UBS Maintains Buy Rating for Link REIT Amid Hong Kong Retail Stabilization

UBS has maintained its "buy" rating and target price of HK$44.2 for Link REIT, citing stabilizing retail sales in Hong Kong and a slowdown in outbound consumption. The management of Link REIT has observed that while retail sales in Hong Kong are showing signs of stabilization, tenants continue to face profitability pressures, such as margin compression. As a result, the renewal rate for retail properties in Hong Kong is expected to remain in the low single-digit negative range for the fiscal year 2026. Therefore, Link REIT will continue to prioritize occupancy rates.

UBS also highlighted that the net property income (NPI) profit margin is expected to remain around 70% (74.7% for the fiscal year 2025) due to cost control and operational efficiency improvements. This positive outlook, combined with the stabilizing retail environment and potential for further interest rate savings, supports UBS's decision to maintain its "buy" rating and target price for Link REIT.

The management also noted that negotiations with third-party capital partners are underway, with potential progress expected later this year. Currently, their focus is on investment opportunities outside the Greater China region, including Australia, Singapore, Japan, and South Korea.

As of March, approximately 67% of Link REIT's debt is at a fixed rate, with the remaining floating-rate debt primarily denominated in Hong Kong dollars. The management stated that for every 100 basis points decrease in the Hong Kong Interbank Offered Rate (HIBOR), HK$100 million in cash can be saved. Given the significant decline in HIBOR, the management expects actual interest expenses to decrease further in the fiscal year 2026.