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Link Real Estate Investment Trust (Link Reit) has agreed to sell a portfolio of local shopping malls to private equity firm Gaw Capital and the investment arm of Goldman Sachs for HS$23 billion ($2.9 billion).
The high valuation for the 17 properties achieved by the largest listed Reit in Hong Kong shows that the city’s property market remains red hot. Demand is feverish across the all sectors of the property market from residential through to office space.
However scratch below the surface and Link Reit’s array of local shopping malls and wet markets were always better positioned to weather the headwinds of declining spending by mainland tourists than its peers.
The businesses in Link Reit’s properties in Hong Kong offer daily necessities to residents in adjacent public housing estates. The cash flow is therefore more predictable many other similar Reits in Hong Kong.
“Thanks to this focus on nondiscretionary spending, Link's mass- to mid-market retail malls have consistently outperformed the general market during economic downturns,” said Stephanie Lau an analyst at credit rating agency Moody’s in a report to investors.
Link Reit said in its second half results that tenant sales increased by 7.2% year-on-year, boosted by non-discretionary retail sales, a trend that management said it sees continuing. Retail rentals were up 7.9% year-on-year on a like-for-like basis. Occupancy rates were maintained at 96.3% in Hong Kong.
The consortium, led by Gaw Capital, beat off a wide range of investors including other alternative investment firms, Blackstone and KKR as well as overseas investment trusts, sovereign wealth funds and local property developers.
A person familiar with the auction described it as a “bidding frenzy” driven by the urge to own high-yielding assets that are defensive in nature. The price tag represents a 52% premium to the appraised value of the portfolio as of September 30.
Gaw Capital focuses on real estate investments and owns property across Greater China. In Hong Kong it owns the InterContinental Hotel and 133 Wai Yip Street.
Link Reit said in July in a stock exchange filing that it intended to conduct a strategic review of its asset portfolio in order to optimise its asset portfolio and maximise value for unitholders. Link named HSBC and UBS as financial advisors for the review and C&W as its real estate advisor.
Link Real Estate Investment Trust listed on the Hong Kong Stock Exchange on November 25, 2005 as part of a divestment exercise by the Hong Kong Housing Authority. As of September 30, the trust owned 155 assets in Hong Kong, one in Guangzhou, one in Beijing and one in Shanghai.
Following the sale of the 17 properties, in the Kowloon and the New Territories regions of Hong Kong away from the Hong Kong Island, Link Reit will have about 90% of its assets in Hong Kong and 10% in Mainland China and its portfolio is worth about HK$175 billion.
Super-charged market
When Mandarin Oriental International scrapped its planned sale of Hong Kong hotel, The Excelsior, in September it put a slight dampner on what has been a rush of sales through the year.
However, the bullish sentiment resumed in full force when Hong Kong tycoon Li Ka-shing’s CK Asset Holdings agreed to sell its stake in The Center for HK$40.2 billion earlier in November, a record price tag for a Hong Kong office tower.
The territory's family-run conglomerates have been cashing in on a three-fold rise in the value of Hong Kong property since 2007, as measured by the Hong Kong Rating and Valuation Department.
The windfall has given the tycoons scope to pay out bumper dividends, spin off properties into separate listings, sell non-core or lower-quality assets and recycle the proceeds into higher-class buildings or cash-generating overseas assets.
Henderson Land has been selling non-core assets and in May bought a commercial site in downtown Murray Road, Hong Kong for HK$23.3 billion.
