Link REIT is said to be in negotiations to buy Morgan Stanley’s European headquarters in London in what would be the trust’s first acquisition in Europe, with the prospective acquisition surfacing less than two months after the trust completed its maiden purchase outside of Greater China.
The HK$193 billion ($25 billion) trust, which is Asia’s largest, is reportedly in talks with Houston-based Hines, which owns 25 Cabot Square on Canary Wharf, to purchase the 17-storey office building after US private equity fund Blackstone pulled out of its £390 million ($498 million) acquisition of the Canary Wharf property in March after having already agreed to terms, according to local UK media reports.
The discussions between Link REIT and Hines, which were first reported in London’s React News, come as the trust refocuses its efforts on overseas acquisitions after what CEO George Hongchoy said had been a “tough year” in Hong Kong.
“It’s Link’s consistent policy that we won’t comment on market speculations, so we can’t confirm or deny if we have interest in any particular asset,” a Link REIT spokesperson said in an emailed statement to Mingtiandi regarding the reported acquisition.
The Link REIT representative confirmed, however, that the UK was one of a number of locations the trust was exploring for “suitable investment opportunities” including Hong Kong, mainland China and the gateway cities of other major developed markets such as Australia, Singapore and Japan.
In November of last year, Hines had engaged property consultancies Knight Frank and Cushman & Wakefield to market the building to prospective investors at an asking price of £390 million, which would indicate a 4.75 percent yield, according to a spokesperson at Cushman & Wakefield.
Buying Morgan Stanley’s London HQ
Located in London’s second financial centre on the city’s former West India Docks, 25 Cabot Square was designed by Skidmore, Owings & Merrill and is just three minutes west of 30 South Colonnade, the former home of Reuters news agency which HNA sold at a heavy discount last year.
Based on the grade A office property’s 452,878 square feet (42,073 square metres) of gross floor area, Link REIT could be paying £861 per square foot for the 1991-vintage property should the negotiations with Hines result in a sale at the same price which the US firm had been seeking in its earlier talks with Blackstone.
The privately owned developer and fund manager had acquired 25 Cabot Square from Morgan Stanley in 2014 on a sale and leaseback agreement, with Hines having since completed a £70 million renovation of 200,000 square feet across floors 7 through 14 of the building.
The US investment bank occupies 250,000 square feet – from levels one through six of the tower – while UK government agency Competition and Markets Authority (CMA) leases 113,000 square feet.
IWG’s Spaces occupies 71,000 square feet across the newly renovated levels 11, 12, 14 and part of level 10, after signing a 15-year lease in March last year at a reported £50 per square foot, according to local UK media accounts.
The property agencies appointed to sell the property in November last year – Knight Frank and Cushman & Wakefield – indicated at that time the property generates an annual rent of £18.8 million per annum, with the buildings weighted average unexpired lease term of 11.7 years.
Redistributing a Hong Kong-focused Portfolio
The reported talks come four months after Link REIT withdrew from its negotiations with the UK’s Intu Properties over a potential equity fund raise, following a £1 billion emergency cash call by the cash-strapped shopping centre landlord.
The REIT, which has a retail-focused portfolio of assets predominantly in Hong Kong, said last week in its full-year earnings call that it is targeting assets outside of the Asian financial hub as it looks to redistribute its portfolio away from the region’s most expensive city.
Although Hong Kong will remain its core location, the trust expects over the long term to increase its overseas portfolio from its current 1.7 percent of Link REIT’s assets under management to 10 percent of its holdings. At the same time that it explores new locations, the retail dominated-REIT is seeking to up its office quotient from its current 9 percent to between 15 and 20 percent of its total assets by 2025.
Link REIT completed its first acquisition outside of Greater China just eight weeks ago, closing on its A$683 million purchase from funds managed by Blackstone of 100 Market Street in Sydney.
Riding the London Wave
Link REIT is the latest in a crowd of Hong Kong and mainland China investors to target London commercial real estate assets, despite concerns about Brexit and the uncertainty over property values caused by the COVID-19 pandemic.
Just last month, Hong Kong-incorporated investment firm Mighty Divine purchased a commercial building at 10 Fenchurch Street – located next to oyster sauce maker Lee Kum Kee Group’s Walkie Talkie building – for £94.2 million.
Three months before that deal, Hong Kong-listed residential and hospitality developer Far East Consortium acquired a waterfront development site in Canary Wharf which it plans to develop into a £250 million “residentially-led mixed-use complex”.
FEC’s Canary Wharf site purchase came just a month after the chairman of Chongqing-based CC Land agreed to buy the most expensive home ever sold in the UK capital. In that January acquisition, the family office of Cheung Chung Kiu, who leads the Hong Kong-listed home builder, reportedly agreed to pay £210 million for the 45-room mansion in Knightsbridge.