Asia's largest Reit debuts $500m bond

Hong Kong-based Link Reit sells its first dollar-denominated note with the aim of extending the tenor of its funding program.
Supermarkets contribute to 23% of Link Reit's rental income
Supermarkets contribute to 23% of Link Reit's rental income

Hong Kong-based Link Real Estate Investment Trust (The Link Reit) raised a debut $500 million 10-year bond on Tuesday, with the goal of extending duration.

A regular issuer in the dollar-denominated private placement space, Link Reit’s offering benefited from the fact that it’s a household name in the domestic market.

The company was the first Reit to be listed on the Hong Kong Stock Exchange — in 2005 — and is also the largest Reit in Asia, according to sources familiar with the matter. The company’s market capitalisation is HK$105 billion ($13.5 billion).

As a result, Link Reit was able to tighten pricing by 15bp from an initial price guidance of Treasuries plus 145bp, according to a term sheet seen by FinanceAsia. The Reg S-registered bond has a coupon 3.6%.

The nearest comparable for Link Reit’s offering is identically rated Hong Kong Land’s existing bond expiring in 2024, which was trading at Treasuries plus 127bp or a G-spread of 133bp, indicating that the company’s new offering priced several basis points inside fair value, sources added.

The bond was issued by The Link Finance Cayman and guaranteed by The Link Holdings, The Link Properties and HSBC Institutional Trust Services (Asia), as the trustee for the Link Reit. Proceeds of the note will be used for general corporate purposes.

The Link Reit has a portfolio of 182 suburban Hong Kong shopping malls and car parks primarily connected to housing estates — most of which were previously owned by the Hong Kong Housing Authority.

As such, the company’s retail clients comprise of food and beverage retailers (25% of rental income); supermarkets (23%); markets and cooked food stalls (14%); services (11%); personal care, medicine, optical and stationery (8%) and other businesses (19%).

“This tenant mix makes Link Reit’s properties relatively immune to Hong Kong’s current slowdown in high-end retail spending,” said Mark Reade, Asian fixed-income trader at Mizuho Securities.

On August 18, Link Reit agreed to acquire a commercial property in Wong Tai Sin, located in Hong Kong’s Kowloon district, from a wholly owned subsidiary of Kerry Properties for HK$1.38 billion. The purchase of the 126,319 square foot Lions Rise Mall marked its third acquisition since its listing.

Strong order book

Link Reit’s maiden bond obtained an order book of $1.8 billion from more than 130 investors, the majority of which went to Asian investors, according to a source close to the deal.

The offering also received strong demand from institutional investors. Fund managers subscribed to nearly half of the paper, followed by insurers and pension funds with 32%, financial institutions 20% and private banks 2%.

Credit analysts said that investors will continue to flock to this deal due to the issuer’s conservative leverage and scarcity factor in the dollar bond space.

“We can’t think of many other property companies that we have looked at this reporting season where leverage has gone down,” a Hong Kong-based credit analyst said, adding that Link Reit’s debt-to-ebitda ratio declined from 3.1 in financial year 2013 to 2.5 for this financial year, which ended on March 31.

In the secondary market, Link Reit’s note tightened slightly to trade at Treasuries plus 128bp shortly after being priced, according to Bloomberg bond data. The bond is expected to be rated A and A2 by Standard & Poor’s and Moody’s respectively.

ANZ, DBS and HSBC were the joint bookrunners of the bond, which is a drawdown of the issuer’s $2 billion medium-term programme.


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