REAL ESTATE - This week the roadshow for the latest Hong Kong REIT initial public offering hits Europe and the US.
The Champion REIT from Great Eagle Holdings plans to offer a yield of between 4.85% and 5.5% in the planned $900m offering.
Local market analysts are predicting queues around the block for this latest issue, which has only one property in its portfolio, the Citibank Plaza office complex in Central.
Even the SFC’s executive director Alexa Lam has commented on the likely attractiveness of the issue to local investors, many of whom, she said, “would love to own a piece of such a prestigious piece of real estate”.
With a shortage of new Grade A offices in the pipeline, Champion REIT should be able to maintain solid income growth. Around 20% of its leases will expire in 2007 and 2008 and another 30% are up for rental reviews.
Champion REIT will have a market capitalisation of up to $2bn at the time of listing, of which Great Eagle will retain 49% while two other existing owners of Citibank Plaza will hold a combined 6%.
The remaining 45% will be sold to investors through an IPO that will comprise 1.23bn units at an indicated price range of HK$5 to HK$5.75.
Despite heavy oversubscription for the three Hong Kong REITs issue so far, they have not all maintained the dramatic price appreciation that has characterised the Asian market. While the Link REIT has maintained its early momentum, the Prosperity REIT has been a poor performer on a relative basis.
The structure of the Champion REIT uses an interest rate swap arrangement to help boost the yield, a similar structure to that used by the Prosperity REIT. It has been criticised in some quarters for its artificiality. Fund manager Chris Reilly of Henderson comments, “If you have to build such a high scaffold to jack the yield up, you have to ask is it really worth it?”
Citibank, Merrill Lynch and J P Morgan are bookrunners for the IPO, which is expected to list on May 24.