Hong Kong’s Link Reit announces entry to Europe with US$487.5 million acquisition of Morgan Stanley’s London home
- The Cabot in Canary Wharf acquired at discount of 0.4 per cent
- Acquisition is ‘exactly the kind of stable income producing high-quality asset with long-term growth potential that we were looking for’, CEO says
Hong Kong-based Link Reit, Asia’s largest real estate investment trust, has announced its entry into Europe with a £380 million (US$487.5 million) deal for an office complex housing Morgan Stanley’s headquarters in London.
The acquisition of The Cabot at 25 Cabot Street in Canary Wharf will allow the investment trust to diversify and improve its portfolio, and enhance its ability to deliver sustainable returns for unit holders, George Hongchoy, Link’s chief executive, said on Sunday night. “Today’s acquisition is part of our Vision 2025 growth strategy … a diversified portfolio can strengthen our portfolio resilience, allowing us to benefit from the varied economic cycles of different markets.”
The amount paid to HGR Liquidating Trust represents a marginal 0.4 per cent discount on a valuation conducted by Colliers International (Hong Kong) on July 17.
The discount reflects the impact of Brexit and the coronavirus pandemic on London’s office market, said Raymond Cheng, head of Hong Kong and China research at CGS-CIMB Securities. “British assets, after Brexit, after all, carry some uncertainty. Secondly, the office market outlook is a little clouded after Covid-19,” he said. “Although the net operating income yield stands at 5 per cent, it is possible for rents to drop because of Covid-19. I think [Link] might have factored this in.”
Link Reit still has a lot of cash and getting financing would not be difficult for it while its overall gearing is manageable, Cheng added.
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The investment trust will fully fund the acquisition, which does not include expenses amounting to about HK$28.3 million (US$3.6 million), through internal resources as well as new debt facilities. Upon completion, Link’s gearing will rise from 17.8 per cent to 19.2 per cent.
The Cabot was completed in 1991 and has undergone extensive refurbishments and extension over the six years to March 2020. It offers 481,605 sq ft of space and is being acquired with an annual net passing rent of £18.83 million. It is 99.1 per cent occupied by Morgan Stanley, a non-ministerial government department, a statutory body and a co-working space operator.
“The Cabot is exactly the kind of stable income producing high-quality asset with long-term growth potential that we were looking for,” said Link’s Hongchoy. “It’s a prominent, Grade A building and one of the few freehold properties in Canary Wharf. It’s well located, with excellent connectivity and accessibility, and it is almost fully occupied with long leases to high-quality tenants.”
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Link remains on the lookout for foreign properties. “Going beyond our home in Hong Kong and mainland China, we’re looking at opportunities in the UK, Singapore, Australia and Japan – transparent and liquid markets with sound legal frameworks and strong economic fundamentals,” Hongchoy added.
The Cabot is the investment trust’s second overseas acquisition after it bought 100 Market Street in Sydney in 2019.
