Good afternoon, ladies and gentlemen. Welcome to Link REIT's Q1 2027 first quarter operational update. This is Christy Lam, Director of Investor Relations. On this call, we have CFO, Mr. Kok-Siong Ng, and CIO, Mr. John Saunders. On the screen, you may find today's agenda. Without further ado, let me hand the floor over to KS.
Thank you, Christy. Good afternoon, everyone. This was a quarter of steady performance against an operating environment that remains mixed across our markets. Here are four highlights we would like to share. Starting with the top line, first quarter performance remained steady during the quarter. In Hong Kong retail, spot rent stabilization continued, and rental reversion remained in line with our guidance as we continue to watch through leases signed above current market rents. Across our markets, the retail portfolio maintained high occupancy despite mixed operating conditions. In Singapore and Australia, performance remained solid. In Hong Kong and the Chinese mainland, we have kept up our continued cost discipline while navigating the current retail environment. We will go over the more detailed figures shortly. On our capital position, strong credit ratings continue to support low financing costs despite divergent interest rate trends.
We expect valuations to remain broadly stable in the first half, supported by stabilizing spot rents. Finally, on our focus areas. Our Back-to-Basics strategy remains centered on portfolio optimization, capital recycling, and cost discipline. On that front, we continue to advance assets recycling, unit buybacks, and third-party capital partnerships to unlock value. In July, we announced the appointment of Mr. Neil Slater as CEO effective 1st March 2027, supporting leadership continuity and execution of our strategy. With that, let me take you through our latest portfolio breakdown. Before we get into performance, a quick look at what the portfolio now looks like following the Thomson Plaza disposal completed during the quarter. As at the end of June 2026, the total valuation of the Link REIT portfolio, excluding Swing By @ Thomson Plaza, stood at 216 billion Hong Kong dollars on a pro forma basis.
Core retail and car park assets continue to form the backbone of the portfolio, accounting for 89.5%, with the remaining 10.5% comprising other assets, including offices and logistics. Geographically, Hong Kong and the Chinese mainland retail remain our key markets at about 82% of portfolio value, spanning retail and car park assets, while international retail assets in Australia and Singapore make up around 8%. I will now hand over to John to take you through our operational performance.
Thank you, KS. Hong Kong is our biggest market and the one working hardest right now, so let me spend a moment here. Occupancy remained high and stable with unit rent broadly steady while spot rents have continued to stabilize. On rental reversion, we expect the first half to trend towards negative mid-single digit range and continue to guide for full year reversion at a similar level to last year. Against this backdrop, our response has two parts. The first is how we shape the portfolio itself. We continue to refresh our tenant mix and reconfigure our space to stay relevant to the market with proactive leasing supporting resilience through the quarter. I'll share some examples on a later slide. The second is omnichannel engagement. We remain cognizant of the structural shift in cross-border e-commerce, though growth there appears to be moderating following the sharp increase last year.
We have recently expanded Link Collect to two additional locations to continue deepening our community engagement, activating quieter zones within our malls, and generating data insights. Alongside retail, our car park business kept revenue stable, supported by tariff growth and new revenue streams despite softer demand from declining car ownership and lower ticket volumes. Our convenient locations and the scale of our EV charging network continues to add value for drivers. I'll expand on our car park initiatives later. These two charts provide an overview of tenant performance across the portfolio. On tenant sales, overall growth was broadly in line with the modest softness we saw a year ago. Across trade categories, F&B, which is roughly half of our business, remained resilient as dining demand continued to hold up well while supermarkets and food stuff, as well as general retail, stayed muted.
On the right-hand side, our occupancy cost ratios remain healthy, sitting within a comfortable and sustainable range. We continue to proactively refine our tenant mix to stay ahead of evolving market trends. The next slide shows our asset management strategy in practice. I mentioned we're reshaping the tenant mix. This is what that actually looks like on the ground. We curate our retail offering with a few distinct drivers, and while we bring in different trades during the process, the objective remains the same: keeping our malls relevant to the communities around. First, we activate common areas to generate incremental revenue, pop-ups, food fairs, and putting otherwise idle space to work through a range of events. Secondly, we repurpose space to better serve evolving community needs, introducing services in districts where we see growing demand.
