Distributed Over HK$3 Billion in Six Months! Asia’s Largest REIT Is Profitable Again

Acquisition, repositioning — a “two-pronged axe” for making money, neither rushed nor slow — the half-year report of Link REIT (hereafter: “Link”) has finally been released. Among a raft of mid-year results that all emphasize “downturn,” Link’s stability and resilience are particularly striking. According to the interim report, in the first half of fiscal year 2024/2025, Link’s revenue and net property income rose year-on-year by 6.4% and 5.8%, to HK$7,153 million and HK$5,359 million, respectively. The total distributable amount and the interim distribution per fund unit also increased by 4.3% and 3.7% year-on-year. Regarding the performance growth, Link states in its financial report: this was mainly due to the full consolidation of an additional 50% stake in Shanghai Qibao Link Plaza acquired in February 2024, and improvements across most of its operating markets.Looking across recent years of Link’s performance trajectory, one finds that gains from property acquisitions—and the accompanying changes in valuation—have always formed the backbone of its financial reports. In the first half of fiscal year 2023/2024, the increases in revenue and net property income came largely from its March 2023 acquisition of Singapore properties. By contrast, the negative effects of external uncertainty on performance growth are less controllable. On one hand, the persistent high interest rate environment in external markets continues to push up capitalization rates, which has a noticeable impact on the valuations of properties held by Link.

As of 30 September 2024, the valuation of Link’s investment property portfolio declined 2.1% from 31 March 2024 to HK$231.128 billion; part of that decline was offset by foreign currency appreciation against the Hong Kong dollar. On the other hand, structural changes in Hong Kong’s consumption patterns are surging ahead. With the acceleration of Greater Bay Area integration, the trend of “Hong Kong residents going north” may continue long term, further expanding the challenges to Hong Kong’s retail sector. In the first half of fiscal year 2024/2025, Hong Kong’s overall retail sales dropped 8.8% year-on-year, with April seeing the most pronounced double-digit decline.Fortuitously, Link’s Hong Kong property portfolio is concentrated in livelihood (daily necessity) consumption sectors; this kind of essential spending gives it relatively stronger risk resistance. Although during the reporting period, the sales per square foot by tenants in its Hong Kong portfolio also fell 4.3% year-on-year, that decline was significantly better than the overall Hong Kong market. Looking ahead, at the earnings briefing, Link’s Group Chief Executive Officer, George Kwok, pointed out a new direction: “To achieve resilient and diversified income streams and to explore new growth drivers under Link 3.0 strategy, we will tap two major engines. On one hand, through proactive portfolio management and diversification strategy, we will enhance the quality and resilience of property income, bringing better returns to unit holders; on the other hand.

we will expand our investment management business, including partnering with capital partners to accelerate business diversification, and generate fee income via providing management services.”“Hong Kong people going north” reconfigures the landscape, and livelihood consumption becomes a moat. Flipping through Link’s interim report, the performances of its Hong Kong, Mainland China, and overseas business segments differ.Hong Kong segment: The “northbound” shock is strong; it leans on livelihood consumption to hold the fort. Data show that in the first half of fiscal year 2024/2025, Link’s Hong Kong portfolio’s total revenue and net property income rose by 2.2% and 2.4% year-on-year, respectively. That growth was driven by improvements in retail, but held back by weak office and parking businesses. Although during the period Link’s parking revenue rose 1.4% year-on-year, the actual volume of parking ticket sales declined — the fall was offset by increased fees. In leasing terms, the overall occupancy rate of Hong Kong retail properties was 97.8%, a slight drop of 0.2 percentage points; the overall rental renewal adjustment rate plunged from 8.7% last year to 0.7%. In particular, street markets / cooked food stalls were hit hardest by the “northbound” trend: their renewal rent adjustment rate fell from 11.3% to –5.8%. Link’s Hong Kong property portfolio includes 130 assets, covering necessities retail space, fresh markets, and approximately 57,000 parking spaces near public housing estates and key transport nodes.

Its Hong Kong site-selection strategy is “to ensure that residents in nearby estates and the general public can at any time purchase daily goods, access services and use parking spaces.” In Hong Kong’s retail boom era—when Mainland visitors favored shopping in Hong Kong—Link’s focus on livelihood zones may have cost it some “get rich quick” opportunities. But under the broader context of “Hong Kong people going north” reshaping Hong Kong’s consumption landscape, staying rooted in consumption-linked properties has become Link’s performance moat.Amid evolving market conditions, Link continues to optimize the value of its property portfolio. During the review period, Link completed enhancement projects for Fushan Mall and Sau Mau Ping Mall, with capital expenditure totaling HK$92 million, and expected returns on investment of 17.2% and 19.9%, respectively. The Sau Mau Ping project is even Link REIT’s 100th property enhancement project in Hong Kong.Mainland China retail business shows firmness, Singapore rent adjustments shine.In Mainland China, Link’s interim results for its retail business recorded a –3.2% renewal rent adjustment rate, primarily due to major tenant restructuring and mall repositioning at Beijing’s Zhongguancun Link Plaza. Excluding that factor, the renewal rent adjustment rate would still show a growth of 6.4%. According to public reports, the 14-year-old Beijing Zhongguancun Link Plaza is being refreshed around young consumers’ preferences and lifestyles. It has already introduced major outdoor brands Salomon and The North Face, Beijing’s first “Bagel Tree ·

