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.

  1. 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


  1. 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


  1. 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


  1. 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.


  2. 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.


  3. 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.


  4. 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:



No.

AEI Projects
Capital Expenditures (HK$ Million)
Beginning at
1Wo Che Plaza151



End 2018
2Kai Tin Phase 134
3Cheung Fat98
4Choi Yuen46
5Fu Tai59
6Shun Lee76

Early 2019
7Lok Fu Place151
8Choi Ming94
9Fu Cheong170Mid 2019
10Tsz Wan Shan150End 2019


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.


  1. 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


  1. 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.


  1. 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.


VIA’s Verdict

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.

2 COMMENTS

  1. What a well written article.

    I think Link REIT is a fanatic stock which will provide great gains and income for many years to come. It is a “gift that will keep on giving for decades”.

    One question is how long it can sustain its gains and growth of the past. Being quite familiar with their core assets I think there is still a huge amount of “meat on the bone”.

    I also love the large exposure to non-discretionary items (food and veggies etc) which are a great hedge against any downturn.

    I like that most of its property and income (and stock price) is in HKD. This is a nice hedge to any decline in emerging currencies as HKD is pegged to the USD.

    With the announcement of the Greater Bay Area initiate Link is poised to benefit greatly for increased detail spending. (As is another Reit called Fortune Reit). Over time Link will acquire and develop properties across the GBA, and well as enabling some of its tenants to scale across the same region.

    I also really value good governance and ethical values. In these areas, and reporting translatable etc Link is absolutely first class.

    Finally, I believe Link’s assets are significantly undervalued on its books. As opposed to many reits who might be inclined to overvalue). So Link can very easily sell off “non-core assets” well above NAV (eg 30-40%) and repurchase shares (thus increasing yield).

    My valuation estimate is a price of $200 per share and a dividend of $6 per share by end of 2016.

    • Sorry I made a typo.

      Last para should read:

      My valuation estimate is a price of $200 per share and a dividend of $6 per share by end of 2026.

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