Link REIT Sells Off 5 Retail Centres for HK$3.6 Bil

Asia’s largest real estate investment trust has sold off five more retail properties in Hong Kong, raising HK$3.64 billion ($469 million) as it continues to sell off community shopping centres around the city.

The management of Link REIT revealed the sale of the Sui Wo Court Commercial Centre, On Yam Shopping Centre, Sun Tin Wai Commercial Centre, Cheung Hong Commercial Centre, and Shek Wai Kok Commercial Centre, all located in Hong Kong’s New Territories, in an announcement to the Hong Kong stock exchange dated Thursday.

The properties were snapped up by five different buyers following a public tender process. This was the fourth time this year that Link REIT has sold off assets from its existing portfolio, much of which was established when the city’s Housing Authority hived off 151 shopping malls, plus additional assets, as part of setting up the Link REIT as a publicly traded trust in 2005.

Sale Proceeds Top Appraised Values by 29%

The total consideration offered by the winning bidders amounts to 29 percent more than than the aggregate appraised value of the five properties by 29 percent, according to a statement by Link REIT. The biggest bid was by recently formed private company Billion Legacy Enterprises (H.K.) Limited, which agreed to pay HK$1.15 billion for the Cheung Hong Commercial Centre. The property is a 133,256 square foot, five-storey retail building with a 3-storey car park in Tsing Yi, New Territories, which was completed in 1980.

“The tender attracted a broad range of interested parties including listed companies, local private investors, investors of mainland Chinese background, with a large number of offers received for these properties,” George Hongchoy, Chief Executive Officer of Link Asset Management said in a statement.

The REIT indicated that proceeds of the sale will be used for general working capital purposes including debt repayment and, where appropriate, unit buy-back. Completion of the disposals is expected to take place on 14 February 2017.

Link REIT is Selling Small and Buying Big

For Link REIT, which has now disposed of 19 community retail centres during 2016, this latest batch of asset disposals appears to continue a trend of selling off smaller assets in favor of taking on larger acquisitions and development projects.

While the REIT has put around HK$8.99 billion into its coffers from four separate sets of asset sales this year, it has only made one acquisition – buying an office tower on Nathan Road in Kowloon during February for HK$5.91 billion.

Just last month Link REIT made headlines by signing up JP Morgan as an anchor tenant at another office complex it is co-developing with Nan Fung Development in Kowloon East’s Kwun Tong neighborhood.

Last year, Link REIT made one of the mainland’s biggest acquisitions, by purchasing Shui On Land’s Corporate Avenue phase one in Shanghai for RMB 6.6 billion (then $1.1 billion).

Selling off the community centres in favor of larger assets should simplify asset management for the REIT, but may also have political benefits locally in Hong Kong. Rent increases and other redevelopment initiatives at Link REIT’s community shopping centres have at times been met with protests by public groups and local politicians who have reacted strongly to changes in neighborhood retail environments and attempts to increase profits at once were government-held assets.

With investors lining up to bid for the trust’s community retail centres, this pattern of asset sales by Link REIT could be a path to a streamlined portfolio and a calmer public profile.