On Monday, UBS analyst Mark Leung upgraded the stock rating of Link REIT (823:HK on the Hong Kong Stock Exchange and OTC: LKREF) from Neutral to Buy. He also raised the price target to HK$41.00, up from HK$37.40. This change follows a detailed analysis that included app download surveys, assessments of retail property supply in Shenzhen and Hong Kong, and a review of sector performance.
Leung’s report indicates that northbound consumption, which refers to spending by mainland Chinese visitors in Hong Kong, is stabilizing. He predicts Link REIT’s tenant sales in Hong Kong will see positive growth of 1-2% in fiscal years 2026/27, following a forecasted decline of 3% in fiscal year 2025.
This expected growth is partly due to the Hong Kong government’s plans to reassess fixed penalties for traffic offenses, which is expected to boost car park revenue. As a result, Link REIT’s Distribution Per Unit (DPU) is expected to stabilize after fiscal year 2026.
Leung also notes that even with a possible 1% annual decline in DPU for fiscal years 2026-27, the current market valuation doesn’t fully reflect the expected recovery in Hong Kong tenant sales. The estimated yield for Link REIT by the end of fiscal year 2027 is projected at 6.8%.
Additionally, the report highlights the potential impact of the proposed REIT Connect scheme, which would allow cross-border investment in real estate investment trusts between mainland China and Hong Kong, further supporting Link REIT’s outlook.
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