Singapore is a big market for real estate investment trusts (REITs). They’re also a great way for investors to gain investment exposure to both property and passive income streams.
While Singapore has over 42 REITs and Property Trusts listed here, another REIT market in Asia that investors may not be aware of is Hong Kong.
The largest REIT in Asia – by market capitalisation – is actually listed on the Hong Kong Stock Exchange.
Link REIT (HKEX: 823) is a retail and commercial REIT that has a market cap of HK$103.8 billion (US$18.8 billion), making it the biggest REIT in the Asia-Pacific region.
It’s 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 cap of S$12.1 billion (US$8.5 billion).
Given its size and reach, we may be curious to know what are the property portfolios that make up Link REIT.
Link REIT Started Out With Suburban Hong Kong Malls
Link REIT’s original 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 then injected over 100 Hong Kong-based suburban shopping malls and a number of car parks into it before listing Link REIT back in 2005.
Similar to what we would consider “heartland malls” here in Singapore, these shopping centres served the everyday 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 globally, has benefitted from the low interest rate environment from 2009-2021.
How Link REIT Expanded Its Geographic Reach
In 2015, Link REIT started to venture outside of Hong Kong to shop for assets. Unsurprisingly, it went to Mainland China to diversify.
As of 31 March 2022, Link REIT’s portfolio is worth HK$228 billion. It has also started to acquire retail and commercial properties in both the UK and Australia in recent years.
It currently owns 151 properties, 129 of which are located in Hong Kong – with the rest being situated in Mainland China, the UK, and Australia.
Source: Link REIT FY2021/2022 Annual Results presentation
Link REIT’s Operational & Financial Metrics
For Link REIT’s latest earnings (for the 12 months ending 31 March 2022), it saw occupancy rates in all its markets range from the mid-90s-100%.
Rental reversions were both positive for its retail portfolios in Hong Kong (+4.8%) and China (+8.8%). However, rental reversions were negative for the commercial portfolio in China (-8.1%).
For its FY2021/2022, Link REIT recorded revenue of HK$11.6 billion, which was up 8% year-on-year. As for the all-important distribution per unit (DPU) for FY2021/2022, that was up 8.2% year-on-year to HK$3.05.
Looking back at the historical growth of Link REIT’s dividend, it paid out a full-year DPU of HK$0.6743 in its FY2006/2007. That means that over the past 15 years, Link REIT has raised its dividend at a compound annual growth rate (CAGR) of 10.8%.
In terms of its debt, Link REIT’s pro-forma gearing as of 31 March 2022 (after adjusting for a number of acquisitions in Australia and China that were completed in May-July 2022) stood at 25.4%.
Its ratio of fixed-rate debt stands at 61.4% while its average borrowing costs are 2.3% and its average debt maturity is 3.5 years.
What To Know As A REIT Investor
While many Singapore investors may not be familiar with Hong Kong’s stock market, there are many similarities between the two.
One is that, like Singapore, Hong Kong-domiciled stocks and REITs have a zero-rate dividend withholding tax. So, whatever is announced in terms of a dividend, investors will receive the full payout sum.
However, Hong Kong’s stock market differs in that stocks traded on the Hong Kong Stock Exchange have varying “board lots”.
In Singapore, the minimum board lot for stocks is set at a consistent 100 shares for all companies. Meanwhile, in Hong Kong, the minimum board lot size is left up to the discretion of the company.
As a result, the minimum board lot in Hong Kong can range from 50 shares up to 5,000 for some listed companies.
In Link REIT’s case, the minimum board lot happens to be 100 shares. At its current price of HK$49.60, that means that one lot costs investors HK$4,960, or S$894 at current exchange rates.
The REIT pays out its dividend twice per year, with investors typically receiving their distributions in December and August.
Link REIT’s Management Outlook
Link REIT’s management has reiterated its commitment to pursue income stability and long-term growth opportunities.
In this vein, it has stated that it will continue to seek opportunities strategically in Hong Kong, Mainland China’s top-tier cities, Australia, Japan, and Singapore.
Investors who are interested in how Link REIT is performing have the opportunity to monitor its H1 FY2022/2023 earnings (for the six months ending 30 September 2022) when they are released on Wednesday (9 November).
At its current share price, based on its full-year FY2021/2022 DPU, Link REIT currently offers investors a dividend yield of 6.1%.
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