Asia's largest REIT eyes more China deals

Link Real Estate Investment Trust, Asia's largest REIT by market capitalization, spent two years looking at more than 100 potential assets in the Chinese mainland before settling on two recent landmark deals, its chief executive George Hongchoy has revealed.

The fact underscored the Hong Kong-based company's prudent investment strategy, said Hongchoy, adding that prime assets are not scarce here, but reaching a deal can be tricky.

"Properties sold by Li Ka-shing in the mainland are too pricey," Hongchoy said, responding to questions on how he viewed the Hong Kong tycoon's recent mainland asset sales.

"Our priority is annual dividend returns for shareholders. We're a long-time investor, and are in no hurry to snap up assets, neither do we have a target proportion for mainland assets within our total portfolio."

In July, the listed property management firm spent 6.6 billion yuan ($1.04 billion) on Corporate Avenue 1&2, a landmark office and retail estate in Shanghai, after spending 2.5 billion yuan in April buying EM Mall, in Beijing. The two combined still represent less than 10 percent of Link's total 100 billion yuan in assets, which are mostly in Hong Kong.

Hongchoy said the assets most likely to attract his attention are prime-location office or retail properties with strong tenant portfolios. They have to be in first-tier cities. Corporate Avenue 1&2, for instance, is considered a mature estate, and is adjacent to four metro stations in downtown Shanghai.

At the start of June, it had all its retail space occupied and 98 percent of its offices were rented to what are considered stable, major tenants, including PricewaterhouseCoopers.

Gary Fok, the company's chief asset management officer, said: "In the coming 18 months, 30 percent of the tenants' contracts will expire and that leaves room to raise rents.

"In June alone we raked in 24 to 25 million yuan in rent." Based on that figure, annual rental yield on the site is expected to be between 4.4 and 4.5 percent, which is around target for Link, but neither official would confirm the exact figures.

Hongchoy said that Link would normally not accept anything below 4 percent, but it could be flexible if taking future rental increases into account.

A senior industry source, who declined to be identified, said: "In the mainland, yields similar to Corporate 1&2 are hard to find."

Hongchoy said he considers the recent Chinese market turmoil as possibly good for Link, as uncertainties often force more asset owners to unload perfectly good assets that otherwise they would not be selling.