13 Nov 2019

Challenging Growth in Uncertain Times

‧ Link REIT declared an interim distribution per unit (DPU) of 141.47 cents, while it reported a lower profit of $6,717 million for the first half of the financial year 2019/2020.

‧ Link REIT continues to drive portfolio growth in pursuit of its Vision 2025.

‧ Board lot size will be changed for the first time since IPO, reducing from 500 units to 100 units from 2 January 2020.

Chairman Nicholas Allen:

“During the period under review, we achieved modest growth despite the tough market conditions, benefitting from the resilience of our non-discretionary retail-focused portfolio and our decisive actions over the past few years on cost control.”

CEO George Hongchoy:

“We have committed a significant amount of time and effort during the past six months to engage with our tenants and business partners to understand their challenges. We try to offer effective and targeted support to them so we all are able to weather the storm together, becoming stronger and more resilient.”

Link Asset Management Limited (Link), the manager of Link Real Estate Investment Trust (Link REIT, stock code: 823), announced today (Wednesday) stable interim results of Link REIT for the six months ended 30 September 2019.

Total distributable amount, after adjustments and a discretionary capital distribution of $145 million (six months ended 30 September 2018: Nil), amounted to $2,966 million (six months ended 30 September 2018: $2,759 million). Interim DPU increased by 8.3% to 141.47 cents (six months ended 30 September 2018: 130.62 cents), which includes an additional discretionary distribution of 6.93 cents (six months ended 30 September 2018: Nil).

For the period under review, revenue and net property income increased by 7.8% and 8.5% year-on-year on a like-for-like basis respectively, excluding any properties acquired, divested and/or newly operational during the periods under analysis. As reported, after taking into account properties acquired, divested and/or newly operational during the periods under analysis, revenue and net property income increased by 8.2% and 8.3% year-on-year to $5,332 million (six months ended 30 September 2018: $4,930 million) and $4,071 million (six months ended 30 September 2018: $3,759 million) respectively.

Profit for the period declined 28% year-on-year to $6,717 million primarily due to a smaller gain in fair value of investment properties.

Valuation of the investment properties portfolio reached $220,434 million. NAV per unit increased by 6.1% year-on-year to $90.58.

Link’s board of directors also announced that the size of Link’s board lot will be changed from 500 units to 100 units with effect from 2 January 2020.  The Board expects that the reduction in board lot size will lower the value of each board lot, making it more attractive to small investors and broaden Link’s unitholder base. 

Riding out the Challenging Times Together

The first six months of the 2019/20 financial year have been turbulent, marked by escalating trade tensions between China and the United States, as well as the civil unrest in Hong Kong since June.

Nicholas Allen, Chairman of the Board of Link, said, “During the period under review, we achieved modest growth despite the tough market conditions, benefitting from the resilience of our non-discretionary retail-focused portfolio and our decisive actions over the past few years on cost control.

“While external conditions in Hong Kong will remain challenging in the foreseeable future, we believe that Link, with its focused and experienced management team, will remain a beacon of stability,” Mr Allen said.

George Hongchoy, Chief Executive Officer of Link, said, “While our priority is always to ensure the safety and well-being of our shoppers, tenants and frontline staff, we have endeavoured to maintain our shopping centres’ opening hours over the past few months so that our tenants and shoppers can go about their lives.”

“We have also committed a significant amount of time and effort during the past six months to engage with our tenants and business partners to understand their challenges. We try to offer effective and targeted support to them so we all are able to weather the storm together, becoming stronger and more resilient,” he added.

Link announced its medium-term target Vision 2025 in June. “We will continue to grow our portfolio as we pursue our Vision 2025. We will continue to seek opportunities to grow, be it in Hong Kong, the four first-tier cities in Mainland China and their surrounding river delta areas, or other markets where suitable opportunities arise,” Mr Hongchoy said.

