Today we are pleased to have our Group CEO Mr. George Hongchoy, CFO Mr. Kok Siong Ng, COO Mr. Greg, and CCO Mr. Ronald to be here with us to provide this update on our business. We'll begin with company highlights, then operational updates, followed by financial and outlook. Lastly, we will have our Q&A session. Now I would like to pass the floor to our CEO George, please.
Thank you, Christine.
We appreciate everyone joining us today for what will be the last time. We are doing the pre blackout briefing and going forward we'll be shifting to a quarterly update instead. Further information we share at the end of this presentation about what we have planned and reasons that we will be making this adjustment. Let me start with some highlights and a reminder of the uncertainty that we are dealing with as we operate.
The strategy that we have been. Pursuing these past years. Let me give an overarching summary of the big picture for Link. We continue to operate in highly uncertain times for higher for longer interest rates and uncertainty around how the global economy will fare in the face of various challenges in the geographies where Link operates. We are facing challenges in Hong Kong where our retail tenants are facing significant pressure in terms of rising costs, sales leakage to online and cross border travel and this together with the continued challenge in re-energizing the economy in Mainland China is leading to significant pressure on rental reversion at this time. We're glad that we have started our diversification effort when we did as the picture in Singapore and Australia is more positive.
Looking ahead, we remain committed to our Link 3.0 strategy which builds on our capabilities and track record achieved over almost two decades. To further strengthen Link, we portfolio and to develop our real estate investment management business under Link. Just to provide a bit more detail on the global and local context for our business in the year ahead, globally, we anticipate the growth outlook to remain mixed due to factors including the U.S. policy environment, continued challenge with Mainland China economy, and unclear interest rate cut timing. These factors combined together with evolving technology and changing consumer behaviors create an uncertain global flagship and demand that we act with caution. In our key markets, Hong Kong and Mainland China, the outlook is less favorable.
However, monetary policy loosening and the focus on boosting domestic demand are expected to stimulate economic activity, though we expect it will take some time before things will improve. Meanwhile, Singapore and Australia offer a more positive outlook with robust economic indicators and consumption support. Despite the prevailing macro conditions, our portfolio has continued to endure. A quick reminder of the shape of our business and our Diversification Strategy. Currently, our Link REIT portfolio comprises 74% Hong Kong, 15% Mainland China and 11% international, which includes Australia, Singapore and the U.K. As we diversify and grow through Link 3.0, we are focused on optimizing our portfolio by exploring opportunities in the APAC region including Australia, Japan and Singapore. At the same time, we are also committed to maintain a high bar for rights acquisitions and inorganic M&A.
In line with our strategy to grow our real estate investment management, we officially launched Link Real Estate Partners, a private fund management business line, and Ronald will provide further details on this later. Let me now pass the time to Greg to share more on the operational update.
Thanks George and good afternoon everyone. I'll start this afternoon with a review of our overall portfolio occupancies. Our portfolio has demonstrated solid performance with occupancy levels remaining high and our international retail assets approaching nearly full occupancy. In Hong Kong, the resilience of our. Non discretionary retail portfolio is reflected with.
High occupancy and showcasing stability and strength in the underlying markets. In Mainland China, we're pleased to report healthy occupancy rates across various asset types, underscoring the effectiveness of our focused leasing initiatives in the international markets. Our retail assets in Australia and Singapore achieved nearly full occupancy with robust ongoing leasing demands, while ongoing challenges are noted in the Australian office market. Now let's look at Hong Kong in some more detail and our retail portfolio where the occupancy rate has remained robust at 97.1% as of December, highlighting the resilience and stability of our essential needs.
Focused Trade Mix even amidst challenging market conditions, rental reversions for the period experienced negative low single digit for the first nine months of the period, which also impacted the unit rent per square foot, bringing it to HKD 64.10 despite tenant sales being affected by changing consumption patterns among visitors and residents, which recorded a decline of 3.3% year- on- year for the first nine months. This was a narrower drop compared to the broader Hong Kong market at negative 7.6%. Occupancy costs have slightly come down compared. To the first half of the year.