New York Bagel Museum,” domestic brand Honor, etc. Zhongguancun Link Plaza has disclosed that indoor and outdoor lighting and scene-upgrade works have begun, further elevating the project’s fashion appeal. The asset enhancement of Link Center City’s basement was completed in July 2024, recording record foot traffic and merchant sales growth. The project’s capital expenditure was about RMB 24 million, and delivered a return on investment of 43.8%. The renovation successfully attracted both local and Hong Kong consumers, consolidating Link Center City’s strategic positioning.Moreover, Link is expected to continue its asset enhancement program this year, allocating RMB 180 million to refurbish two Link Plazas—Tianhe Link Plaza in Guangzhou and Tongzhou Link Plaza in Beijing. Of that, about RMB 120 million is reserved for the second phase of Guangzhou Tianhe Link Plaza’s enhancement, and RMB 60 million for Beijing Tongzhou Link Plaza. These include upgrading convenience facilities and redesigning the west wing of Guangzhou Tianhe Link Plaza; also, an interior upgrade and tenant mix optimization plan have been prepared for Beijing Tongzhou Link Plaza. Once these repositioning works are completed, Link’s Mainland China retail performance is sure to be elevated again.As for Mainland China’s office segment, in the first half of fiscal year 2024/2025, although occupancy rose from 92.3% at end of 2023/2024 to 94.0% in the period, because of a “lower rent in exchange for higher occupancy” strategy, the renewal rent adjustment rate recorded a negative 20.9%.

Overseas segment.Overseas, Link owns 12 retail and office properties across Australia, Singapore and the United Kingdom. Revenue grew 3.0% to HK$887 million, and net property income dipped slightly by 0.5% to HK$600 million, a relatively stable performance. Particularly impressive was Singapore’s retail properties — the performance of JCube (Jurong) and Swing By @ Thomson Plaza stood out. During the period, the renewal rent adjustment rate for Link’s Singapore retail properties achieved positive growth of 18.9%. Singapore is a key hub for overseas retailers and F&B operators. As many Chinese retail brands plan expansion into ASEAN markets, Singapore serves as a good testing ground and springboard. Link can likewise apply its leasing strategy from Hong Kong by bringing Mainland Chinese brands into Singapore.Debt reduction while awaiting Asia-Pacific acquisition opportunities.To cope with uncertainty in market outlook, in the first half of fiscal year 2024/2025 Link made efforts to reduce leverage. The data show that Link’s total debt ratio decreased from 23.5% as of 31 March 2024 to 22.8% as of 30 September 2024; net debt ratio stood at 20.6%, up from 19.5% as of 31 March 2024. As of 30 September 2024, after repaying HK$4.4 billion in debt, Link’s total debt further decreased to HK$55.6 billion. In response to the U.S. election’s potential impact on future interest rates, the share of fixed-rate debt in its total debt portfolio was adjusted from 69.8% as of 31 March 2024 to 66.4%. For the half year ended 30 September 2024, Link REIT’s average cost of borrowing fell from 3.74% in the same period last year to 3.69%.

The average debt maturity was 2.9 years, and debt maturities are spread over the next 14 years. The improved debt structure gives Link more flexibility for global “buy, buy, buy” expansion.Since 2022, under the guidance of the Link 3.0 strategy, Link has accelerated its global diversification, acquiring Guangzhou Sun Yuen Long, Singapore’s Jurong JCube and Swing By @ Thomson Plaza (approximately half the floor area), three logistics facilities in Jiaxing and Changshu, a commercial land parcel in Anderson Road, Hong Kong, and 50% interest in Shanghai Qibao Vanke Plaza. During the high interest rate environment of 2022–2023, Link made repeated acquisitions, abandoning its traditionally conservative financial posture to become more aggressive in mergers and acquisitions — which also brought substantial financial pressure. Ultimately, Link chose to launch a rights issue in early 2023 to raise about HK$18.8 billion — the first rights issue since Link’s listing 17 years ago — and drew external scrutiny. As of 31 March 2024, of the funds raised from the rights issue, HK$12.2 billion had been used: HK$7.4 billion to repay bank loans maturing in 2023; HK$1.8 billion to repay revolving loans maturing after 1 January 2024; and HK$3.0 billion to deploy for acquisitions and investments. Compared with the much-criticized acquisitions in Australia and Singapore in 2022, Link’s full acquisition in 2024 of the remaining 50% interest in Shanghai Qibao Vanke Plaza was viewed externally as “a reasonable deal.”

According to announcements, when Link acquired 50% interest in February 2021, the consideration was HK$2,772 million, while the entire property was valued at HK$6,580 million; by February 2024, when Link acquired the other 50%, the deal price was HK$2,384 million — nearly 14% lower than in 2021 — while the full property was valued at HK$7,060 million, up 7.3% from 2021. The property continued to appreciate while the acquisition price dropped; the discount rate on the transaction narrowed from 84% in 2021 to 68% in 2024, further enlarging Link’s potential gain on the deal. After full acquisition, Shanghai Qibao Vanke Plaza was renamed “Shanghai Qibao Link Plaza.” Link is upgrading levels L4–L5, investing about HK$19 million, with planned completion by end of 2024. However, despite strong expectations of rate cuts, current capitalization rates remain elevated, continuing to drag down valuation of investment assets. As of 30 September 2024, Link’s investment property portfolio valuation declined 2.1% from 31 March 2024 to HK$231.128 billion. Considering all of the above, Link still maintains a cautious attitude toward future acquisitions. “Link has been actively seeking new market opportunities, but will act prudently. Only when project conditions are appropriate and highly attractive will we take action.” And the “new opportunities” Link refers to currently seem to be “Japan, Australia and Singapore, where investment risks are relatively lower and liquidity is relatively good; we will consider them.” As for Mainland China and Hong Kong, Link is still awaiting true inflection changes to emerge.