Shui On to Sell Shanghai Towers to Link REIT for $1.1 Billion

Shui On Land Ltd. agreed to sell part of a Shanghai prime-office project next to its iconic Xintiandi entertainment complex in preparation for a public listing of its commercial property unit.

The firm agreed to sell Corporate Avenue 1 & 2, two premium grade-A office buildings, to units of Hong Kong-based Link REIT for an estimated 6.6 billion yuan ($1.1 billion), it said in a filing to Hong Kong stock exchange. Shui On will receive 4.2 billion yuan of net proceeds from the sale.

Shui On is preparing to spin off its commercial property subsidiary called China Xintiandi and is improving its balance sheet by selling assets ahead of a planned listing in 2016. It aims to sell almost half of its portfolio with low returns to cut debt and generate cash to fund expansion, Chairman Vincent Lo said in February.

After the latest sale, Corporate Avenue 3 is the only office building Shui On will hold adjacent to the Xintiandi complex, after it sold Corporate Avenue 5 to China Life Insurance Co. in 2013.

China Vanke Co., PAG Real Estate Partners and Tishman Speyer Properties have teamed up to buy Corporate Avenue 3, Bloomberg reported July 15.

Shui On is currently “highly geared,” paying 7 percent interest to hold investment properties generating yields between 3 percent and 4 percent, Lo said in a May 29 interview.

Corporate Avenue 1 & 2, including the office and retail space, have a combined leasable floor area of 83,155 square metres (895,100 square feet), Shui On said in the statement.

For Link REIT, the purchase will increase its debt-to-total asset ratio to 18.7 percent from 11.9 percent, Hong Kong-based Barclays Plc analyst Paul Louie wrote in a report Friday.

In March, Link REIT, Asia’s largest property trust by market value, agreed to pay 2.5 billion yuan for the EC Mall in Beijing, its first acquisition on the mainland.

— With assistance by Emma Dong

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