Link REIT Eyes 11% Overseas Asset Spin-Off in Singapore

UBS has released a research report indicating that Link REIT (00823) is evaluating the potential to spin off its overseas assets and list them in Singapore as a real estate investment trust (REIT). This strategic move is expected to unlock the asset value of Link REIT, accelerating its transition to a lighter asset model. Based on its valuation model, UBS has set a target price of 44.2 Hong Kong dollars for Link REIT and maintained a "buy" rating.

The potential spin-off of Link REIT's overseas assets is seen as a significant development that could enhance the company's overall value. By separating these assets and listing them as a REIT in Singapore, Link REIT could benefit from the robust real estate market in the region. This move aligns with the company's strategy to optimize its asset portfolio and focus on higher-growth opportunities.

UBS's analysis suggests that the spin-off could release substantial value from Link REIT's overseas holdings, which have been underperforming relative to the company's core assets. The separation would allow these assets to be managed more efficiently, potentially leading to higher returns for investors. Additionally, the spin-off could provide Link REIT with the financial flexibility to pursue new investment opportunities and expand its footprint in the real estate sector.

As of March 31, 2023, Link REIT's overseas assets were valued at 24.8 billion Hong Kong dollars, representing approximately 11% of its total investment portfolio. These assets include shopping malls in Singapore, office buildings and shopping malls in Australia, and office properties in the United Kingdom. The overseas properties contribute significantly to the company's annual net rental income, accounting for 1.4 billion Hong Kong dollars, or 5.7% of the net asset yield.

UBS believes that if the spin-off is successfully executed, it will unlock the asset value of Link REIT and accelerate its transition to a lighter asset model. In an optimistic scenario, assuming the assets are separated at their book value, the spin-off could potentially generate 1.24 billion Hong Kong dollars in ongoing management fees and release 6 billion Hong Kong dollars in value. However, given the substantial size of the assets, a phased approach may be more feasible.

Following the spin-off, Link REIT could refocus its business operations on mainland China and China Hong Kong, potentially driving further stock price appreciation. This strategic move is expected to enhance the company's overall value and position it for long-term growth. Investors are advised to consider the potential benefits of this strategic move and the positive impact it could have on Link REIT's stock performance.