Link Real Estate Investment Trust : Delivering Sustainable Growth through Transformation

Link Asset Management Limited, (Link) the manager of Link Real Estate Investment Trust, (Link REIT, stock code: 823) has announced results for the year ended 31 March 2023.

Nicholas Allen, Chairman, said:

"We are pleased to announce a year of resilient results, despite the current period of interest rate hikes and heightened volatility across the global capital market. Our portfolio has proven its strength, weathering the blow of the pandemic. While we acknowledge the challenges posed by ongoing inflation, rate hikes, geopolitical tensions, banking panic, and rising recession risks, we remain steadfast in our commitment to pursuing growth under the Link 3.0 strategy by optimising our portfolio through diversification and growing assets under management in collaboration with our partners. We are proving ourselves a trusted partner in sustainable growth not only in the past but also for the future."

George Hongchoy, Chief Executive Officer, said:

"Despite a challenging start to the financial year, our active and effective portfolio management strategy empowered us to remain productive and resilient against market cycles. We are delighted to report an increase in our net property income, while our valuations and earnings remained stable. During the reporting period, we won the tender of a commercial-use land parcel located at Anderson Road, and made our foray into Singapore through the acquisition of two retail assets, demonstrating our capacity to withstand challenges and achieve sustained growth over time. With unitholders' overwhelming support to our $18.8 billion ights Issue, we are now in an even stronger position to pursue investment opportunities that will deliver long-term value to our unitholders."

Overview

Link's portfolio continued to demonstrate strength and resilience in the face of rising market interest rates and the aftermath of COVID-19 pandemic in its 2022/2023 financial year annual results, highlighted by strong net property income (NPI) and high occupancy:

• Financial
• Overall portfolio remained robust, with NPI growing at 4.8% and revenue at 5.4%, respectively
• Total distributable amount slightly increased by 0.6% to $6,311 million despite a significant rise in market interest rates
• As full-year distribution per unit (DPU) reached 274.31 cents, the dividend yield ratio is around 5.8% based on Link's closing price $47.3 as at 30 May 2023, indicating a steady potential return on investment for unitholders
• Valuation of the investment property portfolio edged up to $237,469 million mainly due to acquisition of assets which was partly offset by foreign currency depreciation
• The financial position was strengthened with the right issues completed in March 2023, resulting in net gearing ratio down to 17.8% and no refinancing needs in the next 12 months

• Portfolio
• Revenue and net property income of Hong Kong portfolio kept delivering promising growth at 5.9% and 6.8% year-on-year respectively
• High occupancy stood at 95% or above throughout all retail and logistic segments of Link's portfolio across Hong Kong, Mainland China and overseas, while occupancy rate of The Quayside stood at 98.2% despite weak office demand
• The acquisition of two retail assets in Singapore was completed in March 2023, coupled with the potential of asset-lighter business with fee income from third-party

Financial Highlights

	2022/23 $ (m)	2021/22 $ (m)	% change
Total distributable amount	6,311	6,273	+0.6%(1)
Full-year DPU (fully diluted)	274.31 cents	305.67 cents	-10.3%(2)
Revenue	12,234	11,602	+5.4%
Net property income	9,198	8,776	+4.8%
Profit before transaction with Unitholders	15,293	6,907	+121.4%
Net asset value per unit	$73.98	$77.10	-4.0%(3)
Net assets attributable to Unitholders	188,940	162,688	+16.1%(4)
Investment properties valuation	237,469	212,761	+11.6%

Note:

1. Excluding the discretionary distribution of $146 million in the financial year 2021/2022, total distributable income edged up 0.6% year-on-year.
2. The number of units issued rose 20% following Link's one-for-five Rights Issue, DPU for the year decreased 10.3% to 31 cents comprising an interim DPU of 155.51 cents and a final DPU of 118.80 cents.
3. Net asset value per unit decreased due to the increased number of units.
4. Net assets attributable to Unitholders increased after the completion of $18.8 billion one-for-five Rights Issue in March 2023.

