News Alert: Opening up a channel for developers to unlock asset values
- CR Land (1109 HK) announced to spin off its two rental housing assets for CREIT listing after market close today, marking the first residential developer sponsor to enter the CREIT market.
- Despite asset restrictions in place, this will nevertheless added a channel for developers to replenish capital via offering route to unlock value of their eligible long-term rental housing and warehouse assets
- SOE developers like COLI and Vanke with a sizeable eligible asset pipeline are well poised to benefit next
What’s new
CR Land (1109 HK) announced it will spin-off its two rental housing assets for CREIT listing after market close today.
Our view
The first residential developer sponsor to enter the CREIT market with rental housing asset. We believe CR Land’s entrance into the CREIT market marks a step forward of the initiative that would meaningfully broaden the pool of eligible sponsors. It is also a positive signal on the property front, as while the funds raised will likely be refrained from direct bond repayments or investments into property development, this will nevertheless be offering an additional channel for developers to unlock value of eligible assets through the onshore equity market.
Market response is expected to be decent. CR Land plans to raise Rmb1.12bn from the spin-off, with the two underlying assets located in Shanghai. This could help the developer recoup >Rmb740m, with a 34% stake of the vehicle to be held by the sponsor after listing. Revaluation gains from the asset spin-off could be decent if referring to the three existing rental housing REITs’ 12%-52%. Given the satisfactory price performance of the three existing rental housing REITs since IPO in Aug (+32%-37%), we believe CR Land’s REIT will receive decent investor response as well when the deal launches.
Who else could benefit? We expect SOE developers with a sizeable eligible asset pipeline to follow suit and ride on the rapidly developing CREIT initiative. Apart from CR Land, COLI and Vanke are also well poised to benefit. Longfor and CIFI would be next in line when they are progressive included in the later future.