The Link REIT (00823.HK)
A Multi-Factors Era is Coming
Managed by The Link Management Limited, The Link Real Estate Investment Trust (00823.HK), Hong Kong's first REIT, invests in a portfolio of 180 retail and car park facilities that are on the doorstep to 40% of Hong Kong population. At present, the portfolio consists of about 11mn sq ft2 retail space and 80,000 car park spaces and boasts a large and diverse tenant base, including retailers of varying sizes in a wide array of trades. Some of them are Hong Kong's best-known retail and restaurant brands. Priced at HK$48.75, The Link REIT trades at P/NAV of 1.17x with NAV HK$41.69. Based upon our 5-Period 2-Stage Discount Dividend Model (DDM Model), assuming 7.2% required rate of return and 3.3% sustainable growth rate, we would like to upgrade our 12-month target price from HK$45.26 to HK$56.19. Generally speaking, we believe there is a change for the direction of The Link REIT in this year. Historically, investors focus on the yield for investment. That said, management would like to cultivate a sense of total return approach. The trading of assets without synergy for cash flow of M&A, share buyback, and general working capital will make capital management more efficient, and thus increase firm and equity value.As such, we still maintain Buy recommendation for The Link REIT. Key risks: interest rate risk, political risks, and inflationary risks.