Q1 2027 Link Real Estate Investment Trust Earnings Call
Speaker #1: And ladies and gentlemen, welcome to Lane Greek's Q2, Q6, Q7, first quarter operational updates. This is Christy Lam, Director of Investor Relations. On this call, we have CFO Mr. Kok Chung-eun and CIO Mr. Jeon Saunders.
Speaker #1: On the screen, you may find today's agenda, and without further ado, let me hand the floor over to KS.
Speaker #2: 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 4 highlights we would like to share.
Speaker #2: Starting with the top line, first Q 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 wash through this sign-above current market rents.
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: We expect valuations to remain broadly stable in the first half, supported by stabilizing spot rents. Finally, on our focus areas, our back-to-basic strategy remains centered on portfolio optimization, capital recycling, and cost discipline.
Speaker #2: 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 1 March 2027.
Speaker #2: 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.
Speaker #2: As at the end of June 2026, the total valuation of the Lane Greek portfolio excluding swing buy at Thomson Plaza stood at 216 billion HKD on a pro forma basis.
Speaker #2: Core retail and carpark assets continue to perform the backbone of the portfolio, accounting for 89.5%, with the remaining 10.5% comprising other assets including offices and logistics.
Speaker #2: Geographically, Hong Kong and the Chinese mainland retail remain our key markets at about 82% of portfolio value. Spending retail and carpark assets, while international retail assets in Australia and Singapore make up around 8%.
Speaker #2: I'll now hand over to John to take you through our operational performance.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: We have recently expanded link collect to 2 additional locations, to continue deepening our community engagement, activating quieter zones within our malls, and generating data insights.
Speaker #3: Alongside retail, our carpark business kept revenue stable supported by tariff growth and new revenue streams despite softer demand from declining car ownership and lower ticket volumes.
Speaker #3: Our convenient locations and the scale of our EV charging network continue to add value for drivers. I'll expand on our carpark initiatives later. These two charts provide an overview of tenant performance across the portfolio.
Speaker #3: 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 foodstuff, as well as general retail, stayed muted.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: 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 them.
Speaker #3: 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.
Speaker #3: Thirdly, we curate in-person offerings that differentiate physical retail, experiential concepts that cannot be replicated online. And then last but not least, we bring in distinctive new concepts to keep the shopper experience fresh.
Speaker #3: So now let's move on to our carpark 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.
Speaker #3: To start, we reshaped our parking privilege scheme, moving certain complementary benefits onto a paid basis and converting them into income while keeping customers engaged.
Speaker #3: 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.
Speaker #3: And 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're actively managing our carparks, protecting utilization, while opening up fresh recurring income streams.
Speaker #3: So 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.
Speaker #3: With rental reversion under some pressure, primarily reflecting 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.
Speaker #3: 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 the challenging backdrop.
Speaker #3: 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.
Speaker #3: Occupancy stayed high across the two markets, and tenant sales held up well, remaining resilient at Jurong Point and strong throughout the call through in Australia.
Speaker #3: 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 carparks, we hold a small book of office and logistics assets.
Speaker #3: Occupancy across these assets remains stable, with leasing activity 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.
Speaker #3: I will now hand over to KS to walk through capital management and cost optimization. KS.
Speaker #2: Thank you, John. Here's a brief overview of our capital management as of 31 March 2026. Key credit metrics continue to reflect a strong and healthy position, with conservative gearing and low funding costs.
Speaker #2: 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.
Speaker #2: Since the year-end, we have also made good progress on capital allocation. As of 7 September, we have resumed our unit buyback program, with over Hong Kong $1 billion deployed to date.
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: I'll now pass back to John to elaborate on our focus areas.
Speaker #3: Thank you, KS. Everything we've covered sits under one framework, which we set out at the folio results. And as KS said at the start, our back-to-basic strategy rests on three priorities, each directed at unit holder value.
Speaker #3: First, we continue to unlock value from our core Asia-Pacific portfolio, as part of this strategy we have approved $1 billion of capex over the next 3 to 5 years to enhance our core portfolio positioning our assets to capture improving market sentiment.
Speaker #3: Secondly, we continue to simplify the portfolio through non-core divestments, with proceeds redeployed to enhance unit holder returns including through reinvestments in unit buybacks. We also continue expanding third-party capital partnerships to grow AUM and fee income.
Speaker #3: 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.
Speaker #3: And 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.
Speaker #3: You've seen the strategy. This is what we've delivered against it so far this year. On capital recycling, we completed the disposal of swing buy at Thomson Plaza for $250 million Singapore dollars, crystallizing value at a premium to book.
Speaker #3: The proceeds are being redeployed into unit buybacks, following the end of last financial year we resumed the buyback program on the 9 July and have deployed over $1 billion Hong Kong dollars as at September 7.
Speaker #3: We have also announced the sale of a 50% stake in 100 Market Street in Sydney, for just under $226 million Australian dollars, and this is expected to complete in the third quarter.
Speaker #3: 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.
