiazhuang Lerthai Center has the honor of being the first shopping mall in China to be granted a AAA attraction rating.

Zhang Yan, president of the financial division of the Lerthai Group, said the Group has always devoted itself to real estate development as evidenced by its choice of location, architectural design and methods of operation. As the Shijiazhuang Lerthai Centre is a highly valued property, the REITs product can be run on a steady flow of income, thereby speeding up the Group's capital turnover rate, which helps optimize its financial structure, reducing the negative effects of leverage, enlarging the scale of the Group's development, and elevating the Group's status in the commercial world in terms of strategy, resources and branding.   

Setting Precedent- Leading REITs Development Throughout the Country

As the fixed property market in China is entering an era of housing stock, and a liquidation of super-sized capital, the exploration of new investment avenues for fixed property have become major topics across the business sector. For this reason, the issuance of the Lerthai REITs product has made quite an impact on the domestic fixed property market.

Business analysts agree that the Group's latest financial move has turned into a textbook case of how to develop REITs in China. Based entirely on its asset credit, what the Group has done breaks from the market's usual reliance on sovereign credit ratings, which incidentally directs investment decisions towards asset securitization. This case has become a major point of reference when it comes to the choice of underlying assets, and the construction of trading platforms and the design of risk when managing domestic REITs products. 

Yan Yun-song, Deputy Director of the Bond Department of China Securities Regulatory Commission, pointed out that the central government and the state council had issued 12 official statements urging the expediting of asset securitization. The Group's issuance of its REITs product should serve as a reminder, showing the market of what can be achieved in the future. The product has also been called a trendsetter for commercial property REITs in non-first-tier cities. In previous years, quality commercial properties tended towards non-first-tier cities because return on the investment and growth was even higher than what could be found in first-tier cities. The Lerthai product has managed to break the traditional model in which REITs leans towards first-tier cities and produces a successful example of asset securitization in a non-first-tier city.

'A City, a View, a  'Landmark ' - a Dark Horse of Property Development

Yang Longfei, the founder and chairman of the Group, has been engaged in retailing for over 20 years. From his own observations, the most successful commercial property groups in the world nowadays, whether it's Westfield in Australia or Simon in the USA, owe their origins to retailing operations and, without exception, own a major financial platform in the form of a REITs. Therefore, while the Group strives to strengthen its management capabilities, the REITs platform has always remained a core crucial business strategy.  

As we know, a number of commercial banks had great faith in the project and were willing to offer credit far above the scale of the REITs issuance in question. However, the Group believed that financial backing from banks could only solve part of the project's questions. What the Group needed most were practical strategies and model transformations, both of which could be realized only through a REITs.

The Group was, therefore willing to offer up its most valued properties to win over investors. In addition to the Shijiazhuang Lerthai Centre, the Group will also arrange to have its properties in Tangshan, Handan, Beijing and elsewhere securitized in due course.

In recent years, the Group has been widely considered a dark horse in the world of commercial property as its multi-faceted business model incorporates property development as well as property operations and retailing. Being the controlling shareholder of the Hong Kong-listed LT Commercial Real Estate Limited (Stock Code: 112) gives the group a certain edge over its competitors. The Group believes that city living can be improved by following its own developmental ideal of 'A city, a view, a landmark' - by creating masterpieces in the arena of commercial property, the Group is dedicated to evolving into a world-class property developer.

Today, the Group strives to explore the twin-sided development strategy of 'property development and financial investment', which means that the core business of property development and fixed asset leasing/operation will fully support the Group's capital investments in a variety of projects, including internet finance and cultural travel in order to execute its multi-faceted business strategy, with a strong emphasis on property and finance. This strategy is intended for cities which have complexes named after Lerthai. The Group is now riding the wave of economic development in Chinese cities and is strictly following the country's 'One Belt, One Road' policy. With roots deeply planted in China and its mindset on the world, the Group has weaved its way toward success across Jingjinji, the Yangtze River Economic Zone and Pearl River-Xijiang Economic Zone while leaving its mark on various projects such as the Shijiazhuang Lerthai Centre, Tangshan Pelagic Mall, Tangshan Lerthai Centre, and the Handan Lerthai Centre.

