Shui On Land Spins Off Xintiandi to Focus on Development

Shui On Land Ltd., the Chinese developer that issued a profit warning this week, said it will spin off the unit that developed the Xintiandi restaurant and bar district to focus on development.

“Shui On’s portfolio and coverage is so big and property market is so competitive,” Chief Executive Officer Freddy Lee said in Shanghai yesterday. “It is very difficult to do both development and operation. After setting up China Xintiandi, we hope Shui On could focus more on development. Shui On will also try to do more smaller projects, so that will give financing a relief.”

Full-year profit will decline “significantly” because the company completed fewer properties last year compared with 2011, Shui On said in a statement to the Hong Kong stock exchange on Jan. 7. The Shanghai-based developer said in May last year that it had submitted a proposal for the unit’s initial public offering to the Hong Kong stock exchange. Shui On has no timetable for the IPO, which is still in progress, billionaire Chairman Vincent Lo said yesterday.

“We need to consider what’s best for our shareholders,” Lo said. “The stock market is volatile and it takes time for China Xintiandi’s IPO, so we are establishing the company first to let investors see its capability to make profits.”

‘Further Discount’

Shui On will hold about 50 percent of China Xintiandi and is looking for strategic investors for the rest, Lo said. China Xintiandi will start operations on March 1.

Shui On shares rose 0.5 percent to HK$3.86 at the close in Hong Kong, after having the biggest gain in almost two weeks.

“Everyone knows that Shui On wants to spin off the Xintiandi unit, but it all depends on valuation,” said Alvin Wong, a Hong Kong-based property analyst at Nomura Holdings Inc., in a phone interview. “I don’t see them listing within six to 12 months, because valuations are relatively cheap. There’s already a discount for Xintiandi and to spin it off they will need to offer a further discount to investors.”

Shui On trades at 4.7 times reported profit, compared with its five-year average of 5.5 times, based on daily data compiled by Bloomberg.

Lo will head China Xintiandi, which will buy properties from the parent. China Xintiandi will hold Xintiandi projects in Shanghai, Wuhan and Chongqing, and will be a pure commercial property asset management company focusing on retail, office, hotels and its entertainment hubs, Lo said.

Heaven, Earth

China Xintiandi will focus on managing, designing, leasing and marketing premium retail, office, entertainment and hotel properties in affluent urban areas in China, Shui On said in a statement to the Hong Kong stock exchange yesterday.

Xintiandi, which means New Heaven and Earth in Chinese, is a residential and commercial complex in Shanghai comprised of renovated houses from the 19th and 20th centuries. The project attracted local and international retailers and restaurants, including Starbucks Corp.

Shui On subsequently used the concept to build similar projects in Chinese cities including Chongqing and Wuhan.