Link Real Estate Investment Trust's (0823) reported a 5.55 percent drop in its interim total distributable income to HK$3.28 billion for the six months to September, citing macroeconomic and retail-sector headwinds.

Distribution per unit was 126.88 HK cents, down 5.9 percent from a year earlier, according to a filing with the exchange.

Revenue declined 1.8 percent to HK$7.02 billion, while net property income fell 3.4 percent to HK$5.18 billion, mainly due to negative rental reversions in Hong Kong and the Chinese mainland.

Revenue from the Hong Kong property portfolio fell 2.4 percent, while net property income declined 3.7 percent, due to negative rent reversions and higher operating costs.

Link REIT chairman Duncan Owen said in a media brief that rental reversion rate was negative 6.4 percent, reflecting market rents below historical levels. He added that leasing demand is gradually recovering and retail sales data have begun to show signs of bottoming out.

Rental performance is showing a lag due to most leases being three-year terms, Owen said.

Retail portfolio in the city maintained an occupancy rate of 97.6 percent, with average monthly rent easing slightly to HK$62.1 per square foot from HK$63.3 in March.

Hong Kong retail faces short-term pressure, and challenges are expected to persist into the second half, chief investment officer John Saunders said. He noted that the trust signed more than 345 new leases in the first half, demand from mainland brands is growing, and lease renewals remained around 80 percent.

Meanwhile, the market headwinds exerted pressure on total revenue and net property income of its Chinese Mainland portfolio, which registered a decrease by 4.4 percent and 4.8 percent, respectively, in Hong Kong dollar terms.

"While rental pressure persists in some assets, Shenzhen, Guangzhou and Shanghai are faring slightly better. However, Beijing continues to face challenges, reflecting muted consumer confidence and a slower recovery in discretionary spending," the company said.

Owen highlighted that Hong Kong and Greater Bay Area assets will remain the largest part of Link REIT’s portfolio, while the trust expands into Singapore and Australia to boost future revenue and earnings.

Link REIT interim distribution drops over 5pc, expects rental reversions to stay negative