Why Lions Rise Mall's acquisition from Kerry is still a win

Clue: It's about the cash.

In line with the recent announcement from the Link REIT that it has agreed to buy the Lions Rise Mall from Kerry Properties for HK$1,380mn, this has been observed to still be a positive development for Kerry Properties.

According to a research note from Barclays, the main benefit from the disposal will be in the form of the cash being returned to Kerry.

Further, the report cited balance sheet repair and flexibility on presales with regard to the sale.

As of December 31, 2013, Kerry Properties had net debt of HK$23.5bn with a net debt-to-equity ratio of 31.0%.

Here’s more from Barclays:

It had retained its gearing target at below 35%.

With some HK$6-7bn of capex expected for 2014, we believe the HK$1.38bn being returned from the disposal should help Kerry to repair its balance sheet.

Furthermore, as Kerry had a contract sales target of HK$12bn for 2014 (HK$6.5bn coming from Hong Kong and HK$5.5bn from China), the HK$1.38bn from this disposal should afford it more flexibility in timing the launch of its Kowloon Tong and Shatin projects.

Little synergy with the Mega Box – Although Lions Rise Mall is also located in the East Kowloon area, we see little synergy between Lions Rise Mall and Kerry’s Mega Box in Kowloon Bay.