UBS: Maintaining the “Buy” rating of the Leading Real Estate Fund (00823) and selling the property at a target price of HK$47.2 received a slight positive response from the market

The Zhitong Finance App learned that UBS released a research report stating that it will maintain the “buy” rating of Lingzhan Real Estate Fund (00823) and a target price of HK$47.2. Lingzhan sold its property for the third time this year. Last Friday (October 30), it was announced that the T.O.P property at 700 Nathan Road, Mongkok will be sold to local buyers for HK$2.3 billion, at a discount of 9% and 13%, respectively, from the book value in September and March 2026. The bank expects a slightly positive market reaction to the deal.

According to UBS, Lingzhan purchased the property for HK$5.91 billion in February 2016. The former building of the Trade and Industry Department was renovated and transformed. The total floor area of the property is approximately 284,767 square feet, including approximately 108,000 square feet of retail space and approximately 177,000 square feet of office space. Based on the latest net property revenue of HK$100 million, the implied exit yield of the transaction is 4.3% and is expected to be completed on or before January 29, 2027.

In addition, Lingzhan has also obtained a five-year repayment arrangement, with the right to share 20% of the resale value in excess of HK$2.3 billion (calculated at 5% compound interest) and 50% of the realised deferred tax assets.

The bank indicated that according to test preparation standards, the net debt ratio of Lingzhan will be reduced from 25.6% to 24.8%. Since this asset only accounts for about 1% of net property revenue for the 2026 fiscal year ending the end of March this year, the impact on each fund unit is expected to be limited. If the proceeds from the sale are used to buy back fund units, it may have an enhanced effect on distributions, because Lingzhan's current dividend yield is 6.3%, which is higher than the implied exit yield of 4.3% from the transaction.

Looking ahead to the interim results announced on November 12, UBS expects to allocate HK$1.24 per fund unit, a year-on-year decrease of 3%.