Chinese property trust RREEF China Commercial Trust listed in Hong Kong had asked for an independent valuation of its Beijing office complex after it discovered tenants were paying less rent than expected.

This case highlights the risks in China’s booming but immature property market, the Hong Kong-listed real estate investment trust (REIT) said actual rents paid by tenants were lower than outlined in tenancy agreements.

Some details:

·        RREEF China Commercial trust is managed by Deutsche Bank’s property investment arm, 

·      The former landlord of its Beijing Gateway Plaza building, Tin Lik, had agreed to pay HK$278,526,708 (RM125.3 million) in compensation for the missing rent. He also agree to make further payment should that be necessary.

·       The amount was equal to the shortfall for the remainder of tenancy agreements at the building, which was bought by the REIT and packaged into a June initial public offering. 

·        Because of the payment, the manager considers that RREEF CCT will not suffer a shortfall of rental revenue by reason of the discrepancies identified

·        The rental shortfall, which the former landlord had attributed to “pre-leasing rental concessions to tenants” documented in agreements that had not been disclosed to the REIT manager. RREEF China’s units were at HK$4.52 before trading was suspended on Sept 6, pending Tuesday’s announcement, 12% below their June IPO price, and giving a 2007 dividend yield of 7.05%. – Reuters(11/9/07)

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