Sogo plan sparks war chest fears

Speculation that department store operator Lifestyle International Holdings wants to buy Lane Crawford House in Central has analysts worried the move will drain its war chest, initially cut earnings and increase investor uncertainty.

The owner of Sogo department store is said to have expressed keen interest in bidding for the 24-storey office-retail building in Queen's Road Central that is expected to fetch more than $2 billion.

It is believed the tender, closing on Monday, has attracted 13 bidders from Hong Kong and overseas.

Lifestyle reportedly told analysts in a conference call last week that it planned to open a four-floor Sogo store in Lane Crawford House if it won the tender. It would also devote three floors above the store to its Sogo spa and beauty club.

The remaining office floors would be kept for leasing, according to a source.

GK Goh analyst Keith Li said most of Lifestyle's $2.6 billion war chest would be used if it bought the property.

Last week, Lifestyle topped up its cash reserves by raising $1.25 billion from the sale of new shares to finance expansion.

'Lifestyle will give investors an impression that it will be more like a property investment company rather than a department store operator. Its investment risk will be different if it is heavily committed to a property project,' Mr Li said.

Another analyst said the move would lock up capital, cutting the company's options if the property market changed dramatically.

Shares of Lifestyle yesterday rose to an intraday high of $13.10 before closing at $12.80, up 1.58 per cent on the day.

During the conference call, analysts were also told that Lifestyle, which has one Sogo store in Causeway Bay and will open another in Tsim Sha Tsui on September 30, was likely to increase the total to five.

A potential store location was Nina Tower in Tsuen Wan. A spokesman for Chinachem Group, the owner of Nina Tower, confirmed discussions with Lifestyle about taking up retail space but said the talks were at an early stage.

Mr Li said it was normal for new department stores tosuffer losses in the first few years of operation.

'Even if new projects are strategically sound and earnings enhancing in the long term, they are likely to reduce Lifestyle's earnings in the medium term,' he said.

Lifestyle company secretary Katherine Siu Po-sim declined to comment on proposed property acquisitions and store expansion.