When Karson Choi returned to Hong Kong a decade ago after studying in the US, his billionaire father tasked him with overseeing the refurbishment of Kowloon City Plaza, a tired shopping mall the tycoon family acquired from Morgan Stanley amid the 2008 financial crisis.
By sprucing up the tenant mix, introducing a 60,000-square-foot auto plaza, and even changing the colour of the restrooms, Choi transformed the 10-storey complex into a shopping landmark that yields an annual rental income of HK$150 million ($19.2 million).
His efforts have paid off; last month, the family sold the complex to a mainland Chinese businessman for HK$5 billion ($639.5 million), pocketing a tidy profit of HK$3.52 billion.
This is the family's largest property sale in more than 10 years, said Choi, vice-chairman of Early Light International Holdings, the privately-held toy-to-property conglomerate founded by his father, Hong Kong's “King of Toys” Francis Choi.
“We think it is a good time now [to sell properties], as values of commercial properties and retail shops have soared,” the younger Choi said in an interview with FinanceAsia, a sister publication to AsianInvestor. “We just sold the KCP mall for a very good price, but there’s nothing in the market that we can buy.”
Instead, the family is eyeing Australia in an attempt to diversify its investment portfolio and seek higher returns. The family made its first move Down Under in May with the purchase of Sydney's Exchange Centre – home to the Australian Stock Exchange – for A$340 million ($246 million).
The conglomerate is seeking to dispose of more premium properties in Hong Kong while investing at least HK$10 billion in the next three to five years in Australian real estate, said the 31-year-old Choi, just back from a two-week trip to Australia.
Its top picks include commercial properties owned by investment funds and buildings in residential zoning areas with potential for redevelopment. "The purpose of diversification is to secure the business with a more balanced portfolio, so we tend to look for places where are more stable,” Choi said.
A slump in retail sales in Hong Kong and an overpriced property market have dampened investor interest in the city's real estate. Returns on commercial buildings have been lingering around 2% to 3%, while many premium properties in Australian yield around 4% to 6% annually.
On the other hand, while redevelopment plans in Hong Kong often face obstacles – from buying out the owners of individual units in a building to strict zoning restrictions imposed by the government – it is much easier to convert a commercial building to residential use in Australia, suggesting potential for higher returns.
Australia’s natural resources and utility assets also look attractive to Hong Kong tycoons, who have been planning an intergenerational transition and buying up infrastructure assets that can secure returns in developed markets.
Not long after the city’s richest man Li Ka-shing offered to acquire power provider Duet Group for A$7.4 billion ($5.6 billion), the Cheng family whose biggest holdings are New World Development and jewellery retailer Chow Tai Fook, decided to buy Duet’s peer energy firm Alinta Energy Holdings in March for A$4 billion ($3 billion)
While Choi also kept an eye on the country’s energy assets in Australia, he says Early Light is more interested in buying assets in areas where the family-owned conglomerate has operational experience, such as watch retailing and real estate, so as to better integrate them with current business and create synergy.
“No matter how good the target is, we wouldn’t buy unless we can handle the business,” he added.
Francis Choi made his fortune by making toys for more than 30 international brands including Mattel, Hasbro and Disney. He moved into property in the late 1980s and collected a rich portfolio of office buildings and malls, which later became the group’s main source of revenue. The group is also engaged in other businesses including watch retailing and healthcare, and has invested in fintech and healthcare-related companies in regions such as the US, Canada and China.
The younger Choi is also looking to invest in robotics makers in Israel. By incubating start-ups in this space, Choi hopes they can develop some high-tech toys which will help rejuvenate the family’s toy business.
“We have a different priority from other investors who look for higher valuations or IPOs from the start-ups,” said Choi. “We hope the start-ups can succeed so that we can incorporate some of their equipments and developments into our manufacturing lines.”
Early Light employs 10,000 people in research and development in Hong Kong’s neighbouring city of Shenzhen to invent high-tech toys such as interactive robots and toy drones. The company is also moving into consumer electronics and medical products to help boost profit margins.
Helped by a weak yuan and the closure of many small Chinese peers, sales in the family’s toy business rose by around 8% last year.
Meanwhile, the scion said the family was not seeking to list the toy business any time soon, since private ownership allows the company to make decisions much more efficiently.
“Our family business started from toy manufacturing, and that’s the business that we intend to keep for generations,” said Choi.