Link REIT a Bargain?
By: Mr. Tam Ging Wien
As far as we can see, Link REIT will continue to be relevant to the people of HK as its assets are in core necessity goods and services and therefore not as impacted by the cyclic effects of the economic cycles. It continued to post a DPU of HK$2.8719, a +5.9% YoY growth. It also post a double digit rental reversion of 12.6% which means its still increase rental revenue in the coming 6 to 12 months.
From a fundamental point of view and a valuation angle, Link REIT is a high quality REIT at bargain prices! If you are in for the dividends, its a great REIT to own. However, your risk is in capital gains/losses which could fluctuate.
Link REIT is a large component on the Hang Seng, unfortunately due to the triple hit that Hong Kong has faced from the social unrest, COVID-19 and now the China imposed security law, funds continue to flow out of Hong Kong. When funds flow out of a markets, the share prices on major indexes tend to take a hit as you can clearly see in Link REIT's case. Unfortunately, there is no way to know when this will end, I don't think anyone is able to predict.
For more of our views, you can consider watching the following video on REITScreener TV on our opinions on the HK situation:
So perhaps the best would be to consult your inner senses on what you think could happen. Here are are few questions to consider:
- Do you think that HK will continue to exist and normalise in its social, political and economic situation in the coming 5 years?
- Do you continue to believe that Link REIT can continue its stellar fundamental performance in the coming 3 years?
- Are you willing to take another 10 to 20% capital loss in the short term and are willing to ride the volatility?
- What is your time horizon for investment? If your time horizon is less than 3 years, this may not be the REIT for you as there could be lots of volatility in the coming months next year.
If you answer "no" to any of the questions above or have less than a 3 year time horizon, Link REIT might not be for you.
On the flip side, investors who are willing to take risk during crisis periods could benefit greatly once the clouds have cleared.
There is no simple answer to your question, but you need to manage your risk and don't over invest in one REIT. Consider to diversify as well.