The Motley Fool

2 Things Income Investors Should Like About Link REIT

Link REIT (SEHK: 823) is the largest REIT in Asia by market capitalisation, worth approximately HK$182 billion (US$22.7 billion). It’s also a constituent stock of the benchmark Hang Seng Index (^HSI) and a highly popular holding among passive income investors.

Here are two things I think income-hungry investors should like about this REIT giant.

1. DPU increase


Source: Link REIT corporate presentation 2019

Over the last five years, Link REIT has recorded a steady and growing DPU. As seen from the figure above, Link’s DPU has grown at a compounded annual growth rate (CAGR) of 10.3% in the past five years from FY14/15 to FY18/19. This is an impressive growth figure and one that should catch the attention of investors.

The growth in DPU was achieved by portfolio optimisation over the years that entailed a mix of disposals, acquisitions, and enhancements. To this end, Link actually saw its portfolio size by number of properties reduce from September 2014 to September 2019 from 179 properties to 131 properties respectively.

This goes to show that the REIT is not solely growing through inorganic means but is employing multiple strategies to raise its revenue and DPU.

2. Strong capital structure


Source: Link REIT corporate presentation 2019

Despite the strong growth that Link has registered in the past five years, it has managed to maintain a robust capital structure that should sit well with investors. Taking a quick glance at the image above, we see that the REIT has approximate 70% of its debt on a fixed rate.

This gives both the company and investors clear visibility of the interest payments the REIT will have to make. Additionally, the REIT has a gearing ratio of only 10.7%. This is a very low figure when compared to the REITs listed over in Singapore which have gearing ratios in the 20-45% range due to regulatory restrictions which allow them to gear up to 45%.

Foolish conclusion

The two metrics above show that Link REIT has managed to grow its DPU while remaining conservative on the debt front. This was achieved by employing a prudent strategy when encompassed both organic and inorganic growth.

If Link REITs management can continue executing the way it has in the past five years, investors should just sit back and enjoy the ride.

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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 Link REIT.