$4B Hong Kong Real Estate Firm Ponders Buyout

July 05, 2007
By Barbra Murray, Contributing Editor

Chinese Estates Holdings Ltd. has confirmed that it is in discussions with entities that are interested in acquiring the Hong Kong-based real estate company. No firm offers have yet been made for Chinese Estates, which has a total market capitalization of approximately U.S.$4.2 billion.

Headquartered in Wanchai, Hong Kong, Chinese Estates' core business involves property acquisition and development, predominantly in Hong Kong. The company's portfolio includes 1 million square feet of retail space and 1.2 million square feet of office space. Among its premium assets are a mixed-use office and retail complex in a prestigious commercial district in Shanghai, and the upscale Hilton Beijing. Chinese Estates' development pipeline includes 16 million square feet in commercial and residential projects that will be built in Hong Kong, Macau and mainland China. News of the potential sale of the company pushed shares up to HK$16, a company high for the 52-week trade period on the Stock Exchange of Hong Kong Ltd., during which time shares went as low as HK$7.65. Shares closed today at HK$14.60. The board of directors of Chinese Estates reports that all talks are in the preliminary stages and may not necessarily result in an offer.

Honk Kong is experiencing steady economic growth and real estate is benefiting. As per real estate services firm Colliers International's Hong Kong Property Market Overview quarterly report, increasing consumer prices have created a favorable environment for the continued growth of property rental and capital values. Investor interest in Chinese Estates' high quality portfolio is no mystery as, according to the report, investment-grade opportunities are anything but plentiful.

Should Chinese Estates opt to sell--even at a cost just above its value--the transaction will lengthen the list of big-ticket real estate company acquisitions that have taken place this year. Notable deals include Morgan Stanley Real Estate's planned purchase of Crescent Real Estate Equities Co. for about $6.5 billion, including debt. The roster of transactions extends beyond domestic markets and players. In May, Morgan Stanley signed an implementation agreement to acquire Sydney-based diversified real estate company Investa in an all cash deal that values Investa at about $6.6 billion; and, acting through its newly established State Investment Co., will buy a $3 billion stake in U.S. private equity firm Blackstone Group concurrent with the firm's planned $4 billion IPO.

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