Hong Kong Property: May Retail Sales (+8% YoY) Remains Positive

Research evidence excerpt

Hong Kong Property: May Retail Sales (+8% YoY) Remains Positive

UpdateMValuation Methodology and Risks

Hysan Development Company Ltd. (0014.HK)

Base case value, derived from a sum-of-the-parts valuation of Hysan's businesses. The value

of each business segment is arrived at using the income capitalization method. Cap rate of

5.75% for HK retail and 4.75% for HK office. We apply a 50% discount to our forward NAV

estimates.

Risks to Upside

n Retail rentals stronger than expected after revitalization program

n NAV accretion from redevelopment

n Tenants' sales growth outperforming overall market

n Faster-than-expected progress in capital recycling

Risks to Downside

n Slower-than-expected retail recovery due to changes to spending patterns and north-

bound leakage

n Higher-for-longer interest rate environment persists

Link REIT (0823.HK)

Base case scenario value, derived from a target 12-month forward dividend yield of 5.65%.

The target forward dividend yield is composed of a 4.05% 10-year US Treasury yield (MSe by

end-2026) and a spread of 1.6% (1SD above long-term average since 2011).

n Non-core asset disposals with unit buyback from the proceeds

n Upcoming rates cut for further yield compression

n Potential REIT inclusions in Stock Connect to boost fund flows

n Possible value-accretive acquisitions

n Slower-than-expected Fed rate cut

n Further deterioration in Hong Kong retail and office

n Longer-than-expected transition in key management

Wharf REIC (1997.HK)

n Base case, sum-of-the-parts, 60% target discount to NAV, about 1SD wider than the

average since 2017 due to cautious HK retail and office outlook.

n Property rentals: Gross cap rates HK office 4.75%, retail 5.75%. We use the same rates

for all stocks under coverage.