KEY INVESTMENT HIGHLIGHTS OF SF REIT - HKEX ...
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ
IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
KEY INVESTMENT HIGHLIGHTS OF SF REIT
SF REIT is the first logistics-focused REIT to be [REDACTED] in Hong Kong. Its key
investment objectives are to provide Unitholders with stable distributions, sustainable and
long-term distribution growth, and enhancement in the value of SF REIT’s properties.
The investment focus of SF REIT shall be income-generating real estate globally, with an
initial focus on logistics properties. The three Properties in SF REIT’s initial portfolio offer
investors direct exposure to modern logistics properties in Hong Kong and the PRC.
Backed by SFH, the largest express delivery company in China, and managed by a highly
experienced management team at the REIT Manager, SF REIT presents Unitholders with an
attractive investment proposition for the following reasons.
PRIME PROPERTY PORTFOLIO LOCATED AT STRATEGIC LOCATIONS IN HONG
KONG AND THE PRC
According to the Market Consultant Report, there is a growing shortage of modern
logistics properties in Hong Kong and the PRC. The shortage is primarily attributable to the
combination effect of the scarcity of suitable sites in the Greater Bay Area and other prime
cities in the PRC, as well as increasing demand from tenants in the logistics, express delivery,
e-commerce and cold storage sectors due to their rapid growth as a result of shifting consumer
demands globally.
SF REIT’s initial portfolio at [REDACTED] comprises three modern logistics properties
with distribution centres equipped with automatic sorting and supply chain support facilities.
Modern logistics properties can be distinguished from other logistics properties due to their
relatively low age and relatively high degree of modernisation, allowing them to be used by
tenants for multiple purposes and more efficiently. The Hong Kong Property is certified by the
U.S. Green Building Council as meeting the Leadership in Energy and Environmental Design
(LEED) Gold Certification standards. According to the Market Consultant Report, as at 30
September 2020, the Foshan Property was the sixth largest (by Gross Floor Area) modern
logistics property in the Nanhai District of Foshan and the 16th largest in Foshan, while the
Wuhu Property was the fourth largest modern logistics property in Wuhu.
As the Properties are relatively new, with a weighted average age by Gross Lettable Area
of approximately three years and a weighted average remaining land tenure by Gross Lettable
Area of 38 years as at 30 September 2020, they have been developed with modern technologies
and automated guided vehicles in mind which are attractive to tenants and allow the Properties
to command a rental premium compared to non-modern logistics properties. Given their age
and specifications, the REIT Manager does not expect substantial capital expenditure for
maintenance, refurbishment or upgrade of the Properties in near term.
The Properties are situated at strategic locations close to major airports and seaports, and
accessible by major roads and expressways, in their respective cities.
– 112 –THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ
IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
KEY INVESTMENT HIGHLIGHTS OF SF REIT
Hong Kong Property
Completed in 2014, the Hong Kong Property, comprising a distribution centre equipped
with automatic sorting and supply chain support facilities, is a 15-storey ramp-up modern
logistics property, which is characterised as a modern logistics property that provides vehicular
ramp access to each warehouse floor. The Hong Kong Property has an aggregate Gross Lettable
Area of 1,725,692.5 sq.ft. (equivalent to 160,322.2 sq.m.) and is the largest of the Properties
by size and Appraised Value, comprising approximately 52.1% of the total Gross Lettable Area
and 86.6% of the total Appraised Value of the Properties as at 31 December 2020. Located in
Tsing Yi adjacent to Kwai Tsing Container Terminal No. 9 that connects to other business ports
in the world, the Hong Kong Property is in close proximity to Hong Kong International Airport,
and accessible by major roads and transportation infrastructure such as the Hong Kong-Zhuhai-
Macao Bridge and Guangzhou-Shenzhen-Hong Kong Express Rail Link.
Hong Kong, being a key node city under the “Belt and Road Initiative” and a core city
in the Greater Bay Area, is recognised as an international logistics and trade hub. Benefiting
from Hong Kong’s free trade policies, low tax rates and proximity to the PRC, the logistics
sector has grown and expanded rapidly over the last decade, giving rise to an increasing
demand for more and higher quality warehouse space in Hong Kong. Modern logistics
properties with built-in smart facilities and systems are preferred by logistics operators over
traditional warehouses.
