Link Reit shares fall after 4b yuan acquisition of Guangzhou shopping mall

Shares of Link Real Estate Investment Trust (Link Reit), which owns shopping centres, markets and car parks in Hong Kong fell after it announced it had bought a shopping centre in Guangzhou for 4.06 billion yuan (US$590 million).

The company announced on Sunday that it has purchased the retail property, Metropolitan Plaza, from Barrel Holdings (Cayman), which is indirectly owned by NH Vendor Guarantors, which has a 41.2 per cent stake, and GC Vendor Guarantor, which holds 58.8 per cent.

NH Vendor Guarantors comprises investors in Morgan Stanley Real Estate Investors VII Global, while GC Vendor Guarantor is ultimately owned by private equity real estate fund Gaw Capital Partners. The joint venture bought Metropolitan Plaza from Cheung Kong and Hutchison Whampoa for HK$3.02 billion (US$390 million) in 2013.

Link Reit shares dropped 1.42 per cent to close at HK$55.3 on Monday.

Link Asset Management, the manager of Link Reit, announced the purchase of Metropolitan Plaza at 8 Huangsha Road, Liwan district in Guangzhou, marking the company’s third acquisition in first-tier cities in the mainland.

“We plan to further strengthen its footfall and rental growth through a repositioned tenant mix and enhanced product and service offerings to serve the needs of Liwan’s growing middle class,” said George Hongchoy, chief executive officer of Link Asset Management. “Our investment focus in the mainland will continue to be on retail and commercial projects that are in close proximity to metro lines in tier-1 cities.”

Most of Link Reit’s properties were formerly owned by the Hong Kong Housing Authority.

Bocom International estimated the mall in Guangzhou would generate monthly rental income of about 16 million yuan, or 4.7 per cent gross rental yield.

“We estimate the net property income (NPI) yield could reach 3.4 per cent, which is slightly accretive compared with Link’s blended financing cost at 2.5 per cent,” said Bocom.

Metropolitan Plaza has a total gross floor area of 88,726 square metres, including shopping facilities from basement level one to the third floor.

As of February 28, its retail occupancy stood at 94.1 per cen,t with 219 tenancies including major international brands such as Decathlon, Nike, H&M, UNIQLO and Starbucks Coffee.

Metropolitan Plaza is located atop the intersection of Guangzhou Metro Line 1 and Line 6, two of the busiest metro lines in Guangzhou.