US private equity giant KKR has agreed to take a 50 percent equity interest in a Hong Kong retail asset owned by Wang On Group and its development affiliate Wang On Properties in return for a total consideration of HK$180 million ($22.9 million), according to a stock exchange filing last week.
The investment buys the New York firm ownership in a joint venture with the Wang On companies which will hold a two-storey retail podium at the Lake Silver residential complex in the Ma On Shan area in the New Territories, with the newly-formed Wang On-KKR joint venture then leasing the suburban shopping complex to a unit of Wang On Group for another decade.
The deal starts out with Wang On Group and Wang On Properties selling the shopping centre, which they acquired in January of this year, to the joint venture at a valuation of HK$653 million, according to the terms of a sale and purchase agreement described in the announcement.
The investment was announced by Wang On just two days after the local conglomerate chaired by Tang Ching Ho announced the acquisition of another retail podium in The Parkside, a housing complex around 20 kilometres (12.4 miles) south of Lake Silver in the New Territories’ Lake Silver area.
Wang On to Lease Shopping Centre From JV
To win its 50 percent equity interest, KKR is immediately contributing HK$60.4 million in cash, while also agreeing to subscribe to as much as another HK$122 million in further shares in the joint venture at the same time that Wang On’s party to the deal expands its shareholding.
The joint venture’s new property is a 28,200 square foot (2,620 square metre) retail podium, that it takes possession of with existing tenancies, which are expected to expire from this year through 2023 at the latest. Current monthly rental income from the shopping centre, according to the statement, is approximately HK$602,000 with management fees borne by the tenants.
As part of the same agreement, the joint venture will lease the decade-old shopping centre to an affiliate of Wang On Properties for 10 years at an aggregate rental value of HK$270.1 million, giving the developer rights to manage a retail centre serving the private housing project’s 2,218 homes as well as other shoppers visiting the complex at the terminal station of the MTR’s Ma On Shan line.
Joint Venture Follows January Acquisition
Wang On said in its statement that it considered the co-operation with KKR to represent a good opportunity to leverage the group’s knowledge and expertise in property investment and management and to partner with a renowned institution to expand its business. The group said that it would use the proceeds from the transaction for working capital, and that it expected to pay for subscription of new shares in the joint venture through its own internal resources.
The deal is expected to be completed on or before May 6, Wang On added in the statement.
The joint venture announcement comes less than four months after Wang On had acquired the retail asset from the government-controlled Kowloon-Canton Railway Corporation for HK$653 million through a public tender.
Lake Silver, located on top of the Wu Kai Sha metro station, was originally co-developed by Hong Kong’s public transport operator MTR Corp, and Sino Land. Completed in 2009, the project comprises of residential and retail elements as well as a kindergarten.
Wang On Expands Role as an Asset Manager
The deal comes as Wang On shows an interest in expanding its profile as an owner and manager of commercial properties.
Following the announcement of its Ma On Shan joint venture, Wang On announced on 30 April that it is buying the commercial element of a three-tower residential complex in Hong Kong’s Tseung Kwan O from a joint venture between the Chellaram family’s Mordril Properties and New York-based Angelo, Gordon and Company for a consideration of HK$780 million ($99.42 million).
In its announcement for the Tseung Kwan O investment, Wang On explained that the investment would help it to explore its asset management business, while enlarging its investment property portfolio and enhancing its rental income.
For KKR, the investment may be an opportunity to start deploying cash from a new war chest it has been gathering from regional and international investors.
The US private equity pioneer said in March that it expected to reach a first close on its maiden Asia real estate fund within the next three months. The $1.5 billion vehicle would add to some $2 billion in equity and debt commitments that KKR has made to Asia Pacific real estate since 2011, including transactions in South Korea, Australia, China, India, New Zealand and Singapore.