There is a limited supply of modern logistics properties in Hong Kong. According to the
Market Consultant Report, approximately 76.0% of the modern logistics properties in Hong
Kong are more than 20 years of age and only approximately 18.8% are less than ten years of
age as at the end of 2020, with the average vacancy rate of the latter being as low as 2.4% in
the second quarter of 2020. Further, no additional modern logistics pipeline projects in Hong
Kong are expected to complete before 2022. It is also difficult to convert non-modern logistics
properties to modern logistics properties since conversion would involve significant physical
transformation, such as loading capacity and net ceiling height, which is costly and
time-consuming. Conversion may not be feasible, for example, where a traditional warehouse
is located in a place with low power distribution that fails to meet the high energy consumption
requirements of modern warehouses. Due to the limited supply of modern logistics properties
in Hong Kong, they commanded a 17.7% premium in rent over non-modern logistics properties
in 2019.
These market conditions, together with the Hong Kong Property’s prime location, modern
facilities and optimised leasing strategies, give the Hong Kong Property a competitive edge
that is conducive for future growth.
– 113 –THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ
IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
KEY INVESTMENT HIGHLIGHTS OF SF REIT
Foshan Property
Completed in February 2021, the Foshan Property is a modern logistics property which
has an aggregate Gross Lettable Area of 84,890.8 sq.m. and is equipped with intelligent
technology and built-to-suit facilities, such as automatic sorting and supply chain support
facilities. It is strategically located close to Foshan Shadi Airport, Foshan West Railway
Station, Guangzhou Railway Station and Guangzhou Baiyun Airport.
Foshan is a core city located at the Pearl River Delta in the south-central part of
Guangdong Province. It is one of the 11 cities in the Greater Bay Area, with established
transport links to other parts of the Greater Bay Area. Foshan serves as the main interchange
station for a number of railway routes, including the Guangzhou-Zhuhai intercity railway
which links Foshan with Guangzhou, Zhongshan, Zhuhai, Hong Kong and Macao.
Due to the synergetic development of cities in the Greater Bay Area and the position of
Foshan as the manufacturing centre of west Greater Bay Area, there is a robust demand for
logistics properties and other logistics facilities in Foshan. According to the Market Consultant
Report, the demand for modern logistics properties in Foshan has risen with an average
year-on-year rental growth rate of 38.8% from 2016 to 2020, with the average annual vacancy
rate of such properties being 10.3% as at 30 June 2020.
With emerging demand for modern logistics properties in Foshan, the average rent for
these properties increased from RMB0.89 per sq.m. per day in 2015 to approximately
RMB1.15 per sq.m. per day during the second quarter of 2020. The Market Consultant
estimates that by 2025, the vacancy rate will fall further to 7.1%, while rent will continue to
rise to approximately RMB1.39 per sq.m. per day.
Wuhu Property
Completed in 2018, the Wuhu Property is a modern logistics property with an aggregate
Gross Lettable Area of 62,777.8 sq.m. and comprises of two high standard warehouses, a
distribution centre equipped with automatic sorting and supply chain support facilities, a
research and development building and two ancillary buildings. The Wuhu Property is located
within the Jiujiang Economic Development Area, a national level development zone and a
cluster for logistics and industrial enterprises in Wuhu. It enjoys close proximity to Wuhu East
High Speed Railway Station, Wuhu International Cargo Port and Ningwu Highway.
Following the opening of the Shangqiu-Hefei-Hangzhou High Speed Railway in June
2020, Wuhu is approximately 4 hours commute from Beijing and 1.5 hours commute from
Hangzhou. Wuhu is also located near the Wuhu Port along the southern end of the Yangtze
River, which is one of the 28 major river ports in the PRC. With advanced highway, railway
and shipping networks boosting inter-city connectivity, Wuhu’s positioning as a key
transportation hub in the Yangtze River Delta Economic Region and a national transportation
hub in the PRC drives its logistics industry and logistics property market.
