Okay, welcome. Good afternoon, everyone. Welcome to our Link 2024-2025 Interim Results Briefing. So, I'm Christie Ku, Director of Investor Relations and the MC of today's briefing. Today, we are very delighted to have our new Chair, Mr. Duncan Owen, to be with us today. So, it's a really rare opportunity to have our chair to be with us in the results briefing. So, thank you, Duncan. And we also have our management team here: Group CEO, George Hongchoy, CFO, Ng Kok Siong, and also our COO, Greg Chubb. So, here is our agenda today. So, first, we have Duncan to share the macro overview and also the outlook. And then we'll have George to share the interim results highlights and also share a bit on the outlook on our operating markets.
And then followed by Greg, who will share more on the operational updates on our key markets, Hong Kong and overseas. And then KS will continue to follow on the operational updates on mainland China and also on capital management. And then later on, George will be back to talk more about the strategy updates. And finally, we will have our Q&A sessions. So now, without further delay, we will pass the floor to our new Chair, Duncan. Thank you.
Thank you, Christie. Good afternoon, everyone. It's a real pleasure to be here as the new Chair of Link. We remain, as I think everyone knows, a leading independent, fully integrated real estate investor and manager with an increasingly strong track record. Our goal is to be the trusted partner in APAC for our unit holders and various other investors and stakeholders, and to continue upon our track to build our track record that we've had now for almost two decades. Link, however, of course, is not an ordinary REIT because it is an investor and a manager as well as an operating platform. The opportunities to create new sources of growth lie in developing these two complementary business lines, increasing the quality and resilience of our earnings through diversification of the Link REIT portfolio, as well as expanding the investment management business.
I'll let George elaborate about this more when he covers the strategy section. Moving to the macro overview and outlook, sometimes this can be a slightly gloomy picture, but the global real estate market is encountering many what I would call crucial pivot points driven by multiple macroeconomic transitions. We're all aware of these themes. They include demographic changes, geopolitical changes affecting trade flows, climate change, sustainability, and of course, rapid technological advancements. These transformations all affect the Hong Kong economy and they all affect the real estate landscape throughout the APAC region. Though the outcomes of these shifts remain unknown, they signal heightened uncertainty and the necessity for all businesses to adapt in the face of these changes and transitions. We've yet to fully appreciate all the consequences of the unprecedented quantitative easing after the global financial crisis and now its rapid reversal over the last few years.
This has posed challenges for individuals, companies, and national budgets alike. As interest rates rose, many faced declining real incomes, leading to reduced consumer and government spending, which we've all witnessed. Real estate, of course, is a non-homogeneous asset class. It is essentially essential to not only maintain the scale and liquidity of REITs of Link REIT, but also to ensure we're a compelling business model and have a compelling business strategy that demonstrates both the resilience as well as the future capacity for above-average risk-adjusted returns. Turning to the market outlook, the last slide from me, really looking at the macroeconomic outlook, the key word remains uncertainty. Although the Federal Reserve and other global central banks have started on their interest rate cuts, there remains the need for balancing inflation with economic growth, thus avoiding, of course, recession.
As such, the pace and breadth of these rate cuts, we believe, are expected to be gradual and will be uncertain. The presidential election in the U.S. is likely to add further to longer-term uncertainty as it will take time for the implications of the election result to play out for all of us. Furthermore, the structural changes from the Greater Bay Area have caused consumer behavior to change. Correspondingly, this has led to retailers to review and adapt their strategies, and that impacts Link as it impacts many other REITs in the region. However, there are some bright spots. These include the economic stimulus in mainland China, the policy easing, and the reversal of austerity. Meanwhile, in Hong Kong, the easing of interest rates are likely to benefit the real estate markets in general.
There are also some early signs of stabilization in the investment market and rental growth for the very best-in-class assets that are competitive. I think the price dislocation has also resulted in a number of investors beginning to explore opportunities again because assets may now provide, from this point in the cycle, above-average risk-adjusted returns. Thus, whilst the macroeconomic backdrop requires caution, opportunities will arise for active investors who have differentiated operating platforms such as Link. It's really there for us to take advantage of those opportunities. Thank you, everyone. I'll now pass to George to talk about the interim results and the highlights.
Thank you, Duncan. I'm pleased to present our financial performance, which we announced earlier today. Despite a challenging retail environment in the key operating markets, our commitment to operational excellence in capital, asset, and portfolio management has yielded solid results. Revenue and NPI increased by 6.4% and 5.8% year-on-year, reaching HKD 7.1 billion and HKD 5.3 billion, respectively. This growth was mainly attributable to a new contribution from the recent acquisition of an additional 50% stake in Link Plaza Qibao, along with the improved performance across most of the operating markets. Accordingly, the total distribution amount increased by 4.3% year-on-year, while DPU grew 3.7% to HKD 1.3489. As for NAV per unit, it fell by 4.6% year-on-year to HKD 66.8 due to a decrease in asset valuation largely from cap rate expansion. Meanwhile, net gearing stood at 20.6%. Throughout the reporting period, we made significant progress in optimizing the portfolio.
