Hong Kong’s Link REIT Grows Revenue 6.4%, Still Struggles with Declining Valuations

Despite posting revenue and net property income growth of 6.4 percent and 5.8 percent in the six months ended 30 September from the same period last year, respectively, Link REIT’s improving operating performance was unable to offset widening fair value declines on the trust’s investment properties.

Asia’s largest property trust by market capitalisation logged a net loss attributable to unitholders of HK$3.7 billion ($474 million) during the period, increasing 9.2 percent from the shortfall recorded in the corresponding period last year, while registering revenue and net property income of HK$7.2 billion and HK$5.4 billion, respectively. The trust’s funds available for distribution increased 4.3 percent year-on-year to HK$3.5 billion.

HKEX-listed Link REIT attributed the top line growth to the consolidation of Link Plaza Qibao after the trust bought out China Vanke’s half stake in the Shanghai mall earlier this year, as well as improving performance across most of its operating markets. Duncan Owen, who became chairman of the trust’s manager in August, pointed to the results as indicative of the trust’s resiliency amid challenging market conditions.

“I am delighted to announce the first set of interim results as the new chair for Link,” Owen said in a release on Wednesday. “Overall, this was a solid set of results underlining our resilient business model and ability to deliver despite the uncertain and volatile macro environment. Looking ahead, market conditions will remain challenging. The approach that shaped our success in the past 19 years will need to evolve to ensure success in the coming decades.”

Improved Operating Performance

Link REIT’s Hong Kong assets, which accounted for 74.1 percent of the trust’s HK$237 billion portfolio value as of 30 September, registered revenue and net property income growth of 2.2 percent and 2.4 percent year-on-year, respectively, with retail occupancy remaining relatively flat at 97.8 percent.

The trust’s Hong Kong retail portfolio, which includes non-discretionary retail space as well as fresh markets located near public housing estates and transport links, managed a positive average reversion rate of 0.7 percent during the period despite tenant gross sales per square foot having declined 4.3 percent from the same period last year. Outside of retail properties, Link REIT also owns car parks and related businesses in the city, as well as a 60 percent stake in a Kowloon East office building.

In mainland China, where the trust owns six retail assets, an office property and five logistics centres in tier-one cities and the surrounding river delta areas, total revenue and net property income grew 39.2 percent and 37.6 percent, respectively, largely driven by the consolidation of Link Plaza Qibao.

Occupancy at the trust’s mainland Chinese retail, office, and logistics properties stood at 96.4 percent, 94.0 percent, and 98.2 percent, respectively, with an average negative retail reversion rate of 3.2 percent.

Link REIT’s international portfolio of retail and office properties across Australia, Singapore and the United Kingdom collectively registered revenue growth of 3.0 percent, while net property income decreased by 0.5 percent.

In Singapore, Link REIT’s Jurong Point and Swing By @ Thomson Plaza retail properties posted occupancy of 99.8 percent and positive rental reversion of 18.9 percent, with shopper traffic having recovered to pre-pandemic levels. In Australia, the trust’s malls achieved occupancy of 99.1 percent with sales at the properties having exceeded pre-Covid levels.

The value of Link REIT’s investment property portfolio fell 2.1 percent to HK$231 billion, largely driven by office properties in Hong Kong, Australia, and the UK, as well as mainland Chinese logistics assets, with the trust attributing the fair value declines to cap rate expansion.

Diversification and Fund Management

With the slide in value for Link REIT’s Greater China-heavy portfolio driving a loss for the period, the trust’s management pledged to continue working to redistribute market risks and add new sources of revenue under its “Link 3.0” strategy

“Looking ahead, we continue to see immense challenges and uncertainties,” said George Hongchoy, CEO of the trust’s manager. “We have identified two key drivers under our Link 3.0 strategy to deliver resilient and diversified earnings with new sources of growth. Firstly, active portfolio management and diversification will increase the quality and resilience of our property earnings as well as the capacity to distribute to unitholders. Secondly, by expanding our investment management business, including our ability to work with capital partners, we also aim to accelerate diversification and generate fee income from our management services.”

Hongchoy said the trust has been proactively looking to capitalise on market opportunities but will remain prudent and disciplined in acting only when those opportunities are both right and compelling.

The executive told Mingtiandi’s Hong Kong Forum in May that Link REIT had submitted bids for Australian and mainland logistics portfolios, as well as having studied opportunities in the Japanese market.

“We’ve been very disciplined – when we put in a bid, if it doesn’t work out, we don’t chase, because there are always other deals,” Hongchoy said at the forum. “What I told our investment team is, look at everything. We never say no to looking at things. We look at hundreds of deals every year in order to do a few.”