Hui Xian Real Estate Investment Trust has agreed to buy a 70 per cent stake in a Shenyang hotel from its parent company Cheung Kong (Holdings) for 980 million yuan (HK$1.2 billion), making its first acquisition since an initial public offering in April. Kam Hing-lam - the chairman of Hui Xian Asset Management, the manager of Hui Xian Reit - said the deal marked the company's first expansion and more acquisitions were expected as it built up its asset base. The first acquisition is a 70 per cent stake in Shenyang Lido, which holds land use rights and building rights in the 590-room Shenyang Lido Hotel, which opened in 2002. The hotel, with a total gross floor area of 79,000 square metres, was originally owned by Shenyang Lido, a Sino-foreign co-operative joint venture firm established on the mainland, with Cheung Kong holding 99 per cent. Hui Xian will become the biggest single shareholder with 70 per cent after completion of the deal. Cheung Kong's holding will fall from 99 per cent to 29 per cent, with 1 per cent owned by the mainland partner. Kam said the acquisition price of 980 million yuan represented a 12 per cent discount to the appraised value of 1.1 billion yuan as of August 31, assuming a value of 1.4 billion yuan for 100 per cent of the property. Hui Xian will fund the deal through bank borrowings. Under the terms of the deal, Hui Xian and Cheung Kong agreed to a so-called preferred distribution arrangement. Under this, Hui Xian has priority over Cheung Kong in receiving distribution cash, which refers to profit after tax and adjustment of exchange gains plus depreciation before all expenses, including withholding tax. Under the 10-year arrangement, the two parties have set a yearly base amount at 92 million yuan. If the distribution cash in any one year is higher than 92 million yuan, Hui Xian will receive its share on a pro rata basis. If the distribution cash is below 92 million yuan, Hui Xian will have priority to receive up to 64.4 million yuan, equating to 70 per cent of 92 million yuan. Based on the 980 million yuan acquisition price, 64.4 million yuan represents a yield of about 6.67 per cent. The acquisition is expected to boost Hui Xian Reit's gross asset value by 3.4 per cent to 33.81 billion yuan. Kam said the reit would continue to look for more acquisition opportunities, which were not necessarily restricted to parent-owned assets.