Thirdly, we curate in-person offerings that differentiate physical retail, experiential concepts that cannot be replicated online. Last but not least, we bring in distinctive new concepts to keep the shopper experience fresh. Now let's move on to our car park initiatives. While volume isn't fully within our control, how we price and use our spaces is. We rolled out a series of focus measures this quarter, each aimed at lifting usage and building steadier recurring parking revenue. To start, we reshaped our privileged parking scheme, moving certain complementary benefits onto a paid basis and converting them into income while keeping customers engaged. We also introduced an hourly discount for taxi drivers, drawing in a wider user base and putting our off-peak capacity to better use. On pricing, we took a sharper approach, using data analytics and dynamic pricing to fine-tune tariffs by demand, location, and peak usage.
To round all this off, we added more motorcycle bays, capturing rising demand and unlocking income from an underserved segment. Together, these efforts show how we are actively managing our car parks, protecting utilization while opening up fresh recurring income streams. That covers our Hong Kong portfolio. Let's turn now to Chinese mainland retail. Moving across the border to our Chinese mainland retail assets, a subdued operating environment continues to weigh on performance, with rental reversion under some pressure, primarily refracting weaker performance in the north. Against that, the portfolio maintained occupancy at a healthy level, and both tenant sales, excluding EVs and shopper traffic, saw year-on-year growth. Unit rent, on the other hand, recorded modest year-on-year growth.
We are actively refreshing the trade mix and reconfiguring layouts with leasing focused on lifestyle, IP-driven retail, and popular F&B in order to lift footfall and sales and stabilize performance against a challenging backdrop. Outside our home markets, we are seeing a more supportive environment. Across Singapore and Australia, both sustained high occupancy and positive rental reversions, underscoring continued leasing demand for our well-positioned assets. Occupancy stayed high across the two markets and tenant sales held up well, remaining resilient at Jurong Point and strong throughout the quarter in Australia. Even so, we remain mindful that energy-driven inflation pressure could weigh on retail sentiment and household spending in both. Beyond our core portfolio of retail and car parks, we hold a small book of office and logistics assets. Occupancy across these assets remains stable, with leasing activities steady despite mixed conditions in individual markets.
Our Chinese mainland office and logistics assets held up against new supply and remain reasonably positioned for tenant demand. While our international office portfolio continues to see support from flight to quality demand. I will now hand over to KS to walk through capital management and cost optimization. KS.
Thank you, John. Here is a brief overview of our capital management as of 31st March 2026. Key credit metrics continue to reflect a strong and healthy position with conservative gearing and low funding costs. Finance costs held largely stable despite divergent interest rate trends across our key markets, supported by fixed rate hedge and continued benefit from flight to quality conditions in refinancing. Since the year end, we have also made good progress on capital allocation. As of 7th September, we have resumed our unit buyback program with over HKD 1 billion deployed to date. Non-Hong Kong dollar distributable income and non-Hong Kong dollar currency exposures were substantially hedged. Turning to the shape of our debt, funding mix on the left, maturity profile on the right. Our debt profile remains well structured and diversified, supporting a prudent refinancing cadence.
By type, our funding is well diversified across bank loans, medium-term notes, and convertible bonds, giving us a balanced mixture of funding sources. On maturities, our debt is well staggered across the coming years. This disciplined approach ensures we stay well positioned to refinance smoothly and maintain financial flexibility through the cycle. I will now pass back to John to elaborate on our focus areas.
Thank you, KS. Everything we have covered sits under one framework which we set out at the full year results. As KS said at the start, Activate strategy rests on three priorities, each directed at unitholder value. First, we continue to unlock value from our core Asia-Pacific portfolio. As part of this strategy, we have approved HKD 1 billion of CapEx over the next three to five years to enhance our core portfolio, positioning our assets to capture improving market sentiment. Secondly, we continue to simplify the portfolio through non-core divestments, with proceeds redeployed to enhance unitholder returns, including through reinvestment in unit buybacks. We also continue expanding third-party capital partnerships to grow AUM and fee income. I will elaborate on this in greater detail on the next slide. Thirdly, cost discipline stays a key focus we will continue to pursue.
