Cheung Kong eyes asset boost for reit

Move comes after Prosperity shares slip below offer price and Great Eagle unveils spin-off ambitions

Cheung Kong (Holdings) yesterday announced plans to inject more assets into its real estate investment trust as the shares of Prosperity Reit dropped below its initial public offering price.

The move also came after Great Eagle Holdings said on Monday that it was about to launch Champion Reit, which comprises Citibank Plaza in Central with 1.49 million square feet of grade A office space.

Champion Reit, which aims to attract investors with an above-average yield of between 4.8 and 5.5 per cent, plans to sell 1.23 billion shares and raise as much as US$900 million in next month's float.

Prosperity Reit dropped below its offer price of $2.16 on Monday and fell a further 1.16 per cent yesterday to $2.125, equalling its lowest price hit on March 31 since its launch in December last year.

Cheung Kong executive director Justin Chiu Kwok-hung said yesterday that the decline in the share price was only a small matter, adding: 'I don't believe it was due to a new reit listing.'

But Tung Tai Securities associate director Kenny Tang Sing-hing said news of Great Eagle's spin-off had dragged down the share prices of Prosperity Reit and GZI Reit because of its attractive yield.

At yesterday's market close, the yield of Link Reit was 3.665 per cent, Prosperity Reit 5.388 per cent and GZI Reit 6.756 per cent.

'The attractiveness of Champion Reit is that it is a grade A office, which has great potential asset appreciation and thus share price appreciation,' Mr Tang said.

Mr Chiu said Cheung Kong was 'looking for an opportunity' to add assets to Prosperity Reit, but he declined to specify whether this would be done this year.

He ruled out the possibility of injecting residential properties, saying the residential market was still flourishing.

Neither did the group plan to inject any of its grade A offices 'because their asset value is high while the [rental] return is relatively low', he said.

Champion Reit's share offer will open from May 11 to 16 and the stock will begin trading on May 23.

Citigroup, JP Morgan and Merrill Lynch are the joint bookrunners.

According to a Merrill Lynch report issued yesterday, the rental income at Champion Reit is expected to have a compound annual growth rate of 33 per cent for three years.

The estimate is based on the assumption that 50 per cent of the reit's leasing contracts, at $24 to $30 per square foot, will be renewed or reviewed this year and next year with the spot rent being $53 per square foot.

Great Eagle said Citibank Plaza was valued at $22.67 billion or $15,194 per square foot at the end of February.