Champion prices offer at low end amid cool response

PUBLISHED : Wednesday, 17 May, 2006, 12:00am
UPDATED : Wednesday, 17 May, 2006, 12:00am

The Champion Real Estate Investment Trust, the first single-asset reit in Hong Kong, has priced its initial public offering near the bottom of the price range to raise $6.29 billion in the face of tepid demand from investors, according to sources familiar with the situation.

Champion, whose only asset is the Citibank Plaza in Central, closed its retail offering yesterday.

Sources said the trust sold 1.23 billion units at $5.10 each, near the bottom of the $5-$5.75 range. At that price, the trust will have an annualised dividend yield of 5.46 per cent this year.

That return is higher than the current yield on the government-backed Link Reit but lower than those offered by the other two listed trusts - the Prosperity Reit and the GZI Reit.

The Prosperity Reit, which fell to a record low of $2.10 yesterday, yields 5.45 per cent at yesterday's closing price. Units in the trust were sold in December last year for $2.16 each.

The GZI Reit, whose assets are entirely on the mainland and are deemed by investors to be of a higher risk, now yields 6.48 per cent while the Link Reit offers 3.77 per cent.

Retail investors were unexcited by the Champion offering, ordering just 6.56 times as many shares as were on offer in the midst of a booming market for initial offerings.

The institutional part of the offer, which accounts for 90 per cent of the sale, was just four times oversubscribed.

Champion, which is being brought to market by Citigroup, Merrill Lynch and JP Morgan, is the first reit to come to market in Hong Kong sporting grade A property.

The trust will start trading next Wednesday.

Reits, which are a staple of United States markets for decades, are still something of a novelty in Hong Kong although their early appeal to investors seems to be fading.

Units in Prosperity have fallen 14.29 per cent this year while those of the GZI Reit have slumped 10.14 per cent. The Hang Seng Index has jumped 10.19 per cent over the same period.

Only the Link Reit has bucked the falling trend, advancing 11.22 per cent this year, partly spurred by investor hopes that British hedge fund Children's Investment Fund Management would press the Link's management to improve the trust's performance.