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Monday, Mar 27, 2023
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Link Reit seeks US$2.4 billion from rights issue to pay debts, buy assets
Asia’s largest real estate trust is seeking to raise about HK$18.8 billion (US$2.39 billion) in capital by way of a rights issue, an announcement that took some market observers by surprise.
Hong Kong-based Link Reit, Asia’s largest real estate investment trust, is seeking to raise about HK$18.8 billion (US$2.39 billion) in capital by way of a rights issue, an announcement that took some market observers by surprise.
Some 40 to 50 per cent of the proceeds will be used to repay debts and for general working capital, company executives said in a briefing on Friday evening, after trading on the Hong Kong stock exchange closed.
“The proposed rights issue will strengthen Link Reit’s capital base and position us to capture accretive investment opportunities amid real estate markets’ repricing,” said Link Reit chairman Nicholas Allen.
“It will further solidify our position as a leading Asia-Pacific real estate investor and manager.”
The move seeks to bring Link Reit’s net gearing – the proportion of debt versus equity – down to below 20 per cent.
The rights issue is “a bit beyond expectations,” said Liu Jieqi, senior property analyst at UOB Kay Hian.
“The real estate market in Hong Kong is at a bottom. There may be some opportunities for global real estate,” said Liu. “It depends on what the management wants to do. If they can give a relatively satisfactory answer, I don’t think [the plan] is necessarily a bad thing.”
Bringing net gearing down to below 20 per cent “is definitely a short-term goal”, she added.
Some analysts went further in questioning the thinking behind the proposal.
“It is a bit awful,” said Sam Chi-yung, chief strategist at Patrons Securities, who said he personally has held Link’s shares since its IPO. “Purely from a financial perspective, debt financing generally has a lower cost than equity finance. But this time it unexpectedly used the rights issue.”
“Their explanation is about first raising the capital without concrete projects for acquisition. The impression to people is quite strange. Is the market so good?”
The rights issue proposes one unit for every five existing share held at a subscription price of HK$44.20, a 26 per cent discount to the theoretical ex-rights price of HK$59.70 per unit and a 29.6 per cent discount to the closing price of Link Reit’s shares of HK$62.80 on Thursday. Trading of its shares were halted today pending the announcement.
The new capital will also be used to pursue “future investment opportunities, with a focus on the retail, car park, office and logistics sectors across Asia-Pacific,” the company said in a statement published after Friday evening’s briefing.
“Link Reit is committed to growth under our Link 3.0 strategy, where we aim to optimise our portfolio through diversification and to grow our assets under management together with capital partners,” said George Hongchoy, Link Reit’s chief executive officer, during the briefing.
The company is betting on its strategy of paring down debts under the current high-interest environment. Savings from paying off debts would put it in a good position to acquire new investments, said Kok Siong Ng, executive director and chief financial officer during Friday’s briefing.
“When we look at the outlook and macro environment, there is a lot of potential for good deals to surface under a very aggressive interest rates cycle. There may be holders of real estate who do not want to hold and want to divest and this is playing out in Australia,” Ng said.
The right issue means there will be 20 per cent more outstanding shares, which will dilute the shareholdings of current subscribers.
“There will always be dilution of shareholdings in these cases,” said Louis Tse Ming-kwong, managing director at Wealthy Securities. “Those who cannot afford to subscribe to the rights issue should look forward to an increase in their earning dividends, which will be beneficial.”
The trust had been active in buying properties overseas in recent years.
It currently has 130 assets in Hong Kong and 22 investments elsewhere, including in mainland China and the UK.
Some 40 to 50 per cent of the proceeds will be used to repay debts and for general working capital, company executives said in a briefing on Friday evening, after trading on the Hong Kong stock exchange closed.
“The proposed rights issue will strengthen Link Reit’s capital base and position us to capture accretive investment opportunities amid real estate markets’ repricing,” said Link Reit chairman Nicholas Allen.
“It will further solidify our position as a leading Asia-Pacific real estate investor and manager.”
The move seeks to bring Link Reit’s net gearing – the proportion of debt versus equity – down to below 20 per cent.
The rights issue is “a bit beyond expectations,” said Liu Jieqi, senior property analyst at UOB Kay Hian.
“The real estate market in Hong Kong is at a bottom. There may be some opportunities for global real estate,” said Liu. “It depends on what the management wants to do. If they can give a relatively satisfactory answer, I don’t think [the plan] is necessarily a bad thing.”
Bringing net gearing down to below 20 per cent “is definitely a short-term goal”, she added.
Some analysts went further in questioning the thinking behind the proposal.
“It is a bit awful,” said Sam Chi-yung, chief strategist at Patrons Securities, who said he personally has held Link’s shares since its IPO. “Purely from a financial perspective, debt financing generally has a lower cost than equity finance. But this time it unexpectedly used the rights issue.”
“Their explanation is about first raising the capital without concrete projects for acquisition. The impression to people is quite strange. Is the market so good?”
The rights issue proposes one unit for every five existing share held at a subscription price of HK$44.20, a 26 per cent discount to the theoretical ex-rights price of HK$59.70 per unit and a 29.6 per cent discount to the closing price of Link Reit’s shares of HK$62.80 on Thursday. Trading of its shares were halted today pending the announcement.
The new capital will also be used to pursue “future investment opportunities, with a focus on the retail, car park, office and logistics sectors across Asia-Pacific,” the company said in a statement published after Friday evening’s briefing.
“Link Reit is committed to growth under our Link 3.0 strategy, where we aim to optimise our portfolio through diversification and to grow our assets under management together with capital partners,” said George Hongchoy, Link Reit’s chief executive officer, during the briefing.
The company is betting on its strategy of paring down debts under the current high-interest environment. Savings from paying off debts would put it in a good position to acquire new investments, said Kok Siong Ng, executive director and chief financial officer during Friday’s briefing.
“When we look at the outlook and macro environment, there is a lot of potential for good deals to surface under a very aggressive interest rates cycle. There may be holders of real estate who do not want to hold and want to divest and this is playing out in Australia,” Ng said.
The right issue means there will be 20 per cent more outstanding shares, which will dilute the shareholdings of current subscribers.
“There will always be dilution of shareholdings in these cases,” said Louis Tse Ming-kwong, managing director at Wealthy Securities. “Those who cannot afford to subscribe to the rights issue should look forward to an increase in their earning dividends, which will be beneficial.”
The trust had been active in buying properties overseas in recent years.
It currently has 130 assets in Hong Kong and 22 investments elsewhere, including in mainland China and the UK.
