Great Eagle Holdings plans to start selling offices at its Langham Place complex in August, which analysts estimate will reap up to HK$7 billion to cut the Hong Kong-listed hotel and property investor's debts by almost half.
The company obtained sales consent last week for the office property in Mong Kok's tallest commercial building and plans to launch the sale next month, a Great Eagle source said.
To achieve the best price, the 59-story office tower will be sold on a strata title basis, or floor by floor.
However, the price, which will be based on prevailing market levels in Kowloon of nearly HK$9,000 per square foot, has yet to be finalized, the source said.
Great Eagle managing director Lo Ka-shui had said earlier that the firm's gearing ratio could be further reduced to as low as 50 percent from the current 60 percent if it decided to sell the office space at Langham Place. Lo was not available for comment Friday.
Great Eagle borrowed heavily to build Langham Place, a mixed co- developed project with the Urban Renewal Authority featuring a five-star hotel, high-end shopping mall and Grade A offices. The complex was the company's largest single investment.
Great Eagle had spent HK$10.3 billion as of June 30 last year on the construction of the 1.8 million sqft complex, which was fully open last year. As of December 31, its net outstanding debt was HK$14.66 billion, an increase of HK$904 million from a year earlier. Analysts estimate the company will be able to fetch an average price of at least HK$9,000-10,000 psf and reduce debt by 47.7 percent to about HK$7.66 billion by selling the 700,000 sqft office tower.
Langham Place is expected to sell at better prices than similar Grade A offices in Kowloon since it is newer, with seaviews and a well-connected location, analysts said.
Shrinking supply of new office space and reviving demand are also expected to continue to put upward pressure on Grade A office rents and prices, they added.
Real estate consultant CB Richard Ellis expects Grade A office rents and capital values to show increases of 35 percent and 35-40 percent, respectively, this year. Grade A office rents and capital values jumped 13.6 percent and 21.5 percent, respectively, in the first quarter.
Great Eagle's Lo has said demand for Grade A offices will increase dramatically as supply is forecast to reach a record low from 2006 to 2009, and there will be no new supply in Sheung Wan, Central, Wan Chai or Causeway Bay from 2007 to 2009.
Still, the recovery of the Hong Kong office market has yet to favor Great Eagle, which reported a 6 percent fall in 2004 earnings to HK$312 million due to rent cuts during the economic downturn in previous years. However, the company expected a modest recovery in its Hong Kong rental income this year as new leasing appeared to have gained momentum in 2005 and rental reversions had turned positive.