– 114 –THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ
IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
KEY INVESTMENT HIGHLIGHTS OF SF REIT
Leveraging on its competitive capabilities in automobile, mechanical, materials,
electronics and cables industries, Wuhu is able to connect with comprehensive industrial chains
nationwide. E-commerce and third-party logistics sectors have also established and expanded
their presence in Wuhu, further driving demand for logistics and warehousing facilities.
CAPITALISING ON THE GROWTH OF THE HONG KONG AND PRC LOGISTICS
AND E-COMMERCE MARKETS
The REIT Manager believes that the Properties are well-positioned to capture increasing
demand for modern logistics properties arising from the growth of the logistics and
e-commerce markets, as well as favourable government policies in Hong Kong and the PRC.
Growth of the Hong Kong and PRC logistics and e-commerce markets which drive the
demand for logistics facilities
With its strategic location in Asia, Hong Kong is able to capture both growing domestic
inbound and international outbound trade demands. According to the Market Consultant
Report, in 2019, Hong Kong has the busiest airport for cargo since 2006, the eighth busiest
container port and the fourth largest shipping register in the world. According to the Logistics
Performance Index Report published by the World Bank, Hong Kong’s logistics industry has
been ranked in the world’s top 10 during 2012 to 2018. Meanwhile in the PRC, numerous
national strategies, such as the 13th Five-year development plan for express delivery industry
(快遞業發展“十三五”規劃) promulgated by the PRC Government in 2017, seek to advance the
logistics industry in the PRC. The express delivery market in the PRC grew at a CAGR of
approximately 28.3% during 2015 to 2019 and the Market Consultant estimates that the total
revenue of the express delivery will continue to increase steadily at a CAGR of 15.0% from
2019 to 2025.
The growth of the e-commerce market in Hong Kong and the PRC is a major driver for
the logistics properties market as e-commerce activities require comprehensive logistics and
warehousing support for merchandise storage and distribution. Underpinned by increasing
internet usage and household spending power in Hong Kong and the PRC, the e-commerce
market has expanded rapidly in these markets over the last decade. According to the Market
Consultant Report, the size of Hong Kong’s e-commerce market increased with a CAGR of
34.8% from 2015 to 2019 and is expected to continue increasing at a CAGR of 15.1% from
2019 to 2025, while the CAGR for e-commerce market in the PRC was 28.5% during 2015 to
2019 and is expected to be 12.8% during 2019 to 2025. The outbreak of the COVID-19
pandemic has also accelerated structural changes in consumers’ spending habits and retailers’
supply chain management, causing retailers and suppliers to modernise and improve their
logistics facilities and capabilities in response to these changes.
– 115 –THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ
IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
KEY INVESTMENT HIGHLIGHTS OF SF REIT
Favourable government policies which encourage the growth of the modern logistics
property market
To support future trade flow, the Hong Kong government has issued many initiatives,
master plans and policies to support the construction of transportation infrastructure. The major
existing and upcoming infrastructure projects, such as: (i) the third runway of Hong Kong
International Airport; (ii) the Liantang, Heung Yuen Wai Boundary Control Point; (iii) the
Hong Kong-Zhuhai-Macao-Bridge; and (iv) the Shenzhen Bay Bridge, enhance the
connectivity between Hong Kong and the PRC and promote the growth of the trading and
logistics sectors as well as the modern logistics property market in Hong Kong.
The PRC government has introduced a series of favourable policies and reforms to
support the development of the logistics sector in the PRC, which consequentially benefits the
modern logistics property market. These policies generally pertain to logistics infrastructure
and taxation benefits. For example the: (i) “Layout and Construction Plan of National Logistics
Hubs (《國家物流樞紐佈局和建設規劃》)” issued by the NDRC and the Ministry of Transport
in 2018, emphasises the importance of national logistics hubs and government support on
logistics land use; and (ii) “Implementation Opinions on Supporting Private Enterprises in
Accelerating Reform, Development, Transportation and Upgrading (《關於支持民營企業加快
改革發展與轉型升級的實施意見》)”, reduces the logistics costs and establishes logistics
infrastructure land guarantee mechanism.
