Swire to sell HK mall to Temasek's Mapletree for $2.9b

Conglomerate Swire Pacific (0019.HK) plans to sell a major shopping mall in Hong Kong to Singapore state investor Temasek’s (TEM.UL) Mapletree Investments for HK$18.8 billion ($2.9 billion) to fund its property 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 in Hong Kong for future commercial property investment in the territory.
The deal “will put Swire Pacific in a strong position to continue its major investment programmes,” Swire said in a statement. Swire is a sprawling conglomerate whose businesses range from property to aviation and shipping.

 

While Hong Kong’s residential market has been hit by a series of anti-speculation measures, the city’s commercial property sector remains strong, with buying of luxury brands from Chinese tourists helping boost high-end retail rents.

 

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

 

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

 

The Festival Walk mall, which Swire is selling, is located in Kowloon in Hong Kong and would provide an annual yield of less than 5%, according to a JP Morgan research report. 

 

“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 $15.4 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.

 

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 the Festival Walk mall.

 

“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 recorded 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 were little changed at HK$110 as of 0308GMT, outperforming a 0.9% loss in the benchmark Hang Seng Index <.HSI>.

 

Swire Pacific said in a filing to the Hong Kong stock exchange that Swire Properties plans to complete the sale on Aug. 18, with Mapletree having already paid HK$1.8 billion as a deposit.

 

Goldman Sachs (GS.N) is the financial adviser for Swire Properties on the deal.