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Link REIT (823 HK — US$12 billion) is Asia’s largest real estate investment trust, focusing on retail properties in Hong Kong.
Gocanucks97 on VIC wrote about the stock in early January. He argued that it would benefit from southbound flows after being included in the HKEX Stock Connect program. You can find his write-up here (no paywall).
The Hong Kong government formed the REIT in the mid-2000s when it spun off public housing estate shopping malls into a listed entity. These properties had been mismanaged. But under the leadership of Link, they were revitalized and are now performing well.
Thanks to such asset enhancement initiatives, Link REIT’s distribution per unit (DPU) rose by almost 10% yearly in the first thirteen years, making it one of the best-performing REITs in the world.
Then came 2019. That was the year when demonstrations broke out in Hong Kong. Tourism ground to a halt, and retailers saw lower foot traffic to their stores. Soon thereafter, COVID-19 caused the Hong Kong government to close its borders and implement social distancing restrictions. Link REIT was forced to step in and support its tenants through direct cash subsidies. The higher rate environment from 2022 onwards hasn’t helped either.
Link itself was not without fault. From 2018 onwards, the capital allocation has deteriorated. Most importantly, it started taking on debt to acquire assets overseas. These acquisitions were done at low cap rates. And what’s even worse, it used equity to buy them, including HK$18.5 billion raised through a dilutive rights issue.
They own high-quality assets. Link REIT’s tenants are supermarkets, food and beverage vendors and other essential services. They should be well-protected from the e-commerce threat. Furthermore, its occupancy rates are high, tenant retention is decent, and satisfaction scores are high. I’ve found the reviews for Link REIT’s malls to be positive.
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