Swire sells Festival Walk to Temasek for HK$18.8b

Sale of Festival Walk to Temasek’s Mapletree expected to show book profit of HK$1.63 billion
Sandy Li
Jul 30, 2011

Swire Pacific (SEHK: 0019) says it will sell its Festival Walk shopping and office complex in Kowloon Tong for a record-breaking HK$18.8 billion, a move analysts say is the fastest way for the company to raise capital to fund its aggressive mainland expansion.

In a statement filed with the stock exchange yesterday, Swire said it had entered a sale and purchase agreement to sell 100 per cent of the 13-year-old Festival Walk to Mapletree Investments, a unit of Singapore’s Temasek Holdings.

It would be the most expensive property transaction in the city’s history, outside of land sales.

The conglomerate said it would record a HK$1.63 billion profit from the sale of the 1.2 million square foot complex, one of three major retail projects in Swire’s 15 million sq ft investment portfolio, which also includes offices and hotels in Hong Kong.

“Swire has been trying various methods for some years [including selling Festival Walk through] real estate investment trusts and spinoffs [its property arm] to raise money,” said Lee Wee Liat, regional head of property at Samsung Securities.

“But tapping capital from the market subjects them to lots of market uncertainty, especially now when the global economic outlook is so uncertain. I think they have run out of time to wait. This is especially so when the number of commercial projects they have in China is getting larger and larger. I guess this method provides the fastest way to get capital.”

In 2009, Swire Pacific said it planned to spend HK$13 billion over the next five years to expand its investment property portfolio to 24 million sq ft by 2013, of which 8 million sq ft would be on the mainland and 16 million in Hong Kong.

Festival Walk, which opened in 1998, comprises 980,089 sq ft of shopping space and 228,665 sq ft of office, as well as 923 car parking spaces.

The HK$18.8 billion price tag represented an estimated HK$18,000 per sq ft for retail space, HK$8,500 per sq ft for office and HK$200,000 for each car parking spot, according to people familiar with the deal. Last month, Sing Tao Daily reported the deal would be for HK$22 billion.

After the sale of Festival Walk, Swire’s Hong Kong retail portfolio will be cut by 35 per cent to 2.2 million sq ft in Hong Kong.

The group, which controls Cathay Pacific Airways (SEHK: 0293) also owns the 711,000 sq ft retail complex in Pacific Place in Admiralty and the 1.1 million sq ft Cityplaza in Taikoo Shing. In addition to shopping centres, it also holds 10.49 million sq ft of office space in Pacific Place, Island East in Quarry Bay and 743,000 sq ft of hotels and 461,000 sq ft of residential rental properties in Hong Kong.

Eric Yuen, head of research at brokerage house GuocoCapital, expects Swire will probably abandon its plan to spin off Swire Properties since it will have raised capital from the sale of Festival Walk.

In May 2010, the group shelved its spin-off plan for Swire Properties, which was to raise HK$20.84 billion in an initial public offering, due to a downturn in the market.

Mall Story

Opened during an economic downturn in 1998, Festival Walk comprises 980,089 sq ft of shopping space and 228,665 sq ft of offices. It was jointly built by Swire and Citic Pacific (SEHK: 0267) for HK$5 billion. They paid HK$2.85 billion for the site at a government land auction in 1993. One of its big early attractions was the Rainforest Cafe, a restaurant with a jungle theme. Swire has owned 100 per cent of the property since it bought the 50 per cent stake from Citic Pacific for HK$6.18 billion in January 2006. Swire Pacific, which also owns Pacific Place mall in Admiralty and Cityplaza mall in Taikoo Shing, had looked into spinning off Festival Walk into a real estate investment trust in 2007, but no plan was finalised.

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