Interim Results (1352P)

TIDMPACL

RNS Number : 1352P

Pacific Alliance China Land Limited

28 September 2011

Pacific Alliance China Land Limited

('PACL' or the 'Company')

Unaudited Interim Results for the six months ended 30 June 2011

Pacific Alliance China Land Limited ('PACL' or the 'Company'), an AIM-traded, closed-end investment company with a portfolio of investments including existing properties, new developments, distressed projects and real estate companies in Greater China, has today announced its financial results for the six months to 30 June 2011.

Financial Highlights

-- Net asset value as at 30 June 2011 was US$253 million, representing US$1.81 per share, a 3.6 per cent increase on the prior six months to 31 December 2010 (US$242 million, representing US$1.75 per share) and an annualised increase of 18 per cent since the Company's inception. -- The Company's share price closed at US$1.215 on 30 June 2011, representing a 46 per cent year-on-year increase. PACL's share price has consistently outperformed major benchmark indices including the FTSE 350 Real Estate Index and the FTSE AIM All-Share index.

Portfolio and Fund Developments

-- During the first quarter of 2011, PACL sold its remaining indirect interest in HNA Airport for a total of US$14.5 million which, together with previous partial realisations, brings total consideration of HNA Airport to US$27.4 million in cash of which US$13.6 million is attributable to PACL. This represents a 1.3x gross cash multiple. As part of the sale, the Company received options in HNA Airport, exercisable subject to a number of conditions, which could potentially provide significant future upside for PACL. -- In June 2011, the Company exercised its put option to sell its 40 per cent interest in Project Blue Bird back to its JV partner, Vanke, for a total of RMB125 million, of which RMB62 million is attributable to PACL. This represents a net IRR of 16 per cent and a net cash multiple of 1.3x.

According to Patrick Boot, Managing Director, Pacific Alliance Real Estate Limited, the Company's strong focus and weighting on the China commercial property sectors is driving PACL's growth.

"As the residential property sector in China continues to be affected by tight monetary policy and strict government regulation, commercial real estate continues to benefit from rising wages and increased consumption, which is driving returns for our portfolio. We are also seeing increased demand and new opportunities for alternative lending, including bridge financing and co-developments, from developers with solid projects and prospects that have been negatively impacted by stricter onshore bank lending policies," he said.

"Given this situation we will continue to monitor the price corrections in the residential sector closely over the next 12 months; as developers become more cashflow constrained there will likely be some good buying opportunities for PACL".

For further information please contact:

 
 MANAGER:                               LEGAL COUNSEL: 
  Patrick Boot, Managing Partner         Jon Lewis, General Counsel 
  Pacific Alliance Real Estate           PAG 
  Limited                                T: (852) 2918 0088 
  15/F, AIA Central                      F: (852) 2918 0881 
  1 Connaught Road                       jlewis@pagasia.com 
  Central, Hong Kong 
  T: (852) 2918 0088 
  F: (852) 2918 0881 
  pboot@pagasia.com 
 BROKER:                                NOMINATED ADVISER: 
  Hiroshi Funaki                         Philip Secrett 
  LCF Edmond de Rothschild Securities    Grant Thornton Corporate Finance 
  T: (44) 20 7845 5960                   T: (44) 20 7383 5100 
  F: (44) 20 7845 5961                   Philip.J.Secrett@uk.gt.com 
  funds@lcfr.co.uk 
 MEDIA RELATIONS: 
  Stephanie Barry 
  PAG 
  T: (852) 3719 3375 
  sbarry@pagasia.com

Notes to Editors:

About Pacific Alliance China Land Limited

Pacific Alliance China Land Limited ("PACL") (AIM: PACL) is a closed-end investment company that was admitted to trading on the AIM Market of the London Stock Exchange in November 2007. PACL is focused on investing in a portfolio of existing properties, new developments, distressed projects and real estate companies in Greater China.

For more information about PACL, please visit: www.pacl-fund.com

Pacific Alliance China Land Limited is a member of PAG (formerly known as Pacific Alliance Group), which is one of the region's largest Asia-focussed alternative investment managers, with funds under management across Private Equity, Real Estate and Absolute Returns strategies.

Founded in 2002, PAG now has a presence across Asia with over 270 staff working in the region.

For more information about PAG, please visit: www.pagasia.com

Chairperson's Statement

Pacific Alliance China Land Limited ("the Company") delivered a solid performance during the first half of 2011. The Company's net asset value (NAV) was US$253 million or US$1.81 per share as of 30 June 2011, a 3.65 per cent increase from 31 December 2010 and a 2 per cent increase from 30 June 2010. The performance can be attributed to the Company's continued commitment to a combination of defensive and growth investment strategies which has delivered significant value to shareholders.

The outlook for the property sector in China continues to be dominated by the Chinese government's focus on inflation and tightening monetary policy. In the first six months of 2011, The People's Bank of China twice raised the deposit reserve requirement ratio, bringing it to an historic high of 21.5 per cent as of June 2011, yet the upward trend in the consumer price index continues. As such, the government is likely to remain committed to policies to slow growth in the residential property sector.

