Carlyle seeks $254m REIT exit for China hotels

The Washington, DC-based private equity giant is hoping to exit from its investment in China hotel operator New Century Hotel Group via the Hong Kong REIT market, expecting Hong Kong and international investors to pay $254 million for the company and its portfolio.

The Carlyle Group is seeking to exit from its New Century Hotel Group hotel operating business and portfolio of hotels through a REIT listing, seeking to raise around $254 million. It would be Hong Kong’s first initial public offering of a REIT in two years, according to a company statement.

New Century Real Estate Investment Trust would be the first China-based hotel REIT, comprising four five-star hotels and one four-star hotel in Tier II cities in China, according to a New Century statement. The REIT has the option to acquire two other hotels owned by New Century Group, the statement read.

The five hotels offered in the REIT have a total of 2,021 rooms and comprise approximately 3.5 million square feet of gross floor area. They are subject to a management contract and lease to New Century Hotel Management for the next 10 years. Investors in the REIT can expect a distribution of 7.6 percent to 9.2 percent for 2013, it noted.

If successful, the Carlyle-backed IPO would become the first REIT to list on the Hong Kong stock exchange since 2011, when China-focused Hui Xian REIT, backed by Hong Kong billionaire Ka-shing Li, raised $1.6 billion, according to the Hong Kong stock exchange.

New Century’s IPO, which launched today and will conclude on Thursday, is expected to raise up to HK$1.97 billion (€194 million; $254 million), the statement said – despite what it described as poor market conditions. REITs in Hong Kong have taken a particularly hard beating of late, with their stock prices dropping as much as 20 percent since mid-May, according the Hong Kong stock exchange.

“Looking ahead, New Century REIT is well-positioned to capitalize on external growth opportunities as the New Century Group will provide New Century REIT with access to future acquisition opportunities,” said Miaolin Chen, chairman and non-executive director of New Century Asset Management.

New Century Group and Carlyle were listed as the REIT’s primary sponsors. Carlyle first invested in New Century Group in 2007, buying a 40 percent stake for $100 million. According to reports, the deal was made on behalf of its Carlyle Asia Partners II,  which launched in 2005 and attracted $1.8 billion from investors. The statement said that, after the offering, Carlyle is expected to “continue to offer strategic value to New Century REIT,” primarily through help with acquisitions.

The IPO has a range of international and Chinese underwriters, including Morgan Stanley Asia, Standard Chartered, Bank of China International and China Construction Bank.

The exiting of Carlyle’s investment via a REIT is the latest headline in a busy to time for Carlyle in Asian real estate. The firm’s Asia platform, which has $896 million of assets under management, launched Carlyle Asia Real Estate Partners (CAREP) III, its third opportunistic real estate fund with a $750 million target.

Carlyle declined to comment on either fundraising or the REIT listing.