Indicating potential stabilization of trading conditions. When we break it down by trade mix, both food and beverage and general retail segments outperformed the Hong Kong market, while supermarket and foodstuff saw some weaker performance for the period. In terms of the Hong Kong car park and related businesses, we observed moderate growth in parking revenues for the first nine months of the year, while parking ticket sales experienced a decline. This was balanced out by increases to parking tariffs. We aim to stay responsive to market trends, creating plans to enhance performance and rolling out our new car park management system and ongoing enhancements to that program. Now let's shift to Mainland China where as previously mentioned, occupancy was healthy across our various asset types.
Our retail team on the ground in. China has been able to manage tenant remixing very effectively in order to secure more productive and innovative operators. We saw softer demand in specific trades such as cosmetics and jewelry, while sporting goods in particular and retailers featuring intellectual property designs are doing really well. As for office, our occupancy exceeded the district average. Despite new supply, we will continue to operate our facilities to enhance our customer satisfaction and also attract new tenants by carrying out fit out works on vacant units to improve occupancy. The logistics occupancy in our portfolio remains healthy at over 96% and demand for our facilities is predominantly driven by e-commerce and third-party logistics operators.
Turning our attention to our international business, which consists of retail and offices located predominantly in Australia and Singapore, our Australian retail assets located in the Sydney CBD, positive leasing momentum continues from tenant demand and now sees occupancy of 99.5%. This was supported by our active ongoing leasing efforts, which has not only introduced the curation of new brands but also has allowed for continued upgrading of retail.
Offerings out of the trade categories. In particular, food and beverage and apparel performed well across the three properties. Now moving on to Singapore where our malls of Jurong Point and Thomson Plaza performed very strongly, achieving occupancies now at 100% with ongoing positive leasing reversions. The ongoing enrichment of our tenant variety has been boosted through strong leasing interest from overseas retailers including those from Mainland China and in particular food and beverage brands. F and B and beauty and wellness.
Categories were the main drivers of tenant sales growth over the period. Finally for me on office, we note the further bifurcation in the Sydney office market with the fight to quality trend continuing. We have made some good progress, however, through the backfilling of vacant tenancies, in particular at 347 Kent Street in Sydney, and our retention rate on renewals remains strong under current market conditions. It is essential for us to continue to enhance the appeal of our office spaces through placemaking and the provision of amenities, and now I will pass over to KS.
Thank you, thank you Greg. Good afternoon to everyone. Moving on to capital management, our robust financial position is well supported by a healthy balance sheet as shown by the key metrics here. As of 30th September 2024, net gearing remained low at 20.6% while the average borrowing cost remained competitive at 3.69%. Our EBITDA interest coverage stood at 4.8 times. That ratio in the upper range of 50-70% is in anticipation of more gradual and shallow rate cuts. Supported by our A ratings from all three credit agencies, we have the stability and credibility to attract investors as well as secure favorable terms for future funding needs. Between 9th December 2024 and 7th January 2025, we deployed over HKD 500 million to buy back approximately 17 million units. Overall, our robust financial position will enable us to effectively navigate the uncertainties in valuations.
The disciplined approach to debt management with diversified sources of capital across debt instruments has helped us to achieve a competitive average borrowing cost as well as robust credit ratings. Our financial stability is reinforced through FX management which includes extensive hedging of non Hong Kong dollar distributable income and the currency risk of overseas assets alongside capitalizing on lower RMB interest rates after repaying some debt. The debt balance as of the end of September 2024 was reduced to HKD 55.6 billion and we have been proactively managing our maturity profile. I now pass the time to Ronald to cover other updates.
