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2 Reasons Why Link REIT’s Growth Could Continue

Link REIT (HKSE: 823) is the largest REIT in Asia by market capitalisation, worth approximately HK$182 billion (US22.7 billion).

In my previous article here, we looked at how Link REIT has managed to grow its distribution per share (DPU) at a 10% compound annual growth rate (CAGR) while maintaining a strong capital position. Let’s look at how Link REIT plans to continue growing for the next three to five years.

1. Portfolio growth

Source: Link REIT corporate presentation 2019

The past five years saw Link REIT return an astounding 10.4% CAGR growth in DPU. Moving forward, the REIT has come up with a strategy to continue this path of growth. The company is calling this Vision 2025, with a key target being to grow its assets under management (AUM) by a high single-digit CAGR.

To achieve this the REIT has identified four growth drivers – Acquisitions with a focus on Hong Kong and Tier-1 cities in China (with a preference for quality retail and grade A offices), Enhancements, Developments with a focus on Hong Kong and Disposals of non-core assets or properties with low growth potential.

Apart from the four above, it should also be noted that Link REIT in the past 14 years has expanded out of its sole market of Hong Kong by acquiring properties in China. This geographical diversification will serve it well in its expansion strategy as it opens up a lot more options for the REIT when looking at new properties.

2. Focusing on enhancements

Source: Link REIT corporate presentation 2019

Out of the four key growth drivers identified by the REIT, three of them can be viewed as being more as opportunistic. These are acquisitions, disposals, and developments.

However, the one key driver that the REIT as greater control over is the enhancement of its properties to increase their value. On this front, Link has come up with an asset enhancement plan as seen in the image above.

Currently, the REIT has four asset enhancement initiatives (AEIs) ongoing and six which are going to commence. Looking further out the REIT has 18 AEIs planned out until 2023. This forward-looking plan for refreshing its portfolio shows that the REIT’s management is laser-focused and clear about what needs to get done going forward.

Foolish conclusion

The four key growth drivers identified by the REIT to sustain its growth well into the future seem well thought out in my opinion. While for three of the growth drivers, the REIT is dependent on the right opportunities coming along, it is by no means resting on its laurels for the fourth growth driver.

The detailed planning the REIT’s management has done for its asset enhancement strategy for the next three years makes me confident that it’s focused on continuing to grow the REIT’s assets, and shareholder payouts, at a healthy clip.

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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.