News Alert: Expanding overseas footprint
- Agreed to buy stakes in prime office properties in Sydney and Melbourne
- Initial rental yield is 4.4%
- Gearing remains comfortable post acquisition
Link REIT agreed to acquire a 49.9% stake in a joint venture which owns interests in five office properties in Sydney and Melbourne for A$596.1m. This marks its third acquisition in Australia and maiden foray into Melbourne’s property market.
These office properties are either recently completed or substantially refurbished with excellent green rating. This should allow them to better serve the occupiers’ needs in a post COVID era. The properties are strategically located in core CBD locations in Sydney and Melbourne. Portfolio occupancy averaged 92.6% in Dec-21, with close to 100% rental collection rate. The portfolio has healthy WALE of 5.8 years with c.50% of leases expiring in 2028 or later. This points to low occupancy risk. In terms of gross rents, financial services and professional services are the two largest tenant groups, accounting for 41.8% and 32.5% of total respectively.
Based on an agreed property value of A$1.13bn and net passing rent of A$49.6m, the initial rental yield is 4.4%. There is also built-in annual rental escalation of c.4%.
Overall, the deal should be slightly yield accretive and, more importantly, further diversifies the REIT’s income and asset base.
Following this acquisition, Link REIT’s proforma adjusted gearing would increase 1ppt to c.24.6% which remains comfortable. Overseas assets will account for 6.4% of total portfolio value. By geography, Hong Kong, Mainland China and overseas markets should make up 60-70%, 20-25% and 10-15% of Link REIT’s portfolio value respectively, as guided by the management. Hence, we do not rule out the possibility of Link REIT gearing up for more overseas acquisitions in the years ahead.