Main Board Listing - Research
冠君產業信託
Champion Real Estate Investment Trust [Stock Code: 2778]
Sole Global Coordinator and Sole Listing Agent : Merrill Lynch
Joint Bookrunners and Joint Lead Managers : Merrill Lynch Citigroup JP Morgan
Joint Financial Advisors : Merrill Lynch Citigroup
Sector : Financials
Business : Real estate investment trust (REIT)
Total unit offer: 1,234,219,752 units
(45.0% of the issued units)
Public Offer: 123,422,000 shares (10%)
Placing: 1,110,797,752 shares (90%)
Greenshoe: 185,132,963 shares
Price: HK$5.00-HK$5.75 per unit
Market Cap.: HK$13.7 billion - HK$15.8 billion
FY2006E Annualized Distribution Yield:
5.57%-4.84%
Pro forma NTA per unit: HK$5.94
The Manager: Eagle Asset Management (CP)
Limited
HK Public Offer period:
11th May 2006 - 16th May 2006 noon
Receiving bank: The Bank of East Asia,
Hang Seng Bank,
HSBC & ICBC (Asia)
Unit registrar: Computershare Hong Kong
Investor Services Limited
Listing date: 24th May 2006
Business of Champion REIT
Champion REIT is a real estate investment trust
formed primarily to own and invest in an incomeproducing
portfolio of office and retail properties in
Hong Kong. It offers investors direct exposure to a
prime Grade A office property in the central
business district (CBD) in Central, Hong Kong.
Champion REIT will initially invest in and own the
Property, which comprises 91.5% of the gross
rentable area of Citibank Plaza (comprises the 47-
storey Citibank Tower and the 37-storey ICBC
Tower) and substantially all of the parking spaces
at Citibank Plaza. The Property has an aggregate
gross rentable area of 1,160,227 sq. ft., comprising
1,117,634 sq. ft. of office space, 42,593 sq. ft. of
retail space, 55 private carparking space and a
public carpark with 550 carparking spaces.
Upon the completion of the Global Offering and
assuming the Over-allotment Option is not
exercised, Great Eagle, Kerry Properties and Wing
Tai will own 49.2%, 4.2% and 1.6%, respectively,
of the outstanding Units of Champion REIT.
Meanwhile, each of the three parties has entered
into a deed (“Distribution Entitlement Waiver
Deed”) with the Trustee and the Manager to waive
100%, 55% and 20% of the distributions entitled,
respectively, for FY06, FY07 and FY08.
Major Unit-holders after Listing (Assuming the over-allotment option is not
exercised)
Great Eagle 49.2%
Kerry Properties 4.2%
Wing Tai 1.6%
55.0%
2
EAST ASIA SECURITIES COMPANY LIMITED
Use of Proceeds
Total proceeds from the offer are estimated to be HK$6,171 million (based on an
issue price of HK$5.00)
and HK$7,097 million (based on an issue price of HK$5.75).
(Assuming the over-allotment option is not exercised.)
The net proceeds, together with the funds drawn down from the Facility (a
secured credit facility of HK$7.2
billion, comprising a term loan facility of HK$7,000 million and a HK$200
million revolving credit facility),
will be used to make payments to the Vendor Companies (Great Eagle, Kerry
Properties and Wing Tai), for
the upfront swap payments, and to meet the IPO-related costs and expenses and
debt related costs.
Based on the
Minimum Offer
Price of HK$5.00
Based on the
Maximum Offer
Price of HK$5.75
(HK$ million)
Payments to the Vendor Companies 11,487 12,390
Upfront swap payments 1,417 1,417
Other costs 267 290
Financial Highlights
Year ended 31st December
2003 2004 2005
HK$ ‘000 HK$ ‘000 HK$ ‘000
Rental income 449,328 329,142 319,549
Car park income 11,111 8,321 9,011
Building management fee income 73,548 66,126 72,723
Total rental and building management fee income 533,987 403,589 401,283
Net rental income 415,386 294,298 286,278
Increase/(decrease) in fair value of investment
properties (494,000) 1,988,859 11,925,276
Profit attributable to Unitholders (201,976) 1,648,435 8,973,397
Statistics of the Properties
Year of Completion May 1992
Occupancy Average for the year ended
31st December 2005
As of
28th February 2006
- Office
- Retail
86.3%
100.0%
86.1%
100.0%
Number of Parking Spaces 55 out of 58 private carparking spaces; Public carpark
with
500 carparking spaces and 50 motorcycle parking spaces
Total Floor Area (excluding the carpark) 1,492,526 sq. ft. (comprising 1,434,805
sq. ft. of office space
and 57,721 sq. ft.)
Gross Rentable Area 1,160,227 sq. ft. (comprising 1,117,634 sq. ft. of office
space
and 42,593 sq. ft.)
Appraised Value HK$22,670 million (as of 28th February 2006)
Number of Tenants 81 office and retail tenants under 106 tenancies
Government Grant Expiry 30th June 2047
3
EAST ASIA SECURITIES COMPANY LIMITED
Strengths/Opportunities
Thanks to robust business confidence and solid economic growth, demand for
Grade A office space
continues to grow favourably, which helped bring the average vacancy rate of the
HK Grade A office
market down to 8.1% in 2005 from a high near 14% in 2003 when local business
sentiments fell to a
trough during the SARS outbreak. For the Citibank Plaza, vacancy rate of its
office space was 13.9%
by the end of 2005, well below the vacancy rate of the overall HK Grade office
market as well as that in
the central business district of around 5%. The higher-than-average vacancy rate
should enable the
Manager to seek for higher rental rates in the market and take full advantage
from the current office
up-cycle.
According to market consultant Colliers International, redevelopment of the
Central Market at Jubilee
Street is seen the only potential new supply of office space in the Central
district in the next couple of
years. Apart from that, no other new supply of office properties in Central is
expected to come to
marketplace between 2007 and 2010.
55.2% of the Property’s lease would expire in 2006-2008. Upward revision of
rental rates during
renewals should help maximize rental incomes and so enhance the expected yield
of Champion REIT
in the coming years.
Champion REIT has entered into an interest rate swap with Merrill Lynch to
fix the finance costs of the
Facility, which would eliminate interest rate fluctuation from distorting income
distribution during the
course of the term loan.
Champion REIT is to distribute 100% of its distributable income to
Unit-holders as dividends for each
financial year. With the guaranteed paid-out of no less than HK$0.1694 per unit
in 2006, Champion
REIT will offer an annualized distribution yield of 5.57% based on the minimum
offer price of HK$5.00
and 4.84% based on the top end of the indicative price range at HK$5.75, which
would be in line with
Prosperity REIT (HKEx: 0808)’s FY2006E yield of 5.2% but higher than the Link
REIT (HKEx: 0823)’s
FY2006E yield of 3.7%.
Weaknesses/Threats
× In order to come up with the shortfall of distribution before any rental
renewals and take-up of office
spaces in the next couple of years, the Vendor Companies have agreed to waive
all or part of the
distributions entitled during FY06-FY08. However, if the anticipated rental
growth rates do not
materialize, the yield of Champion REIT would fall once the Distribution Waivers
expires.
× There is only one office premise (2 Towers) in Champion REIT, leading to a
higher level of risk in
geographic terms when compared with other REITs listed in Hong Kong.
× The Property’s rental incomes fell 26.7% and 2.9% in 2004 and 2005,
respectively, due to removal of
some tenants to other newly completed office spaces like IFC Two.
× Valuation of the Citibank Plaza is circa around HK$15,000 per sq ft, which may
considered to be on
the high side.
Recommendation: Subscribe