Beijing Vantone Industrial Co Ltd signed a framework agreement with appliance and TV maker TCL Corp, to explore the industrial property sector via a joint venture.

The new venture, Vantone Innovation Industrial Resource Investment Co Ltd, will specialize in industrial and business park investment.

With a registered capital of 250 million yuan (US$36.91 million), Vantone will hold a 55 percent stake and TCL the remaining 45 percent.

"We will bring in other investors as the company grows and plan to list it around 2013, probably in the form of real estate investment trusts (REITs)," TCL Chairman Li Dongsheng said at the press conference in Wuxi over the weekend.

China's REITs plan is now in the final stage of approval from the State Council, after getting the green light from related ministries, sources familiar with the matter said.

A REIT is a tax designation for a corporation investing in real estate that reduces or eliminates corporate income taxes. In return, REITs distribute the majority of their income, which may be taxable, into the hands of the investors.

Yang Haishan, REIT manager for Harvest Fund Management Co Ltd, said he is quite interested in REITs initiated by Vantone and TCL as such cooperation will reduce risks.

According to Li, cooperation with Vantone will reduce TCL's investment into fixed assets and improve its capital use efficiency.

It also marks the country's first project between a property developer and a manufacturer to tap the industrial real estate sector.

Currently, TCL has nine business parks over the country, with floor space totaling around 1 million square meters.

"We will put those assets into Vantone Innovation step by step," Li said.

In 2009, the company completed the acquisition of TCL's Wuxi Digital project and reconstructed it within six months, thus increasing the project's rental rate to 90 percent at present, from 55 percent in July 2009.

For Feng Lun, chairman of Beijing Vantone Industrial Co Ltd, the deal with TCL is just the beginning of its efforts to explore the industrial property sector.

"We aim to make Vantone Innovation a leader in the industrial real estate sector within five to 10 years. Cooperation with TCL is part of a long-term plan instead of short-term speculation," Feng said.

Given the government's tight real estate policies, Vantone Industrial's move is also regarded as an effort to distance risk from the traditional residential sector.

Vantone Real Estate, a subsidiary under Vantone Industrial, is a listed company on the Shanghai bourse, focusing on the residential sector.

(China Daily August 3, 2010)