HNA Said Selling Pair of London Buildings to Cindat at Half-Price

HNA Group is in advanced talks to sell the Reuters building in London for £135 million ($176 million), according to a report published yesterday by Bloomberg.

Should the deal be consummated, the insolvent mainland conglomerate would be selling 30 South Colonnade, as the building is officially called, for 60 percent less than it paid to acquire the asset in 2015.

The 305,000 square foot (28,335 square metre) office building on Canary Wharf is reportedly being packaged with another London commercial property belonging to HNA for sale to Cindat Capital Management, a Beijing-based private equity firm run by former Merrill Lynch banker Greg Peng. UK-based investment manager LS Estates is working with the Chinese firm to acquire the property, according to Bloomberg.

Should the two London assets be sold, they would represent the latest in a series of disposals by HNA, which continues to struggle to unload debt, and would allow Cindat to add to an expanding portfolio of UK assets.

Cindat Finds a Motivated Seller in London

In addition to the potential purchase of the Reuters building, Cindat Capital Management is also in talks to purchase 17 Columbus Courtyard, a 20-year-old office building currently leased to Credit Suisse, according to British real estate outlet The Property. In response to inquiries by Mingtiandi regarding the media reports, sources at Cindat declined to comment.

HNA purchased the building, located 200 meters away from the Reuters property, for £140 million in 2016, a year in which the parent company of China’s Hainan airlines acquired commercial properties in Seattle, San Francisco, and Minneapolis as part of a $35 billion overseas acquisition spree.

According to the Bloomberg account, in addition to its general financial distress, HNA has some added incentive to offer a discount on the Reuters building, as the news agency, which leases the entire building apart from a few retail shops, is already set to move to a new location before May 2020 when its lease expires. The building is also said to require costly renovations in order to attract a new tenant, according to Bloomberg, after earning yearly revenue of £12.4 million per year under the British news agency.

Cindat is in talks with WeWork to occupy part of 30 South Colonnade after Reuters moves out, said sources cited by The Property.

The discount may have also been influenced by HNA’s outstanding debt on the building, which amounted to £105 million in October of last year according to a report a the time by Chinese media outlet, thepaper.cn.

HNA Overseas Sales Continue

HNA’s efforts to sell the building on Canary Wharf were first reported more than one year ago, and in October the property was said to be among 11 overseas assets that the group was attempting to dispose of, including two office projects in London and a third New York, as well as four hotels located in the US, Europe, Australia, and the South Pacific.

The two Canary Wharf buildings have been among HNA’s hardest assets to unload, given the Brexit-influenced flight of corporates to locations elsewhere in Europe, and the impending sunset of the existing leases on the properties, according to Bloomberg.

In January, HNA sold 850 Third Avenue in New York, an office building near Trump Tower, at a $40 million loss.

HNA Group, which defaulted on a RMB 300 million bond last September, has sold more than $40 billion of the $50 billion overseas portfolio it acquired since 2015 in what the company says is an effort to focus on its core aviation business.

Cindat’s UK appetite

Beijing-based Cindat is a private equity affiliate of “bad bank” Cindat Asset Management, one of four state-owned financial institutions in charge of managing bad debt. The firm has been beefing up its overseas property profile at a time when major Chinese conglomerates are offloading their foreign assets.

Cindat is no stranger to the UK market, having acquired UK hotel chain Qhotels for £525 million ($703 million) in 2017, together with London-based investment firm Aprirose. The company also teamed up with state-run CITIC Capital in May of that same year to purchase a 70 percent stake in a residential project in London’s Mayfair district for $155 million.

In 2016 it formed a $571 million joint venture with NYSE-listed REIT Hersha Hospitality Trust (an entity with interests in mid-market hotels in New York City), and in that same year, it acquired a portfolio of senior housing and rehabilitation facilities from Ohio-based Welltower for $930 million.

London Disposals Part of Global Plan

The potential sale of the two London buildings may alleviate some stress on HNA, a month after the China Development Bank, which is overseeing the company’s restructuring, set up shop in the firm’s Hainan headquarters to expedite the asset sale. The strain of the company’s $100 billion debt burden became evident in the second half of last last year when, in addition to its loan default, the company missed a payment (which it ultimately repaid) on a 270-day RMB 1 billion bond issue, and delayed payment on loans made by its own employees and other retail investors through P2P platforms.

The group has has been trimming down its bloated balance sheet for more than one year, including sales of banks, hotels, properties, airlines and tech firms. Last year, the company sold luxury properties and hotels — including its last land parcel in Hong Kong for HK$3.91 billion ($498.3 million) — as well as assets close to its core business like its $2 billion minority stake in aircraft lessor Avolon Holdings.

By November 2018, the company had already shed close to RMB 300 billion of assets, according to HNA Chairman Chen Feng. The selloff, however, shows no signs of slowing down. Just this month, the company sold 26.8 million Deutsche Bank shares for €363.4 million reducing its stake from 10 to 6.3 percent.