The Hong Kong Listed LINK REIT has acquired Ipoh’s interest in three iconic Sydney Retail Assets for $538m.
Located in the CBD of Sydney, one of Australia’s most sought-after retail precincts, the portfolio has a diversified tenant base and excellent natural footfall from CBD workers, local visitors and international tourists. Based on the valuation report carried out by Link as at 25 October 2021, the portfolio occupancy stood at 94.3%.
QVB, as a heritage-listed late-nineteenth-century building, is the second most visited site in the city after Opera House. The Strand Arcade, which is also a heritage-listed retail arcade, aims to offer a unique tenant mix for domestic consumers, while the Galeries is positioned as a lifestyle and cultural destination for fashion, art and dining.
The portfolio possesses strong productivity in terms of total moving annual turnover per square metre with the Strand Arcade and QVB being ranked first and second in Australia and the Galeries ranked fourth in specialty. Since 2018, the portfolio has been managed by Vicinity. After completion of the acquisition, Vicinity will continue to manage the portfolio with its specialised and experienced retail team, and Link will work closely with Vicinity as a co-owner to curate and position the portfolio dynamically to better serve the needs of shoppers and the broader community in the long run.
Nicholas Allen, Chairman, said “The acquisition of this prime retail portfolio is part of our Vision 2025 growth strategy to diversify and improve our portfolio mix. We are excited to have captured an opportune moment to invest in these iconic Australian retail assets.”
George Hongchoy, Chief Executive Officer, said “The rare portfolio, sitting in the heart of Sydney CBD, was offered to the market for the first time. Given the high occupancy rate filled with leading Australian and international brands, the portfolio is well-positioned to capture the retail rebound with the improving consumption sentiment in the country. Coupled with the strategic partnership with a leading retail asset manager in Australia, we believe both parties will jointly enhance the portfolio to ensure these landmark assets will deliver the best retail experience to all shoppers and unlock their long-term growth potential.”
Link will fully fund the acquisition through its cash resources and debt facilities. Upon completion, Link’s ratio of debt to total assets will change from 20.1% to 21.4%, based on its consolidated financial position as at 31 March 2021.
The combined portfolio generates $59.5m in annual net income delivering LINK REIT a 5.5% passing yield for their 50% interest. The transaction is expected to complete in the first half of 2022.
CBRE’s Head of Retail Capital Markets – Pacific, Simon Rooney, introduced Link REIT and EG Funds (Link REIT’s investment manager in Australia) and negotiated the sale on behalf of Singapore sovereign investor GIC, with the campaign jointly managed by Lachlan MacGillivray Colliers International.
“The Link REIT/EG acquisition is expected to instill further confidence into Australia’s retail investment sector, demonstrating the enhanced institutional demand for core retail assets and the ongoing investor confidence in the future of CBD retailing,” Mr Rooney said.
“Assets of this scale, quality and reputation are rarely sold and in the case of The Queen Victoria Building (QVB), The Strand Arcade and The Galeries, this was the first time the portfolio had been publicly offered to the market. These iconic centres are regarded as among the best in Australia and dominate Sydney’s core retail precinct, which is positioned for recovery following the end of lockdowns, as workers, tourists and shoppers return to the CBD.”
CBRE data shows that almost $4.52 billion flowed into Australian retail investments in Q2 and Q3, up 118% on the same period last year and markedly ahead of the comparative spikes in office and industrial transactions.
The three Sydney centres serve a resident total trade area of 3.8 million people, being the most densely populated residential area in Sydney and one with a combined retail spending power of $60.6 billion. The centres also cater to a fully returned Sydney CBD workforce of 168,460 – the largest in Australia
At the start of 2020, the centres had a moving annual turnover (MAT) of $613 million MAT and attracted 61 million visitors per annum. The Strand Arcade ranks 1st and QVB ranks 2nd in Australia for total MAT, while The Galeries ranks 4th in Australian for total specialty MAT.
The assets have a gross lettable area of 34,877sqm and comprise 334 tenants, 46.1% of which are unique and do not have another store in Sydney’s CBD.
The QVB comprises one of the largest footprints in Sydney’s core retail precinct, with almost 200 metres of frontage to George Street. It is recognised as Australia’s largest Victorian Arcade and an historic Sydney landmark.
The Strand is the only remaining arcade of its design in the CBD and is regarded as a premium retail centre housing many of Australia’s best designers, while The Galeries is a lifestyle and cultural destination for fashion and dining that offers a unique shopping experience. It has drawcard retailers unique to Sydney as well as a strong performing food-court and trendy dining operators.
As a requirement to qualify as a Managed Investment Trust in Australia, Link has engaged EG Funds Management, which is a licensed investment manager in Australia, to carry out investment management activities of the Link Australia Holdings Trust in Australia and provide advice, recommendations and support to the trustee of the Link Australia Holdings Trust on its investment activities in Australia.
EG’s Head of Capital Transactions, Sean Fleming, said “EG is pleased to have sourced this prime opportunity off-market for our client, Link REIT,”
“These prime assets rarely come to market and are well placed to benefit from workers returning to their offices in the Sydney CBD and the reopening of Australian borders to international visitors,” Fleming continued.
Link REIT’s global pursuit of core properties with stable income and revenue growth potential led them to purchase 100 Market Street, Sydney in 2020 before connecting with EG to support their portfolio expansion in Australia in March 2021.
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