20180425-高盛-领展房产基金-00823.HK-Proven_active_asset_manager__reinstate_at_Neutral_13页_671kb

Link REIT (0823.HK) Summary

Core Content

Link REIT (0823.HK) is the largest REIT in Asia by market cap and the only internally managed REIT in the region. It has a diversified portfolio of 138 properties and approximately 61,000 car park spaces in Hong Kong (91% of portfolio valuation), along with three properties in China (9% of portfolio valuation). The company recently completed a significant 17-asset disposal for HK$23bn, which was 51.7% above the original book value of HK$15bn. This transaction led to a HK$7.4bn disposal gain in March FY18E and reduced pro-forma gearing to 15%, indicating strong balance sheet management and potential for further de-leveraging and share buybacks.

Main Points

• Rating: Goldman Sachs has reinstated its rating at Neutral after removing the Not Rated designation.
• 12m Price Target: HK$75.00, with a current price of HK$67.40, resulting in an 11.3% upside.
• Portfolio Post-Disposal:
  • 138 properties in Hong Kong (91% of total portfolio valuation)
  • 3 properties in China (9% of total portfolio valuation)
• Disposal Details:
  • 17 properties sold for HK$23bn
  • 51.7% premium over book value
  • 7,393 HK$ million disposal gain
  • Transaction completed by 28-Feb-18
• Balance Sheet Management:
  • Net debt reduced to HK$15bn, close to pre-China M&A levels
  • Management plans for share buybacks to neutralize DPU loss from the 17-asset sale
  • Potential for further de-leveraging and M&A activity

Key Financials

Metric	3/17	3/18E	3/19E	3/20E
Revenue (HK$ mn)	9,255.0	9,810.4	10,054.4	10,800.3
EBITDA (HK$ mn)	6,656.0	7,126.4	7,536.9	8,205.7
EPS (HK$) New	7.92	9.38	2.85	3.11
EPS (HK$) Old	7.92	2.65	2.81	2.96
P/E (X)	6.6	7.2	23.7	21.7
P/B (X)	0.8	1.0	1.0	1.0
Dividend Yield (%)	4.3	3.8	4.1	4.5
FCF Yield (%)	(0.6)	4.7	3.7	4.3

Growth & Margins

Metric	3/17	3/18E	3/19E	3/20E
Total Revenue Growth	5.9%	6.0%	2.5%	7.4%
EBITDA Growth	7.9%	7.1%	5.8%	8.9%
EPS Growth	10.2%	18.3%	(69.6)%	9.3%
DPS Growth	10.6%	11.8%	8.5%	9.6%
EBIT Margin	71.6%	72.4%	74.7%	75.7%
EBITDA Margin	71.9%	72.6%	75.0%	76.0%
Net Income Margin	66.9%	133.1%	60.9%	62.0%

Dividend Yield & Valuation Spread

• Forward dividend yield: 3.8% (Mar FY19E) and 4.4% (Mar FY20E)
• Implied yield spread over 10YR US Treasury: 165 bps (Bull case) and 219 bps (Average case)
• Current yield is 4.0% / 4.4%, which is 4% / 5% above Bloomberg consensus for FY19E / FY20E DPU
• Implied valuation: HK$74.17 / HK$75.00 based on DCF analysis

DPU Growth Expectations

• Expected 10% CAGR in DPU for the next three years
• 60% from organic growth
• 23% from AEIs (Asset Enhancement Initiatives)
• 17% from new additions

M&A & New Projects

• Guangzhou mall contributed to FY18E
• Mongkok complex to be opened in FY19E
• Kowloon East office project to be opened in FY20E
• Recent capital recycling includes:
  • Acquiring 8 properties for HK$31bn
  • Disposing of 45 properties for HK$35bn

Share Buyback Potential

• Management plans to conduct share buybacks to offset the DPU loss from the 17-asset sale
• Estimated impact of HK$0.05/unit on post-tax NPI
• Potential for HK$3.1bn share buybacks at current price

Strategic Outlook

• Link REIT's DPU growth is shifting from internal to external/corporate actions
• Strong rental reversion rate of 27% in HK retail portfolio for 1H FY18
• Retail tenant sales growth of 7.6% in Apr-Dec 17
• 65% of retail rental revenue comes from food-related trades, showing steady growth
• Management's active asset recycling and balance sheet management are key strengths

DCF Valuation

• 12-month DCF target: HK$75.00
• Based on a WACC of 7.3% and terminal growth rate of 3.0%
• Firm value: HK$177,420 million
• Equity value: HK$160,315 million
• Net debt: HK$17,105 million (after adjustment)

Conclusion

Link REIT has demonstrated effective asset management and balance sheet optimization. With a strong track record in active capital recycling and a focus on improving portfolio quality, the company is well-positioned for future growth. However, despite its strong DPU growth potential, its current valuation is seen as relatively high compared to historical spreads, leading to a Neutral rating.