OREANDA-NEWS. Fitch Ratings expects that China-based Greenland Holding Group Company Limited's (Greenland; BBB-/Negative) leverage may fall after it successfully implements its plan to form a hospitality REIT for an eventual listing on Singapore Stock Exchange.

Greenland announced on 12 March that it plans to sell 19 hotels in China with an estimated value of CNY21bn to a Singapore-based hospitality REIT where it will hold a 30% stake. This hospitality REIT will be formed together with Singapore-based Amare Investment Management Group Pte. Ltd. (Amare), which specialises in real estate investment. Greenland also plans to form an asset management joint-venture with Amare where it will hold a 25% stake to continue participating in the operational management of these hotels.

Greenland has identified six operating hotels in Tier 1 and Tier 2 cities with a total of 1,767 rooms to be sold to this hospitality REIT for an estimated value of CNY6.2bn. The REIT may also acquire Greenland's overseas hotels in Los Angeles, Sydney and Frankfurt.

Fitch believes that this REIT plan can bring synergy to Greenland's existing business that has a substantial exposure to large-scale commercial property development. This allows for an asset-recycling process for Greenland to dispose of these high-capex property investments and improve its cash flow management. Selling these hotel assets will reduce its annual recurring income of CNY1.5bn (at year-end 2014) from hotel operations, although reduction of Greenland's leverage will have a stronger positive impact on its credit profile because of its high leverage of 56% net debt/adjusted inventory at year-end 2014.

Greenland's recurring operating income scale is insignificant relative to its property development business which generates an annual revenue of more than CNY100bn and is therefore not an important rating factor.