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Yuexiu REIT (SHEK: 405) was listed on the Hong Kong Stock Exchange in December 2005. The REIT focuses on office, retail, and other commercial properties and, as of 30 June 2019, has eight properties in its portfolio.
Let’s look at two financial metrics, the price-to-book (PB) ratio and distribution yield, to determine if Yuexiu REIT is a bargain at current prices for dividend investors.
The real estate investment trust reported a Net Asset Value (NAV) of HK$5.29 (RMB 4.74, RMB/HKD exchange rate – 1.12) as at the end of June 2019.
This implies a PB ratio of 1.0 at the current price of HK$5.29 (as at the time of writing). What this means is that investors are buying units at fair value now with no premium or discounts.
Looking longer-term, the REIT’s NAV has remained rather stable over the past five years, with NAV standing at RMB 4.69 and RMB 4.65 at the end of 2014 and 2018 respectively.
While Yuexiu REIT’s NAV hasn’t increased over this period it has remained stable, indicating that at a current PB ratio of 1.0, Yuexiu can be considered by investors.
Yuexiu REIT’s distribution has increased slightly over the last five years moving from RMB 0.237 in 2014 to RMB 0.277 in 2018.
This indicates a compounded annual growth rate (CAGR) of 3.98%. At its current price, the REIT has a trailing twelve-month (TTM) distribution yield (RMB 0.2731 = HK$0.306) of 5.78%.
The high distribution yield, coupled with a growing distribution payout, makes Yuexiu look compelling from a distribution perspective currently.
Looking at the two metrics, investors can see that based on the current PB ratio, the REIT is fairly valued as investors are getting shares at the current market rate.
Similarly, the high current distribution and growth payout adds to the attractiveness of Yuexiu REIT as an investment option. Interested dividend investors, however, should use the analysis presented above only as a starting point to evaluate the property owner with a keener eye.
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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 doesn’t own shares in any companies mentioned.