Thank you, thank you peers. Good afternoon everyone. We have made significant progress in developing our real estate investment management business through the launch of our new business line Link Real Estate Partners, which focuses on serving third party private institutional capital. It will leverage on Link's robust operational skills, deep knowledge and scale in Asia, and provide track record and proven track record to identify and execute compelling real estate investment strategies and match them with. Capital across the risk spectrum.
It will also help accelerate our diversification and create new income from co-investing and managing assets for new partners. We have spent much of 2024 assembling a fund management team led by John Saunders, our Group Chief Investment Officer, along with several new hires including Head of Australia Investments, Head of Research, Portfolio Director, and a Product Strategist. While we are unable to disclose too many details at this juncture, we expect 2025 to be a busy year for both fundraising and investments. Before we move on to the Q&A session, I would like to discuss our new approach to providing operational updates in between our interim and final results. We always strive to continually improve our engagement with investors and as part of that to provide robust, transparent information on a timely manner starting with the operational update.
After our next final results, we will be able to provide our Q1 and Q3 operational updates approximately one and a half months earlier than we currently do as we will transition to providing quarterly operational updates announcements instead of pre blackout briefings. We plan to provide Q1 updates in February and Q3 in August. This change, made after feedback from the investment community, will allow us more time to engage with investors analysts prior to any blackout period as the timing of our quarterly updates and results will be distributed more evenly throughout the year. To facilitate this, we will upload the quarterly operational updates to the stock Exchange and our corporate website, ensuring timely access to essential information. This will enable stakeholders to access our performance more effectively and make well informed investment decisions. I'll now pass over to Christy for. Q& A session.
Thank you, Ronald. Let's move on to the floor of Q& A. Please submit your questions using the Q& A function. We got a few questions already, maybe we can start now. Quite some questions on the retail crowds in Hong Kong. Let's start with Cindy from Citi. How's the retail sales trend in the first Q of calendar year 2025? Any green shoots? Any signs of recovery?
I'll take that question. Thank you, Cindy.
Just looking at the, I guess, the period up to December, we've seen an improvement and we've just spoken to a negative 3.3% total sales position. Just to remind you that at the end of the first quarter of the financial impact, it's negative 5.9%, and then at the first half it was negative 4.3%. A gradual improvement over the period, and we've seen that across the three major categories that we report to. As at December, food and beverage was flat year on year, and that was an improvement from negative 1.5% for the first quarter. Supermarkets, we're seeing some gradual improvement, and I think that's largely off a lower base. Supermarkets were negative 5.9% in the first quarter, negative 5.2% at the first half, and negative 3.9% at Q3. General retail has also improved significantly.
As we move into the last quarter of this financial year, we are seeing that trend continuing. I will say that there is a lag from this improvement in sales and flowing through into rental reserves. The other associated metric to the sales is our footfall, which we've seen ongoing improvement over the last few months and in particular we've seen more of a dramatic improvement on weekend footfall and that I think is associated with some of the stabilization of the northbound leakage. Some green shoots but still some way to go.
Thank you. Another question is also from Cindy. Will you consider any disposal to recycle capital given high for longer rate outlook?
I'll take that. Obviously we always look at optimizing our portfolio and we're always constantly reviewing acquisitions as well as disposals. Yes, if there is a right deal in the market, if there's the right price, we will consider recycling.
I think right now we're still looking.
For those opportunities and we're constantly assessing those recycle opportunities.
Thanks, Ronald. Next question is from Sam of Dragris. Could you share a bit more color on China side sales and reversion?
Yes, China from a retail perspective, mainly China from a retail perspective is stabilizing. Our biggest challenge at the moment is Beijing, in particular our asset where we're doing some ongoing asset enhancements and tenant remixing. When we reported the first half result, we spoke to the fact that it was negative reversion for the mainland business. If you excluded Zhongguancun , it would be slightly positive. That is still the case. Pleasingly, there's quite a lot of tenant activity in the mainland market. The markets of Shanghai, Guangzhou and Shenzhen for us continue to be pretty stable. Beijing is where a lot of our focus is, and the slight dip in occupancy from the first half to this reporting period we think will show signs of improvement as we get to the end of this full financial year.
