BofA Securities has issued a research report maintaining its "Buy" rating and HK$46 target price on Link REIT (00823), continuing to view it as one of its top sector picks.
The manager of Link REIT, Link Asset Management, announced the acquisition of a 50.1% interest in Eastpoint Mall, a suburban retail property in eastern Singapore, from Income Insurance for S$239.5 million (approximately HK$1.47 billion). Income Insurance will retain the remaining 49.9% stake.
The bank expects the acquisition to be slightly accretive to distribution per unit (DPU) while partially offsetting the dilution from recent asset disposals.
BofA Securities noted that news of the acquisition had already circulated in the market last week, and given Link REIT's recent sale of three non-core assets, the transaction does not come as a surprise.
The bank believes the deal aligns with Link REIT's "back-to-basics" strategy as a supplementary acquisition to expand its Singapore market presence, though the asset itself may not particularly excite investors.
The bank estimates that net yields for such suburban malls are in the mid-range of 4% to 5%, while borrowing costs are only slightly above 2%, implying the acquisition will bring a slight boost to DPU.
The transaction is expected to complete in the first quarter of 2027. Link REIT and Income Insurance will carry out asset enhancement initiatives (AEI) in phases, with works expected to commence in 2027 while the mall remains operational.
Eastpoint Mall is located next to Simei MRT Station and is a six-story mall with approximately 150 shops. Major tenants include FairPrice supermarket, Mind Stretcher, BreadTalk, and Saizeriya. The mall has a net lettable area of 208,300 square feet, with a land lease of 99 years commencing from 1993, leaving approximately 66 years remaining.
BofA Securities noted that the transaction will further expand Link REIT's business footprint in Singapore. Link REIT currently owns Jurong Point in the city-state and manages AMK Hub.
Eastpoint Mall is currently managed by the manager of Frasers Centrepoint Trust (FCT), which may raise questions about why FCT did not acquire the stake itself. However, media reports indicate that other malls in the area may also be put up for sale, offering potential buyers other acquisition opportunities.
The bank believes that amid an uncertain macroeconomic environment, Link REIT possesses characteristics including exposure to discretionary retail, continued divestment of non-core assets, and attractive valuations.
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