A leaner structure, consolidated facilities management, and wider digitalization and automation keep delivering savings and supporting margin resilience. On the next slide, I will take you through the capital recycling completed to date, and I will also touch briefly on the CEO appointment for the benefit of those who missed the announcement call. You have seen the strategy. This is what we have delivered against it so far this year. On capital recycling, we completed the disposal of Swing By @ Thomson Plaza for SGD 250 million, crystallizing value at a premium to book. The proceeds are being redeployed into unit buybacks. Following the end of last financial year, we resumed the buyback program on July 9 and have deployed over HKD 1 billion as at September 7.
We have also announced the sale of a 50% stake in One Hundred Market Street in Sydney for just under AUD 226 million, and this is expected to complete in the third quarter. We retain the remaining 50% stake through a joint ownership agreement with Aware Real Estate, keeping an ongoing income stream and management fees while demonstrating our third-party capital partnership capability. On leadership succession, we announced the appointment of Neil Slater as CEO effective March 1, 2027. Neil is strongly aligned with the group's strategic direction, supporting continuity through the transition. Meanwhile, the interim leadership team and chairs committee continue to drive the Back-to-Basics strategy. This concludes our operational update for the first quarter. Thank you all for your time today.
Thank you, John. Thank you, KS. Let's open the floor for Q&A. For those who have questions, please throw them in using the chat box. Thank you. Okay. Let's have the first question from JPM, Karl Chen. Can you clarify what you mean by rental reversion trending towards negative mid-single digits in first half, but full year forecast remains broadly similar to last year? Did you mean that the full year guidance for rental reversions remains high single digits? Looking forward to next financial year, do you expect the negative rental reversion to further narrow?
Yeah, thanks for that. Yes, I think what we're guiding is that, for the first half will be mid-single digits, and I think we've been clear with our guidance, previously, about where we expect the end of the year to look. Even now, we don't have total visibility on that. We've done roughly two-thirds of our leases so far. We still have work to do on the rest to get the eventual result. But I would stick by the guidance that we gave previously in the year as far as the full year is concerned. The one thing I would say, though, is that spot rents do continue to stabilize, which is an encouraging sign. We'll continue to monitor that and finish off the remainder of the leases.
Thank you. We got quite some questions regarding tenant sales as well. Can management update us on tenant sales trends in July and to August? Has the improvement trajectory continued? What three categories are outperforming and underperforming?
Yeah. I think in the first quarter, there's always a little bit of seasonality because you have Chinese New Year, and you've also got quite a few holidays there. I think overall, the trends are continuing. Nearly half of what we do is F&B. I would say F&B is still performing reasonably well. Probably the weakest of the sectors at the moment is still household, but that's why we spend such a lot of time with the mix in the portfolio. As you've seen with Chinese restaurants, for example, where we've reduced the footprint of some of our Chinese restaurants, replaced them with F&B brands from the Mainland. Sometimes that results in a larger number of smaller shops, but it definitely adds to the mix.
And changes the vibrancy of the center. You've also seen the footprint of some of the general retail categories, particularly household, shrink as well as we look at a number of initiatives, including gyms, and more recently, we've been doing some aged care as well with quite some degree of success.
Okay. Next question is regarding the recent currency fluctuations. With the recent currency fluctuations and potential U.S. rate hikes, what is your guidance on the full-year average borrowing cost?
I think as of now, our best action that we've taken so far is to keep the hedge to 60% and the foreign assets are all foreign currency hedged. I think we have shared at that point about 3.4. I think clearly if rate hikes continue down the path that the market's expecting, we will expect a tad higher borrowing cost. But looking at what we have shared before, the mathematics remains the same. Every 25 bps is HKD 0.02 on an annualized basis. But as of now, it's been so much talk of rate hikes for so long that our sense is we are just going to manage on the business and keep that ratio fixed about 60% plus minus for now.
How is the cost saving initiatives tracking versus plan?
In June, we shared that we were aiming for HKD 200 million annualized. So far, we are on track to save that amount, and we don't see any major deviations from what we have been budgeting and planning for.
Having spent HKD 1 billion for share buyback, how much quota is left out of the HKD 250 million? Is a portion of the divestment of 100 Market Street could also be included?
