GZI Real Estate Investment Trust Plans to Raise Up to US$150 Million with Commercial Mortgage-Backed Bonds

Strategic Insights -

GZI Real Estate Investment Trust, which manages four properties in Guangzhou, is set to sell bonds backed by commercial properties, a move that marks the second such attempt in the mainland. The trust aims to raise up to US$150 million, with Citigroup, Deutsche Bank, and HSBC arranging the deal. This move comes on the heels of a recent bond sale by a venture between Macquarie and Wanda, a Dalian-based property developer, which raised US$145 million with a commercial mortgage-backed securitization in China.

GZI has already raised US$230 million through an initial public offering in December last year and has seen its share price fluctuate, with a current yield of 3.6 percent annually. The trust's properties, valued at HK$4 billion, were previously owned by Guangzhou Investment and have generated HK$103 million in income for distribution to shareholders. The recent transaction by Macquarie and Wanda was priced at 80 basis points over the three-month London interbank offered rate, with many investors expressing concerns about security over the properties and China's regulatory environment.

Key Takeaways:

  • GZI Real Estate Investment Trust plans to raise up to US$150 million through the sale of commercial mortgage-backed bonds, marking the second such attempt in the mainland.
  • Citigroup, Deutsche Bank, and HSBC are arranging the deal, following the successful transaction by Macquarie and Wanda, which raised US$145 million with a commercial mortgage-backed securitization in China.
  • GZI's properties, valued at HK$4 billion, have generated HK$103 million in income for distribution to shareholders, with a current yield of 3.6 percent annually.
  • The recent transaction by Macquarie and Wanda was priced at 80 basis points over the three-month London interbank offered rate.
  • Investors have expressed concerns about security over the properties and China's regulatory environment, leading to an extended book-building process.
  • Comparable transactions include the HK$3.6 billion bond sold by Link Real Estate Investment Trust and mortgage-backed notes sold by Fortune Real Estate Investment Trust.

Statistics:

  • US$150 million: the amount of funds GZI Real Estate Investment Trust plans to raise with commercial mortgage-backed bonds.
  • US$230 million: the amount of funds GZI raised through an initial public offering in December last year.
  • HK$3.17: the closing share price of GZI on Friday, down 8 percent this year.
  • 3.6 percent: the current annual yield of GZI Real Estate Investment Trust.
  • HK$103 million: the income available for distribution to shareholders at the end of June.
  • HK$4 billion: the net asset value of GZI's four properties.
  • 80 basis points: the price of the Macquarie/Wanda transaction over the three-month London interbank offered rate.
  • 5.12 percent: the Libor rate on Friday.
  • 132 basis points: the trading price of the two-year Link Reit bonds over comparable Hong Kong government bonds.
  • 5.1 percent: the yield of the two-year Link Reit bonds.

Sources:

  • A person familiar with the transaction
  • Market sources
  • "The Macquarie/Wanda transaction, based on nine retail properties in several mainland cities, was priced at 80 basis points over the three-month London interbank offered rate, according to bankers."
  • "Comparable transactions include the HK$3.6 billion bond sold in July by Link Real Estate Investment Trust, HK$290 million of mortgage-backed notes sold by Singapore's Fortune Real Estate Investment Trust last year and other notes sold by European firms, market sources said."
  • "The bonds, which mature in 2009, were just oversubscribed with many investors reluctant to take part due to concerns about security over the properties and China's opaque regulatory environment, sources said."