Link REIT makes contrarian bet on office properties

Asia’s largest real estate investment trust, Link REIT (HKG: 0823), is spending close to half a billion USD to acquire a stake in a portfolio of Australian office properties.

The deal, announced this week, is being view as a somewhat contrarian bet that workers will return to their offices, despite permanent working from home arrangements being adopted by many major companies across the world.

For US$428.2m, Link REIT is buying a 49.9% interest in Investa Gateway Office from Canadian company, Oxford Properties Group. Oxford will maintain a 50.1% interest.

There are 5 properites in the portoflio which are some of the highest-profile office buildings in the central business hubs of Sydney and Melbourne. They include:

  • 151 Clarence Street, Sydney
  • 347 Kent Street, Sydney
  • 388 George Street, Sydney
  • 126 Phillip Street, Sydney
  • 567 Collins Street, Melbourne.

“Investa Gateway Office is one of the highest quality Australian office real estate portfolios to be offered to the market in recent years. We are delighted to partner with two firms that have deep conviction and connections in the Australian market and further strengthen Link’s presence in the country,” said Link REIT CEO, George Hongchoy.

“The Australian economy has been highly resilient and the investment in one of its highest quality prime office portfolios provides immediate scale, positions us strongly for the next cycle and aligns with our Vision 2025 growth strategy of diversifying and improving our portfolio mix in the region.”

Positive response from analysts

S&P Global Ratings analyst Jensen Hui, CFA, said the deal would strengthen Link REIT’s overseas presence and help diversify its property portfolio.

“The deal will allow Link REIT to manage risk and capital expenditure as it expands its portfolio outside of Hong Kong. We expect the joint venture to regularly distribute a majority of its income after expenses and debt servicing as dividend, strengthening Link REIT’s recurring cash flow,” said Hui.

“The assets’ prime locations, healthy weighted average lease expiry of 5.8 years, and about 4% annual rent increment will help to mitigate the high overall vacancies in the Australian office market.”

It’s been a busy period for Link REIT, which was Hong Kong’s first ever REIT when it listed in 2005.

It has announced five new deals in the past 12 months. However, Link’s Hong Kong-listed stock is trading down around 2.5% year-to-date and down around 20% since the start of 2020.

Its current market cap sits at US$18 billion.

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