Cheung Kong sells mall amid profit squeeze

Sale of Tin Shui Wai shopping mall comes as developer is hit by government cooling policies

PUBLISHED : Wednesday, 31 July, 2013, 12:00am
UPDATED : Wednesday, 31 July, 2013, 4:28am

Billionaire Li Ka-shing's Cheung Kong (Holdings) has agreed to sell its shopping mall in Tin Shui Wai for about HK$5.85 billion, a move which analysts say aims to boost earnings affected by the government's housing policies.

The developer has signed a memorandum of understanding to sell Kingswood Ginza Property, one of the largest shopping centres in Yuen Long with 206 tenants, to Fortune Real Estate Investment Trust, which is also controlled by Li.

"It's not surprising news and the deal will create a win-win situation for Cheung Kong and its company [Fortune Reit]," said Eric Yuen Chi-fung, head of research at GuocoCapital.

"Since residential property sales have been slowed by the government's cooling policies, selling its assets will help boost the developer's profit in the short term," he said. "Other developers may adopt a similar strategy to smooth their earnings as they are also affected by the measures."

Cheung Kong will announce its interim results tomorrow, and analysts expect a year-on-year decline of as much as 27 per cent in core profit to HK$9.3 billion.

BNP Paribas property analyst Patrick Wong Chi-leung said Cheung Kong sold fewer than 300 flats in the first half of this year, totalling less than HK$3 billion. Selling the mall will allow it to cash in, while the company has been investing in overseas projects such as utilities in Europe to diversify its portfolio.

With a gross rentable area of 665,244 sq ft at an average rent of HK$27.40 per square foot, Kingswood Ginza will become the largest property in Fortune Reit's portfolio, which currently holds 16 retail properties in the city.

The selling price of HK$5.85 billion equates to nearly HK$8,800 per rentable square foot, much higher than its previous purchase in late 2011 of HK$4,515 per sq ft at Belvedere Square in Tsuen Wan and HK$3,606 per square foot for Provident Square in North Point.

Justina Chiu Yu, deputy chief executive officer of ARA Asset Management (Fortune) which manages the reit, argued that Kingswood Ginza offered a higher rent of HK$27.40 per square foot, compared with under HK$20 at Belvedere Square.

As the purchase would increase the reit's rentable area from 2.45 million sq ft to about 3.12 million sq ft, Chiu said it would help boost the reit's rental income.

The manager expects to finance the purchase with bank loans of about HK$5.085 billion and by using about HK$764 million from a planned placement. The sales came days after Li's Hutchison Whampoa announced it was looking to sell its supermarket chain ParknShop.