A worker installs advertisements for the Festival Walk in Kowloon Tong. An analyst said the sale of the shopping mall will help to alleviate fundraising concerns. Jerome Favre / Bloomberg

Firm to use proceeds to invest in mainland and city propert

Conglomerate Swire Pacific plans to sell Festival Walk, 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 on the mainland.

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

Festival Walk, located in Kowloon Tong, an enclave of luxury homes, 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.

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.

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 on the mainland may hurt the retail sector in Hong Kong, the property management firm said.

"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 mainland and Hong Kong property, he said.

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

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

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

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.

Reuters

(HK Edition 07/30/2011 page2)