Speaker #3: On leadership succession, we announced the appointment of Neil Slater as CEO. Effective 1 March 2027. Neil is strongly aligned with the group's strategic direction, supporting continuity through the transition.
Speaker #3: Meanwhile, the interim leadership team and chairs committee continue to drive the back-to-basic strategy. This concludes our operational updates for the first quarter, thank you all for your time today.
Speaker #1: Thank you, John. Thank you, KS. Let's open the floor for Q&A. For those who have questions, please fill them in using the checkbox. Thank you.
Speaker #4: OK, so that's the first question. From JPN, Carl Chen. Can you clarify what you mean by rent reversion trending towards negative mid-single digits in the first half, but full-year forecast remains broadly similar to last year?
Speaker #4: Did you mean that the full-year guidance for rent reversions remains high single digits, looking forward to next financial year? Do you expect the negative rent reversions to further narrow?
Speaker #5: Yeah, thanks for that. So yes, I think what we're guiding is that for the first half we'll be sort of mid-single digits, and I think we've been clear with our guidance previously about where we sort of expect the end to or the end of the year to look.
Speaker #5: I mean, even now, we don't have total visibility on that. We've done roughly two-thirds of our leases so far. So we still have work to do on the rest to get with the eventual result.
Speaker #5: 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.
Speaker #5: So we'll continue to monitor that and finish off the remainder of the leases.
Speaker #4: Thank you. And then we got quite some questions regarding Sun & Stars as well. Can management update us on tenant sales trends in July and to August?
Speaker #4: Has the improvement trajectory continues? What trade categories are also forming and underperforming?
Speaker #5: Yeah, so 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 there.
Speaker #5: And I think overall the trends are continuing. Nearly half of what we do is food and beverage. I would say F&B, is still performing reasonably well.
Speaker #5: And 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.
Speaker #5: Sometimes that results in a larger number of smaller shops, but it definitely adds to the mix, and changes the vibrancy of the center. And 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.
Speaker #4: Thank you. Next questions regarding the recent currency fluctuations. So with the recent currency fluctuations and potential US rate hikes, what is your guidance on the full-year average borrowing costs?
Speaker #3: I think as of now, I mean, our best action that we have taken so far is to keep the hedge to 60% and the foreign assets are all foreign currency hedged.
Speaker #3: I think we have shared at that point is about 3.4. I think clearly if rate hikes continue down the path that the market is expecting, we will expect a tad higher borrowing cost.
Speaker #3: But looking at what we have shared before, the mathematics remains the same. Every 25 pips is 2 cents on an annualized basis. But as of now, I mean, 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.
Speaker #4: And how is the cost saving initiatives tracking versus planned?
Speaker #3: In June, we shared that we were aiming for 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.
Speaker #4: Having spent 1 billion for share buyback, how much quota is left out of the US dollar 250 million? Or is a portion of the divestment of 100 market rates could also be included?
Speaker #3: 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-thirds of it.
Speaker #3: And I think the buyback program continues. As far as for the 100 market street divestment, we did share that we are looking at a various options of how to deploy the capital that we have recycled.
Speaker #3: At this stage, we will continue to finish the first 1.5 billion buyback. And then at some point, we will likely go on to in the spirit of recovering the divested MPI to announce the next bucket of buyback at the interim results.
Speaker #4: And Cindy from City wants to ask for the update on on-call asset disposals. Are any transactions at an advanced stage? If so, could potential MNPI restrict links ability to continue unit buyback?
Speaker #5: Yeah, I'll take the first part of that and then pass to KS. Yeah, 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.
Speaker #5: That process is still alive and progressing. So 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.
Speaker #5: So that's also something that we're working on as well. And again, as we get more information and more clarity on that, we'll bring that to you.
Speaker #5: KS?
Speaker #3: Yeah. 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-month for full-year results.
Speaker #4: Another there's a questions on car park noted on the various initiatives. Can you share some latest revenue trend and perhaps guidance going forward?
Speaker #5: Yeah, sure. I mean, 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.
Speaker #5: So you'll remember we put in pace what we call privileged parking. We used to have parking basically free parking against receipts. Versus an average ticket of about 25 dollars.
Speaker #5: And we've now put in place privileged parking, which is a $5 charge. That's actually been really quite successful. And so we'll continue pushing with that.
Speaker #5: We've got another a number of other initiatives as well, including both short-term changeover parking for taxi fleets looking at and potentially some longer-term parking for those fleets as well.
Speaker #5: 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.
Speaker #5: So we're looking where we can to fine-tune and maximize the revenue for the car parking through there. So it's still there are still declining registrations, but I think we're doing well against that backdrop with both the initiatives and the technology that we've invested in.
Speaker #4: Thank you. Next questions on AI. Can you share a bit details on the Hong Kong dollar 1 billion AI capex in the next three to five years?
Speaker #4: What will be the pace of deployment? And what's the selection criteria?
Speaker #5: Yeah, I mean, obviously, we've done every year, we have some AIs. And that's continued over the past period. But I would say that as we after 2019, as you moved into a declining rent environment, the pace of AIs became a little slower.