Hong Kong saw a 2.2% increase in total revenue and a 2.4% year-on-year growth in NPI, driven by consistent performance in the retail sector. We are also pleased to report the improvement in mainland China operations with the increase in revenue and NPI by 39.2% and 37.6% year-on-year, largely due to the contribution from the additional 50% from Link Plaza Qibao. Taking out the acquisition, revenue and NPI growth would have been 6.5% and 4.9% year-on-year in HKD. Moreover, the benefits of our diversification strategy over the years become more evident as the healthy operating matrix in both Singapore and Australia helps counterbalance the challenges that we face in Hong Kong and mainland China. On the asset enhancement front, we have completed two projects in Hong Kong, achieving ROI of 17.2% and 19.9%. This accomplishment reinforced our commitment to maximize property value in core markets.
In mainland China, we executed an asset enhancement at Link Central Walk, yielding an ROI of 43.8% and significantly improving the asset's overall performance. This outcome underscores our robust asset management capability in key markets. I would also like to highlight our robust financial position, and we have maintained a low net gearing of 20.6%, which provided us with ample capacity for growth. Moreover, through proactive capital management, we're able to manage our overall all-in borrowing costs at a favorable level of 3.69%. In a nutshell, our focus on diversification, strong asset management capabilities, sound financial positions, and strategic cost management put us in an advantageous position to cope with the evolving market conditions. Looking at our operating markets, Hong Kong, the population has returned to 2018 levels.
The recent expansion of the Top Talent Pass Scheme is expected to provide additional boost to both population and also drive demand for consumer spending. Additionally, the Hong Kong economy and property markets are poised to benefit from interest rate cuts. This development is expected to stimulate investment activities and boost consumer spending, alongside the potential easing of the Hong Kong dollar exchange rate, thereby bolstering the economy. Adding to this positive momentum, the central government in China launched a raft of stimulus packages in September and October, which are expected to reinvigorate the economy. The recent Hong Kong Policy Address also proposed a series of property market policies to enhance overall market stability. These measures aim to create a sustainable growth path for Hong Kong, ensuring long-term benefits for homeowners and investors alike.
These improvements, also in employment income through potential minimum wage adjustment, are expected to boost consumer sentiment. In mainland China, the PBOC lowered both the deposit and loan rates. The measures helped to inject liquidity into the market by boosting borrowing and investment activities and thereby sustaining economic growth. Furthermore, adjustments in housing policies, such as lowering mortgage rates, reducing down payment ratios for second-home buyers, and relaxing certain purchase restrictions, aim to stabilize the property market and prolong long-term growth. With the low inflation environment, it is conducive to both keeping business and consumer costs in check. Although the full impact of these policies in China will take some time to manifest, early signs of improvement are visible in the third-quarter 2024 GDP data, where industrial output and retail sales have gained momentum.
Looking at the current economic landscape of our other markets in Singapore and Australia, September 2024 total retail sales in Singapore was positive. F&B services grew moderately at 1.6% year-on-year, and the sustainable growth in new PMI orders, driven by a recovery in the electronic sectors, boded well for the economy, which would have a positive effect on consumer spending. The labor market dynamics, including the influx of high-skilled and therefore high-income foreign workers, as well as low unemployment, are supportive of consumer sentiment as well. In Australia, the minutes of the Reserve Bank of Australia indicate that policy easing is not expected in the near term due to persistent inflation. Nonetheless, consumer sentiment showed improvement of 6.2% in October 2024, as indicated by the Westpac-Melbourne Institute Consumer Sentiment Index, largely fueled by reduced concern over potential rate hikes.
Additionally, a stable unemployment rate reinforced the overall economic stability in the region. Let me hand over to Greg to share with you the operational update.
Thanks, George, and good afternoon, and thanks for joining us. I'll start by looking at the performance of the Hong Kong retail sector, where revenue for our Hong Kong operations have increased by 2.2% year-on-year. Our portfolio occupancy rate has remained stable and robust at 97.8%, and this underscores the resilience and strength of our essential needs-focused trade mix, even in the face of very challenging market conditions. Rental reversion for the segment experienced modest growth of 0.71%, and the average unit rent edged up slightly to HKD 0.6450 per sq ft, compared to HKD 0.6440 in March 2024. Looking at the performance of retail sales here in Hong Kong, during the reporting period, the ongoing effects of changing consumer habits and unfavorable currency trends continued to dampen the overall retail sales growth in Hong Kong.
Link's portfolio tenant sales declined by 4.3% year-on-year, while the broader Hong Kong market fell by 8.8% year-on-year, and when we analyzed by trade mix, F&B remained relatively resilient, experiencing a very modest decline of 0.71%. However, the supermarket, and particularly the foodstuffs categories, continued to underperform slightly to the Hong Kong market, while general retail declined by 6.6%, and given these developments, it's crucial that we continue to respond, and we remain open to optimizing the portfolio as and when opportunities arise. Looking at occupancy costs, where we observe an upward trend during the first half of this financial year, although they remain at a very sustainable level of 13.1%, and by trade mix, F&B and supermarket foodstuffs fall within the lower range at 13.1% and 12.1%, respectively, and occupancy costs for general retail stands at 14.4%.