HIGH-QUALITY AND STABLE TENANT BASE
As the Properties were initially developed to support SFH’s logistics network and to
facilitate its global operations, most of the Gross Lettable Area of the Properties have been
leased to and operated by subsidiaries of the SFH Group, which collectively contributed
approximately 62.4%, 72.1% and 76.6% of the total revenue for each of the two years ended
31 December 2018 and 2019 and the nine months ended 30 September 2020, respectively. Save
for the Foshan Property which is currently leased entirely to a local operating subsidiary of
SFH, the Properties are also tenanted by other third party supply chain and logistics companies.
During the Track Record Period, there were no major rental delinquencies or dispute in respect
of the Properties.
While the SF Connected Tenants contribute a relatively high percentage of the total rental
income generated by the Properties, the REIT Manager considers this arrangement to be
beneficial to SF REIT as it provides a high degree of income stability for SF REIT. Given
certain facilities were specifically built to suit their operational needs and large capital
expenditures were spent, for example, on building heavy machinery and equipment to their
specifications, the REIT Manager does not expect the SF Connected Tenants to vacate the
Properties for other modern logistics properties in the short to medium term. In addition, all
subsisting SF Leases are for a term of five years and do not allow the SF Connected Tenants
to early terminate save for limited circumstances such as the occurrence of force majeure
events. The SF Lease Guarantees provided by SF Holding and Shenzhen SF Taisen in respect
of all the SF Connected Tenants’ obligations under the SF Leases provide additional certainty
– 116 –THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ
IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
KEY INVESTMENT HIGHLIGHTS OF SF REIT
of income stream of the Properties and stability of distributions to Unitholders. For further
details of the SF Lease Guarantees, please refer to the section headed “[Connected Party
Transactions – Continuing Connected Party Transactions – Fully Exempt Continuing
Connected Party Transactions with SF Connected Persons – SF Lease Guarantees]” in this
Document.
REPUTABLE AND COMMITTED SPONSOR WITH EXTENSIVE NETWORK AND
EXPERIENCE IN LOGISTICS SECTOR
SF REIT is sponsored by SFH, a company listed on the Shenzhen Stock Exchange and one
of the PRC’s leading express and logistics service providers of comprehensive end-to-end
integrated logistics and supply chain management solutions. SFH wholly owns the REIT
Manager and is expected to indirectly hold approximately [REDACTED]% of SF REIT
(assuming the [REDACTED] is not exercised) at the time of [REDACTED]. As such, SF
REIT stands to benefit from SFH’s market reach and mature logistics network both in Hong
Kong and the PRC.
SFH is a leading integrated logistics services provider in China. Founded in 1993, SFH
is one of the earliest express delivery companies in China and has grown into a leading
logistics player with the best performance on time-definite parcel service in 2019 according to
the State Post Bureau of China. Over the years, SFH has gradually expanded from core express
delivery into comprehensive business segments of the logistic industry including freight, cold
chain, international and intra-city services, cross-border logistics and supply chain
management. SFH is the largest express delivery company in China and ranked fourth globally
in terms of revenue among all postal and express delivery services enterprises in 2019,
according to the Market Consultant Report. According to the Express Delivery Service
Satisfaction Survey conducted by the State Post Bureau of China from 2013 to 2020, SFH
ranked first in overall satisfaction for eight consecutive years.
Over the last 28 years, SFH has developed a comprehensive and integrated logistics
network, which is made up of (a) a ground network with (i) a nationwide express delivery
network covering 335 prefecture-level cities, 2,835 county-level cities and approximately
18,000 direct service points in the PRC and (ii) an overseas express delivery network covering
71 countries as at 30 June 2020; (b) an aviation network with a total of 73 all-cargo aircrafts,
2,004 cargo aircraft and commercial flight routes as at 30 June 2020 and an average of 3,202
flights per day for the six months ended 30 June 2020; and (c) an information network with
smart platforms, artificial intelligence systems and smart logistics map to support SFH’s
logistics and supply management solution offering.