Probably the most pleasing thing with regards to mainland retail is very good underlying tenant activity and tenant demand. That is offset somewhat by significant increases of supply, new supply in markets like Beijing and Guangzhou in particular.
Another question from China business as well regarding Guangzhou Tianhe, the second phase of asset enhancement, how's the book right now? When will we estimate to be fully opened after the asset enhancement ?
Yeah, so we're progressing well, building off the success that we had for the first phase. I was on site a few weeks.
Ago and progress is good.
Leasing momentum is fairly strong. As we move through into the new financial year, we're fairly confident that we'll have the lion's share of that project completed. We're very satisfied with the ongoing leasing demand for that property. It's a very well positioned asset, with a very strong catchment. The major issue with Guangzhou that we're facing is increased competition. Getting well ahead of that new competition is important as we complete this project.
Thank you.
The next question is from Principal Asset Management , and can we please get some idea on the current reversion trend and should we be bracing for DPU contractions in same half?
Just the general trend on leasing.
Reversion for Hong Kong.
As we mentioned during the prepared remarks, we have seen a deterioration from the.
First half to the third quarter.
Very, very slightly negative leasing reversion for Hong Kong. As we've discussed many times, the composition of activity in any given year usually tapers off in the back half of a financial year. We reported +0.7% for the first half, as I just said, very, very low single digit reversion as of December. That trend will continue through until the end of this financial year. I think that the concept of negative reversion is something that we should be prepared for for this new financial year we'll be embarking on shortly. Very moderate negative reversion.
Thank you. The next question is on the fund business from Jefferies. Sam asks any updates on capital raising for the fund business?
I'm afraid we can't really say much about that at this moment.
We understand we're under regulatory restrictions too.
Say anything about the fundraising.
The next question is from Goldman Simon. To the extent you can, can you provide us with some targets or milestone we are setting out for? Your Link will end on this.
From this, I'll say that the answer is the same.
Okay, I think next one will be from UBS's Mark Leung . What is the rental reversion guidance for next year?
Yeah, I touched on that in the previous question. We are anticipating slightly negative reversion for Hong Kong, fairly flat for Mainland and positive for Singapore and Australia. The main focus I will point to, though, and we have said it on numerous occasions now, is preserving occupancy across our portfolios. I think the numbers that we have spoken to again today illustrate that what we are experiencing is that the reversion on new deals or replacement tenants is significantly worse than the reversion for us in retaining tenants. Pleasingly, our retention rate, I should say, remains at our long-term averages in the high 70% range as of December. A big part of our strategy is retaining our existing tenants.
We do an analysis that we call right tenant, right location, and a large proportion of our portfolio sees us having pleasingly the right tenants in the right locations. We will be working with our tenants to retain them. Another strategy that we are working through is endeavoring for our tenants to invest in upgrading their facilities. If that means that we forego some reversion in return for some capital investment by those retailers to improve their environments, that is something we will be treating on a case by case situation as well. A long winded answer to a very simple question. Yeah, there is some pressure on reversion but we anticipate that will be offset by preserving occupancy here in Hong Kong.
Next question will be from JP Morgan. Kyle, any guidance on how average financing costs will be in second half of the financial year 2025 and will it further go down from the average 2.69% or stable?
I think the third option that you didn't mention is where it go up marginally and I think Kyle, the answer is yes, we have fixed 66.4% so there's about one third that's not fixed. If you look at our maturity profile this coming financial year there's about HKD 12 billion of refinancing. Clearly today HIBOR is already at 3.8%, 3.9% without ABC at 3.7%. It's unlikely that you can beat that because a lot of these were hedge fund and rates are much lower and stocks are much cheaper. We do expect borrowing costs to inch up marginally this coming year.