Now, in response to the challenging market landscape, we've increased the leasing efforts to capture emerging market demand and improve the curation of our tenancy mix. In the first half, we signed over 300 new leases, and this showcases our ongoing leasing efforts across the business. We introduced 118 new brands alongside 185 existing brands that have expanded alongside us. And this has been crucial in maintaining the broader market relevance across our portfolio. We've strategically been cross-selling brands between Hong Kong and mainland China portfolios, and we've significantly boosted customer engagement. One notable success story is a mainland Chinese brand by the name of Muxin, and they've debuted their first store in Hong Kong at our Choi Ming Centre.
Additionally, we've continued our leasing focus on capturing emerging demand and trends, such as pickup service points and 24-hour fitness centers, to attract more foot traffic and enhance our customer offerings. This period, the most demand has been seen in areas such as education, specialty restaurants, and family entertainment, and as for our Hong Kong car park and related businesses, we've experienced a 1.4% year-on-year increase in revenue. We have observed parking ticket sales have declined, but this has been offset by increases in parking tariffs. We're focused on staying attuned to market trends and devising strategic plans to sustain the performance, including the rollout of our new car park management system that I'll touch on briefly now, so we've completed the digitization of our car park management system to enhance productivity.
Within just four months, we've transformed over 56,000 car parking spaces across our 121 parking facilities, and this encompasses more than 500 lanes. With the introduction of this cutting-edge AI technology and cloud-based systems, new features will also include convenient car park payment systems via multiple e-platforms, including our LinkU p app and digitized customer services to enhance the customer experience more broadly. Now, additional upgrades such as license plate recognition and improved vehicle traffic efficiency are designed to offer our customers a smooth and convenient parking experience and driving footfall back through our shopping centers. Furthermore, we're exploring similar enhancements across various elements of our operations to uphold our commitment to operational excellence. Enhancing the underlying positioning of our assets is an integral part of our DNA here at Link. During the reporting period, we completed two further projects aimed at boosting asset performance and returns.
The capital expenditure pipeline currently in planning or pending statutory approvals stands at over HKD 650 million. Asset enhancements recently completed or currently underway involve a combined capital expenditure of HKD 167 million. Fu Shin and Sau Mau Ping were completed in the first half of the year with capital expenditure of HKD 37 million and HKD 55 million, respectively, yielding very good returns of 17.2% and 19.9%, respectively, and I'll touch on the Sau Mau Ping project in a little more detail, where we've proactively engaged our asset enhancement skills and will continue to capitalize on these opportunities to elevate the customer experience, and recently at Sau Mau Ping, we converted the third-floor space and the children's playground, and this involved relocating the former Social Welfare Department office space and transforming the roof garden into a really great children's play facility.
Our strategic tenant remix there features a clinic, light refreshment options, and an F&B area with views over the new playground, thereby enriching the offerings to meet community needs and driving rental uplift. This has been carefully planned, and all the arrangements are effectively there to attract more customer visits to the third floor, increasing footfall and overall engagement. The project, as I mentioned earlier, was at HKD 55 million and has yielded a nearly 20% yield on costs, so in a bit more detail with regards to this playground, it showcases our placemaking efforts really well. The previous area was very, very unappealing, and it's been transformed now into a vibrant destination through this placemaking initiative, and the revitalized space now boasts a rooftop area featuring a geometric Wonder Zoo, as we're calling it, and this is a captivating animal-themed park.
It offers a variety of exciting amusement facilities alongside an educational zone where children can explore and learn more about animals. We aim to replicate this successful approach in other suitable locations to ensure continued sustained growth and our continued focus on operational excellence, and beyond the physical enhancements of our assets, we're committed to investing in green initiatives and endeavoring to create new revenue streams from these efforts. We've recently entered into a Build-Operate-Transfer, or BOT, service arrangement with CLP for a series of solar generation systems where CLP will cover the capital expenditure for building these systems and will share in the feed-in tariff income according to a predetermined ratio. All electricity generated by these solar systems will be purchased by power companies at the current tariff rates.
Additionally, we plan to expand our solar generation beyond what this current agreement covers, allowing us to sell the generated power at the full current tariff rates, further establishing new revenue streams. Now I'll move on to the international portfolio, where in Singapore, our assets at Jurong Point and Swing By Thomson Plaza are performing really well. This is underpinned by steady suburban demand, with shopper traffic having recovered to pre-pandemic levels. Solid occupancy rates now of 99.8% and very strong continued positive leasing reversions at 18.9% have been seen across our Singapore portfolio. And taking a closer look at the trade categories which have driven the sales performance, this includes food and beverage and beauty and wellness. In terms of tenant demand, Singapore has become a critical hub for overseas retailers and F&B operators, especially for Chinese brands aiming to capture the broader Asian market.
These present us with opportunities to introduce new tenants to our malls in Singapore, but also here in Hong Kong. For our Australian properties, consistent performance has been steadfast. Continued improvement in tenant sales, higher footfall, and firm occupancies now at 99.1% have resulted in boosting the appeal of the malls to tenants and customers alike. Continued new openings of new and unique brands are contributing to this performance. The trend of increases in overall CBD activity in Sydney has been sustained in the last year, arising from higher tourist arrivals and the pickup in back-to-office. In addition, the new Sydney Metro Rail, and namely the Gadigal Railway Station, sits very close to our three properties in the Sydney CBD, and this has boosted connectivity, and it's only a short walking distance to our three properties, boosting their strategic locations.
