Citi: Maintains a "Neutral" rating on Yuexiu Real Estate Investment Trust (00405) and lowers target price to HKD 0.67.

Citigroup released a research report stating that it maintains a "neutral" rating on Yuexiu Property Fund (00405), lowering its core profit forecasts for 2026 to 2028 by 3.9% to 7.5%. Based on the dividend discount model, the target price has been reduced by 16% from HKD 0.8 to HKD 0.67. The report indicated progress in the Yuexiu Property Fund's balance sheet recovery; however, weak office leasing and a reduction in the dividend payout ratio have raised concerns among investors. The report pointed out that the group's asset liability ratio decreased from 48.5% at the end of 2025 to 41.9% by June 2026, with the average financing cost dropping to 3.79%. The sale of 50% of the equity in Yuexiu Financial Tower saved approximately RMB 58 million in financial expenses, and foreign exchange risk exposure fell to a five-year low of 20%. However, in the first half of the year, the distribution per fund unit fell by 14.5% year-on-year, despite the deleveraging and decreased financing costs. The office occupancy rate dropped from 82.2% to 79.4%, with average rent decreasing by 5.4% year-on-year; the dividend payout ratio fell from 100% to 95%. Citigroup expects that the distribution per fund unit will continue to be under pressure due to negative renewal rent adjustments and the dilutive effect of management fees paid in fund units. In the retail sector, Citigroup anticipates that leasing pressures will continue into the second half of the year, with the occupancy rate of Wuhan Yuexiu Fortune Center at only 52.7% and Shanghai Yuexiu Building at 80.8%. Office rents decreased by 5.4% year-on-year, with revenue down by 10.3% year-on-year. The oversupply issue in the office markets of Guangzhou and Wuhan persists. Management is actively responding, with new leasing in Guangzhou International Finance Center reaching approximately 11,000 square meters and a renewal rate of 93%. The hotel business performed strongly, achieving record high average revenue per available room, while efforts to optimize the tenant mix continue.