Cathay Life Insurance Co (國泰人壽) yesterday won the auction for the real-estate asset trust (REAT) it issued four years ago, leaving market observers scratching their heads about the property market’s outlook and the company’s profitability.
Cathay Life, a subsidiary of Cathay Financial Holding Co (國泰金控), won the REAT for NT$8.57 billion (US$289.08 million), 35.13 percent higher than the floor price it set at NT$6.34 billion.
“The bidding outcome failed to shed new light on the market because the buyer is also the seller,” said Michael Wang (王維宏), an account manager at Sinyi Realty Inc’s (信義房屋) asset department.
For the same reason, Cathay Life may not recognize any profit from the transaction as it is prohibited by the Financial Supervisory Commission, Wang said.
The underlying property for the REAT is a 77 percent stake in a 22-story building at the intersection of Dunhua S Road and Keelung Road, with a floor space of 9,980 ping (32,934m2), in addition to 114 parking spaces, auction data showed.
Cathay Life issued the REAT valued at NT$3.83 billion in June 2007. It cannot book the profit acquired from sale of its issue, but can only list the 123.68 percent gain as unrealized profit.
Aside from Cathay Life, the nation’s largest life insurer, the auction drew only one other bidder. Fubon Life Insurance Co (富邦人壽), the life insurance arm of Fubon Financial Holding Co (富邦金控), lost the bidding with its offer of NT$7.07 billion, 11.51 percent higher than the asking price.
“The bidding result enabled Cathay Life to digest part of its idle funds and consolidate its status as the nation’s leading property owner,” Wang said.
Currently, the 22-year old building generates a rental yield of less than 2 percent with an occupancy rate of 70 to 80 percent, according to an auction briefing.
The high entry requirement and partial ownership limited competition as land developers and construction firms favor products that can be turned into housing projects later, Wang said.
Life insurers with deep pockets, on the other hand, would not mind modest but stable returns as long as borrowing costs are lower, Wang said.
Market attention has now shifted to another REAT auction next week, with issuer Shin Kong Life Insurance (新光人壽) also likely to buy back the securitized building to digest its excess liquidity.
That would make the auction on Sept. 28 of China Bills Finance Corp’s (中華票券) building on Dunhua S Road the real litmus test of the property market, Wang said.
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