Finally, from me for the international office portfolio, which encompasses our Australian assets as well as The Cabot in London. Overall, we've got a relatively long WALE that's been maintained at 4.7 years, and occupancy has been preserved at 90.2% as of September. Initiatives taken to improve occupancy rates include new speculative office fit-outs, as well as a lease-up of a number of these speculative suites at our 347 Kent Street property in Sydney that were completed last financial year. These have been supported by the ongoing flight-to-quality trend that is evident throughout the region, whereby core precincts have seen positive net absorption. By virtue of this, maintaining a high-quality portfolio enables us to capture tenant demand driven by this growth in white-collar employment and the need for more collaborative workspaces.
On a broader basis, the Sydney CBD has the added advantage of having a very low pipeline of new supply in 2025 and 2026, and this is expected to heighten occupancy and demand for office space. That's it from me. I'll now pass on to KS. Thanks, KS.
T hank you, Greg. Good afternoon to all of you. Let's shift the focus to mainland China portfolio. In first half 2024/25, despite ongoing consumption downgrades and a challenging economic landscape, fashion and accessories, F&B outlets, and groceries targeting the mass market experienced strong leasing demand. Occupancy remained solid at 96.4%. However, portfolio rental reversion turned -3.2%, primarily impacted by Link Plaza Zhongguancun, which is currently undergoing major tenant remixing and repositioning. If we exclude Link Plaza Zhongguancun, rental reversion registered a growth of about 6.5%.
The portfolio rental reversion is expected to level out by the end of this financial year. In response to the evolving retail landscape and to maximize asset value, we have started enhancing the malls in Beijing and Shanghai, Zhongguancun and Qibao, focusing on a portion of the basement area and the repositioning of specific floors, respectively. An estimated CapEx of HKD 25 million has been allocated to the two AEIs, with a target completion late in 2024. Additionally, we have two large-scale projects undergoing AEI with a combined CapEx of HKD 180 million slated for completion in mid-2025 at Tianhe and Tongzhou. We have been actively making efforts to pursue operational excellence and enhance overall performance. Recent renovation of basement area at Link Central Walk showcased our capabilities in navigating challenges and transforming underutilized space into valuable assets.
At Link Central Walk, our active asset management team developed a strategic plan to negotiate with Carrefour, our anchor tenant, which began scaling back operations during COVID. Through ongoing discussions with a tenant, we successfully downsized the space and ultimately terminated the lease with Carrefour, allowing us to reposition the basement. Our swift reaction to the shifting market conditions has resulted in increased rental income, introduction of more productive tenants, and a more vibrant shopping environment. The renovation was completed and unveiled in July this year, with a capital expenditure of HKD 24 million yielding an ROI of almost 44%. A broader range of options is now being offered to shoppers by bringing in over 50 new tenants to the basement. In the past three months, the mall has experienced a significant increase of over 30% year-on-year footfall and over 60% year-on-year tenant sales.
The asset enhancement initiative in the basement of Link Plaza Qibao also exemplifies the commitment to operational excellence. Collaborating with Vanke, we transformed the space of a low-performing anchor tenant over a period of two years, which previously offered limited options for shoppers, into a vibrant area offering a diverse array of F&B options. This initiative not only elevated the shopping experience but also attracted a broader customer base, driving footfall and customer satisfaction. The rental rates more than doubled following the renovation, resulting in an ROI of 106% on a CapEx of HKD 5.2 million. A total of 26 new tenants were introduced to this revamped retail space, bringing a diverse range of offerings that cater to various customer preferences, including grab-and-go, specialty restaurants, and unique dining experiences. Turning to the logistics portfolio, we continue to face challenges in the market, particularly in the Yangtze River region.
This year, the Jiaxing market experienced a significant influx of supply. Hopefully, this will be absorbed in the near future. Despite these challenges, we observed steady improvement in occupancy rates, primarily driven by strong leasing activity in the Greater Bay Area. The occupancy rate grew to 98.2% in September 2024 from 96.2% in March 2024. Next, capital management. Our strong financial position is well supported by a healthy balance sheet, as shown by the key metrics here. Net gearing edged up marginally but maintained low at 20.6%, while the average borrowing cost remained competitive at 3.69% despite interest rates staying elevated. EBITDA interest coverage improved to 4.8 times. Fixed debt ratio reduced moderately to 66.4% in view of the beginning of the easing rate cycle. This is expected to decrease progressively given the rate cut outlook.
The disciplined approach to debt management, with diversified sources of capital across debt instruments, has helped us achieve a competitive average borrowing cost of 3.69%, as well as maintaining our robust credit ratings. Having repaid some debt during the period, the debt balance reduced to HKD 55.6 billion. As such, we only now have a balance of HKD 2.4 billion due for refinancing for the rest of FY 2425. The robust credit ratings achieved alongside the debt management have reinforced the ability for us to assess capital favorably and at very competitive financing costs. On valuation, portfolio value declined by 2.1%, half on half. Among the sectors, the office segment experienced the most significant cap rate increases across all regions, while the cap rates for retail in Singapore and Australia remained unchanged. Other regions encountered varying degrees of cap rate expansion.
