UBS Group released a report indicating that Link REIT (00823) held a pre-quiet period conference call for the first half of the 2025 fiscal year. Management stated that the performance of Hong Kong tenants in the first quarter was weak, but there are signs of stability in tenant sales decline in the second quarter of the 2025 fiscal year. The bank expects the stock price to react neutrally to the conference content, with the target price raised from 35.6 yuan to 38 yuan and a "neutral" rating.
Management emphasized that the retail trade in Hong Kong is facing adversity during structural adjustments, with Hong Kong tenant sales registering a 5.9% year-on-year decline in the first quarter of the 2025 fiscal year, showing weakness. Compared to a 0.4% growth in the 2024 fiscal year, there has been a deterioration. However, management believes that there are signs of stability in tenant sales decline in the second quarter of the 2025 fiscal year, as the year-on-year decline in tenant sales has narrowed to 4 to 5%. The latest rent-to-sales ratio has increased slightly from 12.6% in the 2024 fiscal year to 13.4%, an increase of 0.8 percentage points.
The bank pointed out that so far, Link REIT has been able to achieve a slight rebound in renewal rental adjustment rates from the first quarter to the second quarter of the 2025 fiscal year, but it is expected to further slow down in the second half of the 2025 fiscal year. Management anticipates that the magnitude of renewal rental adjustment rates will not significantly rebound in the next 3 to 6 months.
