Swire considers Festival Walk reit
Tim LeeMaster and Yvonne Liu
Swire Pacific, a property developer and part owner of Cathay Pacific Airways, is considering spinning off one of its primary shopping malls, Festival Walk, into a real estate investment trust, sources said.
The initial public offering of the reit would raise at least US$400 million, other sources said yesterday.
Banks including HSBC, UBS and Citi were pitching for a mandate, the sources said.
'It's in the ideas stage,' said a person familiar with the matter.
Swire bought partner Citic Pacific's 50 per cent share of Festival Walk last year for HK$6 billion in Hong Kong's biggest property deal.
The Kowloon Tong development has more than 200 shops, 27 restaurants, a cinema, an ice skating rink, as well as 220,000 square feet of office space and an 850-slot car park.
Retailers at the shopping centre include Hugo Boss, Calvin Klein, Brooks Brothers and Marks & Spencer.
'No definite decision has been made,' said a spokeswoman at Swire Properties, the development arm of Swire Pacific.
Reits pay dividends to investors based on rental income from properties contained in the trust. Developers are eager to raise funds to build projects in Hong Kong and expand into the mainland property market.
Hong Kong's reit market, which is not yet two years old, has had a troubled history, as investors have been disappointed by the low yields.
The most recent offering came from Rreef China Commercial Trust last month. Rreef, Deutsche Bank's property and infrastructure management arm, spun off Beijing Gateway Plaza, a twin 25-storey office tower with a shopping centre, as part of the deal.
The trust raised HK$2.25 billion but the units dropped 10 per cent on the first day of trading. The trust yields 6.8 per cent based on expected earnings this year.
Regal Real Estate Investment Trust, comprising five hotels, raised HK$2.3 billion in March. Its shares are nine HK cents below its launch price. It yields 7.8 per cent based on expected earnings this year.
Many of the earlier reits, such as the HK$6.3 billion Champion Reit in June last year, fell when trading started because they contained interest rate swaps that boosted the trust's yield in the early years of the reit.
Such devices proved unpopular with investors, who feared the swaps could make it harder for the trust to pay strong dividends later.
Champion Reit, backed by one commercial property in Central, yields 7.1 per cent based on earnings this year.
Despite the rocky start, market observers say forthcoming offerings, such as Swire's, have the potential to perform.
'The market is still there. Reits [initial public offerings] still get done and a good property or good story is still saleable,' said one banker.
Some analysts said property trusts in the city had turned a corner.
'Hong Kong reits are actually starting to look better. Now valuations are looking pretty reasonable after recent muted performances,' said Macquarie property analyst Matt Nacard.
Festival Walk comprises
11 screens in multiplex cinema
1 ice rink
220,000 square feet of office space
850 car parking spaces