Link REIT boss on the hunt for income

Hong Kong-based Link REIT still has “several billion pounds” to invest as part of its global strategy to diversify and grow its assets under management by 2025, its boss George Hongchoy tells EG. The business is not allocating amounts to any particular geography but is aiming to grow the number of office assets it has in the near term. London office buildings such as the Scalpel, EC3, which was valued at £820m and put up for sale by owner WR Berkley in October, are assets that could be of interest. “All I can say is if their agents are any good, they would have shown it to us,” says Hongchoy. However, he adds that he is more focused on doing “the right thing” to “deliver the bottom line”, rather than simply deploying capital. “I’m looking to deliver a stable income and to grow that income for our investors,” he adds. It is the long-term income that will be produced by its first UK property purchase, the Cabot in Canary Wharf (pictured below), that attracted Link REIT to its first UK deal, which completed in July. The 17-storey building is leased to the Competition and Markets Authority, the Office of Rail Regulation, Morgan Stanley and IWG’s Spaces brand until 2029, according to Radius Data Exchange. Morgan Stanley, which occupies 249,254 sq ft at the 481,605 ft property, is exploring its options for the space it occupies at the Cabot and elsewhere, including a potential relocation. Hongchoy points out that it will be hard for the bank to walk away from its lease obligations, but outlined his hopes that his team can convince it to stay at the building. “Even if there is great desire on their part, they have a lease that they have signed and it’s legally enforceable and for an organisation like Morgan Stanley, the study [research into its future office needs] will take a bit of time,” he says. “We hope in the meantime we can attract them to say that this is actually a good building that they were involved in the development of and that they should stay.” Regarding its other tenant IWG, which has been looking to renegotiate its leases due to the impact of Covid-19, Hongchoy says there had been “good conversations” with the serviced offices provider. He says there is nothing that has “[raised] alarm” over the firm’s occupational plans at the Cabot. Hongchoy believes that people will go back to offices due to the need for collaboration between employees. He added that people have also not thought through the long-term consequences of working from home. It may result in saving employers money on their overheads, such as rent, but employees could face increased costs. “At some stage people will realise that you’re not getting a fair deal,” he said. Not just offices Link REIT is not just an investor in office assets, which only amount to 700,000 sq ft within its overall portfolio. It also owns 8m sq ft of retail space across mainland China and Hong Kong. Its first foray into the UK market was nearly via the retail sector, when it explored becoming an investor in now-collapsed landlord intu in February, while it sought to recapitalise its ailing business. Hongchoy explains that the REIT decided against investing in intu, owing to its debt pile and the complications with being invested in a listed company rather than directly owning assets. “We did like quite a lot of the assets,” he says. “What was challenging, and will continue to be challenging for anyone looking at those assets, is the debt associated with it.” He adds that until the debt providers were willing to take “a haircut”, which they have so far been unwilling to do buying intu’s centres, any acquisition would prove difficult. “Everyone’s waiting for [a] group of assets where the debt owner is willing to take a haircut, and it will get to that point because if they don’t, they have to fund it,” he says. “It’s a waiting game, I guess, and not too many people at this point in time would want to get into to that type of centre.” That is not to say that Link REIT would steer clear of acquiring a stake or all of a company in the UK again. However, it would depend on a variety of factors. “I don’t have the lawyers standing next to me, but I can’t talk too much about any potential [investments],” Hongchoy says. “Again, it’s an issue about another layer of complexity on top of looking at the assets. Buying individual assets is just more straightforward. “Once you add on whether you would like the management team, whether you have influence on the board and how the market sees you being on the register, it complicates the whole analysis. “It has to be very compelling before we can actually look at some of those.” To send feedback, e-mail louise.dransfield@egi.co.uk or tweet @DransfieldL or @estatesgazette