Apollo sells Trophy ‘jewel’ to Shui On for $564m

The New York-based private equity firm has sold Taipingqiao (TPQ) 116, the Shanghai development left in the China’s Trophy Property Development Fund, back to owner Shui On Land in a deal that sees investors rescue a large share of their original equity.

Apollo Global Management has sold its stake in a large residential-led development in Shanghai to its developer, the Hong Kong-listed Shui On Land, bringing to a positive close what was a painful saga for many investors involved with the asset.

Shui On announced today it has agreed to buy the stake in Taipingqiao (TPQ) 116, the single remaining asset left in the Trophy Property Development Fund, once China’s largest private real estate fund, in a deal which valued it at $564 million.

The fee is expected to be paid in two instalments, $157 million next month and then $407 million in December 2017.

Once paid, the 145 investors in the Trophy fund would see an ultimate return of 0.75x their original equity, when also taking into account earlier distributions.

While that represents a loss on the approximately $1 billion originally committed to Trophy in 2008, it represents a significant increase in value from when the fund’s equity was written down to just $430 million in 2013. That was after its investments, initially five minority stakes in Shui On Land developments across Shanghai, Wuhan and Chongqing, failed to perform as expected.

A sale therefore represents something of a vindication of a complicated agreement struck at the end of 2013 which saw the minority stakes swapped for the majority stake in the Shanghai asset and the spinning out of the fund’s management team from its previous owner, the Hong Kong-based hedge fund Winnington Capital.

The team, which is led by ex-Warburg Pincus and GE Capital Real Estate Asia head Philp Mintz, has spent the best part of the last two years improving the value of TPQ 116. That has been achieved largely via a combination of the asset swap completing and a more positive outlook for TPQ 116 and the Shanghai residential market.

One source, who declined to be named, said: “This deal represents an extraordinary good return from the restructuring. We’re talking about a 1.6x multiple and 17 percent IRR from that.”

The site includes approximately 300 homes across 271,468 square feet, 330 parking spaces and a club house.

Going forward, Mintz’ team will focus its efforts on managing the sale to completion in December 2017 as well as continuing with the wind down of CPI Capital Partners Asia Pacific, a $1.3 billion opportunity fund inherited via its takeover of Citi Property Investors. It is understood that approximately $250 million of assets in India remain, including the Ritz Carlton in Bangalore.

Apollo is also believed to be raising its first dedicated opportunistic vehicle in the region, for which it is aiming to raise up to $600 million.

Neither Apollo nor Shui On Land would comment.