The Motley Fool

Battle of the REITs — Link REIT vs Prosperity REIT

Real Estate Investment Trusts, or “REITs” for short, are popular investment vehicles for income investors.   The recent market turmoil has resulted in REIT’s seeing a sell-down of their share prices.

This means that investors purchasing REITs at current prices might potentially yield much higher distributions once things return to normal. With that in mind, let’s analyze two REITs listed in Hong Kong: Link REIT (HKSE: 823) and Prosperity REIT (HKSE:0808). By the end of this article, through the use of key metrics, we will know which REIT is the better buy.

Net asset value growth

Over the past five years, Link REIT has grown its net asset value growth (NAV) at an impressive pace, increasing it from HK$51.53 in FY14/15 to HK$89.48 in FY18/19. This implies an annualized growth rate of 14.81%.

Prosperity REIT, on the other hand, has seen its NAV grow from HK$4.98 in 2015 to HK$5.74 in 2019, indicating an annualized rate of 3.61%.

With Link REIT growing its NAV at a faster clip, it’s the clear winner in this category.

Distribution per Unit (DPU)

Link REITs distribution per unit grew at a compounded rate of 10.31% over the last five years, moving from HK$1.83 in FY14/15 to HK$2.712 in FY18/19. At current prices, Link REIT sports a distribution yield of 3.92% based on its full-year 2018 and 2019 payout.

Prosperity REIT’s distribution also saw an increase over the same period, moving from HK$0.176 per unit in 2015 to HK$0.183 in 2019. That indicates an annualized growth rate of 0.98%. At its current price of HK$2.38, the REIT has a distribution yield of 7.7%

While Link REIT comes out on top for DPU growth, Prosperity is on top in terms of distribution. So, let’s call this round a tie.

Gearing ratio

Lastly, we’re going to look at the gearing ratio for the two REITs based on their latest results.

As of September 2019, Link REIT’s gearing ratio stood at 11.9%. Prosperity REIT’s gearing stood at 20.3% in December 2019.

Once again, Link REIT is the better option here due to it being less leveraged.

Foolish conclusion

Having compared Link REIT with Prosperity REIT using three key metrics – NAV, DPU, and Gearing ratio – we can see there is a clear winner.

Link REIT seems to be the better REIT to purchase. It has managed to grow NAV and DPU at a healthier clip. It also has a lower gearing ratio which is positive.

In my previous article, I compared Link REIT with Sunlight REIT, found here. In that battle Link REIT came out on top, as well.

Interested investors should use the above information merely as a starting point to evaluate whether Link REIT has a place in their portfolio.

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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.