UPDATE 4-Swire to sell HK mall to Temasek's Mapletree for $2.4 bln

Fri Jul 29, 2011 6:49am EDT

* First Hong Kong acquisition by Mapletree

* Deal is third-largest property acquisition in Asia-Pacific

* Mapletree could use mall as "seed property" for future REIT-analyst

* Mainland tourists keep Hong Kong retail rents strong

* Swire expected to book profit of HK$1.63 bln from sale (Adds Fitch report)

By Donny Kwok and Charmian Kok

HONG KONG/SINGAPORE, July 29 (Reuters) - Conglomerate Swire Pacific plans to sell a major shopping mall in Hong Kong to Singapore state investor Temasek's Mapletree Investments for HK$18.8 billion ($2.4 billion) to fund its real estate projects in Hong Kong and China.

For Mapletree, it would mark its first commercial property acquisition in Hong Kong as the company, wholly owned by Temasek, seeks to create a platform for more investment in the territory.

This will also become the third-largest property acquisition deal in Asia-Pacific so far this year, according to Thomson Reuters data.

"It will be a seed asset for a portfolio of Hong Kong commercial properties," Mapletree said in a statement, adding that it plans to build its Hong Kong portfolio under a Hong Kong-focused fund over the next two to three years.

Swire said the deal "will put Swire Pacific in a strong position to continue its major investment programmes." Swire is a sprawling conglomerate with businesses ranging from property to aviation and shipping.

Fitch said in a report that the proceeds from the sale will allow Swire to sufficiently meet its HK$14.3 billion in debt obligations maturing this year, and supports its strong push to build up its investment properties portfolio in China.

EYES ON COMMERCIAL PROPERTIES

While Hong Kong's residential market has been hit by a series of anti-speculation measures, its retail and office property sector remains robust, with buying of luxury brands from Chinese tourists helping boost retail rents.

Office rents in Hong Kong's Central district are at record high.

Hong Kong is the world's second-most expensive city for retail space after New York, CB Richard Ellis said in a June report, with rents jumping 46 percent in the first quarter.

While growth is forecast to remain strong, the possible lowering of the luxury goods tax in China may hurt the retail sector in Hong Kong, the property management firm said.

Festival Walk, the property which Swire is selling to Mapletree, is located in Hong Kong's Kowloon district and would provide an annual yield of less than 5 percent, according to a JP Morgan research report.

Festival Walk consists of a seven-storey shopping mall and four-floor office space with a combined net lettable area of 800,000 square feet -- which Fitch estimated accounts for 8 percent of Swire's total lettable area in Hong Kong.

"If you look at the various segments in China/Hong Kong, the commercial properties are perhaps what developers are looking at now, given the various policy concerns with regards to the residential side," said Wilson Liew, an analyst at Kim Eng Securities in Singapore.

"So it isn't a surprise that many developers are turning their attention to commercial properties and retail properties in particular have recently taken off in a bigger way," he said.

"For Mapletree, it could perhaps be a seed property for a future China REIT or something similar."

As of the end of March, Mapletree owns and manages $12.8 billion of office, logistics, industrial, residential and retail/lifestyle properties.

It manages three Singapore-listed real estate investment trusts and three private equity real estate funds, which together hold an asset portfolio in Asia.

ONE-OFF GAIN

Analysts say Swire chose a good time to offload the asset and doing so helped soothe investor concerns that the conglomerate would spin off its property arm, Swire Properties, which owns Festival Walk.

"We believe Swire has picked a good time to monetize this non-core asset," JP Morgan analyst Benjamin Lo said in a note on Friday.

"Financial impact aside, the more important implication from this deal, in our view, is that it helps alleviate fundraising concerns."

Swire will record a profit of HK$1.63 billion from the Festival Walk sale and is likely to use the proceeds to invest in China and Hong Kong property, he said.

Shares of Swire Pacific closed down 0.5 percent at HK$109.80 on Friday. The benchmark Hang Seng Index closed down 0.6 percent.

"On the positive front, the group has generated a war chest for its expansion into China and to fund other development," said Patrick Yiu, director at CASH Asset Management.

Swire Pacific said Swire Properties plans to complete the sale on Aug. 18, with Mapletree having already paid HK$1.8 billion as a deposit.

Conita Hung, head of equity research of Delta Asia Financial, estimated Swire Pacific's gearing would come down to 10 percent from 20 percent as a result of the sale.

Goldman Sachs is the financial adviser for Swire Properties on the deal. ($1 = 1.202 Singapore dollars) ($1 = 7.792 Hong Kong dollars) (Additional reporting by Kelvin Soh and Denny Thomas in Hong Kong and Kevin Lim in Singapore; Writing by Lee Chyen Yee and Charlie Zhu; Editing by Matt Driskill and Vinu Pilakkott)

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