Link Reit eyes more property in Australia, entry into Japan and Singapore, as it seeks to diversify from Hong Kong

Rising interest rates create more potential investment opportunities across the region for Asia’s largest real estate trust, COO says
The trust is pursuing greater international diversification as the Hong Kong and mainland China markets continue to struggle under Covid-19 restrictions

International Property

Cheryl Arcibal

Published: 7:00am, 28 Sep 2022

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Hong Kong-based Link Reit, Asia’s largest investment trust, is on the hunt for good commercial real estate deals in Australia, Japan and Singapore amid the current global environment of rising interest rates, according to a company executive.

“We are always active in looking for opportunities, but we are very selective about the opportunities we do complete,” said Greg Chubb, Link Reit’s chief operating officer, international.

“The new geographies in the region that we’re investigating are Australia, Singapore and Japan. We recently opened our regional office in Sydney and we’re looking at a number of different opportunities across the region. We have been very consistent in stating our interest in those markets, and we hope to grow in Australia, and potentially Singapore, potentially Japan.”

So far, the trust has 10 assets overseas: eight in Sydney and one each in Melbourne and London, on top of the 151 properties it owns in Hong Kong and mainland China.

A view of The Galeries, a retail property in Sydney. Link Reit bought a 50 per cent interest in the asset, along with two other Sydney retail properties, in November 2021. Photo: Handout

Except for Japan and the mainland, all of the trust’s markets and potential markets have seen rising interest rates, which can create opportunities for investors who are looking to acquire assets from those who may want to exit or dispose of investments.

“What the current environment does provide is that there will be more opportunities for us to investigate,” Chubb said. “Whether we complete on those opportunities, we’ll determine over time. We’ve got very thorough processes and we’ll continue to interrogate those opportunities, but probably the most important thing to know is that there will be more opportunities for us to investigate.”

In November, Link Reit paid A$538.2 million (US$398 million) for 50 per cent of a trio of retail properties in Australia. The investment in The Queen Victoria Building, the Strand Arcade and The Galeries in Sydney diversified Link Reit’s portfolio just months after it reported its second-worst annual revenue growth on record.

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At the time, pandemic restrictions that were among the world’s toughest were battering the economy in Hong Kong and the mainland, with the retail and tourism sectors among the hardest hit.

The trust’s Vision 2025 growth strategy calls for diversifying and improving its portfolio mix, according to chairman Nicholas Allen.

The overseas portfolio accounted for 7.8 per cent of the trust’s investments as of March, while nearly three quarters were in Hong Kong and 17.4 per cent in China.

In Hong Kong, Link Reit’s assets include Maritime Bay and Nan Fung Plaza, both in the Tseung Kwan O area of Sai Kung district.

The company remains focused on traditional retail, office and industrial assets, Chubb said, adding that Hong Kong will remain its main market. The trust recently won a parcel of land measuring 5,880 square metres near Anderson Road in Kwun Tong for HK$766 million (US$97.6 million).

Link Reit recently won a parcel of land measuring 5,880 square metres near Anderson Road in Hong Kong’s Kwun Tong district for HK$766 million (US$97.6 million). Photo: Handout

The focus on retail in the international portfolio appears to be a good bet given that in Australia, consumption has remained robust despite monetary tightening. The Reserve Bank of Australia began raising interest rates in the first half of 2022, with the latest move being a half-point increase this month to 2.35 per cent.

Unemployment in Australia declined to a 50-year low of 3.4 per cent in July, while consumption grew 1.3 per cent in July from the previous month to a record A$34.7 billion, according to official data.

These factors helped boost occupancy in Link Reit’s Australian shopping centres to a level “similar” to the 98 per cent of its Hong Kong retail portfolio, according to Chubb.

The trust reported a total HK$6.4 billion (US$815 million) in distributable income for the year ending March, up 6.8 per cent from the previous year. Profit surged 818.5 per cent to HK$6.9 billion in the period.

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Before the acquisition of the Sydney assets, Link Reit’s latest purchases were the Happy Valley Shopping Mall in Guangzhou in June and a 50 per cent interest in Shanghai Qibao Vanke Plaza in Shanghai in February last year. It also bought two office buildings: 100 Market Street in Sydney and The Cabot in London.

Australian commercial property is a good bet amid global uncertainty, while the Australian dollar’s weakness is also likely to stimulate further interest, according to Peter Tyson, national director of retail investments with Savills Australia and New Zealand.

“Australian commercial property has long attracted foreign investment, which is favoured by cross-border capital due to high-quality assets and a stable and transparent political, legal and macroeconomic environment,” he said. “Despite rising interest rates, the Australian dollar has weakened against other major currencies, currently sitting at around 65 cents [against the US dollar], which can only further stimulate inbound investment into Australian retail property.”

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