Additionally, the logistics sector in mainland China also saw an expansion in cap rates. Next, I'll pass the floor back to George to talk about the strategy update. Thank you.
Thank you, KS. Firstly, to begin, we'll have a look at an overview of the Link REIT portfolio. It is mostly weighted towards Hong Kong at 74%, followed by China, mainland China. The international portfolio consisting of Australia, Singapore, and the U.K. accounts for 11% of the portfolio value. Breaking down the portfolio by sector, retail accounts for about 70% of the portfolio value, followed by car parks and related businesses at 20%. Office and logistics are collectively at about 10%. So, over time, seeking further diversification and growth under Link 3.0 would help us to strengthen the portfolio with a better balanced exposure across key APEC markets, enabling us to generate attractive risk-adjusted returns for our unit holder.
Further details will come in this next slide. The need to evolve our corporate strategy is driven by the increasingly uncertain and challenging market due to persistent long-term structural changes, which Duncan has highlighted earlier. Building on these, we aim to be a REIT plus investment case to overcome the market challenges such that our returns are resilient against market cyclicality and are able to deliver above-average earnings growth. Broadly speaking, this is to be attained through building our capabilities and track record built over almost two decades. The way forward would be to do this through active management and further diversification of the Link REIT portfolio. These are vital to enhance resilience and ensure that the portfolio achieves a balanced exposure across key APAC markets. With these in mind, accretive investment opportunities are being considered across geographies and asset classes as we monitor regional repricing trends and investment phases.
We see opportunities in Australia, Japan, and Singapore due to their relative low investment risk and abundant liquidity. Meanwhile, the evaluation of potential asset recycling is ongoing for divestment. In summary, a further strengthened portfolio with a better balanced exposure across APAC will better enable us to generate attractive risk-adjusted returns for our unit holders. In addition, we also aim to expand our investment management capabilities under Link in our target APAC markets. This would enable us to work with and provide services for third-party capital providers. And finally, it is worth remembering that while we have laid out our plans, the change from the strategy will take time to bear fruit. We have the evolution by upgrading the management team over the last few years, refreshing the board more recently, aligning our processes, and upgrading our systems, which is ongoing.
Building on our strengths and executing the strategy organically, inorganic opportunities will also be selectively and prudently evaluated to accelerate the development and growth of the Link REIT portfolio, as well as our investment management capabilities. We'll stay vigilant, agile, and adaptive to navigate the risks and seize opportunities ahead. Lastly, here are the dates for the payment of distribution with scrip election for your information. The landscape is ever-shifting, and along with it, different challenges and opportunities in the market and sectors that we operate in. Our focus on continuing optimization of the portfolio, in addition to its diversification, has paid off in the form of its resilience. This has enabled us to continue to provide our unit holders with a stable return and sustainable long-term growth despite external headwinds.
Under Link 3.0, we aim to create value for our unit holders, and this is to be achieved by diversifying the Link REIT portfolio into APAC and other asset classes, as well as expanding the investment management business through providing services for third-party capital partners. As we embark on this long-haul journey, we will continue to focus on the interests of the unit holder, as well as alignment with capital partners and other stakeholders. Let's move on to the Q&A session.
Thank you. Thank you, Duncan, George, KS, and Greg for the sharing. So now we come to the Q&A section. Okay, let me say something first. So for you guys, you can raise your hand if you have questions. And then for those joining us online, you can use the Q&A function to submit your questions. And please state your name and the company you represent.
And so because our briefing will be wrapped up by 5:15 P.M., so please appreciate if you limit your number of questions to two so that we have more of us participate in this Q&A section. So first one. Okay, you are the fastest. Karl, please.
T hank you very much. This is Karl Chan from JPMorgan. I have two questions. My first question is for Duncan, yeah, because you are the new chair for Link REIT. Just curious if you can share a bit more about how you see Link REIT in, let's say, five years' time, and what would be your KPI for Link REIT. That's my first question. And then the second question is more about the Hong Kong retail sales, because we did see some narrowing in the year-on-year decline in the second quarter.
So I'm just wondering if you can share a bit more colors on how the trend has been like since October. Do we see more improvement, more stabilization in the Hong Kong tenant sales? And then we are glad to see that we are still able to achieve a positive 0.7% rental reversion. But then going forward in the second half, do we expect a similar mildly positive trend, or are we sticking to the previous guidance where we expect a flattish rental reversion in Hong Kong retail? So that would be my second question. Thank you.
Thank you. I will hand the second part of the question to Greg, to my left, your right. It's quite interesting. We are in a period of great uncertainty, which dictates that we should be cautious in what we do.
At the same time, we should evolve the business, which is very different to a revolution of the business. But we should make sure what we do, in any analysis, is compelling. We need to differentiate ourselves moving forward. So 3.0 on how that should look from our perspective is we currently have a strong portfolio that's proving more resilient than we thought, but we need to look for new assets to improve the quality of the earnings streams in, say, five years' time. What that means is we're looking for capital and real estate partners that will invest alongside us into assets that we would want our unit holders to benefit from, but we may not otherwise be able to invest in them as quickly or in an agile manner that we could if we only did it on our balance sheet.
