UBS: Reiterates "Buy" Rating on LINK REIT (00823) with HK$47.2 Target Price; Acquisition of Tung Fook Square Has Limited Accretion to DPU

UBS issued a research report giving LINK REIT (00823) a "Buy" rating with a target price of HK$47.2. Link REIT announced on the evening of November 10 that it would acquire a 50.1% stake in Singapore's Eastpoint Mall from Income Insurance for a total consideration of S$236 million, marking the fund's first acquisition since 2022. UBS expects the transaction to bring a modest accretion of approximately 0.5% to distribution per unit (DPU), but it may narrow the room for Link REIT to further expand its share buyback scale. UBS cited management as saying that the project's initial net operating income (NOI) yield is approximately 4.5%, broadly in line with recent market transaction levels. Based on the bank's estimated Singapore dollar financing cost of approximately 2%, the transaction is expected to generate a positive pre-tax spread of approximately 2.5%. On this basis, the bank estimates that the transaction's accretion to DPU will be approximately 0.5%, calculated as S$236 million (4.5% NOI yield 2.0% financing cost) (1 17% corporate income tax rate). Given the limited DPU accretion, UBS expects the market's share price reaction to the acquisition to be broadly flat. In addition, the acquisition may imply that, in the upcoming interim results, Link REIT's room to further expand its buyback scale has already narrowed. Previously, Link REIT had deployed HK$1.4 billion of asset disposal proceeds, which came from the sale of the property at 700 Nathan Road for HK$2.3 billion and the sale of a 50% stake in 100 Market Street for A$226 million. Over the longer term, UBS noted that, given Link REIT's mixed track record on M&A, investors may question whether this and potential future acquisitions can create sustainable shareholder value. Although the positive spread makes the transaction accretive to financial metrics in the short term, given Link REIT's current dividend yield of approximately 6.3%, the market's focus may remain on whether new capital should be deployed into acquisitions or returned to shareholders through share buybacks.