Link REIT Buys Guangzhou Mall from Gaw and Morgan Stanley for RMB 4.1B

Asia’s largest real estate investment trust just agreed to acquire its third mainland property, as Link REIT purchased Metropolitan Plaza in Guangzhou from funds controlled by Gaw Capital and Morgan Stanley for RMB 4.1 billion ($589 million), according to a statement today by Link Asset Management, which manages the HK$124 billion Hong Kong-listed trust.

The 88,726 square metre shopping mall in Guangzhou’s Liwan District is the second mainland retail property for Link REIT, which is known for its vast portfolio of community shopping centres in Hong Kong.

For Gaw and Morgan Stanley, the transaction provides a profitable exit from the RMB 2.6 billion (then HK$3.27 billion) that the two private equity firms had invested when they bought Metropolitan Plaza from a subsidiary of billionaire Li Ka-shing’s Cheung Kong Holdings in 2013. Cheung Kong had originally developed the mall on Guangzhou’s Huangsha Road, which was completed in 2011.

Link REIT Bullish on Guangzhou Retail

While China’s retail sector has suffered from a surplus of supply in recent years, Link REIT sees value in Metropolitan Plaza’s location and successful track record.

“Guangzhou ranks among the top three cities in China in GDP and GDP per capita and yet has the lowest retail property supply among Tier 1 cities,” said George Hongchoy, chief executive officer of Link Asset Management Limited in a statement. “The city offers great business potential and Metropolitan Plaza – 8 Huangsha Road is especially attractive as it is located at Liwan District where no new large-scale retail supply is foreseeable up to 2021.”

According to the valuation report used in the transaction, the mall had 219 tenants as of the end of February and was over 94 percent occupied. The shopping centre is home to fast fashion brands such as H&M, Uniqlo and Muji, as well as other mid-market marques including Nike, Adidas and Maybelline.

Gaw and Morgan Stanley Sell Out 100 Percent

Under the terms of the sales and purchase agreement between the parties, Link REIT is acquiring 100 percent of the equity in Barrel Holdings (Cayman) Limited, the project company for the shopping centre. Barrel Holdings is 41.2 percent owned by Morgan Stanley’s North Haven Real Estate Fund VII Global and 58.8 percent owned by Gaw Capital’s Gateway Fund IV.

The $4.7 billion Morgan Stanley fund, which which was originally known as MSREF VII, was fully invested during 2013, and is nearing the end of its term, according to sources familiar with the fund who spoke with Mingtiandi. Inquiries by Mingtiandi to Gaw Capital and Morgan Stanley remained unanswered at the time of publication.

Mainland Retail Still Has Some Legs

For Link REIT, choosing a mid-market mall in Guangzhou keeps it within an industry that it knows well. The trust has approximately 10 million square feet (929,000 square metres) of retail space in its Hong Kong portfolio.

And while Jack Ma’s T-Mall has been putting pressure on many mainland retailers, not everyone agrees that online is the only way to go for mainland shoppers.

“It is true that e-commerce players are challenging brick-and-mortar retailers in mainland China,” noted Alvin Yip, managing director and co-head of Investment & Advisory Services for China at Cushman & Wakefield. “However, a good shopping mall offering a unique, all-round experience is without compare.”

Link REIT also chose retail for its first mainland deal when it acquired the EC Mall in Beijing’s Zhongguancun area for RMB 2.5 billion in March 2015. The Hong Kong heavyweight made 2015’s biggest acquisition of the year when it purchased phase one of Shui On Land’s Corporate Avenue office complex in Shanghai for RMB 6.6 billion ($1.063 billion) in July of that year.

Big Plans for Metropolitan Plaza and the Mainland

In its statement, Link REIT made it clear that it sees potential for further gains from its latest property, and from the mainland market in general.

“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,” Hongchoy noted. The four-storey property is located above the Huangsha metro station, where Guangzhou’s Metro Lines 1 and Line 6 intersect, and connects directly to the station underground.

Now that Link REIT has picked up properties in three of China’s four tier-one cities, the trust’s manager says it is looking for more of the same. “Our investment focus in Mainland China will continue to be on retail and commercial projects that are in close proximity to metro lines in Tier 1 cities,” Hongchoy explained.