To Keep Reading
Link REIT (SEHK: 823) is the largest REIT in Asia by market capitalisation, worth approximately HK$178 billion (US$22.7 billion). It’s also a constituent stock of the benchmark Hang Seng Index (^HSI) and a highly popular holding for passive income investors.
Link REIT’s share price reached a peak of HK$99.80 in mid-2019 but stands at HK$85.10 (as of the time of writing), representing a 14% decline.
Let’s analyse Link REIT’s financials to find out if the company is a bargain at its current price. For this, I’ll be using two metrics; price-to-book (PB) ratio and distribution, or dividend, yield.
The real estate investment trust reported a Net Asset Value (NAV) of HK$89.48 at the end of its last fiscal year in March 2019. This implies a PB ratio of 0.95 at its current share price. This means that investors are paying only HKS$0.95 for HK$1 worth of assets – isn’t that a bargain?
In addition, the REIT has been growing its NAV at a rapid pace, increasing from HK$56.79 in FY15/16 to HK$89.48 in FY18/19. This makes Link even more attractive as the future PB ratio for shares purchased at the current price will be even lower.
Link REITs distribution has been increasing over the last four years moving from HK$2.062 in 2015/16 to HK$2.712 in 2018/19. At its current price of HK$85.10, Link REIT has a distribution yield of 3.2% which is far better than its yield at its peak price which would come in at 2.7%.
The higher distribution yield means that investors are getting a better bargain at current prices. Also, if Link REIT can continue to grow its distribution per unit (DPU) as it has done in the past, the distribution yield will continue to rise in tandem over time if shares are purchased at its current price.
Looking at the two metrics, investors can see that based on the current PB ratio for the REIT, it is attractively valued as investors are getting shares at a 5% discount to its NAV.
Similarly, the sharp decline in Link’s share price has resulted in the REIT yielding over 3%. Together with the strong growth in the DPU, it seems like Link REIT might be a bargain at its current price. Interested investors, however, should use the analysis presented above only as a starting point to evaluate whether the investment is right for them.
Thinking about investing in Hong Kong stocks? Discover 4 simple ways to turn it into your own “money tree”. We outline practically everything you need to know about the Hong Kong market in our latest report. Click here to see how you can grab your FREE copy of “A Foolish Guide for Hong Kong Investors” today.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Saket Jhajharia does not own shares in any companies mentioned.