On 31 December 2011, the Company's share price closed at
US$1.28, a 2.6% increase year-on-year and a 39% discount to the
audited NAV per share. PACL's NAV and share price have both
outperformed major benchmark indices including the FTSE 350 Real
Estate Index and the FTSE AIM All-Share Index on a consistent basis
since inception.
31 December 31 December
2011 2010
US$ US$
Realized Gain
Investment interest income 86,349,238 15,441,136
Dividend income 1,658,868 332,100
Deposit interest 1,345,620 581,868
Other income 4,550,860 1,209,875
------------------ ------------------
93,904,586 17,564,979
Change in Unrealized Gain/(Losses)
Pre-IPO financing (8,524,040) 29,829,626
Bridge financing (4,120,913) (5,129,675)
Co-development (6,442,003) 9,466,229
Other real estate investments 13,946,594 46,636,232
Share of losses / (profits) payable to
PACL II 2,383,238 (9,403,257)
Foreign exchange 7,478,035 4,479,011
------------------ ------------------
4,720,911 75,878,166
------------------ ------------------
98,625,497 93,443,145
Portfolio Summary
As at 31 December 2011, the Company held investments with a cost
of approximately US$129 million and fair value of US$312 million.
The Company's portfolio is diversified across five strategies
including bridge financing, Co-development, Pre-IPO financing,
Platform investment and asset acquisition.
Breakdown of Investments by Strategy
Attributable
Fair value % of to PACL
Investment (gross) US$ Type of investment total Location II
Project Diplomat 76,938,054 Asset acquisition 16.27% Beijing -
Mainland
Project Malls 76,372,900 Platform investment 16.15% China -
Mainland
Project Auspice 52,853,760 Pre-IPO Financing 11.17% China -
Bridge Financing
Project Speed 48,957,746 (1) 10.35% Guangdong 24,642,686
Project Winpoint 29,777,820 Co-Development 6.30% Jiangyin -
Co-Development
Project Jingrui 17,495,501 (1) 3.70% Huzhou 8,806,290
Bridge Financing
Project Olympic 9,807,034 (1) 2.07% Beijing 4,936,332
Pre-IPO Financing Mainland
HNA - Options 258,900 (1) 0.05% China 130,316
Cash 160,526,823 Cash (1) 33.94% 16,516,760
TOTAL 472,988,538 100% 55,032,384
Note
(1) The gross investment value includes an amount attributable
to the PACL II shareholders.
Investment Strategy
During the year, the investment manager has continued to search
for investment opportunities in the commercial property sector,
which presents a positive investment outlook, while continuing to
minimize its direct exposure to the residential sector, which is
negatively impacted by the policies of the central and local
governments to curb price inflation in the residential market.
Over the last twelve months, we have witnessed solid growth in
both rentals and occupancies in Grade A office and retail
properties in major cities such as Beijing and Shanghai, as
business demand from companies and retail brands continues to
increase. This is also due to the more limited supply of office and
retail properties in these first tier locations. We expect the
positive trend in the retail sector will continue in 2012, but the
upward rental growth trend in the office sector will likely slow
due to a more negative global economic outlook.
Investments in commercial properties appear to represent the
best opportunity to hedge inflation in Asia, as retail rents are
correlated with retail sales which have been growing at double
digits for several years.
As a result of the major strategic shift of the Company in 2009
to focus on opportunities in the retail, office and leisure
property sectors, our portfolio has less exposure to the current
price corrections in the residential market. Fortunately the
residential sector represents only 38% of the portfolio and the
retail, office and leisure sectors represents the majority of the
portfolio at around 62%.
Looking ahead, we will focus on two key areas in 2012. First, to
improve the operation of our existing investments in order to
maximize the Net Asset Value of each investment. Second, to seek
investment opportunities in this negative market sentiment where we
can acquire properties at deep discounts as developers and owners
struggle to obtain financing in the current tight credit
environment. We do not expect any easing in credit policy towards
the property sector for at least six to twelve months, which should
present us with attractive acquisition opportunities.
Co-Developments with Preferred Returns
As a result of credit-tightening and transaction volumes
dropping, highly leveraged local developers with cash constraints
will continue to turn to alternative financing sources for funding
solutions, and we expect to see new co-development opportunities
with preferred returns.
As monetary policy is likely to remain tight for the foreseeable
future we anticipate developers will become more flexible.
Previously, it was difficult to find medium-size developers with
quality projects in a good location who were willing to provide
partners with a preferred return. But with continued tightening it
is likely there will be opportunity to secure guaranteed return
structures that provide downside protection without capping
returns.
Growth Strategies
Value-Added Asset Acquisitions
The Chinese government's strict residential property cooling
measures implemented in 2011 have caused home sales volumes to fall
by half in major cities year-on-year, hurting developers' profits
and cash flows and prompting some to cut prices of new homes by up
to 20%. According to the "Seventy Large-and-medium-size Cities New
Housing Price Index" produced by the Statistics Bureau of China,
the number of cities reporting negative month-on-month housing
price change increased from 17 in September to 34 in October, 49 in
November and finally 52 in December. In fact, the severe liquidity
tightening has led some developers to sell their existing or
nearly-completed properties which represent great value-added
acquisition targets for the Company. The investment manager will
aggressively pursue these opportunities in 2012.
Platform and Pre-IPO Investments
Financing channels for developments are becoming increasingly
restricted due to the government's various cooling measures. As a
result, some developers that were planning to IPO may now be forced
to consider strategic investments at the corporate and/or project
level to secure necessary funds. We expect this will create a new
platform and/or Pre-IPO investment opportunities for the Company.
The investment manager will seek opportunities with quality
companies that have 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% 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
2011 was an exciting year as we saw strong results from growth
strategies implemented in late 2009 to chart a new
retail/commercial focus for the Company. The Company has achieved
significant NAV appreciation from these key investments that were
made when market sentiment was poor and prices were distressed.
With the current tight monetary policy at arguably the most severe
in the past decade, we expect to see distress in developers which
should create more demand for bridge financing and co-development
offering preferred returns. We also expect these conditions to
present opportunities to acquire existing assets and to make equity
investments in platform companies at deep discounts.
As at 30 March 2012, approximately US$31 million has been
converted from Renminbi to United States Dollars and repatriated
out of China. With the remaining US$26 million to be repatriated in
April 2012, the Fund totally received US$57 million (representing
49% of the cash balance as at year-end).
Investing Policy
Geographical and Sector Focus
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