Goldman Sachs has issued a report reaffirming a "Neutral" rating on LINK REIT (00823) with a target price of HK$41.3. The valuation is based on a discounted cash flow model assuming a weighted average cost of capital of 7.2% and a terminal growth rate of 2%. The trust released operational updates for the first nine months of the 2025/26 fiscal year, ending last December. While the decline in Hong Kong tenant sales narrowed slightly to 1.5%, the negative growth in rent reviews worsened, expanding to 7.5%. Sales performance across LINK REIT's Hong Kong property portfolio showed slight improvement, with the year-on-year decline for the nine-month period narrowing to 1.5%. This was primarily driven by modest growth in the catering category, fueled by increased leasing demand for establishments like Chinese restaurants. Conversely, sales in the supermarket and food categories slowed, declining by 0.4% year-on-year. Overall sales continue to lag behind the broader Hong Kong retail market, which has benefited from high-value goods and new iPhone releases—categories where LINK REIT has limited exposure. However, the group continues to face pressure on rent reviews, which deteriorated further to negative 7.5% during the nine-month period. Management anticipates that rent review pressures will persist at similar levels for the remainder of the year, despite significant efforts to optimize the tenant mix and introduce new brands. LINK REIT is currently trialing a new parcel collection service for mainland e-commerce operators. Regarding car parks, income continued to see a slight decrease, impacted by reduced traffic flow. This was partially offset by fee increases implemented through a dynamic pricing strategy using newly installed smart parking systems. With rising new vehicle registrations driven by electric vehicle adoption, the group expects future traffic flow to recover.
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