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Champion REIT raising $980M to buy Hong Kong retail complex

Vol. XXI, No. 211 [ Business World Online ]
Wednesday, May 28, 2008 | MANILA, PHILIPPINES

HONG KONG — Hong Kong’s Champion REIT is raising up to $980 million through a sale of units and convertible bonds to buy the Langham Place office and retail complex, according to a document sent to investors.

The real estate investment trust (REIT) announced in February it would buy most of a 59-storey office tower and mall from Great Eagle Holdings, saying a bank loan, convertible bonds and a unit sale would fund the $1.6-billion deal.

The unit sale, priced at between HK$3.60 and HK$3.80 and arranged by Citigroup, will raise about $380 million, or up to 18.6% of the enlarged issued capital.

The Langham Place in Hong Kong

Units traded at HK$3.85 at yesterday’s market close, down by 3.27%.

Meanwhile, the convertible bond issue aims to raise up to $600 million, with the securities yielding 4.75% to 5.25%, the document said. The conversion price will be between 25% and 32% higher than the price of the share sale.

The Langham Place deal is the first major acquisition by any of Hong Kong’s six REITs, giving hope that property trusts can start to thrive as they have in Japan and Singapore.

After the hugely popular 2005 initial public offering of Link REIT — the privatization of 151 government-owned shopping malls — shares in most Hong Kong REITs slid because of a reputation for using financial engineering to sell buildings in initial public offerings (IPO) at above-market prices.

Champion REIT, which raised $808 million in a 2006 listing with one asset, the Citibank Plaza building, used interest rate swaps and a dividend waiver by sponsor Great Eagle to effectively bring forward future rent rises into its IPO valuation.

But under investor pressure, Champion is using the Langham Place deal to unwind its financial engineering.

Champion REIT is a real estate investment trust formed to own and invest in an income-producing portfolio of prime grade A office and commercial properties primarily in Hong Kong.

When it was spun off from its sponsor Great Eagle Holdings and listed on May 24, 2006 on the Hong Kong Stock Exchange, its principal asset at the time was its stake in Citibank Plaza. — Reuters


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