– 117 –THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ
IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
KEY INVESTMENT HIGHLIGHTS OF SF REIT
GROWTH POTENTIAL THROUGH FUTURE ACQUISITIONS OF PIPELINE ASSETS
FROM THE SFH GROUP
To support the expansion of its logistics operations and service network, SFH has
developed or acquired a number of real estate projects across the PRC. As at 30 June 2020, SFH
has property projects in 46 PRC cities, with total planned construction area of approximately
4.7 million sq.m., and completed construction areas of 1.6 million sq.m.. Many of these
property projects, like the Properties, are modern logistics properties which have integrated
facilities dedicated to the sorting, distribution and/or storage of goods.
As the sponsor of SF REIT, SFH is committed to support the future expansion and growth
of SF REIT. Accordingly, SFH has agreed to grant a ROFR which shall give SF REIT access
to potential acquisition opportunities from SFH or SFH Relevant Subsidiaries for the first five
years upon [REDACTED]. Under the ROFR, if SFH or SFH Relevant Subsidiaries propose to
dispose of a Relevant Property, SFH must first give a Sale Notice to the REIT Manager and the
Trustee and allow the REIT Manager to elect to exercise the ROFR to acquire such property
by a pre-agreed time. A Relevant Property must meet the following criteria: (i) the property
must fulfil (or would reasonably be regarded as fulfiling) the investment criteria and property
characteristics, and is consistent (or would reasonably be regarded as being consistent) with the
investment strategy of the REIT Manager for property investments by SF REIT; (ii) the
property must be a completed property; and (iii) SFH directly or indirectly holds majority
ownership interest in the property, and no pre-emptive rights have been granted to the minority
owners (if any). For further details, please refer to the section headed “Material Agreements
and Other Documents – Deed of Right of First Refusal” in this Document.
The REIT Manager believes the ROFR, backed by SFH’s network and resources, will be
beneficial and instrumental to SF REIT’s future expansion and income growth. After
[REDACTED], the REIT Manager will, leveraging on its knowledge and expertise in
conducting property investment, actively search for suitable acquisition opportunities for SF
REIT.
– 118 –THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ
IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
KEY INVESTMENT HIGHLIGHTS OF SF REIT
HIGHLY EXPERIENCED MANAGEMENT TEAM WITH A PROVEN TRACK
RECORD
SF REIT is managed by the REIT Manager, SF REIT Asset Management Limited, who has
the overall power and responsibility to manage SF REIT and the Properties. The REIT Manager
is supported by the PRC Operations Managers and the Hong Kong Property Manager, who have
been delegated certain day-to-day operational functions but are subject to the oversight and
supervision of the REIT Manager. Each of the REIT Manager and the PRC Operations
Managers are indirectly wholly-owned by SFH and composed of personnel who have been
operating and managing the Properties historically. The Hong Kong Property Manager, being
an independent third party of SF REIT and a reputable professional property management
service company, has serviced the Hong Kong Property since 2017.
The operation and property management teams have a proven track record of actively
managing the Properties and delivering consistent operating results. The Properties recorded a
high average Occupancy Rate of 94.9% as at the Latest Practicable Date, and the NPI increased
by 6.9% year-on-year from 2018 to 2019.
For further details about the backgrounds and track record of the PRC Operations
Managers and the Hong Kong Property Manager, please refer to the section headed “The PRC
Operations Managers and the Hong Kong Property Manager” in this Document.
The Board and the senior executives of the REIT Manager have extensive industry
experience in property investment and property management as well as expertise in the
logistics industry. The senior management team of the REIT Manager, who will be responsible
for the day-to-day operation of SF REIT, is highly experienced in managing a REIT’s
investments and operations. In particular, Mr. Hubert Chak, the Chief Executive Officer, an
executive Director, and a [REDACTED] of the REIT Manager, has over 30 years of experience
in the real estate and financial industries and was previously the director of finance and a
responsible officer at Link Asset Management Limited, the manager of Link Real Estate
Investment Trust (stock code: 823), where he oversaw the finance, capital markets and investor
relations functions of Link Real Estate Investment Trust.
Having regard to the track record of the operation and property management teams as well
as the expertise and experience of its senior management team, the REIT Manager is confident
that SF REIT will be able to deliver to Unitholders long-term and stable distribution with
continuous enhancement of the value of its assets.
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