Regal Hotels International Holdings Ltd hopes to raise up to US$760 million in a Hong Kong property trust listing to help fund expansion in China, two sources close to the deal told Reuters on Thursday.

The IPO, together with another property spin-off by Henderson Land Development Co Ltd, could revive interest in Hong Kong's young real estate investment trust (REIT) market.

Regal said earlier in a statement that it had applied to Hong Kong market regulators to launch an initial public offering for the REIT, in which it would keep a stake of at least 45 per cent.

The REIT, which will package five hotels, aims to raise US$700-US$760 million, according to a fund manager quoting a term sheet, and a source close to the deal.

Based on the IPO price, the REIT would give a dividend yield of 5.2-5.8 per cent for 2007 mid-range for Hong Kong REITs.

Pre-marketing for the issue would be between November 24 and December 8, with a management road show starting on December 5. The units are expected to be priced on December 14, and debut on December 22.

The term sheet did not mention how many shares were on sale, but said that 95 per cent of the units would be offered to institutional investors and the remaining 5 per cent earmarked for individual investors. The IPO has a 10 per cent over-allotment option.

With the properties valued at HK$14 billion in the spin-off, Regal Hotels said it would realize a net gain of HK$4.6 billion.

REITs, which pay most of their rental income as dividends, usually trade at above net asset value, while property firms tend to trade at a discount to reflect more risk.

Deutsche Bank, Goldman Sachs and Merrill Lynch are arranging the IPO.

Regal's shares closed up 3.7 per cent yesterday, outpacing a flat broader market. They have climbed 27 per cent in three months as speculation about a REIT spin-off gathered pace.

Companies can increase returns on equity by selling assets into REITs. With its stake, Regal will keep control of the hotels and will open up a new fee business by managing the trust.

Hong Kong was tipped to mimic the rapid growth of Japan's REIT market, which has grown to US$35 billion in the past five years. The city's first property trust, the Link REIT, launched a hugely popular IPO last November.

But when an IPO by Champion REIT, spun off by Great Eagle Holdings Ltd, received a cool response in May, interest waned and Hong Kong REITs, worth a combined US$4.5 billion, have lagged the wider stock market.

The main investor gripe about Champion is that its interest rate swaps and a waiver of dividends by Great Eagle inflated the original yield at the expense of future income growth.

Bankers argued that the financial tricks were needed as investors would not accept Hong Kong's prevalent low property yields at a time when rents were still to catch up with capital values.

Structuring a hotel REIT well can be difficult.

As room occupancy fluctuates and can be hit by anything from air traffic control strikes to bird flu outbreaks, hospitality REITs are normally set up through a sale-leaseback agreement where the hotel operator pays fixed rent to the trust.