Link REIT announced it plans to acquire 50% interests in the three retail assets in Australia, namely Queen Victoria Building (QVB), The Galeries and The Strand Arcade for a total of A$538.2 million.
The properties are located in Sydney’s CBD, with high footfall and a diversified tenant base. The portfolio occupancy stood at 94.3% based on a valuation report on Oct 26.
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QVB, is a heritage-listed late-nineteenth-century building. The Strand Arcade is also a heritage-listed retail arcade while the Galeries is positioned as a lifestyle and cultural destination for fashion, art and dining.
According to Link REIT’s announcement 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 retail team.
As Link REIT trades at at a historic DPU yield of around 4.2%, and it has available available debt and cash , the acquisition which completes in 1H2022, is likely to be immediately DPU accretive. Its debt to asset ratio will rise from 20.1% to 21.4%, based on the REIT’s financials as at Mar 31. The debt to asset ratio of 21.4% includes Link REIT’s two other acquisitions, one in Shanghai, and one in Guangzhou announced since Mar 31, and assumes a drawdown of HK$3,312.4 million.
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Debt costs are usually the highest expenses for S-REITs. Link REIT has modest finance costs compared to S-REITs as its debt load is a lot lower. In FY2021, for the 12 months to Mar 31, 2021, its finance costs were HK$770 million and cost of debt is estimated at 1.99%.
