Gaw Capital, Goldman Sachs, Blackstone Buy HK Retail Assets From Link REIT for HK$12B

Gaw Capital Partners is leading a consortium of investors, including Goldman Sachs and Blackstone in buying a portfolio of 12 shopping centres from Hong Kong’s Link REIT for HK$12.01 billion ($1.54 billion), according to an announcement today by the manager of the real estate investment trust.

The transaction marks the second time in less than thirteen months that the Hong Kong-based private equity firm has purchased Hong Kong retail assets from the HK$165 billion REIT and brings Gaw Capital’s new commitments to commercial assets in the city to over HK$27 billion within the last month.

Link Asset Management Limited, which manages Link REIT and has made a public commitment to diversifying its portfolio into the mainland China market, characterised the sale as a signal of ongoing investor interest in the Hong Kong market.

Deal Struck at 32% Premium Above Valuation

“Despite recent market volatility, the property sale attracted overwhelming interest from leading international investors, including global and regional private equity funds, as well as local investors,” George Hongchoy, chief executive officer of Link Asset Management said in a statement. “The competitive bids and final sale price, at better pricing than those achieved in the past disposals, underline global investor confidence in Hong Kong’s economy and its real estate sector while further demonstrating Link’s ability in managing and enhancing assets.”

Link REIT indicated that the bid by Gaw, Goldman, Blackstone and friends included the highest compensation offered for the properties in a competitive sale process, and exceeded the appraised value of the portfolio by more than 32 percent, based on a valuation completed on 30 September.

Gaw Brings Link REIT Acquisitions to 29 Assets

Gaw Capital will be able to add this latest set of assets to a portfolio of 17 similar retail centres that it acquired from Link REIT in late November last year for HK$23 billion. In that transaction, Gaw was also joined by Goldman Sachs, giving the partners stakes in 29 properties distributed across Hong Kong island, Kowloon and the New Territories.

“We worked closely with the community over the past 12 months and implemented a series of initiatives to better make use of these malls for the community,” Kenneth Gaw, president and managing principal of Gaw Capital Partners said in a statement. “We look forward to applying our expertise in repositioning commercial property to add significant strategic value to this additional portfolio.”

Since closing the 2017 transaction, the private equity real estate firm has reached a $1.3 billion first close on its Gateway Fund VI, giving it a fresh tank of fuel for new acquisitions. While declining to divulge further details concerning its partners, the private equity fund manager said that while the consortium for this week’s deal includes Goldman Sachs and other repeat partners from last year’s acquisition, the consortium also includes new investors. Sources familiar with the transaction confirmed to Mingtiandi that Blackstone also joined the consortium this year.

This year’s 12 asset portfolio includes 1.1 million square feet (102,000 square metres) of retail space and over 4,700 parking spaces. The price works out to an average of HK$7,839 per square foot (not counting parking facilities) and an initial yield of three percent, but according to sources familiar with the transaction, with opportunities for asset enhancement and future rental increases the buyers, believe that the yield could rise to as much as five percent.

“We are confident that with Gaw Capital Partners’ expertise and experience in asset management, they will continue to create value for stakeholders by further enhancing the operations of the disposed properties,” Link Asset Management’s Hongchoy commented in the statement.

The transaction is expected to complete on 13 March 2019 and Link REIT was advised on the portfolio review as well as on the disposal by HSBC and Cushman & Wakefield.

Link REIT Looking for More Mainland Deals

The deal provided Link REIT with a net disposal gain of about HK$2.79 billion, according to the statement. Link Asset Management said that the proceeds of this latest disposal would be used to pursue new investments in Hong Kong and first-tier cities in mainland China, in addition to general working capital purposes including debt repayment and, where appropriate, unit buy-backs.

In a conversation with Mingtiandi two weeks ago at the MIPIM Asia event in Hong Kong, Link Asset Management’s Hongchoy pointed out that the REIT’s assets were still overwhelming in Hong Kong and that the trust’s management had set a goal of increasing its mainland holdings to 20 percent of the total portfolio.

Just two weeks ago, Link REIT acquired Beijing Jingtong Roosevelt Plaza, a recently completed shopping centre in Beijing’s suburban Tongzhou district from a fund managed by ARA Asset Management for RMB 2.56 billion. Following these two most recent transactions, Link REIT will have about 90.1 percent of the assets in its HK$204 billion portfolio in Hong Kong and 9.9 percent in mainland China.

Portfolio Review Results in Sales

The transaction follows Link REIT’s announcement on 24 September that it had appointed HSBC to conduct a review of its portfolio.

The results of that review are that the REIT will soon have 12 fewer community retail centres in Hong Kong within its portfolio, with the Gaw consortium having purchased the Fortune Shopping Centre in Cheung Sha Wan, the Lei Tung commercial centre in Ap Lei Chau and 10 more community shopping plazas around the city.

A report in the South China Morning Post indicated that Blackstone has also joined this year’s consortium. The US private equity giant’s interest in the properties, said at the time to include 10 projects, had first been reported in October.