We have, I guess, announced to the market that we are putting the full Thomson Plaza proceeds to buyback, of which we have done two-third of it. I think the buyback program continues. As for the 100 Market Street divestment, we did share that we are looking at various options of how to deploy the capital that we have recycled. At this stage, we will continue to finish the first HKD 1.5 billion buyback, and then at some point, we'll likely go on to, in the spirit of recovering the divested NPI to announce the next basket of buyback at the interim results.
Cindy from Citi wants to ask for the update on non-core asset disposals. Are any transactions at an advanced stage? If so, could potential NPI restrict Link's ability to continue unit buyback?
Yeah, I'll take the first part of that and then pass to KS. As you know, we have several sales programs ongoing. I think it's been public that we have a program ongoing for the London office asset. That process is still alive and progressing. We hope to be able to bring you more news of that going forward. I think we've also made it fairly clear that we're probably not long-term holders of the China logistics asset, so that's also something that we're working on as well. Again, as we get more information and more clarity on that, we'll bring that to you. KS?
I mean, we don't see any significant or material transactions in the pipeline that would restrict our buyback. Short of the normal one-month pre-results announcement blackout and two months for full year results.
There's a question on car park. Notice on the various initiatives. Can you share some latest revenue trend and perhaps guidance going forward?
Yeah, sure. Overall car parking market is still a little weak because of falling car ownership. But really what we're trying to do, as I think we mentioned in the presentation earlier, is try and maximize the utility of our car parking areas as much as we possibly can. So you'll remember, we put in place what we call privileged parking. We used to have parking, basically free parking against receipts versus an average ticket of about HKD 25. We've now put in place privileged parking, which is a HKD 5 charge. That's actually been really quite successful. We'll continue pushing with that. We've got a number of other initiatives as well, including both short-term changeover parking for taxi fleets, and potentially some longer-term parking for those fleets as well. So we're working with a number of the taxi associations and authorities in respect of that.
And then, of course, we have our dynamic parking system. We are looking where we can to fine-tune and maximize the revenue for the car parking through there. It is still, there are still declining registrations, but I think we are doing well against that backdrop with both the initiatives and the technology that we have invested in.
Thank you. Next question is on AEI. Can you share a bit of details on the HKD 1 billion AEI CapEx in the next three- five years? What will be the pace of deployment, and what is the selection criteria?
Yeah. Obviously, every year we have some AEIs, and that has continued over the past period. But I would say that after 2019, as you moved into a declining rent environment, the pace of AEIs became a little slower. Because obviously, in a falling rent environment, it is quite hard to underwrite an AEI when you do not necessarily know what your expected future market rent will be. And I think now we are seeing that stabilization in the spot rents, which seems enough of a trend to be pretty solid now.
We can start to look to increase those AEIs again because they have always been good producers of returns for Link and for unitholders in the past. So I think you should probably expect somewhere around 200 million- 300 million a year. And when we look at how we assess the order, we do very regular reviews of the whole portfolio.
And so we have a sort of list, if you like, of the order in which we want to do things, which we keep refining. It is really based on the asset's performance, its catchment, and also the accommodation of the tenant mix upgrades that we want to achieve, together with the fact we are community malls, so we have to look at the overall customer experience as well.
The next question is on the leases. What percentage of expiring leases in FY27 have already been renewed? Just now we mentioned around two-thirds of the leases have already been renewed. Any positive signal in leasing? Will you consider revise that FY27 retention guidance after better than expected first Q?
No, I think we are comfortable with the guidance that we have given. I would say the positive news is that we are seeing this stabilization of spot rent and unit rent, which is, as I say, a trend which looks fairly set. The work always continues. We have always got to keep working on the mix, keeping the malls fresh, making sure that any underutilized areas we can enhance and increase foot traffic. But the fact that the spot rents are stabilizing is the most encouraging sign.
The next one would be about China. When did you expect the buffeting of reversion for China malls?