The impact of these policies is starting to be felt in some areas. Residential sales volumes in some tier 1 and tier 2 cities have decreased and prices have decreased slightly, particularly for projects located in city outskirts. However, in many of the stronger tier 3 cities where government policy has not been as strictly applied, sales volumes and prices have held steady. Irrespective, onshore bank borrowing has continued to become even more difficult and many developers have begun seeking funds offshore or via alternative domestic financing options. It is this flight to alternative financing which is generating new opportunities for our business, particularly in bridge financing and co-development deals with preferred returns.

To date, our focus on the commercial property sector has insulated the Company from much of the volatility in the residential property sector, while at the same time allowing the Company to capitalize on the strong growth of the office/retail property market driven by rising wages and increased consumption.

In the first half of 2011, the Company successfully exited two projects: Hainan Airport and Project Bluebird and will continue to look for further exit opportunities at attractive pricing which can be accretive to the Company's NAV.

The Board of Directors and the Investment Manager would like to take this opportunity to thank you for your continued support. We are confident that our opportunistic multi-strategy investment approach will continue to deliver attractive risk-adjusted returns to shareholders despite the challenging current macro environment.

Margaret Brooke

Chair

Investment Manager's Report

Portfolio Performance

As at 30 June 2011, the Company's unaudited total net asset value ("NAV") was US$253 million, at US$1.81 per share. This is a 3.65 per cent increase from the NAV in the Company's 2010 audited financial statements and an annualized increase of 18 per cent since inception. Independent valuations are currently undertaken on a quarterly basis by recognized international valuation firms and real estate appraisers.

On 30 June 2011, the Company's share price closed at US$1.215, a 46 per cent increase year-on-year and a 33 per cent discount to the unaudited NAV per ordinary share. PACL's share price has outperformed major benchmark indices including the FTSE 350 Real Estate Index and the FTSE AIM All-Share Index on a consistent basis.

 
                                                From 
                                   1 January 2011 to 
                                        30 June 2011 
                                                 US$ 
 Realized Gain 
 Investment interest income                4,497,500 
 Dividend income                                   - 
 Deposit interest                            112,867 
 Other income                                      - 
                                      -------------- 
                                           4,610,367 
 Change in Unrealized Gain 
 Pre-IPO financing                       (3,300,823) 
 Bridge financing                          1,036,010 
 Co-development                            3,142,452 
 Other real estate investments            16,490,808 
 Share of profits payable to 
  PACL II                                (1,284,361) 
 Foreign exchange                          3,189,797 
                                      -------------- 
                                          19,273,883 
                                      -------------- 
                                          23,884,250

Portfolio Summary

As at 30 June 2011, the Company held investments with a cost of approximately US$148 million and fair value of US$345 million. The Company's portfolio is diversified across five strategies including bridge financing, co-development, pre-IPO financing, platform investment and asset acquisition.

Breakdown of Investments by Strategy

 
                     Fair Value    Type of               % of 
 Investments          US$          investment           Total         Location 
                                   Platform 
 Project Malls       101,217,300   Investment          24.76%   Mainland China 
                                   Asset 
 Project Diplomat    61,589,529    Acquisitions        15.06%          Beijing 
                                   Pre-IPO 
 Project Auspice     55,695,600    Financing           13.62%   Mainland China 
                                   Bridge Financing 
 Project Speed       48,957,746     (1)(2)             11.97%         Guandong 
 Project Winpoint    25,406,859    Co-Development       6.21%         Hangzhou 
                                   Co-Development 
 Project Blue Bird   19,455,298     (2)                 4.76%          Qingdao 
 Project Shanghai                  Co-Development 
  Jingrui            17,005,439     (2)                 4.16%           Huzhou 
 Project Beijing                   Bridge Financing 
  Olympic            14,963,957     (1)(2)              3.66%          Beijing 
 Hainan Airport                    Pre-IPO 
  Group- Options     1,196,677     Financing (2)        0.29%   Mainland China 
 Cash                63,353,723    Cash                15.50% 
 TOTAL               408,842,128                      100.00%

(1) The allocation by strategy as per the Investment Manager's report differs from the unaudited financial statement investment schedule. The cost of the loans receivable disclosed in the unaudited financial statement schedule represents the cost of investments for accounting purposes, which are higher than the respective cost of the loans according to the terms under the loan agreements. Collection/repayment of loans receivable is calculated based upon the effective interest method in the unaudited financial statement schedule, whereas in the Investment Manager's report and newsletter, in accordance with the legal agreements, the cost is reduced prior to a reduction of interest.

(2) The investment value includes an amount attributable to the PACL II shareholders.

Investment Strategy

During the first half of 2011, credit tightening, purchase limits and increasing inflationary pressure significantly impacted the residential property market. Despite this, the Manager believes that residential markets still offer attractive opportunities for returns from investments with good fundamentals and an absence of purchase limits. The Company will continue to look for opportunities in tier 1 and 2 cities where purchase limits are applied, but has introduced more stringent underwriting standards in assessing these investments.