So the key word for me with 3.0 is we would want alignment with our new partners and investors, and we would want to be doing things that we should be doing to improve the investment performance for our unit holders alongside those new partners. Yes, we might get paid for doing that on behalf of others, but we will be protecting our balance sheet, and they will be compelling business cases where we see there are low points in the cycle appearing. So would I predict and give you an answer where we are in five years? No. I think some people do, and it suits their investors, but each strategy should be fit for purpose.
I think for Link, where we are with our existing portfolio, the best thing that we can be is not to overpromise. It won't be easy, is to make sure that we're clear, it's compelling, and we're deliberate, and that our strategy is fit for purpose for our shareholders, and they first and foremost benefit from that with a new line. I'll hand to Greg. The second part of your question is clearly tough. I think we've, as George has described, delivered a solid set of results, but clearly those headwinds won't get any fainter, and we are realistic about that, and we have to be deliberate. And again, just as much of the new things we do, the things that we manage currently, it has to be unequivocally compelling business cases for us to invest our capital to get better returns in the future.
I think there were two questions in your segment there, Karl, one on sales and the other on reversion. So just on sales, can we go to, I think, slide 17 just for reference, please? So we're clearly outperforming the broader Hong Kong market. So this is something we track quite regularly. The other aspect is this tenant sales index that we've put there from the pre-social unrest. So for two of our three main categories, we're above the spend or sales at that point in time. And for general retail, we're down. But from a portfolio basis, we're only a very slight 180 basis points down on the period of 2018, 2019, whereas the Hong Kong market is at 76.7%. So a big difference, and it just shows the purpose and, I guess, positioning of our portfolio and being a non-discretionary-focused REIT.
The sales performance, I think we're comping lower numbers from the prior corresponding period as we get through the period. So I expect the sales decline for our portfolio to get less. But on the leasing reversion side, I don't think we'll be in a position to preserve that 0.7 position that we've got at the moment. The leasing market is incredibly challenged. The work that our very large and experienced leasing team is undertaking on a day-to-day basis is really challenging. You will have seen from a number of the listed retailers here in Hong Kong that have reported recently with some profit warnings, and that is not going unnoticed. So we'll continue to preserve very meaningful relationships with our retailers. We'll be dealing with each of them on a case-by-case situation.
But I would anticipate that the reversions in the second half will deteriorate from the 0.7 that we've reported today, and we'll be focused on preserving our portfolio occupancy. So for us to be able to preserve our occupancy close to what it was at the full year at March is a very, very good position, and that's our real primary focus at the moment. I will also add, finally, that our occupancy cost at circa 13% across the portfolio puts us in a pretty reasonable position to weather the storm. But working closely with our retailers is what it's all about.
Thank you. Sam.
Thank you very much. Thank you, Management, for the presentation and congrats on the good results. I have two questions, if I may. First is on the follow-up on Hong Kong retail.
So on that reversion slowing down point, right, I just wonder what is the right occupancy cost for Hong Kong going forward? Because right now, I think occupancy cost is 13.1%. Before, I think at peak is roughly around 13.5%. So is this structurally we're seeing lower occupancy costs in Hong Kong? So that's the first question. And then secondly, regarding the strategy part, I think more Hong Kong property companies are advocating regionalization and asset-like strategies. So just want to see how you think about the competition in asset sourcing and fundraising in the future. Thank you.
I'll take the question on occupancy cost. And if you look in the presentation materials there, we obviously segment across the four main categories. On a blended portfolio basis, I think anywhere close to 14% is acceptable.
The one thing, and I think we spoke about this at the full year, is the one major concern that I have personally is just the erosion of margin for the retailers with increased costs, whether it be labor costs with the increase to the minimum wage, or alternatively just the cost of utilities and general inflationary pressures is putting pressure on the P&Ls of all of our retailers. So it's a long game that we play. It's a matter of preserving occupancy, and I think you'll see that we would sacrifice a little bit of reversion to preserve portfolio occupancy and making sure that our retailers are profitable and sustainable. On the point of strategy, I'll let George expand in just a moment. I think the benefit of the APAC region is it is very, very diverse.
A number of its economic cycles as real estate markets move at slightly different times, that they may not be in perfect sync, they're echoes of one another, and it gives us the advantage to improve the quality of our earnings by being in other key markets so long as those business cases are absolutely compelling. At the risk of repeating myself, it will be evolution for us. We won't believe that we will automatically have a right to go into any new markets where there are already good competitors who have been doing it often for over a century. So we will build teams and capability, and we will do it in a measured and careful way.
As we diversify, we're faced with, obviously, new competitors every time we go to a new sector, a new geography.
As Duncan mentioned, both locals and those who go there from elsewhere, that's something that we're quite used to. But I think in order to prepare ourselves, I mentioned briefly the upgrade of the management team, adding to that capability and continuing adding to that, getting the system ready so that as we piled on more assets for us to manage and analyze, that we'll do it on an efficient manner. There's a lot more technology from facility management to lease CRM systems and all that that we have installed over the last few years. I think those will continue to help us to strengthen the asset management capability that we have. I think these days, especially capital partners that one talks to are not just looking for someone who helped them to allocate capital, but to help to manage and drive value out of those assets.
