Swire Pacific Shares Fall After Property Unit Trades at Discount in Debut

Swire Pacific Ltd. (19) shares fell after its property unit started trading on the Hong Kong stock exchange at a deeper discount to underlying assets than rival developers.

Swire Properties Ltd. (1972), landlord to Societe Generale SA and Time Warner Inc., traded at HK$17.26 at the midday break in Hong Kong, or 41 percent less than its adjusted book value of HK$29.20 per share as of June 30. Hong Kong landlords trade at an average discount of about 34 percent, according to estimates from Credit Suisse Group AG. Swire Pacific shares declined 3.7 percent to HK$76.05.

Swire Properties may post lower profit this year as the global economic slowdown curbs office rents in Hong Kong, the biggest contributor to earnings. Office rents in the city may fall as much as 40 percent over the next two years, according to a Barclays Capital Research report in October.

“This will be a tough year for all developers in Hong Kong given how home prices and rents are expected to perform,” Castor Pang, Hong Kong-based head of research at Core-Pacific Yamaichi International Ltd.

Swire Properties built and operates complexes such as Tai Koo Shing residential district and the Pacific Place commercial complexes in Hong Kong’s Admiralty district. Its properties in other parts of China include the Sanlitun Village retail complex in Beijing, the 99-room luxury hotel Opposite House in the capital’s Chaoyang district and the Beaumonde Retail Podium in the southern city of Guangzhou. It also has projects in Chengdu and Shanghai.

Slowing Rents

Swire Properties’s adjusted book value was HK$29.20 per share as of June 30, 2011, according to the company’s listing document. The shares were listed by way of introduction, meaning there was no initial public offering to raise funds.

Hong Kong’s prime office rents may slow in 2012 after climbing 60 percent since July 2009, Jones Lang LaSalle Inc., the world’s second-biggest publicly traded commercial-property broker, said in December.

The city’s retail rents are expected to “stay strong” in 2012 as Hong Kong remains a key market for international brands, Jones Lang LaSalle said. Hong Kong’s prime rents for shopping malls climbed 12 percent in the first 11 months this year, while the top rents for street stores rose 19 percent.

In Hong Kong, Swire Properties owns about 10.5 million square feet of prime office space and 2.4 million square feet of retail space, according to the listing document. For other parts of China, it has 1.7 million square feet of office and 2.5 million square feet of retail.

Share Offer

Shareholders of Swire Pacific were given seven shares of Swire Properties for every 10 A-share they hold in Swire Pacific, according to documents.

Swire Pacific in July sold the Festival Walk mall in Hong Kong for $2.4 billion, the biggest transaction for the company, to help fund projects it is developing in China.

It scrapped a planned initial public offering of the property unit in 2010 because of “deteriorating market conditions.” The company had sought to raise as much as HK$20.8 billion, people familiar with the matter said at the time.

Swire Pacific also controls Cathay Pacific Airways Ltd., the city’s biggest airline, bottles Coca-Cola in China and operates offshore vessels.

To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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