Blackstone, KKR, others shortlisted for Link REIT’s $2 billion Hong Kong assets, say sources: Reuters

Blackstone (BX.N), KKR (KKR.N) and some Chinese investors are among potential bidders shortlisted by Link Real Estate Investment Trust (0823.HK) to buy some of its Hong Kong retail assets valued at about $2 billion, three sources said.

Gaw Capital Partners, a Hong Kong-based private equity real estate firm focused on Greater China and Asia, is also on the shortlist for Link REIT’s shopping centers in the Asian financial hub, the people who had knowledge of the matter said.

Bids for the assets are due by the end of November, one of the people said.

The asset sale comes against the backdrop of Chinese firms aggressively buying land in Hong Kong, one of the world’s most expensive real estate markets, gobbling up 29 percent of the land sold in 2015 and 2016. That trend has continued in 2017.

Link REIT, Asia’s largest REIT by market capitalization, owned assets in Hong Kong, Beijing, Shanghai and Guangzhou as of end-March. Its portfolio includes shopping centers, office buildings, car parks, wet markets and cooked food stalls.

Buyers of commercial real estate in Hong Kong are betting on a sustained recovery in the city’s retail economy, helped by robust local consumption and a pickup in tourist numbers.

Real estate services firm Colliers said last week it expects leasing activity in Hong Kong to pick up further and rents to start to recover in 2018.

The $2 billion sale is attractive to private equity firms as the portfolio would provide stable cash flows, one of the sources said.
Hong Kong’s property market is at an elevated level at this point, said Phillip Zhong, senior equity analyst at Morningstar. ”The disposed assets are valued at a higher price in the physical property market than being part of the REIT. So the company can sell lower cap rate Hong Kong assets and re-deploy cash to acquire higher yield assets in China.”

Link REIT said in July it intended to conduct a strategic review of its portfolio and appointed HSBC and UBS as financial advisers and DTZ Cushman & Wakefield as real estate adviser.

The properties being put on sale are shopping centers in public housing estates located in older urban districts in Hong Kong, according to one of the people.

Such type of community-based shopping centers account for 80 percent of the firm’s portfolio, according to an October Morningstar report.

A Link REIT spokesman referred to the company’s July announcement when contacted by Reuters, adding “the strategic review is ongoing, which may or may not lead to and result in any transaction”.

Blackstone, Gaw Capital, KKR, UBS and HSBC declined to comment. The people did not want to be named as the information is confidential.

Link REIT has made asset disposals and acquisitions over the past three years as part of an attempt to revamp its business model.

It sold 28 Hong Kong properties, including shopping centers and car parks, for a total of HK$11.97 billion ($1.53 billion) since July 2014, according to the data compiled by Reuters based on the company’s stock exchange filings.