Link Asset Management Limited (Link), the manager of Link Real Estate Investment Trust (Link REIT, Hong Kong stock code: 823), announced today (Thursday) it will acquire from certain funds managed by Blackstone a 10-storey A grade office tower (the Property) at 100 Market Street in Sydney for approximately AUD 683 million (HK$3.649 billion).
“The Property is a stable and quality asset. The acquisition will drive growth in sustainable income and capital value, with limited downside risk,” said Link Chief Executive Officer George Hongchoy, adding, “A more diversified portfolio with overseas properties providing new sources of income will help ease our reliance on Hong Kong properties to generate income progression, and contribute to a healthier growth trajectory.”
About the Property
The Property is in a premium location with excellent accessibility and amenities. Situated within a mixed-use development bounded by Market, Pitt and Castlereagh Streets in the midtown precinct, the Property has a total net leasable area of 28,385 square metres spread over 10 storeys. It was substantially redeveloped in 2010/11 as part of the larger Westfield Sydney redevelopment.
The Property is rare single-owner asset which is currently fully occupied by three blue-chip tenants, notably a sovereign wealth fund, a Commonwealth government body and an S&P/ASX100 listed property investor. The Property has a weighted average lease expiry (by rental income) of 8.45 years with leases expiring between 2027 and 2030, and a net passing income of approximately AUD26.7 million per annum as at 16 December 2019
The term of the Property lease is 299 years, commencing on 27 June 2019 and ending on 26 June 2318. The transaction price reflects the valuation by Colliers International (Hong Kong) Limited on 16 December 2019.
The real estate market in Australia is highly transparent and liquid. With over AUD30 billion of commercial real estate transactions per annum in the past five years and a pool of sophisticated real estate investors domestically and overseas, there are ample opportunities in Australia for strategic growth. In particular, Sydney is an established and growing global gateway city in Australia, with strong tenant demand.
The transaction marks Link’s first acquisition outside of Hong Kong and Mainland China. While Hong Kong will remain Link’s home and core market, the company will incrementally increase its exposure in Mainland China and the gateway cities of other major developed markets, such as Australia, Singapore, Japan and the UK, due to their relative market stability and liquidity, as well as transparent regulatory environments.
Link does not have immediate plans for divesting existing assets. Along its growth trajectory, Link expects Hong Kong assets will account for 70% to 75% of its total portfolio value, Mainland China assets for no more than 20% and overseas assets for no more than 10%. In terms of asset class selection, Link expects it will continue focusing on retail assets, with office assets accounting for 15% to 20% of its expanded portfolio.
About the Acquisition
The acquisition represents approximately 1.66% of the total assets of Link REIT as at 30 September 2019. Link will fund the transaction through a combination of external bank loans secured by a mortgage over the Property and Link’s internal resources. Upon completion, the pro-forma adjusted ratio of debt to total assets of Link REIT is anticipated to change from approximately 12.1% to approximately 13.5%.
Link will continue to engage Scentre Shopping Centre Management Pty Ltd as property manager upon completion of the transaction.