Conversely, the office and retail property sectors continue to enjoy more favorable market conditions without the inflationary and subsequent regulatory pressures that impact the residential sector. According to recent Jones Lang/PWC/Colliers research, sales prices and rental rates have increased in most tier 1 and 2 cities, and vacancy rates have dropped to below 10 per cent for Grade A offices in all major tier markets for the first time since the 2008 global financial crisis.

This is good for our portfolio which is over 70 per cent weighted in the office, retail and leisure sectors which means our existing investment portfolio has limited exposure to the Chinese government's policy measures directed at reducing speculative demand in the major residential property markets. Furthermore, commercial propertiesrepresent an efficient and effective inflation hedge, as rents correlate positively with inflation due to rising land and building costs.

Looking ahead, we have two key focus areas for the second half of 2011. First, we will continue to focus onimproving the operations of our existing investments and maximizing the net asset value of each investment. Second, we anticipate growing demand for capital from small-to-medium size developers and some large listed developers as monetary policy continues to tighten and reduce market liquidity. We will look for new opportunities in alternative lending at attractive margins.

Defensive Strategies

Bridge Financing

Continued credit tightening is generating new demand for bridge financing from small-to-medium size developers. The Company's bridge financing solutions provide developers with cash critical to the completion of the development process. Projects must have sound real estate fundamentals, reasonable business foundations and borrowers must have good development track records.

Co-Developments with Preferred Returns

Residential inventories are rising due to purchase limits, bank interest rate hikes and credit tightening. Accordingly, the Company expects to see attractive opportunities for co-developments with preferred returns as domestic financing channels continue to shrink and developers experience reduced cash flow.

Growth Strategies

Value-Added Asset Acquisitions

In contrast with residential markets, where prices have softened slightly, existing or nearly completed retail/commercial properties with poor lease-up and/or ineffective management represent high value-add opportunities. We are actively exploring this investment sector and working closely with asset management service providers to identify various value creation opportunities.

Platform Investment and Pre-IPO Financing

Financing channels for developments are becoming increasingly restricted due to government cooling measures. As a result, some developers on track for an IPO may now be forced to consider strategic pre-IPO financing at a corporate and/or project level for additional funds. We expect this will open up new pre-IPO and platform opportunities. The Manager will pursue opportunities with quality companies with proven track records and high-quality land banks.

Distribution Policy

On 7 February 2011, the Company's distribution policy was modified to match distributions to shareholders with ordinary course realizations to maximize returns, instead of liquidating an investment primarily to fund distributions. The modified policy will also require that each distribution represent 50 per cent of the Company's net realized profit of the fully realized investment, with the returned principal plus the balance of the net realized profit available for reinvestment.

Conclusion

China's property market continues to face a challenging outlook, with residential markets in particular facing further cooling measures including rising interest rates, more restricted lending practices and purchase limits.

The Company's investment focus on commercial property has taken advantage of the upward movement in the commercial property market while maintaining minimum exposure towards the residential market. The Manager believes the Company will continue to capitalize on attractive investment opportunities during the current downturn while avoiding most residential property sector risk.

CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES

AS AT 30 JUNE 2011

 
                                               As at 30               As at 31 
                            Note              June 2011               Dec 2010 
                                                    US$                    US$ 
                                              Unaudited                Audited 
 Assets 
 Investments, at fair 
  value (Cost: 
  US$147,953,927; 
  2010: 
  US$155,493,106)        3,4,5,6            345,488,405            335,751,186 
 Other receivables                               56,720              1,500,000 
 Cash and bank 
  balances                     3             21,117,893             64,596,405 
 Restricted cash               7             42,235,830                      - 
                                   --------------------   -------------------- 
 Total assets                               408,898,848            401,847,591 
                                     ------------------     ------------------ 
 
 Liabilities 
 Amounts due to PACL 
  II Limited               11(a)             56,569,128            101,159,458 
 Performance fee 
  payable               10,11(b)              4,466,807             12,341,008 
 Bank loans                    7             38,121,000                      - 
 Provision for 
  taxation                     9             56,283,201             46,706,527 
 Accrued expenses and 
  other payables                                 32,081                135,878 
                                   --------------------   -------------------- 
 Total liabilities                          155,472,217            160,342,871 
                                     ------------------     ------------------ 
 
 Net assets                                 253,426,631            241,504,720 
 
 Analysis of net 
 assets 
 Share capital                 8              1,898,339              1,898,339 
 Share premium                 8            189,277,559            187,935,554 
 Capital surplus               8              1,816,917              1,816,917 
 Tendered shares               8           (50,635,345)           (52,378,592) 
 Retained earnings                          111,069,161            102,232,502 
                                   --------------------   -------------------- 
 Net assets 
  (equivalent to 
  US$1.8118 (2010: 
  US$1.7480) per 
  share based on 
  139,876,717 (2010: 
  138,156,860) issued 
  and outstanding 
  shares)                                   253,426,631            241,504,720