Link REIT Buying Half-Stake in Vanke Shanghai Mall for $429M

Asia’s largest real estate investment trust has returned to its retail roots as Link REIT announced today that it has agreed to buy a half-stake in a suburban Shanghai shopping mall for RMB 2.77 billion ($429 million).

Link REIT’s choice for its fifth retail investment in mainland China is Shanghai Qibao Vanke Plaza, a 149,000 square metre (1.6 million square foot) project in Minhang district – around 5 kilometres (3.1 miles) south of the city’s Hongqiao International Airport.

“The acquisition is in line with Link’s investment strategy to invest in yield-accretive and income producing real estate which has potential for long-term growth,” said George Hongchoy, chief executive of the trust’s manager. Without specifying a specific figure, Hongchoy indicated that the property would provide a positive investment yield once the transaction is complete, with the potential for enhancing those returns.

Link’s latest retail investment in China comes just over two years after its purchase of a mall in Shenzhen, with the REIT having broadened its investment scope last year with purchases of office assets in both London and Sydney.

Fully Booked Near the Airport

Shanghai Qibao Vanke Plaza will be Link REIT’s sixth investment in mainland China, with the trust purchasing its stake in the 2016-vintage asset from Singaporean sovereign fund GIC. A joint venture between mainland developer China Vanke and Shenzhen-based China Merchants Bank retains the remaining interest in the property.

The deal values the property, which has monthly passing income of RMB 32.8 million, at RMB 6.4 billion or around 2.8 percent less than a recent valuation of the mall.

Following completion of the transaction, which is expected to take place next month, shareholding in the community-focused retail asset will be evenly split between Link REIT and the Vanke-Merchants Bank joint venture.

The five-storey property was 97.8 percent occupied at the end of December, according to Link REIT’s statement, with the trust’s manager indicating that it expects rental income to climb with the mall now into its second leasing cycle.

At the stated consideration, Link REIT is paying the equivalent of RMB 37,208 per square metre for its stake in the mall, which brought in net profit of RMB 125.7 million in 2019, which was up from RMB 94.4 million a year earlier.

Although it offers an Apple store for Shanghai’s gadget-crazed consumers, the retail mix for the mall 17 kilometres west of the city’s People’s Square is 42.6 percent fashion and accessories, including Zara and Uniqlo shops. Another 38.8 percent of the mall’s rental income comes from F&B outlets.

Mainland Retail Rebound

Coming into the acquisition, Link REIT’s combined portfolio was valued at HK$199 billion ($25.6 billion) with 73.6 percent of those holdings in retail properties spread across Hong Kong and mainland China.

While the shopping sector has lost favour with many investors during the time of the pandemic, Link REIT expressed confidence in Chinese consumption, particularly in the country’s commercial capital.

“Shanghai has the fastest retail recovery from COVID-19 among the four Tier 1 Cities in Mainland China,” Hongchoy said, citing figures from the Economist. He also pointed to the asset’s location as contributing to consistent traffic.

“Shanghai Qibao Vanke Plaza is a regional destination primely located in a mature and densely populated suburban residential area with direct connectivity to Qibao metro station,” Hongchoy said.

Link’s CEO further noted improvements in the metro system and other local commercial property projects as bolstering revenue potential. “With further improvement of surrounding infrastructure, including the Jiamin Line, Airport Connection Line and Qibao Eco-Business Park, the catchment population is expected to expand even more,” he added.

More Mainland Malls

In addition to picking up the Central Walk Mall in Shenzhen for RMB 6.6 billion in February 2019, Link REIT in November the previous year purchased Beijing Jingtong Roosevelt Plaza (now Link Plaza Jingtong) from an ARA Asset Management Fund for RMB 2.6 billion.

Earlier, the trust had purchased what is now Link Plaza Guangzhou from funds controlled by Morgan Stanley and Gaw Capital. Link REIT made the EC Plaza Mall in Beijing its first mainland acquisition with a RMB 2.5 billion deal in 2015.

At present, 61.9 percent of Link REIT’s portfolio is invested in retail assets in Hong Kong, with 11 percent in office properties globally. The company has stated a target of growing that office element to 15 to 20 percent of its holdings.

Note: This story has been updated to indicate that the vendor in the transaction is GIC. An earlier version had listed a China Vanke and China Merchants Bank as the seller. Mingtiandi regrets the error.