Champion REIT plans to buy a shopping and office complex from Great Eagle Holdings Ltd for US$1.6 billion to expand its holdings in the growing Asian real estate business.
The building, known as Langham Place, is a 1.94 million square-foot building that includes a hotel and car park.
Lucrative growth in Hong Kong real estate
Located in Hong Kong, Langham Place is one of the largest shopping centers in the area. Last year’s gains in the Hong Kong real estate have sent REITs, such as Champion, scouring for good investments in the growing markets of Asia. In 2007 alone, real estate of any type from offices, shops, and residential properties gained 30% in value.
The purchase came at a discount to Champion REIT, which paid just HK$12.5 Billion, while the property was said to be valued at HK$14.17 Billion. The purchase is expected to add significantly to the REIT bottom line through the rapid rise in real estate prices and gradual increase in rent for office and storefront locations.
Continuing its growth as the first real estate trust in Hong Kong
Champion plans to finance the purchase with HK$3 Billion in new shares that will be issued to Great Eagle, with the remainder paid for with cash. Champion will issue new shares and bonds to finance the cash portion of the payment.
Champion has done very well the last few years, seeing its income rise 28% year over year since 2006. Higher rent revenue from its Citibank Plaza and other properties in Hong Kong’s financial district led the way for greater profits. Champion has done very well since its HK$6 Billion IPO in 2006, and it will continue to grow, especially with the giant purchase from Great Eagle Holdings.
Hong Kong’s real estate has been booming in recent months, as economic growth in the Asian markets outpaces the rest of the world. Better relations with China and more trade have boosted the economic outlook for Hong Kong, which has fueled real estate’s record run.