Citi: Maintains "Buy" Rating and HK$44.8 Target Price on Link REIT (00823); Eastpoint Mall Acquisition Aligns with Capital Recycling Strategy

Citi has issued a research report reiterating its "Buy" rating and HK$44.8 target price on Link REIT (00823).

Link REIT announced the acquisition of a 50.1% interest in Eastpoint Mall from Singapore insurance company Income Insurance for S$239.5 million (approximately HK$1.47 billion), with Income Insurance retaining the remaining 49.9% stake.

The bank believes this acquisition aligns with Link REIT's strategy of recycling non-core assets and focusing on core retail properties in the Asia-Pacific region, and given the relatively small transaction size, it will not significantly reduce the capacity for further buybacks.

Eastpoint Mall is located in the eastern suburbs of Singapore, directly connected to Simei MRT Station, with approximately 214,000 square feet of leasable area.

The transaction is expected to complete in the first quarter of 2027, after which asset enhancement works will be carried out in phases, with the mall remaining operational during renovation.

Citi estimates that based on a monthly rent of S$15 per square foot and a 75% net property income (NPI) margin, the acquisition price implies an NPI yield of approximately 6%.

As Link REIT will serve as asset and property manager, giving it control over tenant mix adjustments and leasing optimization, the bank believes there may still be value-add potential depending on the execution of asset enhancement works and leasing.

Citi notes that this investment amount represents only 0.7% of Link REIT's approximately HK$220 billion asset base, with minimal impact on the overall portfolio, earnings, or leverage level, and the 50.1% shareholding structure also helps reduce capital commitment.

The bank acknowledges that some investors may prefer Link REIT to use recycled capital for share buybacks.

However, given the relatively small transaction size, Citi believes it will not significantly reduce subsequent buyback capacity, and views a potential upward revision of the unit buyback plan at the interim results announcement on November 12 as a key catalyst.

Citi believes that with continued capital recycling, execution of unit buybacks, and stabilization of retail property spot rents, Link REIT's fundamentals are gradually bottoming out, and overall unitholder returns remain attractive.