In an effort to diversify its income stream through retail and commercial components, Champion REIT (2778) has announced it will buy Langham Place in Mong Kok for HK$12.5 billion from its parent Great Eagle Holdings (0041).
The firm, which is the first prime office property trust in Hong Kong, plans to buy the Langham Place mall and adjoining officer tower and car park. The consideration is about HK$12,519 per square foot for the retail portion and about HK$6,815 psf for the office portion. Champion REIT will pay Great Eagle by cash, bond issuance and debt financing.
The company aims to create a more transparent REIT structure with negligible financial mechanics from the acquisition.
"The transaction will be able to boost the retail assets [of Champion REIT] from 1 percent to 22 percent of 2008 rental income," said Eagle Asset Management chief executive designate Adrian Lee Ching-ming.
The Langham property should contribute about one third of the REIT's rental income. The purchase price represents an 11.8 percent discount to the property's valuation of HK$14.17 billion. Lee said: "The Champion REIT will also be removing the financial engineering from its income structure to improve its financial transparency."
After the acquisition, Champion REIT will be transformed into a multiple-asset REIT with a simple yield of about 5.5 percent to 6 percent. With interest rate swaps at below market rates and Great Eagle's 20 percent distribution waiver for 2008, the company expects to receive about HK$400 million in compensation payments.
Champion REIT raised HK$808 million in a 2006 listing with the Citibank Plaza office property.