So those managers who actually have that capability and demonstrated over many years of how to work asset hard will probably get a return of their phone calls. And so hopefully we will be able to deliver on that. The diversification itself is necessary if you look backwards, that if we haven't done it, we would have seen a drop in our distribution already given the challenge in Hong Kong and China. Going forward, I think what we want to do, make sure is that it's done in an even more methodical way with a lot more analysis to make sure that we indeed will be able to deliver that resilient distribution. Not easy, but I think, as Duncan has said, we'll tell you more as we deliver. I think we don't want to overpromise. It is a challenging market out there, both on operation and also in fundraising.
But we are hopeful and we're putting together the best team to do that.
Cindy.
Thank you. This is Cindy Li from Citi. I have two questions. First is as well on your Link 3.0 strategy. Just want to hear your thoughts on what are the biggest bottlenecks in executing this strategy for the time being. And in talking about, say, potential more balanced, optimal portfolio, how do you see Hong Kong's positioning and, say, proportion within this strategy? Will we be more actively looking for divestment, or how should we think about that? This is the first question. And the second question is for your mentioning on the growth of non-rental income. Just wondering if there's any more color on that. Thank you.
I'll take the first, which may have two or three hidden in it.
And I'll hand over to Greg, but it may well be there's also some comments from KS on a Chinese perspective as well for the mainland. Yes, we should look to recycle capital for it to be efficient. That won't be easy, and we will not be in a position where we go through a cycle and we're sellers at the bottom of a cycle. Yes, we will need new capital partners to work alongside our balance sheet to take the new opportunities. So both those steps in 3.0 are hard. There are many good entities, both local REITs as well as international managers that do that and are very proficient of it. So it's not easy. It's a competitive landscape that's rich.
However, if you bring a disciplined approach to sectors, cities, types of assets, you can really benefit from this time in the cycle where polarization is a really key word for what's happening in different sectors, different countries. And it will prove, I believe, in four or five years' time to have been a good time to be taking advantage of a number of those points in the cycle. Noting importantly George's point, you have to also be able to operate those. And that may be a competitive advantage that Link has because it has a very strong track record in operating assets, which it can dovetail well with its investment management capability. Greg.
On the non-shop or non-traditional income, very early days for us, Cindy. We're exploring a number of opportunities, how we can monetize the common areas of our properties, the amount of footfall that we generate, the style of customer that we deliver through our assets on a day-to-day basis. I think provides us with a pretty unique opportunity to monetize those common areas in a number of different ways. The example that I spoke to today around the solar and the feed-in tariff rates that we're securing is providing a very good return for a very limited investment. We think we can expand that program further. But ultimately, the thing for me in looking at our income streams, our non-rental income or non-traditional income is not a high enough percentage as it should be. So we're working on a number of strategies.
It'll take us some time, but the teams are engaged in exploring what we can do to increase our revenue streams. Thank you.
Mark.
Thank you, Management. This is Mark Leung from UBS. I have a follow-up question regarding on the non-rental income. Because I look at the first half results, I think the management fee as well as the air conditioning fee was up by around 14%-15% in this first half. Just, I think Greg, you mentioned that many of the retail tenants, they may issue profit warning. Do you think that growth rate will be that strong or will be sustainable? I think that's the first questions. And also, if we take it part into the occupancy cost, do you think we are what kind of level are we versus our internal maybe ceiling level? What kind of level is it? Thank you. Okay.
So just on the management fee recovery, that's a catch-up. So we weren't recovering our full expense load for the management of the assets. So it's a one-off increase to bring us back to recovery. So we're not looking at extending it again in the near term. And sorry, the second question, Mark, I just didn't catch.
Occupancy.
Right. Yeah. Yeah. So again, the base occupancy cost is ultimately sustainable. The other, I guess, lead-in factors that we look at is our reversion rate, our retention rate. Our retention rates are just under 80%, which is normalized. So all of the lead indicators for us would demonstrate that there is a general affordability to the metrics that we're currently delivering.
But as I said in the previous question to Karl, the concern is just the overall margins for the retailers are under pressure, and it's something that we have to deal with on a case-by-case situation.
Okay. Due to the time limit, we can have two more questions. Okay. Praveen. Thank you.
Hi, this is Praveen Choudhury from Morgan Stanley. Thank you for taking my question. The first question is about the cap rate. I saw that the cap rate universally has been raised a bit in a market where rates are supposed to go down. So just wanted to understand the outlook for that in future. Obviously, it's interplay of future rental as well as interest rate, but just wanted to get your thoughts. The second question is more on 3.0. I think, Duncan, you've tried to answer that many times, so maybe you're going to repeat.
But the question here is a lot of your competitors are also trying to do the same thing as we have seen. So it's already a very competitive market. We are making it even more competitive. And you're saying that you want to only do it if it's accretive to the unit holders, so you're putting another layer of it. It's not just to grow the asset size, making it even more difficult. What exactly is the differentiating strategy? I understand you manage assets very well, but a lot of your competitors might say that as well. So I'm just thinking it's been two, three years of talking about 3.0. I mean, and we understand it's not revolution, it's evolution. How long do we wait before we see the first instance of some kind of income generation? Thank you. Okay.