Hong Kong portfolio

Link's Hong Kong portfolio demonstrated great resilience to cope with the aftermath of the most severe wave of the local epidemic, following the ease of social distancing and travel restrictions progressively throughout the year. Retail revenue and car park and related business revenue grew 3.6% and 12.3% year-on-year respectively.

Link's well-positioned and high-quality non-discretionary community commercial facilities, as well as strong asset management capabilities pushed the retail occupancy to a historically high at 98% at the end of the financial year. The overall average reversion rate edged up to 7.1%. With the leasing sentiment improved with retail sales figures gradually picking up, over 670 new leases were signed during the reporting period. The average unit rent rose to $63.8 per square foot (psf).

Despite the local retail market remaining soft throughout most of the financial year, Link's tenants still delivered a stable 6.2% year-on-year growth in tenant gross sales psf, surpassing its pre-COVID level in 2019. Overall rent-to-sales ratio further edged down to 12.5% as tenant sales continued to trend upwards, supported by further relaxation of social distancing measures and the disbursement under the Government's Consumption Voucher Scheme.

Owing to the easing of COVID-related measures and mid-single digit increment in car park tariff effective in August 2022, Link's car park performance recorded a steady rise in both ticket sales and income. Monthly car park rental income grew 4.6%, while hourly car park rental revenue increased 7.1% year-on-year and both have exceeded their pre-COVID levels. Coupled with the full-year contribution from two car parks/car service centres and godown buildings acquired in December 2021, overall car park and related business revenue grew 12.3% year-on-year.

The Quayside, Link's flagship office property in the heart of Kowloon East and the up-and-coming new business hub in Hong Kong, kept benefitting from the "flight-to-quality" trend with occupancy rate at 98.2% notwithstanding the weak demand for office.

Mainland China portfolio

Link's Mainland China portfolio declined 5.9% year-on-year in total revenue while net property income decreased by 9.8%, mainly due to the deteriorating pandemic situation throughout most of the year, partly offset by new contribution from logistics assets. Nevertheless, the overall rental collection rate remained healthy at 97%. Link has provided a total of RMB48 million in rental concessions and property management fee waivers to support tenants that were heavily impacted by the pandemic.

Link's occupancy of Mainland retail portfolio (including Qibao Vanke Plaza in Shanghai, Link's qualified minority-owned property) significantly improved from 92.1% as at 30 September 2022 to 95.2% as at 31 March 2023, though average reversion rate reported a -3.0% decline, and it is expected to return to positive territory in the 2023/24 financial year.

The first phase of asset enhancement of Link Plaza Tianhe (formerly known as Happy Valley Shopping Mall) in Guangzhou commenced in September 2022 with an estimated capex of RMB200 million. Link has developed a unique trade mix optimisation strategy that focuses on leisure activities, including the introduction of indoor play areas and other entertainment facilities to increase customer engagement.

Office occupancy of Link Square in Shanghai remained solid at 95.5% as at 31 March 2023 in spite of new office supply in the city. Rental collection stablised to nearly 100% while negative reversion for office improved to -14.5%.

Link's three high-quality logistics facilities situated in the well-connected cities in Greater Bay Area and Yangtze River Delta delivered full occupancy with a WALE, of 1.7 years, owing to the burgeoning leasing demand from the e-commerce sector. Leases in the logistics portfolio are equipped with a stable rental escalation term of 4-5%. The segment will be buoyed by new contribution from the completed acquisition of two logistics assets in Changshu in April and May 2023 respectively. The asset in Changshu South was fully leased while occupants in Changshu North are gradually filling up to meet the demand arose by supply chain.

Overseas portfolio

During the year, Link scaled up its oversea portfolio to 12 retail and office sector assets across Australia, Singapore and the United Kingdom. The international segment contributed a total of $648 million in revenue and $390 million in net property income, marking a 34.4% and 15.0% increase respectively, mainly attributable to the contributions from newly acquired assets in Australia. Overall rental collection rate maintained at 96% during the financial year.

