Here Is What You Must Know About The Largest Retail REIT in Asia: Link REIT
March 15, 2019
Listed in the Hong Kong Stock Exchange, Link REIT is presently the largest retail REIT in Asia. It has a mammoth portfolio which comprises of retail facilities, car parks, and offices located mainly in Hong Kong. It also owns a handful of prime assets in major cities across China such as Beijing, Shanghai and Guangzhou. As I write, Link REIT is worth HK$ 187.2 billion in market capitalization and it is one of the 50 constituents of the Hang Seng Index.
In this article, I’ll share its fundamentals, present its recent financial results and evaluate its investment potential based on its current unit price of HK$ 88.75 as at 25 February 2019. Therefore, here are 10 key things to know about Link REIT before you invest.
Portfolio Valuation As at 30 September 2018, Link REIT’s portfolio is worth HK$ 210 billion, where 91.8% of its real estates are located in Hong Kong and the other 9.2% are located in Mainland China. It represents a CAGR of 16.87% for the last 10 years from HK$ 44 billion, Link REIT’s value of portfolio as at 30 September 2008. It is attributable to ongoing efforts to acquire new properties, undertake asset enhancement initiatives (AEI) and enjoying capital appreciation on its real estate in its portfolio during the period.
Source: Interim Reports of Link REIT
Revenue Link REIT had achieved CAGR of 9.30% in revenue from HK$ 4.50 billion in 2009 to HK$ 10.02 billion in 2018. It is attributable to rising revenues from renting retail spaces and car parks, which was contributed by Link REIT’s ongoing efforts to invest in new properties and AEI works for the 10 years period.
Source: Annual Reports of Link REIT
Distributable Income & DPU Link REIT had achieved CAGR of 12.57% in its distributable income from HK$ 1.82 billion in 2009 to HK$ 5.28 billion in 2018. Apart from revenue growth as discussed in Note 2, Link REIT had improved profit margin for both its retail malls and car parks segments. As a result, it contributed a continuous rise in distributions per unit (DPU) from HK$ 0.84 in 2009 to HK$ 2.50 in 2018.
Source: Annual Reports of Link REIT
Balance Sheet Strength As at 30 September 2018, Link REIT has total debt totalling to HK$ 22.7 billion and total assets of HK$ 215.3 billion. Hence, it has a gearing ratio of 10.5%, relatively low when compared to most REITs listed in the SGX and Bursa Malaysia. Its effective interest rate is 3.19% per year and has 69.7% of its total debt based on fixed interest rates. Presently, Link REIT is granted credit ratings of A/Stable by S&P, A2/Stable by Moody’s, and A/Stable by Fitch Ratings, thus, testifying the REIT’s creditworthiness.
Growth Prospect 1: Beijing Jingtong Roosevelt Plaza (BJRP) On 23 January 2019, Link REIT has completed its acquisition of BJRP for RMB 2.56 billion. It has 7 levels of retail spaces and 576 car park spaces located at Tongzhou, a city sub-centre which is well-positioned to enjoy continuous population growth as a result of a relocation of government departments, development of government quarters and public facilities and the launch of Universal Studio in 2020. BJRP is 96.2% occupied and is now raking RMB 10.3 million in gross monthly income.
Growth Prospect 2: Centralwalk, Shenzhen On 20 February 2019, Link REIT has announced its acquisition on its 5th property in China: Centralwalk for RMB 6.6 billion. It is a shopping mall equipped with 5 levels of retail spaces and 741 car park spaces located at the Futian CBD which is surrounded by prime offices, hotels, and the Shenzhen Stock Exchange. Centralwalk is approximately 100% and now, it is raking RMB 23.8 million in gross monthly income.
Growth Prospect 3: Asset Enhancement Initiatives (AEI) As I write, Link REIT has 10 AEI projects underway which is estimated to cost HK$ 1 billion. They are as follows:
Capital Expenditures (HK$ Million)
Wo Che Plaza
Kai Tin Phase 1
Lok Fu Place
Tsz Wan Shan
Source: Link REIT’s Interim Results Presentation for 2018/ 2019
Moving forward, Link REIT has a pipeline of 19 AEI projects worth HK$ 839 million which are under planning. Thus, AEI remains a key strategy for Link REIT to sustain growth of its portfolio in the future.
Growth Prospects 4: Disposal of 12 Properties Link REIT plans to fund the above acquisitions via disposal of non-core properties. On 12 December 2018, Link REIT has announced that it has disposed 12 properties to a consortium led by Gaw Capital Partners for HK$ 12.0 billion, 32% above its appraised value. Thus, it had built itself an impressive track record of disposing its properties of at premium of at least 20% its book value.
Source: Link REIT’s Corporate Presentation on 12 December 2018
P/B Ratio As at 30 September 2018, Link REIT has net assets an unit of HK$ 85.41. Thus, based on its current unit price of HK$ 88.75, its current P/B Ratio is 1.04, which is above its 10-year average of 0.97.
Dividend Yields Over the last 12 months, Link REIT has paid out HK$ 2.589 in DPU to its existing unitholders. Hence, its current dividend yield is 2.92% per year, which is the lowest in 10 years and below its average of 4.36% per year.
Link REIT has delivered stable and consistent growth in portfolio size, revenues, distributable income, and DPU to its unitholders. Deservingly, its unit price has grown by CAGR of 19.30% for the last 10 years, hence, lifting Link REIT’s market capitalization from HK$ 33.2 billion in 2009 to HK$ 187.2 billion presently.
Source: Google Finance
At current valuations, it is trading at:
– P/E Ratio: 1.04 (above average)
– Current Dividend Yield: 2.92% (below average)
So, would you invest in Link REIT? Please leave your comments below.
Financial Content Machine. Dividend Investor. Produced 450+ Financial Articles featured in KCLau.com in Malaysia and the Fifth Person, Value Invest Asia, and Small Cap Asia in Singapore. Regular Host and Presenter of a Weekly Financial Webinar with KCLau.com. Co-Founded DividendVault.com, an online membership site that empowers retail investors to build a stock portfolio that pays rising dividends year after year in Malaysia and Singapore.