- CSI Properties Limited

INVESTOR COMMUNICATION
CSI Properties expands with
its unique business model
The Hong Kong-based property group combines the features of a
developer and investor and is positioned to grow its operations in
mainland China.
P
roperty companies tend to be
slotted into two discrete boxes:
developers or investors. CSI
Properties is neither. The
group, controlled by executive chairman
Mico Chung since 2004, is a new breed of
property company in Hong Kong.
It bridges the divide between financial
investors, such as banks and private
equity firms, which take macro-views,
and local developers who respond to the
micro-environment and act on shortterm trends.
CSI combines both characteristics,
and indeed Chung embodies them
through his earlier careers as a banker
and lawyer, and his family’s long history
investing in Hong Kong property. He now
owns a 46.2% stake in the group.
Chung argues that the CSI
repositioning and enhancement model of
investment in commercial properties
and development of premium bespoke
“lifestyle” homes for affluent buyers
releases better value to its investors
through accurate timing of purchases and
sales in Hong Kong’s notoriously volatile
CASE STUDY 1: THE
HAMPTON, HAPPY VALLEY,
HONG KONG
l CSI bought the whole 15-unit building
in May 2008 for HK$290 million
(HK$7,800 per square foot) from Nan
Fung Development.
l It spent a further HK$170 million to
rebuild and convert 15 units into 11
larger sized apartments, with the all-in
cost at HK$12,000 per square foot.
l The units were designed and furnished
by a team led by award-winning
architect and designer Steve Leung.
l All units have been sold at an average
price of approximately HK$27,000 per
square foot.
41 FINANCEASIA JULY 2013
property market, and by a clear
understanding of the importance of
location. By asset value, CSI’s interests
are spread 70% in to commercial
property and 30% into its lifestyle brand,
Couture Homes.
The group has achieved an annualised
internal rate of return (IRR) of 60% since
inception, strong cash profit growth and
kept a consistent dividend payout.
The current market value of CSI’s
portfolio is approximately HK$16.6
billion ($2.1 billion), based on an
independent valuation in March 2013.
rental yield is stabilised.
Its well-executed business model has
meant that CSI has grown its asset base
from HK$300 million in 2003 to HK$10
billion today, a 33% average annual
growth rate.
CSI is now a leading investor and
developer in Hong Kong, and has been a
constituent of the MSCI Small Cap Index
since May 2011. It successfully launched
an inaugural five-year US$150 million
bond issue in January 2013 through JP
Morgan and Bank of America Merrill
Lynch.
COMMERCIAL PROPERTIES TO
LIFESTYLE HOMES
The Hampton, Happy Valley
The properties are valued at historical
cost with no revaluation surplus, which
represents a significant discount to net
asset value compared to other Hong Kong
real estate companies. It has
approximately two million square feet of
properties in Hong Kong and Shanghai
under the company’s active management
and development.
CSI has a four-stage process that
identifies, acquires, executes and exits
targets for its commercial properties
value enhancement model. Expertise and
experience combine for CSI
professionals to identify properties that
standout within their localities and have
room for rental enhancement. Next, CSI
formulates a repositioning plan then
executes its value enhancement strategy.
Capital appreciation is achieved and the
CSI started to invest in prime-site
commercial property in 2004 when prices
were low during the Sars epidemic. The
first purchase was the 100,000 square feet
office building at 88 Gloucester Road
owned by the Louis Vuitton family, bought
at a price of HK$196 million, and then sold
for HK$783 million at a substantial profit.
The proceeds were then used to invest in
commercial buildings and malls.
The group diversified into premium
lifestyle residential property four years
ago, creating a division called Couture
Homes. The market involves smaller
cash outlays than the HK$500 million to
HK$2 billion CSI had by then been
spending on commercial property. It is a
niche market that specialises in lifestyle
designs for lifestyle-oriented users
willing to pay a premium. It is lower
volume when compared with mass
residential markets, but earns high
margins.
“Couture Homes will be the key
growth driver going forward,
complementing our strong investment
property division,” says Chung.
CSI applies internationally-renowned
architectural and interior design
together with bespoke life-style
furnishing and decoration. The team is
FINANCEASIA.COM
led by vice-chairman Steve Leung, an
award-winning architect and designer.