Thank you. Next question is also from Kyle. Any colors on when the stock may become eligible for stock comments?
I think when you look at the announcements on various topics around stocks on that there has been a lot of discussion around this stock connect issue since February this year. There is already conclusion that to implement it as soon as possible and our sense is hopefully somewhere next month we get more announcement on how fast CFRC is willing to make clearer announcements. My sense is so far the regulators have been very supportive and progressively have been trying to accelerate the implementation. In the investment conference this week the Financial Secretary also said the same this is coming, it's a matter of when, not if. Obviously we're still waiting for the time but there should be more.
Just to add to that, we've.
Been doing quite a bit of IR in China and we know there's demand and we are ready to capture those when it comes.
Thank you. Next question is from will we consider to increase borrowing from Mainland China to lower average financing costs and what's the financing cost outlook for the FY25 and FY26?
I think I'll take the first.
Question the second I just answered and will be the same. There will be a marginally higher financing cost on taking advantage of the RMB lower financing cost. In reality what we are doing is actually to use RMB borrowing to hedge against the RMB assets and there's no intention to over hedge because that's not part of our business to take hedging risk. We will continue to hedge and each of these hedges does have their maturity profile and as it expires we will continue to hedge. So far hedging RMB will pay a premium to help reduce our financing costs and today we are already in the almost fully hedged against our RMB. Just waiting for hedges to expire and then we will renew.
Thank you Karen. There are actually a few questions regarding the M& A or acquisition. In general they are asking how the progress is and then how the M& A environment in Asia is, whether it's for the fund or for Link
I think. I'll just answer that in general terms. I think in certain markets, in particular Australia, we've seen price correction and there's been a bit more activity there where the buyer and seller's credit has narrowed and we've also seen funding costs starting.
To drop in Australia. That market remains interesting for us and we still spend quite a bit of time looking at that market. You know we will continue to. Look at that the other markets, Singapore. Is still, you know, pricing is still. Pretty, pretty tight, so is Japan and I guess our focus is probably at. The moment in Australia.
Thank you. Next question back to Mainland China operations. The question is about Central Walk. How's the sales is doing? Is it bypass exceeds the level pre.
Covid already
so sales in general and footfall in general at Central Walk is progressing very very well and our best performer across Mainland is probably our best performer across all of our shopping centres. We are also in the process of some fairly significant tenant optimisation work there. We are seeing ongoing better quality demand from retailers for Central Walk. A lot of the strategies that we have executed on over the last few years are really starting to pay some significant dividends. Good continued sales growth, good continued NPI growth and now we are focused.
On really managing our costs, not just. On a project like Central Walk but doing what we can to preserve or at least enhance, at least preserve, our operating margins on our portfolio of assets.
Thank you. A bit more questions on the operations in why the operation? Why the occupancy drop? Q&Q for Hong Kong and China,
it's amazing thing.
As we gear up to the.
End of the year.
We anticipate that those occupancy numbers will get back to what they were around the half year. It is a phasing and timing thing.
More than anything else.
Another question from Sam again. What does it take for Hong Kong reversion to return to positive in your view? We could mainland visitors.
We're not really impacted by Mainland visitors with obviously servicing Hong Kong commerce for their daily needs. I think the main issue that we need to see is the stabilization and growth in margin for our retailers. Their operating margins have been under pressure with increased costs and that puts pressure on our negotiations with them.
I think the main thing that.
we need is continued growth in sales, which we're starting to see the benefit of. Our purpose is to provide footfall for our retailers so they can capitalize and execute that in sales and then hopefully start to see some improvement in the bottom line for the retailers, not just the top line. That will allow us to see some growth in our revenues. I will say though that our portfolio occupancy cost is stable at 13.1%. Our sales densities are very, very strong. We are facing into what is a very challenging market in a very strong position. Our continued focus on the non-discretionary trades, particularly food and beverage, places us in a reasonably strong position in relative terms.