The Shijiazhuang Lerthai Centre, the underlying asset of Lerthai's REITs, is the epitome of Lerthai branding. Living the motto of 'social responsibility for mutual wealth creation' and committing itself to the development ideal of - 'A city, a view, a landmark', the Group is devoted to making society a better place to live while providing people with top quality landmarks. Due to the Lerthai motto and ideal, the products of the Group are trusted by the government, investors, consumers and strategic partners alike. In 2016, the Group received the '2016 Exemplary Enterprise for Improving Chinese Cities' award. In January 2017, the Group was also presented with the 'Listed Company with the Highest Potential' award at the '2016 China Listed Financial Institutions Award Ceremony' held in HKEx. In August 2017, the Group received the '2017 Most Influential Listed Enterprise in Chinese Property' award.

About LT Commercial Real Estate Limited

LT Commercial Real Estate Limited ("LT Commercial Real Estate" or the "Company", stock code: 00112.HK) is one of the most promising property developers in Hong Kong. Headquartered in Hong Kong, the Company has branches and offices in many cities of Mainland China and the United States. The Company is mainly engaged in commercial real estate development and operation, property services, financial management, and etc. Benchmark projects developed by the Company includes South Hills Plaza, Tangshan LerthaiCentre and Handan Lerthai City.

As a brand with a unique personality, LT Commercial Real Estate has been adhering to the vision of "improving urban life with commercial properties for global businesses". The Company has dedicated to becoming a leader in the commercial property sector, promoting urban economic and social development, as well as improving the overall life quality of residents. The urban commercial, cultural and sports infrastructure project, which is named after the "Lerthai Centre""Lerthai City", was designed and developed with the concept of "chain operation without duplication". By combining local history and culture with the environment, the Company customizes the projects to fit different cities, realize the "one city, one landscape, and one landmark" philosophy and becomes a "florist" of urban commerce. By creating urban commercial landmarks and cultural landmarks, the Company also creates its unique market value.

At present, the Company is focused in the development of areas including the Beijing-Tianjin-Hebei region, Yangtze River Economic Zone and Pearl River-Xijiang Economic Zone, and has invested on some benchmark projects in places such as Tangshan and Handan. Under China's urban economic development, the Company is expanding rapidly throughout the country. At the same time, the Company also actively seeks opportunities overseas and has participated in high-quality commercial projects, so as to enjoy the benefits of global economic growth. With the completion of projects in the United States and other places, the Company is planning to develop business in other regions of Europe and Asia. By closely following the "Belt and Road" strategy of China, the Company has grasped regional collaboration opportunities and is heading towards the "Silk Road."

Lerthai's Capital Group is a subsidiary of LT Commercial Real Estate Limited. In addition to the development of traditional financial services, Lerthai's Capital Group also actively develops businesses such as asset securitization of commercial properties, private equity funds of commercial real estate, real estate investment trusts (REITs) and asset acquisition. In order to grasp the opportunities of the Internet finance trend, Lerthai's Capital Group has applied for Type 1, 2, and 4 Licenses of the Securities and Futures Commission of Hong Kong, and has developed Type 9 License (asset management) business by acquiring Fullgoal Fund Management Company Limited. At the same time, Lerthai's Capital Group is actively applying for the Internet finance license in China and is studying Internet finance's innovative business model, product form and mobile terminal products based on big date and the cloud platform. The product lines will focus on an investment and financing platform across the whole industrial chain while also including segments such as investment funds. In this way, an investment and financing platform that integrates the products, platform, channels and clients will be established in the Internet finance sector.

In the future, the Company will leverage its brand, resource and experience advantages in the real estate development and finance fields to promote the continuous growth of the Company's assets and its leapfrog development. The Company is committed to becoming a global leader in the commercial real estate sector and realizing the corporate vision of "improving urban life with commercial properties for global businesses".