Six-Month Period in Review

Hong Kong portfolio

On a like-for-like basis, the total retail revenue increased 8.9% year-on-year. As of 30 September 2019, the occupancy rate for retail properties in Hong Kong remained at 96.9% and the overall portfolio reversion rate for a three-year cycle was 18.1%. Average monthly unit rent edged up to $69.6 per square foot (psf) as of 30 September 2019 from $68.0 psf as of 31 March 2019. The rent-to-sales ratio stood at 14.4% for the reporting period.

During the period, tenants’ average monthly retail gross sales psf grew by 1.4%. In terms of monthly rents, 63.2% of the trade mix are from food-related tenants, including Food and Beverage (28.9%) and Supermarkets and Foodstuffs (20.7%). These two segments recorded 2.1% and 4.5% year-on-year increases in gross sales psf respectively, while the gross sales psf of General Retail tenants dropped by 0.6% year-on-year. 

Due to a drop in weekend visits, total car park revenue recorded a year-on-year increase of only 8.2% on a like-for-like basis. Car park income per space per month was $2,929 for the reporting period. Average valuation per space was $663,000 as at 30 September 2019.

During the period under review, two asset enhancement projects, Nam Cheong Place and Choi Ming Shopping Centre, were completed in Hong Kong, bringing the number of Link’s completed asset enhancement projects since its IPO to 80.

In June 2019, Link moved its Hong Kong headquarters into The Quayside, its newly completed flagship office development in East Kowloon.

Mainland China portfolio

During the reporting period, the Mainland China portfolio posted a strong performance, contributing total revenue of $732 million and net property income of $578 million, representing a 49.4% and 48.2% year-on-year increase respectively.

Mainland China properties were valued at $27,479 million, representing 12.5% of Link’s entire portfolio (13.2% or $28,793 million as of 31 March 2019). Valuation of the Mainland portfolio had increased 1.0% but, due to renminbi depreciation, its weight in Link’s portfolio in Hong Kong dollar terms has slightly decreased.

The four retail assets in Mainland China were almost fully let (99%), with an average reversion rate at a high level of 31.5% during the period. Link plans to rebrand all its retail properties in Mainland China with a unified identity – Link Plaza. Asset enhancement of CentralWalk, the newly acquired property in Shenzhen, is under planning to extract greater potential from it.

In order to provide centralised management of an expanding portfolio in Mainland China, Link has decided to set up its Mainland China headquarters at Link Square, a Link REIT office property in Shanghai.

Link will continue to look for potential investment opportunities in Mainland China, targeting mid-mass retail properties and grade-A office buildings in the four tier-one cities and their surrounding river delta areas.

Capital Return

In June 2019, Link announced its intention to buy back up to 60 million units as part of the programme to return capital to its Unitholders. Link’s ability to execute this buyback programme is however impacted by several factors including market conditions, unit price, trading volume and other regulatory considerations. In the first half of the financial year, Link bought back approximately 13 million units at an average unit price of approximately $87.3 for a total of approximately $1.1 billion. In the second half of the financial year, Link will continue its unit buyback programme when the market conditions and regulations permit.

Following the last divestment completed on 13 March 2019, Link has budgeted a discretionary distribution of about 14 cents per unit per year for three years.  It aims to compensate for the DPU loss arising from the divestment to the extent the shortfall is not yet replaced by earnings from new acquisitions. This discretionary distribution, along with the announced buyback, are funded by the divestment premium of $2.8 billion achieved. Therefore, for this six-month period ended 30 September 2019, a discretionary distribution of $145 million or 6.93 cents per unit will be included in the interim distribution.

The announcement on Link REIT’s interim results has been posted on the HKEXnews website, and is accessible via the following hyperlink:

https://www1.hkexnews.hk/listedco/listconews/sehk/2019/1113/2019111300466.pdf

Appendix

Financial Highlights for the Six Months Ended 30 September 2019

Download Interim Results Presentation

Download High Resolution Photo

Watch the Webcast for Media on Interim Results Announcement

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