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Tuesday, April 6, 2010

Ex-CapitaLand exec plans real estate funds

SINGAPORE: Perennial Real Estate, a firm set up by the former head of CapitaLand's shopping mall business, plans to launch property funds that will buy malls in China and Singapore to tap the region's growing consumer demand.

Pua Seck Guan, who left CapitaLand in 2008, is making a comeback in the property fund management scene, drawing on his experience in helping build the Singapore developer's regional shopping mall business and floating off assets via real estate investment trusts (REITs).

Perennial just closed a 1.2 billion yuan (100 yuan = RM47.35) Chinese shopping mall fund aimed at Chinese investors and it has started pre-marketing a similar fund aimed at international investors.

Beijing Hualian Group, a large Chinese retailer, is a cornerstone investor in the yuan-denominated fund, he said.
"Particularly in China, there is a huge amount of opportunity. There is no shortage in the pipeline (and) we can still buy malls at good valuations," Pua, who is Perennial's CEO, said in an interview.

He downplayed risks of a bubble in Chinese retail property, noting it was possible to acquire malls in Beijing for 12,000 to 13,000 yuan per square metre compared with prices of around 20,000 yuan per sq m for residences outside the city centre.

China's retail sales were also growing at a clip of over 15 per cent per annum, he added.

Michael Kerley, a fund manager at Henderson Global Investors, said concerns about property price bubbles in China were overstated, noting the country's high savings rates, rural-to-urban migration and strong gross domestic product (GDP) growth.

"If property prices go up by 20 per cent in London, that's a multiple of 5 times GDP. When they go up by 20 per cent in China, it is only a 1.5 times multiple of GDP," Kerley said.

Similar to CapitaLand and other developers that have diversified into fund management, Perennial is directly involved in the design and management of the malls.

In China alone, the firm employs about 450 people directly or through its partners.

"You need a platform to demonstrate you know the local market... We have anchor tenants who will follow us so we know what kind of rentals we can achieve. We are not the kind of fund managers who pluck numbers from the air," Pua said.

Chinese malls that the Perennial funds invest in will be divested to Shenzhen-listed Beijing Hualian Department Store once the malls develop a track record and are able to deliver steady rental returns.

The Shenzhen firm, which now owns 24 malls, is in the process of being renamed to reflect its status as a REIT-like vehicle for investors seeking fairly high, predictable dividends with the possibility of capital appreciation if property prices increase.

Beijing Hualian Group is an anchor tenant at several China malls owned or managed by CapitaMalls Asia, which was spun off by CapitaLand last year in a US$2 billion (US$1 = RM3.23) initial public offering.

As for Singapore, Pua said Perennial hoped to raise a S$300 million (S$1 = RM2.31) to S$400 million fund that will invest in underperforming malls as well as develop new projects.

The firm has already led one investment, paying S$248 million for Katong Mall in one of Singapore's wealthy eastern suburbs. Food retailer Breadtalk, which will be taking space at the mall after it is refurbished, was an investor in Katong Mall.

Pua, who is widely credited with building CapitaLand's malls business, resigned in September 2008, sparking a 7 per cent fall in the firm's share price amid already uncertain market conditions which caused Singapore's benchmark index to fall 3.5 per cent.

He is a civil engineer by training and holds a masters degree from the Massachusetts Institute of Technology.

Besides China and Singapore, Singapore-based Perennial, whose management includes several former CapitaLand executives, is also active in India where it advises property giant DLF on the retail business.

By Reuters

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