Link REIT Swings to $380M Profit After Years of Losses, Gets Cautious on APAC Expansion 

Hong Kong’s Link REIT rebounded to a HK$2.99 billion ($380 million) profit in the six months ending September after reporting full-year losses for the last two years, with its top officials noting that Asia’s largest REIT is acting “with heightened caution” as it expands across Asia Pacific.

According to its interim results released Wednesday, the listed trust’s profit after transactions with unitholders showed a reversal of the HK$450 million loss it booked in the same six-month period a year ago. The latest figure was also a turnaround from its HK$1.56 billion full-year loss for the financial year ended March.

Diversifying and expanding its portfolio have been major growth drivers for the business, but top officials said Link REIT is now more cautious in acquiring assets amid a high interest environment.

“We continue to look for strategic opportunities to reduce the concentration risks and expand our portfolio across the Asia Pacific region with discipline and heightened caution,” George Hongchoy, the trust manager’s chief executive, said in a media briefing. “On top of our home base in Hong Kong, we seek to broaden our investable universe across high-tier cities in mainland China, Australia and Singapore.”

Hong Kong Income Rebounding

Before accounting for transactions with unitholders, Link REIT’s profit more than doubled to HK$14 billion for the April-September period from just HK$6.3 billion in the same period last year amid improving business conditions in its home market and despite a lacklustre performance in China.

Improved performance boosted its total distributable income by 2.7 percent to HK$3.28 billion for the first half of financial year 2022-23 from HK$3.19 billion a year ago.

The trust booked HK$4.59 billion in net property income in those six months, up from HK$4.4 billion a year earlier, after its Hong Kong operations reported a 5.3 percent increase in NPI during the same period. This was dampened by a 1.2 percent year-on-year dip in NPI in mainland China as the retail sector there continues to struggle with stringent lockdown measures.

Expanding overseas operations also helped raise fresh income during the period.

Beyond Greater China, Link REIT took in HK$179 million in combined NPI from its properties in Australia and the UK from April through September, up 51.7 percent year-on-year, shortly after closing a A$596 million (then $428.2 million) deal in June that gave it ownership of a half stake in a portfolio of office assets in Sydney and Melbourne.

Part of that improving income picture was a 4.6 percent increase in revenue compared with the April-September period a year ago, with the trust’s top line reaching HK$6 billion during the period.

Link REIT’s HK$223.5 billion portfolio is mostly concentrated in Hong Kong, followed by its retail, office and logistics assets in mainland China valued at HK$35.2 billion. It also owns HK$12 billion worth of properties in Australia and an office block in the UK.

Deals Dry Up

Securing deals has become increasingly challenging due to the widening price gap between sellers’ asking prices and the rates buyers are willing to pay, according to Hongchoy.

“The price difference is so big that negotiation is very difficult, but at a certain point, the sellers may be willing to adjust so there may be opportunity,” he said. “So it is not that we have stopped considering acquisition.”

In the same briefing, Link Asset Management chairman Nicholas Allen clarified that the trust is not in any active discussions in Singapore, two weeks after Link REIT and SGX-listed Frasers Property were reported to be the final two contenders for a Mercatus Co-operative S$3 billion ($2.11 billion) mall portfolio.

“It doesn’t mean that we’re not in the market at all for acquisitions, but we would probably be looking at partnering with other organisations in order to make those acquisitions so we are actively looking at acquisitions (but) we’re looking at it carefully,” Allen told the press. “We’re not at the moment involved in any discussions in Singapore (but) we are looking closely at those markets (Japan and Singapore).”

To mitigate risks in acquisitions, Allen said Link is actively looking for potential capital partners who are willing to back the REIT’s expansion plans.

“There are a number of major funds, whether it be superannuation fund, pension fund, managers of individuals money, that are seeking to invest in this part of the world and in property assets, so that is the group of people that we’re talking to and actively interested in,” he said. “We’re having quite rich discussions with a number of different people.”

With HK$184 billion in retail, car park and office assets in Hong Kong making up 82 percent of the overall portfolio, Hongchoy said Link REIT’s home base will continue to be a core market for the trust on expectations that the economy will rebound post-pandemic.

“The sound economic fundamentals for Australia and Singapore give us confidence in these markets and deals are being repriced amidst rate hikes,” he added, noting that the long-term outlook for mainland China remains promising despite the headwinds faced by its retail sector.