Prosperity REIT's Harbourfront Landmark. (Photo: Prosperity REIT)Prosperity REIT's Harbourfront Landmark. (Photo: Prosperity REIT)

Hong Kong-listed Prosperity REIT has entered into a sale and purchase agreement to acquire a 24-storey office tower at 410 Kwun Tong Road in Kowloon, Hong Kong, for HKD1.875 billion (USD241 million).

The property, which includes 27,600 square feet of retail space that runs from its basement to the second floor, features 144,780 square feet of total gross leasable area.

Prosperity REIT will acquire the property from vendor Ultra Champion Holdings Limited through a special purpose investment vehicle known as Diamond Champ Enterprises.

410 Kwun Tong Road is currently occupied by 27 tenants and has a net property income of HKD25.6 million for the six months ended 30 June 2016.

The property’s retail component is fully occupied, but its office space features an occupancy rate of 85.9% as at end-July 2016, giving an overall portfolio occupancy of 88.6%.

As the property has been independently valued at HKD1.985 billion as of July 2016, the purchase price of HKD1.875 billion represents a discount of about 5%, said Prosperity REIT in a statement on the acquisition.

410 Kwun Tong Road will be the REIT’s ninth property once the acquisition is complete.

Prosperity REIT intends to fund the acquisition by drawing down on new unsecured debt facilities of up to HKD1.95 billion.

The new debt facilities are being entered into with DBS Bank as the lead arranger, and will bear interest at a margin of 0.905% per annum over the prevailing Hong Kong interbank offered rate (HIBOR).

The facilities are expected to mature and turn repayable four years from the date on which they are drawn down.

As a result of the acquisition, Prosperity REIT’s gearing is expected to increase from 26.5% as at 30 June 2016, to approximately 37.1% once the transactions are complete, which is still below Hong Kong’s gearing limit of 45%.

The acquisition is expected to be yield accretive towards Prosperity REIT’s distribution per unit (DPU).

Units of Prosperity REIT finished the trading day about 1.2% higher from its previous close on the Hong Kong Stock Exchange to end at HKD3.39.

By Ridzwan Rahmat

Ridzwan has been analysing REITs and business trusts since 2008, and personally manages a portfolio comprising mainly of SGX-listed REITs. He founded REITsWeek in 2013.