HONG KONG-listed Heng Fai En-

terprises may have guided Sing-

Haiyi, previously a struggling inte-

rior fit-out firm, into Singapore’s

property development scene in

2006 and helped its market cap

to grow hundred-fold to about

$400 million in the immediate

years that followed, but Heng

Fai’s exit last year also left it in

the lurch, saddled with a portfo-

lio of residential projects amid

government measures to quell

property speculation.

Although three of its four

projects have sold well, sales at

one – the 56-unit freehold Cos-

moLoft in Balestier – have been

slow with only 10 per cent sold.

This led SingHaiyi to record an

impairment of $10.5 million for

FY2014 after the company com-

pared its sales and selling prices

to other projects in the vicinity.

In a recent interview, SingHai-

yi’s management told The Busi-

ness Times that more than just di-

versifying out of residentialprojects into the more resilientcommercial space – evident fromits taking of a 20 per cent stake inTripleOne Somerset earlier thisyear – the Catalist-quoted real es-tate firm is increasingly focusingon purchasing distressed proper-ties in the US.

For FY2014, SingHaiyi’s US op-erations accounted for $11.8 mil-lion (versus nothing for FY2013)or one-fifth of the group’s reve-nue, mainly from the sale ofunits at its Vietnam Town com-mercial condominium in SanJose, California, as well as rentalrevenue from its Tri-County Mallin Cincinnati, Ohio.

Both of these are troubled as-sets acquired at huge discountsto their net book values througha sister company, American Paci-fic International Capital (Apic),which is owned by the control-ling shareholders of SingHaiyi,Gordon Tang and his wife, Sere-na Chen.

The third and latest acquisi-

tion is the one the team is most

excited about: a half-occupied of-

fice building sitting on 4.7 acres

(204,300 square feet) of prime wa-

terfront land along San Francisco

Bay that will be demolished to

make way for a high-end commu-

nity for seniors.

Chairman Neil Bush, son and

brother to two former US presi-

dents, said: “There is a very clear

trend for the continuing care re-

tirement community concept in

the US. I’m really excited about

the low supply and high demand

as the senior population from the

baby-boomer generation grows

in size. It’s very affordable for

people who have homes to sell

their homes and buy this con-

cept, so we get the benefit of the

upfront entrance fee plus recur-

ring income from their stay.”

This housing concept for the

elderly, although not common in

Singapore, is a mature one in the

US, having been around sincethe 1970s. Residents payUS$3,500 to US$7,500 monthlyto live in a unit there, dependingon the level of care they need.

Asked if troubled assets makewise acquisition targets given theeffort needed to clean them up,Ms Chen, who is also group man-aging director, replied in Manda-rin: “We are picking them upcheap, but these are not rubbish,these are projects with potential.We’re very careful in our selec-tion, that’s why we’ve onlypicked three so far, despite hav-ing looked at 40 projects.”

It will take some time but sta-ble recurring income from thesenew acquisitions are expected toshake up the current US-to-Singa-pore’s 20:80 revenue ratio overthe next few years.

Of the US$180 million Sing-Haiyi raised last June to grow itsUS real estate portfolio, it still hasabout US$80 million left to de-ploy.

Reports by Lee Meixianleemx@sph.com.sg@LeeMeixianBTSingapore

THE days of swooping in to res-cue and turn around troubledcompanies through drastic corpo-rate restructuring are over forHong Kong-listed Heng Fai Enter-prises.

The company, which most re-cently washed its hands of Singa-pore-listed SingHaiyi by selling itto low-profile Chinese tycoonGordon Tang, told The BusinessTimes that its transformationfrom a compulsive “whiteknight” to a dedicated real estateinvestment trust (Reit) managerhas already borne its first fruit.

Its first two Reits, AmericanHousing Reit (AHR) and GlobalMedical Reit (GMR), with US sin-gle-family homes and healthcarefacilities as their respective as-sets, have both taken off; byFY15, they will migrate from theover-the-counter bulletin boardto the Nasdaq mainboard.

Not only that, AHR has distrib-uted its first quarterly dividend,which translates to an annual-ised yield of a whopping 8.39 percent.

GMR, which pays its divi-dends monthly and is a maindraw for US pensioners, is righton track to deliver its June divi-

dend – also in excess of 8 percent – next month.

Heng Fai Enterprises is look-ing to expand itself and its Reitsaggressively. The company hasappointed Allenby Capital as ad-viser for its secondary potentiallisting on London’s junior stockexchange, AIM. It also hopes tolist on the Singapore Exchangewithin the next 12 to 24 months.

