Link executive director and group CEO George Hongchoy (Image: LAML)
Asia’s largest real estate investment trust grew its top line and boosted its distributions to investors in the 12 months ending 31 March, as operating performance continued to improve, according to financial results released on Tuesday.
Hong Kong’s Link REIT grew its revenue by 4.8 percent to HK$14.2 billion ($1.8 billion) in its most recent fiscal year, while its net property income grew 5.5 percent to HK$10.6 billion as the operating performance of its portfolio improved, according to a statement by Link Asset Management Ltd, which manages the HKEX-listed trust.
Helped by contributions from its addition of an additional half-stake in Shanghai’s Link Plaza Qibao, Link REIT also expanded its total distributable amount by 4.6 percent to HK$7.0 billion, with the manager also pointing to resilience in its Hong Kong retail portfolio. Distributions per unit for the year grew 3.7 percent to 272.34 Hong Kong cents, while the trust’s net gearing stood at 21.5 percent at the end of March.
“To deliver these results in a climate as challenging as the one that we experienced over the past year is an illustration of the resilience of our business and a credit to the grit and determination of the entire team,” CEO George Hongchoy said Tuesday in a release.
Valuation Challenges
Despite the improved operating performance, Link REIT posted a loss of HK$9.4 billion for its fiscal year, widening from a year-earlier shortfall of HK$2.5 billion, as the trust endured valuation markdowns and what it termed “major headwinds” in its hometown retail market.
Link chairman Duncan Owen
The valuation of Link REIT’s investment property portfolio fell 6.6 percent year-on-year to HK$220.4 billion, mainly due to cap rate expansion for most properties and foreign currency depreciation versus the Hong Kong dollar, the HKEX-listed trust’s manager said in its results.
Retail occupancy in the Hong Kong portfolio stayed high at 97.8 percent, with more than 600 new leases signed during the period, while average monthly rent stood at HK$63.30 per square foot as of 31 March, down from HK$64.40 the previous year, the manager said.
“Management is proactively addressing the challenges ahead by implementing comprehensive plans to manage costs and mitigate the impact of rental pressures on unitholder returns,” Hongchoy said in the statement.
Shoppers Get Stingier
Link REIT’s manager said tourist arrivals gradually rebounded during the fiscal year but visitor spending fell sharply, worsening the downturn in retail sales — particularly in the discretionary segment.
Revenue and net property income in the Hong Kong portfolio grew 1.5 and 2.8 percent, respectively, as the trust sought to maintain its top line while cutting costs. Tenant sales slid 3 percent, outperforming a broader market drop of 7 percent, but the rental reversion rate was a negative 2.2 percent during the year, according to the manager.
The Quayside, Link REIT’s flagship office property in Kowloon East, recorded an occupancy rate of 99.2 percent as of March, bucking the prevailing trend of high vacancies in the submarket’s office sector.
Revenue and NPI in the mainland China portfolio surged 29.7 and 28.9 percent, respectively, in renminbi terms on the strength of a full-year contribution from Link Plaza Qibao, the Shanghai mall the trust bought out from China Vanke.
Link chairman Duncan Owen deemed the financial results “solid” and a show of resilience amid uncertain macroeconomic conditions and growing business challenges.
“To be successful in this climate, Link will need to be ever more adaptable, resilient, agile, and focused on core fundamentals that succeed regardless of the cycle,” Owen said.
Private Funds Progress
Hongchoy said Link continued to expand its real estate investment management capabilities, including with the launch of private funds business Link Real Estate Partners in February of this year. The new business line is helmed by former BlackRock head of Asia Pacific real estate John Saunders, who heads LREP alongside his existing role as group chief investment officer of Link Asset Management.
The initiative took a step further last month with the hiring of Steven Bass as head of Japan investments for LREP, as the former Nuveen executive looks to grow the business in Asia’s second-largest economy and execute a comprehensive investment strategy for the country.
“Through these efforts we aim to bring our ‘REIT plus’ investment case to life, delivering stable returns amid market volatility and driving above-average earnings growth for our unitholders,” Hongchoy said.