Another question is regarding whether our company will consider to help bring in some brands from Mainland China into Hong Kong and so as to help the consumption in Hong Kong.
Absolutely, and we are seeing that so pleasingly. Of the new leasing transactions that we do, approximately one third of those to retailers are new to the Link portfolio. You know, we're bringing in 100.
150 new retailers to our portfolio every year.
We're seeing an increasing number of Mainland businesses, predominantly food and beverage.
The move into Hong Kong by Link.
Coffee, for example, has been well documented. We've secured a number of locations with them. The first of those is opened at Chung Kwan O and it's performing really, really well. Yeah, we're hopeful that our portfolio is incredibly well suited to support the introduction of new mainland brands. The other thing I will say is that we've seen a significant increase of demand from Mainland retailers to our Singapore portfolio as well. I think a lot of the very good innovation and market positioning from mainland retailers is seeing them spread their wings more broadly across Asia Pacific. We're well positioned to be able to support them to grow in our portfolios, whether it be in Mainland, Hong Kong, Singapore or even Australia over time.
That's a big part of our strategy is to harness the strength of our portfolio and grow our retailers as they look to expand across the region.
Thank you. Another question is regarding the recent public housing rent increase. What will be the impact on rent?
Yeah, I mean I think there's a.
Negative there, but there's also a positive.
In the increase to the minimum wage again more recently 5.25%. We are not servicing the discretionary spending patterns of our population, we are servicing their daily needs. I do not think that that would be a significant impact to us.
I think if we look at minimum wage going up, which increased our costs for those who help us to run the shopping center, especially the frontline cleaning security site, as Greg said, they will typically spend at our shopping center. That increase in income will help our tenants' sales. The rental increase for those who may not know, most of the public housing rental for each unit is less than HKD 1,000 to HKD 200,000 a month for those who park their cars. Our car parks will probably be charging HKD 2,000 for car park space. I think on the relative terms you can see that the amount of the rent that they're paying, albeit to a different to that segment of the community, means have a certain impact but to a large extent we're still affordable.
The impact on the spending I think will be offset by the minimum wage increase.
Thank you, Josh. Due to the time limit we have the last two questions. One is from DBS, what is the short term lease as a percentage of area in Hong Kong as of December and should we expect that will further increase?
That's actually fairly stable. It is an insignificant number in terms of our overall portfolio. I can also say that the number of tenants on holdover has reduced quite significantly from the first half to this period. For the most part, leasing transactions in Hong Kong are on a normalised basis of a three year cycle and do not see that short term or holdover leases being an issue to call out.
I think we have in the past few times announcing results both interim and final result. We talk about how many new tenants that we have signed and, well, not every center have a few. The ability for our colleague to replace tenants as some need to vacate for various reasons has allowed us to keep that occupancy strong. Obviously sometimes we do need to subsidize some new tenants, especially we want to change the mix. The strong occupancy has continued to help.
Thank you. The last question is from Millennium. Despite the slight negative rental reversions, can we keep the overall vaccine?
I think there's a lag effect and we have only roughly a third of the lease expiring each year. If you look at the downtrend, it will take several years to hit our P& L and certainly the last year this year has been challenging. We expect 2025-2026 financial year also will be challenging. In the discussion with our tenants, Greg mentioned that some of that is taking the retail market is stabilizing, but I think the positive impact will take a little bit of time to come back into the portfolio again because it's one third expiring each year. Even the upside will take a little.
Bit of time to run in.
I think we'll see probably some challenge to our top line as a result of the activities, the leasing activities that we've done from about calendar years 2024 to about late 2025, 2026, with likely impact on both the downside and the future upside.
Here comes the end of our update. Thanks for joining us today and look forward to seeing you again in our final results in Mainland. Thank you.
Thank you.
Thank.