Link REIT Earnings: Hong Kong Retail Remains Challenging; Attractive Distribution Yield

Link REIT’s first-half fiscal 2025 (ending March) revenue increased 6.4% year on year, in line with our expectations. Growth was mainly driven by the full consolidation of Link Plaza Qibao in Shanghai, while the operating environment for its core Hong Kong retail portfolio remains challenging. That said, finance costs came in slightly lower than we expected, given debt repayment and a lower average all-in borrowing cost of 3.69%, compared with 3.78% for fiscal 2024. As such, we lowered our net interest expense assumptions and raised our fiscal 2025-26 adjusted net income and distribution per unit forecasts by 5%. We retain our fair value estimate of HKD 45 per unit, as we keep our long-term forecasts largely unchanged. With units currently trading at a 15% discount to our valuation, we think Link is undervalued, supported by a fiscal 2025 distribution yield of 6.9%. We believe this is attractive under the current interest-rate-cut cycle.