Couture Homes is set to become the
leading lifestyle residential developer in
Asia, replicating the success of Candy &
Candy and SC Global Developments in
their products.
CSI’s first lifestyle development was
the HK$330 million purchase of a
detached house complex in Tai Tan in
2006. Refurbishment took around 16
months and the properties were sold for
HK$555 million within three years.
The group has identified huge demand
for lifestyle residences among business
professionals in Hong Kong and
Shanghai. Another significant
development was The Hampton in
Happy Valley.
“The Hampton epitomises the
superior quality of our residential units
by combining world-class design
concepts together with use of bespoke
furniture, fabrics and decoration to set
new standards of quality and lifestyles in
the high-end luxury residential market,”
says Chung.
Couture Homes has greenfield projects
planned covering around 860,000 square
feet, including Hong Kong’s first branded
residence, the yoo Residence in
Causeway Bay, prime sites at The Peak,
Kau To Shan and Jardine’s Lookout in
Hong Kong, as well a prime villa
development site at Qing Pu in Shanghai.
EXPANDING INTO MAINLAND
CHINA
Chung believes Shanghai has the same
potential as Hong Kong, supported by
China’s rapidly growing economy and
CASE STUDY 2: AXA CENTRE,
OVERLOOKING VICTORIA
HARBOUR
l Acquired 51% from AXA Insurance in
2006 and increased ownership to 90%
in 2007 for total cost of around HK$1.5
billion.
l Refurbished and upgrade building
facilities, and upgraded tenant mix,
including Porsche and Park ‘n Shop in
basement retail spaces.
l Increased rental income by 1.6 times in
three years.
l Sold office floors in stages from 2009,
making a profit of HK$1.2 billion and
earning an IRR of 39%.
FINANCEASIA.COM
The yoo Residence, Causeway Bay
wealth.
It started operations in the city in
2006 with an experienced management
team led by Ms Dong Yan. CSI’s
successful value enhancement projects
include the International Capital Plaza
which cost Rmb740 million ($120
million) in 2007 and was sold for
Rmb1.16 billion three-and-a-half years
later, and Novel Plaza which earned an
IRR of 84% in a holding period of one
year.
The group is now working on the In
Point shopping mall, the Platinum office
building, and a high-end residential
project at Qing Pu which will create
approximately 300 luxury villas and
apartments under the Couture Homes
brand. CSI intends to expand its China
investment from 30% of its portfolio with
a key focus In Shanghai.
CSI has substantial cash reserves,
accumulated through a decade of
effective investment and development
and timely sales. It continues to focus on
prime sites, especially in locations that
have the potential to become fashionable.
Turnaround projects are lucrative, but
are difficult to identify. A good example of
a successful project was in Causeway Bay
where CSI bought an office building in
the middle of a bustling tourist area and
converted it into a vertical food and
beverage centre.
During the first six years of its
existence CSI was able to find plenty of
bargains in a depressed market. However,
during the past four years there have
been fewer low-hanging fruit, so the firm
has carefully tracked market trends and
factors affecting supply and demand to
continue its successful investment track
record. Most investments have a holding
period of two-to-three years.
CSI employs about 45 staff in Hong
Kong and 35 in Shanghai, with teams
devoted to marketing, design and
projects focused on a clearly defined
China strategy.
Size is important for real estate
companies, and CSI must grow, but will
build organically, says Chung.
Acquisitions are possible, but they need
to be diligently processed and analysed. A
poorly-managed Real Estate Investment
Trust might attract the firm’s attention,
or perhaps a suitable niche property
company operating in Shanghai or
Beijing. Eventually, the firm is likely to
diversify once again, by concentrating
resources on the middle class massmarket once its residential brand,
Couture Homes, is well recognised in the
market.
CSI is on a clear path to becoming the
major mid-cap investment property and
lifestyle residential development group
in Greater China within five years. n
CONTACT
CSI Properties Limited
3108 Bank of America Tower
12 Harcourt Road
Central, Hong Kong
Master Logo
Tel: 852-2878-2800
Fax: 852-2878-7525
www.csigroup.hk
JULY 2013 FINANCEASIA 42