Link REIT Weighs Sale of Morgan Stanley Europe HQ in London’s Canary Wharf

Hong Kong’s Link REIT is exploring the sale of 25 Cabot Square in London’s Canary Wharf financial district, as Asia’s biggest listed trust by asset value pulls back from offices and sharpens focus on its core strength in retail.

The 17-storey office block, known as The Cabot, serves as the European headquarters of investment banking giant Morgan Stanley. The 1991-vintage building was valued at £190 million ($257 million) in the REIT’s most recent financial reports.

With asset values in Canary Wharf continuing to decline, Link Asset Management, which manages the REIT, may face challenges finding a buyer at that most recent valuation, according to market analysts, with a sale in the current market potentially implying a markdown of roughly 49 percent from the £371.4 million the trust paid for the asset in mid-2020.

“Link is committed to focusing on its core strengths and track record in owning and actively managing shopping malls and car parks across Asia Pacific,” a Link spokesperson told Mingtiandi on Wednesday. “We are currently undertaking a review of our portfolio and considering divesting assets that are no longer core to this strategic direction. As part of this process, we are preparing for a possible sale of The Cabot.”

First Western Asset

Link acquired 25 Cabot Square from US developer and fund manager Hines almost six years ago, marking the REIT’s first investment in the western hemisphere as it sought to diversify beyond its core Hong Kong retail portfolio.

The purchase price of the 481,605 square foot (44,742 square metre) building reflected a net initial yield of 4.87 percent, with the deal struck at a time when global capital was still targeting core office assets in gateway cities despite early COVID disruptions. Since then, the outlook for London offices has been clouded by rising interest rates and uncertainty over occupier demand, leading to downward pressure on valuations.

Brokers point to improving deal momentum in Canary Wharf, with several large transactions either in progress or being prepared for market. Private equity titan Blackstone is seeking more than £250 million for 25 North Colonnade, a 360,000 square foot building also known as Cargo, in a move seen as a signal of growing confidence in the district’s recovery, the Financial Times reported.

The world’s largest bank, JPMorgan Chase, is advancing plans for a new £3 billion headquarters tower in Canary Wharf, underscoring long-term commitment by major financial institutions to the location.

The prospective disposal of 25 Cabot Square was first reported by Green Street News, which said that Link has appointed Knight Frank to gauge interest in the property. A sale at the latest valuation would translate to £395 ($533) per square foot of net internal area.

“The potential for a transaction like this shows the resilience of core office assets in London and the return of liquidity in the Canary Wharf market as we move past the work-from-home era,” DLA Piper real estate partner Ciaran Londra told Mingtiandi.

Portfolio Rebalancing

For Link REIT, the London divestment would form part of efforts to rebalance its international holdings and recycle capital into higher-yielding opportunities as the trust returns to its roots managing retail assets.

The trust has agreed to sell a suburban Singapore shopping centre, Swing By @ Thomson Plaza, for S$250 million ($196.3 million) as it trims exposure to mature retail assets. In Australia, Link has been seeking buyers for a Sydney office tower valued at around A$550 million ($394 million), amid a softer outlook for the sector.

Last year the trust made an unsolicited offer to acquire a set of half-stakes in three Australia malls with a total value of over A$1.5 billion held by a Lendlease fund. Lendlease described that offer as opportunistic, with Cbus Property, the real estate division of Australia’s Cbus Super, later taking a cornerstone stake in the fund, in a move that closed the door on Link’s offer.