Link REIT Earnings: Results Largely In Line; Rerating Requires Accretive Acquisition

We maintain our fair value estimate of HKD 59 for Link REIT following the largely in-line first-half fiscal 2024 (ending March) results. Revenue and net property income grew 11.3% and 10.4% year on year, respectively, driven mainly by the contribution of the newly acquired Singapore assets. While general and administrative expenses were slightly higher than expected, these were offset by a lower-than-expected net finance cost, due to 1) higher interest income on the fixed deposits; 2) borrowing cost of 3.74% coming in below previous guidance of 4%; and 3) net gain on derivative financial instruments for hedging. As such, the interim distribution per unit of HKD 1.30 was slightly above our expectations. We have adjusted our general and administrative expenses and net finance cost assumptions based on the latest numbers, and raised our fiscal 2024 earnings per unit by 7% to HKD 2.61. Assuming a 100% payout ratio, our fiscal 2024 distribution per unit forecast of HKD 2.61 implies a distribution yield of 6.8% as of the Nov. 8 close price, and we think Link REIT is currently undervalued.