If one were to be asked to name the major listed commercial property investors in the mainland market, entities like SOHO China (00410.HK) and Hang Lung Properties (00101.HK) would readily come to people’s minds. What escapes attention is Sun Hung Kai Properties Ltd. (SHKP) (00016.HK), as few realize that the Hong Kong-based behemoth has a sizable and fast-growing business in China.
At the end of June, SHKP had 81 million square feet (sq ft) of attributable land on the mainland. Of that, 9.5 million sq ft comprised completed offices and shopping malls earning gross rental income of more than HK$2 billion (US$256 million) in the last fiscal year. The properties include landmarks like the Shanghai ICC and the Shanghai IFC towers.
And this number is set to grow along with rising rental rates and an expanding portfolio, in particular following the completion of a mega project at the bustling Xujiahui commercial hub in Shanghai. Now take a look at SOHO China, a key local commercial property player. It has a land bank of 19 million sq ft, counting both completed and under construction projects. Although the company has vowed to switch from its build-to-sell model and transform itself into a major landlord, first-half revenue came almost entirely from property sales. Rental income was a meager 86 million yuan (US$14 million).
According to mainland reports, SOHO is showing signs of backtracking from its transformation plan as its rental business has been underperforming due to sub-par property management. The company may also have difficulty coming up with the huge capital needed to support its numerous investment projects given the much longer payback period of the leasing business model.
With internet shopping posing increasing threat to the retail outlets in traditional malls, even closely held mainland mall giant Dalian Wanda is reshaping its strategy to incorporate more entertainment elements by branching into movie theaters, amusement parks and studio, experiences the cyber world cannot replicate.
Compared to Hang Lung, a pioneer in investing in mainland shopping malls, SHKP still lags in leasing revenue derived from China market. However, it has a more balanced portfolio of malls, offices and hotels while Hang Lung’s assets are skewed more toward shopping malls.
Given the more diversified portfolio and rapidly expanding business, SHKP deserves a higher profile in the mainland.
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