I'll hand over to George especially on the cap rate question. I've got some views, but I'm sure George could easily answer that. If I deal with 3.0, I don't think we should be arrogant to think we're better than other managers out there or any other manager out there. But we do have some longevity in track record of managing intensively operational assets, fixing and improving them, and driving earnings forward. That is a compelling business case, and it is hard for competitors to necessarily replicate that aspect of our track record. In addition to that, the new team we have, led by John Saunders on the investment side, has its own track record, which is well established and through the APAC region, and indeed covers many of the target markets that George and others have been talking about today through Japan, Australia, Singapore, etc.
So if you're an LP, and I've been both a GP and an LP in the past, you look first and foremost for track record for differentiation. You'll then look for co-investment, which we will be capable of offering. And very much we desire to co-invest because we want to invest in superior assets. And you'll then look to the manager for the science and not a manager that might just say, "I want to grow AUM or have some sort of misplaced KPI that's not aligned with investors' best interests." And I think dealing with it and picking it in those three ways and dealing with that with integrity is attractive to capital partners because they see what is good for us, we are investing in, and we have track record of doing it.
I'm not pretending for one moment there aren't some very strong competitors out there, some of whom have been doing it for a long period of time, but the investment universe is big. The universe is valued or is the market pricing in many points is at a low point in the cycle. And what most managers want is to have capital to invest as these types of times come in the cycle. It is better to be investing in the next 12 to 24 months than it would have been in the previous 12 to 24 months. And I mentioned that partly in reference to the last part of your question on 3.0 about this having taken some time.
I think the discipline that the board that I can take no credit for have exercised in care and attention and shown discipline to not invest too early in the cycle is quite good evidence. So in four or five years' time, we'll see. But hope that answers the 3.0 part. Cap rates, George.
I'll jump to cap rate, but do want to supplement this, tell you a bit of inner secret. As Duncan was saying, just arriving as a chairman, seeing how the board operates, the discipline that we have gone through, perhaps what is instructional is that we talk about Link 3.0, as you know, for two years. You are asking when is the next sort of public step, which will be coming soon, I hope. But we can't talk about it until we've actually done it. But again, this goes back to what I said earlier.
We'll tell you more when we've done it. We don't want to overpromise, and if I do it again, maybe I won't tell you two years ago and tell you next year, but the point really is it is a long journey because system needs to be ready, documents need to be ready, the team need to be ready, the board need to be ready. Our capital partners need to be on our side. All stars need to be aligned in order to make this work, and we told you that we are going into this strategy. We are getting the star aligned, which takes time. It's getting there. Hopefully, we'll have more to tell you very soon.
So if that gives you a better sort of context and why we are more cautious when we hear other peers to talk more boldly, we would rather just be a bit more cautious. It is a challenging world out there. The cap rate and interest rate, anyone who has been trained as a surveyor will know that they never get the number right. So it's difficult. And it is more difficult today than ever before because there is no transaction comparable. So when you do a DCF, normally then you compare it with transaction and see whether it makes sense and all that. And you do a DCF and then you say, "Well, there's no transaction." There's a distressed transaction, and then you say, "Oh, it's distressed. You shouldn't take account of it," or you make an adjustment to it. Then the other point is you look across market.
When Australia is trading a much higher cap rate and Hong Kong is at a low cap rate, is Hong Kong overvalued? We don't know. I don't think none of us are that smart in working it out. So there's a focus on making sure that we continue to work on the asset, delivering on the distribution. Valuation is what valuers said , and we hope that the market liquidity will come back soon. You usually see that sort of uncertainty at the turn of the market.
I don't know whether we reached the bottom or past the bottom, but we're getting close to it, which is why there's, I guess, a lot of contradicting views, and that's usually where the market starts to turn. The exact point, I think we're all betting, but hopefully, we'll get it right, but the valuation is what it is. It is very hard to know.
But the other thing I would say is we did start to mark down our valuation from COVID. And I think some of our peers haven't done that. We've been quite aggressive in doing so. I think there is still in some market the need to do so. Australia office is one that we still mark down quite a bit. The incentive has been very high. Actually, it's been stabilizing. So maybe there's still a lagging factor on how they do it. So hopefully, we're near the bottom as well.
Thank you. Do you have the very last one? Or else I will ask a quick one from the online. So Goldman Sachs Simon asking about an update on 3.0. I think we covered most of it.
Then the other part is, given your existing HKD 237 billion rental portfolio across Asia, what would be your ideal size of asset management AUM?
Let me take that. The size of AUM is a consequence of getting it right. The objective of an AUM is not necessarily a great KPI for growth's sake. If you invest in the right assets and you drive the earnings growth, you will attract more capital as a consequence. But it is as a consequence of getting step one and step two right for investors. So we can all be aspirational and talk about target AUM, but I think we need to focus on the process of what will get us the right AUM more than what the final AUM is. All assets under management are not equal. You need to be paid where it's not your capital appropriately.
You don't need to raise AUM that's dilutive. And you need to raise AUM that performs. So I would not answer the Goldman question about what the target is. I'd say what we're going to do in the process to achieve that target.
Thank you. So I guess we come to the end of the briefing. So thanks, Chair, and the management for your sharing and the insights. And thanks, everyone, for joining us today. Have a great evening. Thank you.