Link REIT acquires Jurong Point: What you need to know about Asia’s largest REIT

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REITs, ETFs

By Beansprout • 16 Jan 2023 • 0 min read

We take a deep-dive into Link REIT and understand why Asia’s largest real estate investment trust is making a big investment in the Singapore real estate market.

Link REIT Mercatus Jurong Point
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What happened?

You might be familiar with Singapore REITs (S-REITs) such as CapitaLand Integrated Commercial Trust (CICT) and Mapletree Pan Asia Commercial Trust (MPACT), which have become household names for investors here. 

Here’s a fun fact - the largest REIT in Asia is not listed in Singapore. 

Link REIT currently takes the crown as the largest real estate investment trust in Asia. 

The Hong Kong listed REIT recently made the news after it agreed to fork out more than S$2 billion to purchase retail mall assets from NTUC Enterprise’s real estate arm Mercatus. 

We thought it’d be interesting to step outside of Singapore’s shores to find out more about Link REIT. 

#1 – Link REIT’s property assets are mainly in Hong Kong

Link REIT owns 152 assets worth HK$234 billion (about S$40 billion) as of 30 September 2022. 

This would make it the largest REIT in Asia based on the value of its assets. 

For comparison, Singapore’s largest REIT CICT had total assets of S$24 billion as of 31 December 2021. 

More than 78% of Link REIT’s assets are in Hong Kong. In fact, retail assets in Hong Kong would make up more than half of the REIT’s total portfolio value.

Link REIT also has sizeable assets in mainland China, which make up about 15% of its portfolio value. 

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Source: Link REIT

#2 – Link REIT will diversify its holdings with Singapore acquisition

Link REIT announced that it will be acquiring two assets from NTUC’s retail mall arm Mercatus Co-operative for S$2.16 billion. 

The key asset is the Jurong Point, which was valued at close than S$2.1 billion. For those staying in the west of Singapore, the massive 720,000 square meter mall at Jurong West would require little introduction. 

The other asset is the much smaller Swing By @ Thomson Plaza mall, which is located at Bishan. 

Together, these two malls can reach out to almost 10% of Singapore’s population with limited competition. 

The acquisition would also allow Link REIT to leapfrog to become the 6th largest retail landlord in Singapore, providing an opportunity for them to build significant relationships with tenants. 

More importantly, it would allow Link REIT to diversify its portfolio outside of Hong Kong.

Follow the acquisition, it would have about 11% of its portfolio in overseas markets. Singapore retail is expected to make up about 5% of its total portfolio. 

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Source: Link REIT

 

#3 – Only Asian REIT that is internally managed

Link REIT is the only internally-managed REIT in Asia. This means that its asset management, property management companies and property assets are all owned by Link REIT and its unitholders. 

This is different from the structure of S-REITs, where the asset management and property management companies are owned by the sponsor of the REIT. 

This means that for S-REITs, the fund management fees are earned by the sponsor of the REIT. For example, CapitaLand Investment will earn the fund management fee as the sponsor of CICT. 

On the other hand,  Link REIT manages it internally, which could create a greater alignment of interest between the managers and unitholders. 

Link REIT paid out a dividend of HK$1.5551 in the first half of its fiscal year 2022/23. This would translate into a annualized dividend yield of just above 5.0% based on the price of HK$61.45 as of 13 January 2023. 

 

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#4 – Link REIT has a lower debt level compared to most S-REITs

Link REIT has a gearing ratio of 22.7% as of 30 September 2022.

This is significantly lower than the gearing ratio of most S-REITs, which have a gearing ratio generally of about 30-40%. 

Link REIT will finance the acquisition of the Singapore retail assets with a combination of its cash and borrowing. 

With the acquisition, its gearing level is expected to go up to 27.1%, which will still be lower than most S-REITs. 

Reflecting its conservative balance sheet, Link REIT has about 50-70% of its borrowings at a fixed interest rate. This means that it will not be significantly impacted even if interest rates were to rise significantly. 

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Source: Link REIT

 

What would Beansprout do?

We can build a more resilient portfolio through diversification.

Just like how Link REIT is looking to diversify its portfolio through its acquisition of assets in Singapore, we can consider diversifying our REIT portfolio outside of Singapore too

After all, we’ve just learnt that the largest REIT in Asia is not listed in Singapore. 

We can get exposure to Link REIT directly by buying the REIT on the Hong Kong exchange.

Another way to diversify is to invest in REITs through an exchange traded fund (ETF), which offer instant diversification across various industries and geographies compared to owning single REITs.

In fact, Link REIT is one of the largest holdings of the NikkoAM-Straits Trading Asia ex-Japan REIT ETF.  

As an owner of the ETF, you will be holding on to a basket of stocks that also include familiar names such as CapitaLand Integrated Commercial Trust and CapitaLand Ascendas REIT. 

Find out how you can choose the best REIT ETF for your portfolio. 

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