Link upbeat as distributable income edges up to $3.3b

Aiden He

Link Real Estate Investment Trust (0823) said it remained positive on the outlook of the Hong Kong retail market as it posted a 1.7 percent rise in the total distributable amount to HK$3.33 billion in the six months through September.

It also sees more opportunities in mergers and acquisitions next year as asset prices are returning to reasonable levels due to the prolonged high-interest rates.

With the economy and wages continuing to grow and the unemployment rate remaining low, the local retail sector still has some momentum, said chief executive George Hongchoy Kwok-lung in a press conference yesterday.

That is despite the fact that many Hongkongers are taking advantage of the weak yuan and spend their weekends in Shenzhen, Hongchoy said, as he revealed that around 30-40 percent of the total spending in its Link CentralWalk mall in the Futian district was contributed by Hong Kong residents.

Link REIT's distribution per unit dropped by 16.4 percent year-on-year for the six months to 130.08 HK cents due to the enlarged unit base from the HK$18.8 billion rights issue. Excluding the effect, the figure would have increased by 0.4 percent, it said in a filing.

Revenue grew by 11.3 percent to HK$6.73 billion and net property income by 10.4 percent to HK$5.06 billion, mainly attributable to the contribution of the newly acquired Singapore assets and the robust performance in the Hong Kong market.

Finance costs surged by 67.2 percent to HK$1 billion due to new loan facilities in support of its Singapore acquisitions.

The net gearing ratio stood at 18 percent and it anticipates no refinancing requirements before the end of 2024.

Although funding costs have increased, asset prices are getting more sensible as interest rates will stay higher for longer, Link REIT said, adding that next year will be an "opportunity year" for acquisition and it has enough capital for that.

It may sell a small proportion of stake in properties in its portfolio while keeping the projects under its management, or invite third-party funds to co-invest in new projects, Hongchoy noted.

The rental reversions of Link's Hong Kong portfolio stood at 8.7 percent in the six months ended September, but may moderate a little bit given the economic performance, said Greg Chubb, ex-China chief operating officer. Still, Chubb believes the REIT was in a good position as the occupancy rate was at an all-time high of 98 percent and the rent-to-sales ratio at a "healthy and sustainable" 12.4 percent.

Link also said it will need to adjust the tenant mix in its malls in China due to the changes in consumer spending patterns after Covid - retailers' performance is falling behind that of food and beverage sector and entertainment.