As for its two Reits, regula-tions willing, the plan is for themto be listed in as many countriesas possible.

Tony Chan, the group manag-ing director and elder son ofChan Heng Fai, who controls thecompany, said: “So long as wecan get the structure right, andthe regulations allow for manage-able compliance of listing in vari-ous stock exchanges, which canbe quite cumbersome – if we cannavigate that – we can look evenbeyond the usual markets.”

The younger Mr Chan has noproblems with equity dilution:“We want dilution. We want ourownership in the Reits to drop be-cause the Reits are growing. Weare looking at doing substantialfund-raising at the Reit level.

“But if you can understandthe model, we want unlimitedgrowth for the Reits. We don’tmind that our ownership drops(from the current over 90 per

cent) to 10 per cent, and thenfive, and then one, and then halfa per cent, because the larger theReits are, the more substantialour management fee becomes.”

Fear of dilution often cripplesthe growth potential of listedcompanies in which a majorityshareholder is bent on maintain-ing his stake.

He said: “If all we did was is-sue shares at the parent compa-ny’s level, ultimately we wouldno longer be in control of thebusiness. With this model, itdoesn’t happen. We are only look-ing at very limited fund-raisingon the Heng Fai level – enough toget an interest on the AIM boardand a presence in Singapore.

“By limiting our dilution atthe parent company’s – the Reitmanager’s – level, the contribu-tion towards each shareholdergrows as well, creating value forthem. That’s the beauty behindthe business model.”

Single-family home Reits suchas AHR, a fairly recent post-finan-cial crisis phenomenon in theUS, came about after the govern-ment started rolling out pro-grammes to sell foreclosedhomes in bundles for cheap to in-vestors and property pricesplunged to levels that made rentyields alluring.

AHR has acquired more than

100 suburban homes from fami-lies which have become disen-chanted with home ownership orhave had their credit damaged inthe financial crisis. The Reit de-rives its income from regular rentpayments. It targets a portfolio of1,000 such homes worth US$130million by FY15 and is focusingits efforts in “landlord friendly”

states such as Texas, Georgia,Florida and North Carolina.

GMR, the medical Reit, seeksout developers and medical prac-titioners looking to unlock capi-tal from the healthcare facilitiesthey own. It completed its first ac-quisition in Omaha in the state ofNebraska for US$22 million inApril, and aims to achieve a net

asset value of US$400 million byFY15.

Two more Reits are in thepipeline: a global property Reitwith assets across sectors in theUS, China, Spain and Japan, anda “Reit of Reits” (a Reit owningother Reits) focusing on sin-gle-purpose properties such asdata centres.

Asset acquisitions requiremoney – which a Nasdaq listingand subsequent secondary list-ings can raise.

Mr Chan said: “In the next 12months, we hope our Reits willraise several hundred millions ofUS dollars and grow to be in thebillion-dollar range the followingyear.”

With a single Reit managerrunning all its Reits, Heng Faistands to save on operationalcosts through economies ofscale.

Interestingly, Heng Fai Enter-prises used to be a troubled prop-erty construction firm owned bya family whose infighting ran thebusiness to the ground.

Mr Chan’s father, who spenteight years buying its shares inthe open market, was given aseat on the board and appointedexecutive director in 1992. Hewas later asked to take over thecompany when another party at-tempted a hostile takeover.

Today, it is still a family busi-ness, with him as the visionarysetting the company’s macro di-rection, his son Tony executingthese ideas, and a younger son,Moe Chan, serving as the group’schief operating officer and chiefinvestment officer.

Ego was not why the seniorMr Chan renamed the companyafter himself last year. He foundhimself getting too attached to re-structuring companies and tim-ing the market to sell them, butthis one – his “last miracle com-pany” – is not for sale.

“Even if the price is right, Icannot sell myself,” he said.

Heng Fai Enterprises is seeing results from its first two Reits

From ‘white knight’to Reit grower

SingHaiyi eyeing more distressed US property

ON THE SAME PAGEThe company is still a family business, with the senior Mr Chan settingthe company’s macro direction, his son Tony (left) executing theseideas, and a younger son serving as COO and CIO. PHOTO: YEN MENG JIN

10 companies THE BUSINESS TIMES WEEKEND SATURDAY/SUNDAY, JUNE 7-8, 2014