Link has expanded its footprint in Singapore by acquiring two suburban non-discretionary assets, Jurong Point and Swing By @ Thomson Plaza, which attained near full committed occupancy of 99.9% at the end of March, and will contribute to financials in the following financial year. Meanwhile, Link jump-started the fee income business by entering into a 10-year asset and property management service agreement for a third suburban retail mall, AMK Hub, which will remain under Mercatus' ownership as part of the transaction.

To drive sustainable growth and maximise business values in the Singapore and international markets, Link has set up a regional office in Singapore to formulate a new market platform and build in-market capabilities in collaboration with Hong Kong management team.

With the completion of acquisition of 50% interest in the three retail assets in Sydney, the Queen Victoria Building (QVB), The Galeries and The Strand Arcade have started contributing income streams since July 2022. Tenant sales growth achieved a 12.5% growth since acquisition, while occupancy increased to 96.9% as a result of higher tenant demand spurred by improving tenant sales and footfall. To boost more business value, Link is working with the city council to ramp up Sydney's night-time economy.

To unleash the latent value of the assets, Link plans to upgrade the frontage of QVB and The Galeries to enhance their attractiveness as popular destinations, while QVB will be invigorated by placemaking and the introduction of arts and cultural programs.

Secured by a steady income stream contributed by embedded annual rental escalation terms in a substantial proportion of the leases, WALE of Link's international office portfolio (including a joint venture in a prime office portfolio in Sydney and Melbourne) maintained at around 5.7 years. As the "flight-to-quality" and "return-to-work" trend prevail, the overall occupancy remained high at around 90%.

Capital Management

In light of a higher interest rate environment and financial market uncertainties, Link has completed its maiden $18.8 billion one-for-five Rights Issue at a subscription price of $44.20 to strengthen its capital base and position itself to capture accretive investment opportunities. The Rights Issue was well supported by Unitholders, with a total subscription rate of over 240%. After this Rights Issue exercise, the number of units issued rose 20%.

During the year, $25.6 billion new financing in different currencies was raised to replenish the liquidity and support the strategic acquisitions in Australia, Mainland China and Singapore. Total debt rose to $65.7 billion, while the gearing ratio mildly increased from 22.0% to 24.2% and net gearing ratio decreased from 20.7% to 17.8% as at 31 March 2023.

The announcement of Link REIT's annual results has been posted on the HKEXnews website and is accessible via the following hyperlink:

https://www1.hkexnews.hk/listedco/listconews/sehk/2023/0531/2023053100384.pdf

Note: All dollar amounts are in Hong Kong dollars unless specified otherwise.

Appendix

Financial Highlights for the Year Ended 31 March 2023

Download Annual Results Presentation

- Ends -

About Link

Link Real Estate Investment Trust (Hong Kong stock code: 823) is the largest REIT in Asia by market capitalisation. It is managed by Link Asset Management Limited, a leading real estate investor and asset manager in the world. Since its listing in 2005 as the first REIT in Hong Kong, Link REIT has been 100% held by public and institutional investors. It is a constituent of the Hong Kong securities market benchmark Hang Seng Index, as well as a component of the Dow Jones Sustainability Asia Pacific Index, the FTSE4Good Index Series and the Hang Seng Corporate Sustainability Index. From its home in Hong Kong, Link Asset Management Limited owns and manages a diversified portfolio including retail facilities, car parks, offices and logistics assets spanning from China's Beijing, Greater Bay Area (Hong Kong, Guangzhou and Shenzhen), and Yangtze River Delta centred around Shanghai, to Singapore, Australia's Sydney and Melbourne and the UK's London. Link Asset Management Limited seeks to extend its portfolio growth trajectory and grasp expansion opportunities in different markets in pursuit of sustainable growth.

For details, please visit https://www.linkreit.com.