Hong Kong-listed Far East Consortium has agreed to sell the commercial portion of a project on the former Kai Tak airstrip for a consideration of HK$3.38 billion ($433.3 million), just two weeks after joining with New World Development to acquire a residential project on the onetime runway from cash-pressed Kaisa Group Holdings.
FEC is receiving HK$850 million more for the office and retail element of the Kai Tak complex than it had paid for the whole site two years ago, and will now be developing the project on behalf of its new owner, utility operator China Light and Power. Under the terms of the deal, CLP will be purchasing the office tower upon completion, with the developer saying that it would use the proceeds of the sale to fund construction of the 178,915.5 square foot (16,621.8 square metre) structure.
A 400-room hotel component of the project adjacent to the Kai Tak Sports Park will remain in FEC’s portfolio and is set to be completed in 2024, the same year that the sports facility is expected to open, the company said.
Including FEC’s own investment in Kaisa’s residential plot, the commercial project sale marks the third transaction involving a site on the former runway in a two-week time span, following China Overseas Land & Investment’s announcement last week that it is selling a 30 percent stake in a condo project on the artificial peninsula for $173 million.
Electric Home of the Future
In explaining the rationale for selling the smallest commercial plot on the Kai Tak strip, FEC said that the disposal would, “(i) realise the value of the Land and the Development, (ii) allow the gain from the Disposal to be crystalised and the capital to be recycled, and (iii) increase liquidity and reduce net gearing.”
China Light and Power Company, which is purchasing the commercial project, will be involved in the design and construction process and expects to move its headquarters to the property upon completion, FEC said. At the stated consideration, the electric company has signed up to pay HK$18,891 per square foot for its corporate home, should the project be constructed to use the maximum floor area.
FEC had purchased the 121,374 square foot site for HK$2.45 billion in 2019, with that price falling some 9 percent below the low end of market expectations. At the time, analysts told Mingtiandi that developers had been “more conservative” in their bids for the commercial plot just a 10-minute walk from both the Sung Wong Toi and Kai Tak MTR stations due to title restrictions such as disallowment of strata sales.
At the time that it acquired the site, FEC said it planned to invest HK$4.5 billion developing the complex.
FEC Cashes Out
The developer is selling its commercial prize despite a recent uptick in grade A office rents in Hong Kong, which saw rates go up by an average of 0.2 percent month-on-month in October, marking the first increase since office tariffs had peaked in May of 2019.
Steered by second-generation property tycoon David Chiu, FEC in its interim results said that it had HK$6.2 billion in cash on hand as of 30 September, which was up from HK$3.4 billion in the same period of 2020.
The group’s liquidity position as at end-September was HK$9.9 billion, with FEC noting a “comfortable level of cash and marketable securities available” compared to last year’s level at HK$7.2 billion. However, the developer saw its net debt increase to HK$19.3 billion as at 30 September, up 6 percent from HK$18.2 billion in the same period from the previous year.
During this year Far East Consortium has disposed of overseas properties, including its September sale of 21 Anderson, a luxury apartment block in Singapore for $158.3 million.
About three months prior to that Southeast Asia sale, the developer sold its 267-room Dorsett hotel in London for $160.4 million.