Citi has released a research report maintaining a "Neutral" rating on Yuexiu Real Estate Investment Trust (00405). The firm has revised its core earnings forecasts for 2026 to 2028 downward by 3.9% to 7.5% and, based on its dividend discount model, has lowered the price target by 16% from HK$0.80 to HK$0.67.
The report indicates that while Yuexiu REIT has made progress on balance sheet repair, concerns persist among investors due to weak office leasing and a reduction in the dividend payout ratio. The report notes that the group's gearing ratio fell from 48.5% at the end of 2025 to 41.9% by June 2026, and its average financing cost decreased to 3.79%. Following the sale of a 50% stake in Yuexiu Financial Tower, the company realized approximately RMB 58 million in annual interest savings, and its foreign exchange exposure has been reduced to a five-year low of 20%.
However, distribution per unit (DPU) for the first half of the year declined by 14.5% year-on-year, despite deleveraging and lower financing costs. The office occupancy rate dropped from 82.2% to 79.4%, and average rents fell by 5.4% year-on-year. The dividend payout ratio was also reduced to 95% from 100%. Citi expects DPU to remain under pressure due to negative rental reversions on lease renewals and the dilutive impact of paying management fees in units.
On the retail front, Citi anticipates continued leasing pressure into the second half of the year. The occupancy rate for Wuhan Yuexiu Wealth Centre stands at just 52.7%, while Shanghai Yuexiu Tower has an occupancy rate of 80.8%. Office rents have fallen by 5.4% year-on-year, leading to a 10.3% drop in revenue. The oversupply situation in the Guangzhou and Wuhan office markets persists.
Management has responded proactively. At Guangzhou International Finance Centre, new office leasing area reached approximately 11,000 square meters, with a renewal rate of 93%. The hotel business has performed strongly, achieving record-high average revenue per available room (RevPAR). The company is also continuing to optimize its tenant mix.