Citigroup: upgrades LINK REIT (00823) to "buy" with target price raised to HKD 44.8.

Citi released a research report stating that the worst period for LINK REIT (00823) is over, showing a series of positive developments, including improvement in retail tenant sales in Hong Kong, stabilization of cash rental income, completion of the sale of retail assets in Singapore with the proceeds used for buybacks, and the expected appointment of a new CEO in the first to second fiscal quarter of 2027. The bank has upgraded its rating on the company from "Neutral" to "Buy" and raised its target price from HK$36.8 to HK$44.8. The report notes that LINK REIT plans to use approximately US$250 million (around HK$1.5 billion) of sales proceeds for buybacks, equivalent to about 1.4% of its market value. The buyback is expected to start in late June 2026 and could be expanded depending on further sales and funding costs. The bank estimates that LINK REIT's non-core assets have a book value of around HK$14.9 billion, accounting for about 7% of its portfolio, including office buildings in Australia, the UK, mainland China, and logistics assets. Management has confirmed a strategy of recycling funds from non-core assets. Citi forecasts that the rental adjustment rate for Hong Kong retail leases in fiscal year 2027 will be negative 7% to 8%, but is expected to stabilize to flat in fiscal year 2028. Despite the market being well aware of the headwinds facing rental adjustments, efforts by management in lease negotiation, optimizing tenant mix, and cost restructuring are expected to mitigate the impact on distribution per unit in fiscal year 2027, with the bank estimating a 2% decrease year-on-year in distribution per unit.