The Link Reit's management company known as The Link has acquired majority stake in a property development in burgeoning East Kowloon in Hong Kong for a record amount of HK$5.86 billion (US$732 million).

The acquisition also signifies a major change in investment strategy to big-time property development for The Link Reit which has previously focused on acquiring and redeveloping existing retail property such as shopping malls located along the Mass Transit Railway (MTR) line.

The Link has an indirect 60% interest while Dual Success Investments, a special purpose vehicle unit of the Nan Fung Group (NF), has a 40% interest in the development. They had successfully tendered for the land at the premium of HK$5.860 billion. Nan Fung is generally recognized as one of the leading property developers in Hong Kong.

The land is situated at the junction of Hung Yip Street, Wai Yip Street, Shun Yip Street and Hoi Bun Road, Kwun Tong, Kowloon, and is currently vacant. Pursuant to the land grant, the land has a site area of approximately 6,843 square metres and a maximum gross floor area of 82,116 square metres. The appraised value of the land according to the valuation report by the principal valuer is HK$5.380 billion, according to a statement.

As part-and-parcel with the acquisition of the land, and consistent with the expanded investment strategy of The Link approved by unitholders on January 15, the joint venture intends to develop the land into a grade-A office commercial complex comprising two office towers with retail elements and car parks.

It is expected that the commercial development will be completed on or before June 30 2020, in accordance with the conditions of the land grant. The Link's portion of the total development costs (which includes the land premium) is estimated at about HK$6.325 billion, representing approximately 4.9% of the gross asset value of The Link.

The reasons cited for the acquisition include:

* Early stage with lower entry cost which will result in a lower purchase price closer to "at-cost" pricing for The Link, providing The Link with a more attractive investment opportunity than acquiring completed commercial properties in the district.

* Positive sector outlook on the back of demand for Hong Kong office having exceeded supply for a considerable period. According to a recent Hong Kong grade-A office market Study commissioned by the manager, long term average grade-A office demand over the last 15 years to 2014 was 1.9 million square feet (net) against the average historical supply for the same period of about 1.7 million square feet (net).

* Potential of Kowloon East, where the commercial development is located, has attracted insurance firms and back offices of multi-national corporations and financial institutions primarily due to competitive rental prices and the availability of brand-new and high quality office buildings in the district.

The reasons and benefits for the joint venture include:

* Expertise in land development within its asset management and senior management teams with many key personnel having worked with leading Hong Kong developers before they joined The Link as well as existing internal control procedures to ensure quality and cost controls.

* The Nan Fung Group is an established property developer with a proven track record of developing large-scale residential and commercial property projects in Hong Kong. Partnering with the NF Group not only diversifies the investment risk but also enables.

The Link Management , is the first real estate investment trust in Hong Kong and currently the largest in Asia in terms of market capitalization. It is wholly owned by private and institutional investors.