Singapore’s AEP Investment Management may team with maindland Chinese conglomerate HNA Group, which maintains an interest in Virgin Australia, to launch an A$1 billion ($768.7 million) real estate investment trust (REIT) anchored by office towers on Australia’s eastern seaboard.
In a development first reported by The Australian, which cited three executives familiar with the matter, the two firms have advanced plans to establish a vehicle to co-sponsor and list on the Singapore Exchange (SGX).
In 2016, AEP reportedly approached investment banks for advice on exit options for its unlisted Basil Property Trust; its assets include a Singapore business park and an A$161 million Brisbane office tower. Collaborating with HINA is likely to drive a listing and provide capital for expansion and listing of the REIT.
Chinese developers purchased almost 40 per cent of the A$5 billion spent on Australia’s residential development sites in 2016; a preference for land in Sydney and Melbourne suburbs far from the city centre was indicated.
Knight Frank’s report, The Rise of Chinese Developers in Australia, indicated that Chinese developers purchased A$2.4 billion of residential development sites in 2016. This is 38 per cent of the total value of sites solid, compared with 12 per cent of the total value of all sites in 2015.
In a blog post, Knight Frank noted: “Chinese developers and investors purchased AUD$2.4 billion worth of Australian residential development sites in 2016. This was 9.4% more than recorded in the prior year. This trend has been emerging over the past five years while the Australian residential market collectively strengthened throughout 2012 and in 2013, growth in sales turnover encouraged prices to rise for local developers and investors alike. At this time, the Australian dollar became very favourable against other currencies for investment into Australia. The Chinese renminbi was no exception.”
Knight Frank’s Head of Residential Research (Australia) Michelle Ciesielski commented: “While the Australian residential market collectively strengthened throughout 2012 and in 2013, growth in sales turnover encouraged prices to rise for local developers and investors alike. At this time, the Australian dollar became very favourable against other currencies for investment into Australia. The Chinese renminbi was no exception.”
She adds, “Opportunistic developers, many for the first time, considered Australia to build their next development after becoming a household name in homeland China. It was considered, and still is to some extent, worth the risk to build a first-time signature development (even if profitability resulted to just be break-even) to be accepted as a reputable developer by the local Australian market.”
The collaboration between AEP Investment and HNA could mark the first Australia-focused REIT co-managed by a mainland Chinese player, with the partnerships combining AEPs’ funds management and real estate skills with HNA’s financial resources and expertise in property, finance and tourism.
AEP has been growing a portfolio of Australian office buildings in Australia targeted at providing steady income yields and benefiting from the improvement in city leasing markets. Meanwhile, HNA has a Sydney office tower that could be included in the REIT and n May 2016 purchased a 13 per cent stake in Virgin Australia which it intends to increase to 19.99 per cent over time.
This REIT listing, should it occur, is complementary to the the potential acquisition of a controlling stake in Singapore-listed logistics company CWT. However, talks have stalled due to the deal’s structure.