If the management of Link REIT does not make a few good acquisitions, it will be difficult to build confidence and trust for the holders

Link Real Estate Trust is an excellent blueprint for early research on real estate trusts. This company has been involved in self-selected stocks for several years. It was not bought in the early stage due to the impact of the epidemic. Now it has been re-researched and found that this company is actually quite interesting.

The main source of income and profit contribution of Link REIT is the property in Hong Kong. Even the parking fee in Hong Kong can receive a lot of money. On the other hand, if the property in other regions is excluded, if the new property provides rental income, the old property is not Not too high a yield?

In order to compare the properties acquired, here are some comparisons:

A rights issue was completed in 2023, raising a total of 18.8 billion Hong Kong dollars, which was used to repay loans and purchase logistics assets. However, the scale of purchasing logistics assets is very small. From the perspective of loan repayment, the current main concern is about existing loans At maturity, the interest rate of new loans will be relatively high. Judging from the company's current distribution of dividends per share, the dividend rate is 6.6%. So what is the cost of borrowing?

The provision for the company's financial expenses is 3-4% of the financing cost. At present, the optimal loan interest rate announced by the Hong Kong Monetary Authority is 5.875%. Judging from the current dividend distribution of 6.6%, it is not necessarily a wise decision to repay the loan. On the whole, it is so-so, and the scale of financing is huge. So far, 9.3 billion is still lying in the bank account, and the efficiency of capital use is not enough.

Another logic is that the quality of acquired assets in other regions may not be as good:

(1) Is it possible for Singapore to rush in at a high position to take over the offer? Although the property value in Singapore is good, it is doubtful how much profit you will get if you rush into such a high position. From the financial point of view, the return rate of JP assets is only about 4%, which is likely to be diluted for the current level of dividends;

(2) The pressure of commercial competition in mainland China is extremely high, and it is quite good to maintain a vacancy rate of less than 5% (although the rent is expected to decline by 14%), but the problem is that the acquisition of logistics parks is a bit strange. The growth of mainland e-commerce has basically entered a period of slow growth. During this period, it is unknown whether acquisitions will be profitable, and acquisitions after rights issues may not necessarily reflect the increase in dividend rates.

Although from the perspective of the dividend distribution of each trust, Link REIT's main assets are concentrated in Hong Kong. After the customs clearance between the two places, the revival of Hong Kong's popularity will bring support to Link REIT's valuation.

However, judging from the newly acquired assets, there is a high probability that it will dilute the dividend rate per share. The main strategy of the management is:

"In addition to expanding asset portfolio, continuing to expand geographically, and looking for multiple types of assets, Link REIT intends to form joint ventures with like-minded and similar-minded capital partners and cooperate on private and public platforms for sustainable development in the future. At the same time, it also plans to build a new Private equity funds, co-invest with capital partners”