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Investing.com - JPMorgan has downgraded Link REIT (HK:823) (OTC:LKREF) from Overweight to Neutral, while reducing its price target to HK$38.00 from HK$48.00, citing deteriorating operating conditions.
The downgrade follows management’s cautious tone at the recent results briefing, where officials indicated operating conditions would slightly worsen in the second half before bottoming out. JPMorgan now expects negative rental reversion to worsen to a high-single-digit percentage in the second half of fiscal year 2026.
The investment bank noted Link REIT’s Hong Kong tenant sales softened unexpectedly in July-September 2025, estimated at -3% year-over-year, underperforming Hong Kong staples retail sales which grew +3% year-over-year during the same period.
After a 6% year-over-year decline in first-half fiscal year 2026 distribution per unit (DPU), JPMorgan now forecasts fiscal year 2026 DPU to drop 8% year-over-year, implying a 10% year-over-year decline in the second half. The bank also revised down its fiscal year 2027 DPU forecast to -3% year-over-year.
Despite the downgrade, JPMorgan believes share price downside may be supported by the 6.3% fiscal year 2027 estimated dividend yield, with potential upside risks including Stock Connect inclusion, value-accretive capital recycling, a potential strategic review by the new CEO, and a significant reduction in the US risk-free rate.
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