Kaplink is a private investment office based in Hong Kong with a focus on real assets in Australia.
I started Kaplink in 2012 having come out of CBRE where I was working on the investments team. Having been born and raised in Hong Kong and having been here for most of my life, property is always something I was interested in. Our department’s clients were mainly developers, family offices and institutions who would use the traditional private equity model based on control of a property, a piece of land or existing asset. By controlling it they could add some value, then release value and move on to next project. The average IRR on their risk spectrum worked out at roughly 15%, plus or minus a few points depending on the vintage. I found this fascinating – stable value created by the asset manager.
We founded Kaplink in 2012 and started investing as a minority partner in a number of projects. We wanted to offer investors an alternative to the buy and hold model. Our first investment was a JV in Australia with a local developer. We acquired a piece of land to be developed into a 4-star hotel operated by a major hotel chain. Since then we have grown our portfolio significantly in Australia.
We like Australia. We always wanted to look at English-speaking developed markets as we just didn’t think the risk premium in non-developed markets was something we wanted to go after. And non-English speaking markets, from a practical point of view, just added another layer of overhead we didn’t think was necessary.
We liked Australia back then and we like it now, even during this Covid period where unfortunately a 30-year growth streak looks like it is about to be broken. We like the way Australia has managed the Covid outbreak, especially compared to the other English speaking developed markets we look at. They have been ahead of the curve and we think they will emerge from this earlier and better positioned than other countries.
We’ve been focused on Melbourne, Sydney, and Perth. Most of our investments are in Victoria and we are just starting to branch out of Melbourne with our first investment in Perth. We were looking at assets in Sydney last year, but the numbers didn’t quite add up. We are strict with our acquisition criteria – we believe that there is no need to chase a deal. This does mean that we let a lot of good deals go by. We prefer to do fewer sites with a higher level of confidence. To grow a business we need to have successful projects so our underwriting process is something we are not willing to give on. It really is about quality and not quantity. Sticking to this will allow us to grow long term.
We like to invest in mid-market hotel developments as our strategy is to build assets where we can put in a long-term tenant or operator who do not want to develop the asset themselves. In this category we are developing petrol stations, medical centres, childcare centres, and food outlets. These operators need assets built to their unique specifications, such as meeting certain government guidelines. These lease terms are usually very favourable to the landlords. We develop assets that have a stable cash flow and are very much in demand by all sorts of institutional or institutional type investors.
We have been very fortunate with our hotel assets of which we have over 10 right now. They are still in the development phase so they haven’t been impacted by the pandemic to the same extent as operating assets. We are building a diversified portfolio by working with a number of international hotel operators across the region. They have all stuck with us as they themselves take a long-term view. We have chosen the right site locations and partners for long term, stable growth. The smaller operators may have given up better terms but we went with the larger operators resulting in added stability in times of turbulence.
Our tenants and operators take long term views, and understand that there will inevitably be three to five down turns or recessions on average during a 20-year timeframe, and the fact we are going through one now means there is one less to overcome the next 30 years. People are always going to need accommodation, to get health checks, and have childcare services. Suburban communities especially need these, and the whole trend in Melbourne is the growth of the suburbs. We are just capitalising on the needs of these growing population areas.
This trend of suburbanisation will not be reversed. if anything, this trend will only get stronger as the need to be in a city centre is not as strong as it has been previously as people are increasingly working from home.
The first half of this year has given us an opportunity to look at our operations, systems and processes. We have treated it as a year of reassessment and using this breather to re-examine our assumptions of the market. We are coming up to the nine-year mark at Kaplink and we are still enjoying what we are doing. It is a great feeling of accomplishment to start something from nothing and to have clients and partners that support the work we do and who enjoy working with us.