Yeah. China, there are still some negative reversions, although, as you know, in the last results and reporting period, we had one exceptional case, particularly with Zhongguancun, where there was a competitor mall and we had to do a fair amount of releasing. I think a reasonable amount of that has been done. Let us say we are hopefully nearer the end than the beginning. But I think the other thing as well that is worth pointing out, which really is kind of half a KS thing, really, but it is optimizing the direct cost. We have been, again, very careful in terms of cost. So I think in terms of NPI, we definitely feel like we are nearer the end than the beginning on that because of the action and the focus that we have had on optimizing the direct cost.
Thank you. Can you share an update on the Anderson Road project? When do you expect construction completions and commencement of operations? Have pre-leasing activities begun, and what has been the initial tenant response?
Yeah, thank you. Anderson Road will open mid-October. We are at the moment about 80% let overall. All the anchors are in, and a fair amount of the leasing is done. I think deliberately and strategically, we want to keep a little bit of space open because obviously, the residents are still moving into the catchment area, so we don't have a fully operating catchment. I think part of our plan is for the specialties to keep a little bit of space back so that we can take advantage of potentially some stronger momentum as the catchment starts to fill with people moving in. I have to say, the response has been good. The area is great, and the product is extremely good.
I think we've been happy to be 80% let and have the luxury of maybe having a little bit of a pause and seeing what we can do with the last of the specialty tenants.
Thank you. A few of your Mainland China properties' land use rights will expire in less than 20 years. Do you see valuations will be under pressure? Also, do you plan to renew some of the property's land use rights to extend the land use rights for another 20 years? If yes, will that affect the dividend?
Yeah, I think the land use rights changes and the premiums are at a very early stage in China. We are still studying and looking like so many people are, I think it is far too early to come to a conclusion on that. As far as valuations are concerned, obviously we have the valuations updated on a regular basis. They are third-party arm's length. Those valuers are fully conversant with the remaining term of the leases. They are also fully conversant with the changes in land use rights in China in terms of extensions. I do not expect anything unusual through that valuation cycle, no.
Yes. Next one will be. There are quite some questions on the tenant sales in Hong Kong. In general, quite a lot of investors and the analysts want to know more about the trend in July and August. What are we seeing so far?
Yeah, as I said, there is seasonality. I think the trend that we have seen continues in terms of the different trade mixes. There is some seasonality in the first quarter. But I would say overall, the market is gently improving. Spot rents continuing to stabilize, et cetera.
Okay. Questions on renminbi appreciation. Does the recent renminbi appreciation impact the borrowing cost? Okay.
Well, not really because on an annual basis we have already hedged the forward dividend flow back to HQ on an annual basis. I think the recent RMB appreciation, we are hedging and I guess for a little bit that is left out there unhedged, we will see a bit of gain in valuation. Nothing I would say material for us. Then coming into the next financial year, if RMB stays high clearly we get a nice pick up in terms of dividend back to Hong Kong dollars.
Thank you. I think we have time for maybe two or three questions, so let us see what we have. Is our full year stabilizing DPU guidance unchanged?
I think so far we are comfortable to state that the guidance remains, and I think what are the emerging risks that we are seeing clearly are out of our control. We have done what we can in terms of non-core, we have done what we can in terms of cost optimization. But I think what lingers out there month to month is the utilities. I think when CLP, especially CLP announces additional utility charges, it does feed into direct costs. And I think that is something that most analysts have expected and modeled in. Interest rates, like we said, clearly there is a plan, a budget for it. But if you compare to historical, clearly the war cry on rate hikes has been louder and probably more contentious than maybe six months ago before the war being seen as structurally long term.
I think if rates run, clearly that will have some impact on the 40% unhedged finance costs. But I think from what we can see internally, the management is doing what it has said in June, and again, keeping to what we think the stable DPU expectations are.
Next one will be, how is the China tenant sales doing?
I think it is a mixed bag as you go further north. The further south you are, probably the stronger the markets are. As you go further north, it tends to be a little weaker up in Beijing. As we said before, we have some specific relative issues in respect to that, like the remixing that we have done with Zhongguancun, which is now largely completed. I would sort of remind you of the previous comments I made, which is that although there is still some negative reversions because we have optimized the direct costs, the NPI is starting to get flattish and nearer to the end than the beginning, as it were.
Thank you. That should be all the questions that we got. I think we come to the end of our first quarter briefing. Thanks for joining us and have a good evening. Thank you.
Thank you guys.
Thanks so much.