Hong Kong’s Link Reit announces entry to Europe with US$487.5 million acquisition of Morgan Stanley’s London home

Hong Kong-based Link Reit, Asia’s largest real estate investment trust, has announced its entry into Europe with a £380 million (US$487.5 million) deal for an office complex housing Morgan Stanley’s headquarters in London.

The acquisition of The Cabot at 25 Cabot Street in Canary Wharf will allow the investment trust to diversify and improve its portfolio, and enhance its ability to deliver sustainable returns for unit holders, George Hongchoy, Link’s chief executive, said on Sunday night. “Today’s acquisition is part of our Vision 2025 growth strategy … a diversified portfolio can strengthen our portfolio resilience, allowing us to benefit from the varied economic cycles of different markets.”

The amount paid to HGR Liquidating Trust represents a marginal 0.4 per cent discount on a valuation conducted by Colliers International (Hong Kong) on July 17.

The discount reflects the impact of Brexit and the coronavirus pandemic on London’s office market, said Raymond Cheng, head of Hong Kong and China research at CGS-CIMB Securities. “British assets, after Brexit, after all, carry some uncertainty. Secondly, the office market outlook is a little clouded after Covid-19,” he said. “Although the net operating income yield stands at 5 per cent, it is possible for rents to drop because of Covid-19. I think [Link] might have factored this in.”

Link Reit still has a lot of cash and getting financing would not be difficult for it while its overall gearing is manageable, Cheng added.

The investment trust will fully fund the acquisition, which does not include expenses amounting to about HK$28.3 million (US$3.6 million), through internal resources as well as new debt facilities. Upon completion, Link’s gearing will rise from 17.8 per cent to 19.2 per cent.