EUR 850.00 For Business Accounts Only

Morningstar | Continued Capital recycling for Link Real Estate, but Few Opportunities Hhead

Hong Kong’s retail spaces can be split into four categories, depending on a property’s size, potential catchment, tenant type, and customer characteristics. A metropolitan centre provides a full slate of luxury goods and entertainment to tourists and locals alike. A neighbourhood centre provides daily necessities through supermarkets, convenience stores, and educational centres. Three fourths of the retail spaces in the city comprise neighbourhood centres. Between the two, regional centres are located in larger new towns and major suburban areas. District centres are dispersed across older urban districts, and account for 80% of the company's portfolio. As Hong Kong's largest retail landlord, Link’s dominance in district-centre-type assets is even more pronounced, holding 60% of the space in the category.Since its IPO, the company has demonstrated strong earnings and distribution growth. By applying asset-enhancement initiatives, or AEIs, and industry best practices in property management, Link has managed to achieve higher rental rates and declining vacancies each year. The next phase of the growth will be driven by asset consolidation and district dominance. By disposing of lower-tier assets, Link uses the proceeds to acquire commercially developed properties. Link typically looks for districts where its top-tier assets already hold leading positions. With the acquisitions, it seeks to establish a dominant portfolio of retail assets in the area. Link then gradually repositions the assets' focus from mass-market to midmarket discretionary, expanding their catchment to residents of private housing estates nearby. The repositioning opens the assets to a new category of retailers, allowing a continuously rising rent level and enabling a fresh round of AEIs.Through capital recycling, the company has expanded into new areas. Acquisitions continued apace in China, where it now holds three retail assets and one office asset. In Hong Kong, it is converting a former government office building into a retail complex, and it is also developing an office project in Kowloon East. With more disposals being planned, we expect more acquisitions outside of Hong Kong.