Link investor

823), the largest REIT in Asia

Singapore is a big market for real estate investment trusts (REITs). They are also a great way for investors to gain exposure to both real estate and passive income streams.

While Singapore has over 42 REITs and real estate trusts listed here, another REIT market in Asia that investors may not be aware of is Hong Kong.

Asia’s largest REIT – by market capitalization – is actually listed on the Hong Kong Stock Exchange.

Link REIT (HKEX:823) is a business and commercial REIT with a market capitalization of HK$103.8 billion (US$18.8 billion), making it the largest REIT in the Asia region -Peaceful.

It is also a constituent member of the city’s benchmark stock index, the Hang Seng Index.

For context, the largest REIT listed in Singapore is CapitaLand Integrated Commercial Trust (SGX: C38U) which has a market capitalization of S$12.1 billion (US$8.5 billion).

Given its size and scope, we might be curious what real estate portfolios make up Link REIT.

Link REIT started with suburban malls in Hong Kong

The original Link REIT properties were actually owned by the Hong Kong government and the city’s Housing Authority.

Link REIT was established in 2005 by the government and it later injected more than 100 Hong Kong-based suburban shopping malls and a number of parking lots before listing Link REIT in 2005.

Similar to what we would consider ‘heart malls’ here in Singapore, these malls catered to the daily needs of people living in the city’s public housing estates.

Link REIT went public at HK$10.30 per share in 2005 and, like many REITs around the world, benefited from the low interest rate environment from 2009 to 2021.

How Link REIT expanded its geographic reach

In 2015, Link REIT began venturing outside of Hong Kong to buy assets. Unsurprisingly, he went to mainland China to diversify.

As of March 31, 2022, Link REIT’s portfolio was worth HK$228 billion. It has also started acquiring business and commercial properties in the UK and Australia in recent years.

It currently owns 151 properties, 129 of which are located in Hong Kong – with the rest located in mainland China, the UK and Australia.

Source: Link REIT FY2021/2022 Annual Results Presentation

Operational and Financial Measures of Link REIT

For Link REIT’s latest results (for the 12 months ending March 31, 2022), it saw occupancy rates in all of its markets ranging from the mid-90s to 100%.

Rental reversions were positive for its retail portfolios in Hong Kong (+4.8%) and China (+8.8%). On the other hand, rental reversions were negative for the tertiary portfolio in China (-8.1%).

For its 2021/2022 financial year, Link REIT reported revenue of HK$11.6 billion, up 8% year-on-year. As for the very large distribution per unit (DPU) for the 2021/2022 financial year, it increased by 8.2% year-on-year to reach HK$3.05.

Considering Link REIT’s historic dividend growth, it paid a full-year DPU of HK$0.6743 in its 2006/2007 fiscal year. This means that over the past 15 years, Link REIT has increased its dividend at a compound annual growth rate (CAGR) of 10.8%.

In terms of debt, Link REIT’s pro forma gearing as of March 31, 2022 (after adjusting for a number of acquisitions in Australia and China that were completed in May-July 2022) was 25.4%.

Its fixed-rate debt ratio stands at 61.4%, while its average cost of borrowing is 2.3% and its average debt maturity is 3.5 years.

What you need to know as a REIT investor

Although many Singaporean investors may be unfamiliar with the Hong Kong stock market, there are many similarities between the two.

The first is that, as in Singapore, Hong Kong-domiciled stocks and REITs have a zero-rate withholding tax on dividends. So whatever is announced in terms of dividend, investors will receive the full payment.

However, the Hong Kong stock market differs in that stocks traded on the Hong Kong Stock Exchange have varying “board lots”.

In Singapore, the minimum lot for shares is set at 100 consistent shares for all companies. Meanwhile, in Hong Kong, the minimum board lot size is left to the discretion of the company.

As a result, the minimum lot in Hong Kong can range from 50 shares to 5,000 for some listed companies.

In the case of Link REIT, the minimum lot is 100 shares. At its current price of HK$49.60, that means one lot costs investors HK$4,960, or S$894 at current exchange rates.

The REIT pays its dividend twice a year, with investors typically receiving their distributions in December and August.

Link REIT Management Outlook

Link REIT’s management reiterated its commitment to seek revenue stability and long-term growth opportunities.

With that in mind, he said he will continue to strategically pursue opportunities in Hong Kong, major cities in mainland China, Australia, Japan and Singapore.

Investors interested in the performance of Link REIT have the opportunity to follow its results for the first half of the 2022/2023 fiscal year (for the six months ending September 30, 2022) when they are published on Wednesday November 9.

At the current share price, based on its DPU for the 2021/2022 fiscal year, Link REIT is currently offering investors a dividend yield of 6.1%.

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