Link has expanded beyond Greater China with investments like the Queen Victoria Building in Sydney
The chief executive of Asia’s biggest listed property trust sees the region’s beaten-down REITs staging a turnaround this year if interest rates ease as expected.
A stabilised interest rate and economic environment will support a recovery in REIT valuations, Link CEO George Hongchoy said in a Thursday posting on the $30 billion trust’s website. The US Federal Reserve at its December meeting signalled that it could make as many as three quarter-point cuts to its benchmark rate in 2024.
“The market consensus is that the international financial system has moved on from its contractionary stage over the past few years,” Hongchoy said. “While challenges still lie ahead for the global economy, active investors have already been reallocating their assets, illustrated by a comeback in the unit prices of REITs.”
He noted that Asia REIT indices have rebounded from their trough last October, with Hong Kong’s Hang Seng REIT Index — which includes Link — up 16 percent and Singapore’s iEdge APAC REIT Index up 15 percent over the final two months of 2023, outperforming their respective markets.
Attracting Mainland Investors
For mainland investors in search of stability, Hongchoy pitched REITs as an alternative to regular stocks, offering a combination of moderate risk profile, consistent dividend policy and sustainable yields.
Link REIT chief executive George Hongchoy
He cited a study from Shanghai Jiao Tong University to illustrate the evolving expectations of Chinese households: the proportion of interviewees who expected an annualised return of zero to 5 percent jumped from 37 percent in 2021 to 54 percent in 2023 while the number who expected higher returns fell.
Furthermore, the trailing average yield of the 11 HKEX-listed REITs exceeds 9 percent and the trailing market-cap-weighted average yield is greater than 7 percent, beating low-risk, low-return assets like cash and various fixed-income vehicles, Hongchoy said.
Certain legal guarantees help ensure a consistent flow of dividends to unitholders. For instance, most REITs listed on mainstream markets must pay out at least 90 percent of their distributable income to abide by regulations, while a few HKEX-listed REITs regularly pay out all distributable income as dividends, Hongchoy said.
Caveats Aplenty
Link’s CEO cautioned that investing in REITs still entails risks, with factors like interest rate movements and real estate cycles exerting influence on valuations.
“The professional acumen of asset and fund managers also plays a key role in determining the values of REITs’ underlying assets,” Hongchoy said.
With that in mind, Link last month hired former BlackRock Asia Pacific real estate boss John Saunders to fill the newly created role of group chief investment officer.
Saunders comes aboard as the REIT continues to diversify its portfolio and expand its roster of capital partners under its Link 3.0 strategy. The trust has been working to extend its portfolio beyond Greater China and now holds 12 retail and office assets in Singapore, Australia and Britain.
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