July 29 (Bloomberg) -- Swire Pacific Ltd. agreed to sell the Festival Walk shopping center for HK$18.8 billion ($2.4 billion) to a unit of Singapore’s Temasek Holdings Pte in the biggest property transaction ever for the Hong Kong landlord.
The company will sell the commercial complex in Hong Kong’s Kowloon Tong area to Mapletree Investments Pte, according to a statement to the Hong Kong stock exchange today. Swire will record a profit of HK$1.6 billion from the sale with a book value of HK$17.2 billion at the end of 2010, the statement said.
Hong Kong overtook Sydney as the world’s second-most expensive city to lease shopping space after rents jumped 46 percent in the first quarter from the previous three months, on increased spending by cashed-up Chinese tourists, according to a June 1 report by CB Richard Ellis Group Inc. Swire, which last year shelved a plan to spin off its real estate unit, is building five shopping malls and offices in China including in Guangzhou and Chengdu.
“A large part of the proceeds will probably go to funding their China development,” said Castor Pang, head of research at Core-Pacific Yamaichi International Ltd. in Hong Kong. “This should be timely as it has now become more difficult for developers to borrow money in China because of the government curbs.”
Swire’s shares fell 0.3 percent to HK$110.10 as of 11:36 a.m. in Hong Kong trading, reversing an earlier gain of 0.5 percent. They have risen 0.3 percent since June 28, when Sing Tao Daily reported the company may sell the complex for as much as HK$22 billion. Hong Kong’s benchmark Hang Seng Index has risen 1.6 percent in the period.
Nomura International Ltd.’s Hong Kong-based analysts Perveen Wong and Paul Louie valued the 1.2 million-square-foot commercial complex at HK$18.3 billion in a June 28 report. The current selling price would assume a HK$15,550 per-square-foot value for the complex built in 1998.
Swire is “happy with the sale price which it finds attractive and reflective of the quality of the assets,” spokeswoman Cindy Cheung said in a phone interview today. She declined to comment on the differences between the sale price and what was reported in media report earlier.
It is Mapletree’s first commercial property acquisition in Hong Kong, according to an e-mailed statement from the company, a unit of Temasek, a Singapore state-owned investment firm.
The mall’s “rental income has increased consistently year on year since inception,” Mapletree Chief Executive Officer Hiew Yoon Khong said in the statement. “We are very confident that this trend will continue into the future.”
Rents at Festival Walk is about 30 percent lower than Times Square shopping mall, where high-end fashion stores pay as much as HK$500 per square foot a month, said Helen Mak, Hong Kong-based director of retail services at Colliers International. Causeway Bay, where Times Square is located, is home to Russell Street, the world’s second-most expensive retail strip, according to Colliers.
“It’s possible Mapletree may find Festival Walk’s expertise in retail mall management useful for its other projects in mainland China,” said Mak.
Mapletree said in May it plans to start a new China-focused fund of at least $500 million to invest in commercial-related properties in first-tier and second-tier cities over two to three years.
More Chinese Tourists
Chinese tourists visiting Hong Kong, a former British colony returned to Chinese rule in 1997, jumped 26 percent to 22.7 million in 2010 from a year earlier, according to the city’s tourism board. The figure reached a daily record of 122,893 on April 30 this year, according to the organization.
Festival Walk, which comprises 980,000 square feet of shopping space and 229,000 square feet of office space, is located next to a train station connecting Hong Kong and its border with the Chinese city of Shenzhen.
Tenants of the mall include U.K. department store chain Marks & Spencer Group Plc and Hennes & Mauritz AB., Europe’s second-largest clothing retailer.
Proceeds from the sale will put the company “in a strong position to continue its major investment programs,” Swire Chairman Christopher Pratt said in an e-mailed press release today.
Swire, which controls Cathay Pacific Airways Ltd., owns about 17.8 million square feet of investment properties in Hong Kong including the Pacific Place and the Island East commercial complexes.
Swire’s properties in 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 is building five projects with a total gross floor area of 12.9 million square feet.
China is expanding measures to rein in real estate prices nationwide, including raising interest rates five times since October.
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