* First Hong Kong acquisition by Mapletree
* Deal is third-largest property acquisition in Asia-Pacific
* Mapletree could use mall as "seed property" for future
* 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 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
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
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
It manages three Singapore-listed real estate investment
trusts and three private equity real estate funds, which
together hold an asset portfolio in Asia.
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
"Financial impact aside, the more important implication from
this deal, in our view, is that it helps alleviate fundraising
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
"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)