Speaker #5: Because obviously, in a falling rent environment, it's quite hard to underwrite an AI when you don't necessarily know what your expected future market rent will be.
Speaker #5: And I think now we're 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 AIs again because they've always been good producers of returns for Lincoln for unit holders in the past.
Speaker #5: So I think you should probably expect somewhere around sort of 200 to 300 million a year. And when we look at how we assess the order, I mean, we do very regular reviews of the whole portfolio.
Speaker #5: 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.
Speaker #5: It's 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.
Speaker #4: Okay. And then next questions is on the leases. What percentage of expiring leases in FY27 have already been renewed? So just now we mentioned around 2/3 of the leases have already been renewed.
Speaker #4: And then any positive signal in leasing? Will you consider revised up FY27 revision guidance after better-than-expected sales Q?
Speaker #5: Yeah, I think we're comfortable with the guidance that we've given. But I would say the positive news is that we are seeing this stabilization of sort of spot rent and unit rent, which is, as I say, a trend which looks fairly set.
Speaker #5: The work always continues. We've always got to keep working on the mix. Keeping the malls fresh, making sure that any underutilized areas we can sort of enhance and increase foot traffic.
Speaker #5: But the fact that the spot rents are stabilizing is the most encouraging sign.
Speaker #4: So the next one would be about China. When did you expect. The bottoming of reversions for China malls?
Speaker #5: Yeah, so China I mean, there are still some negative reversions, although as you know, we had a few in the last results and reporting period, we had a few one exceptional case, particularly with Dongguan Shen, where there was a competitor mall and we had to do a fair amount of releasing.
Speaker #5: So I think a reasonable amount of that has been done. Let's say we're sort of hopefully nearer the end than the beginning. But I think the other thing as well that's worth pointing out, which sort of really is kind of half a chaos thing really, but is optimizing the direct costs.
Speaker #5: We've been, again, very careful in terms of costs. So I think in terms of NPI, we definitely feel like we're nearer the end than the beginning on that because of the action and the focus that we've had on optimizing the direct costs.
Speaker #4: Thank you. And can you share an update on the Anderson Burrow project? When did you expect construction's completions and commercements of operations have pre-leasing activities begun?
Speaker #4: And what has been the initial kind of response?
Speaker #5: Yeah, thank you. So Anderson Road will open mid-October. And we are at the moment about 80% let overall. So all the anchors are in.
Speaker #5: 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.
Speaker #5: So we don't have a fully operating catchment. So 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 sort of fill with people moving in.
Speaker #5: But I have to say, the response has been good. The area is great. And the product is extremely good. So I think we've been happy to be 80% less 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.
Speaker #4: 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?
Speaker #4: Also, do you plan to renew some of the properties land use rights to extend the land use rights for another 20 years? If yes, will that affect the dividend?
Speaker #5: Yeah, I think the land use rights changes and the premiums are at a very, very early stage in China. We're still studying and looking like so many people are.
Speaker #5: So I think it's 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.
Speaker #5: Their third-party arm's length, those valuers are fully conversant with the remaining term of the leases. They're also fully conversant with the changes. In land use rights in China in terms of extensions.
Speaker #5: So I don't expect anything unusual through that valuation cycle, no.
Speaker #4: Okay. Next one will be there's quite some questions on the tenant's sales in Hong Kong. So in general, quite a lot of investors in the analysts want to know more about the trend in July and August.
Speaker #4: So what are we seeing so far?
Speaker #5: Yeah, as I said, there's seasonality. I think the trend that we've seen continues in terms of the different trade mixes. The there's some seasonality in the first quarter.
Speaker #5: But I would say overall, the market is gently improving. Spot rents continuing to stabilize, etc.
Speaker #4: Okay. Questions on renminbi appreciations. That's the recent renminbi appreciation to impact the borrowing costs?
Speaker #2: Well, not really because on the annual basis, we have already hedged the forward dividend flowback to HQ. On an annual basis. So I think the reason RMB appreciation a bit of hedging and I guess a little bit that's let up there unhedged will see a bit of gain in valuation.
Speaker #2: Nothing I would say material for us. And then coming into the next financial year, if renminbi stays high clearly, we get a nice pickup in terms of dividend back to Hong Kong dollars.
Speaker #4: Thank you. So I think we have time for maybe two or three questions. So let's see what we have. Okay. Is our full-year stabilized DPU guidance unchanged?
Speaker #2: 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 of control.
Speaker #2: We have done what we can in terms of non-call. We have done what we can in terms of cost optimization. I think what lingers out there month to month is the utilities.
Speaker #2: I think when CLT, especially CLT announces, additional utilities charges, it does eat into direct costs. And I think that's something that most analysts have expected and modeled in.
Speaker #2: Interest rate, 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.
Speaker #2: So I think if rates run clearly, that will have some impact on that 40% unhedged finance because but I think from what we can see internally, the management is doing what we have said.
Speaker #2: June and again, keeping to what we think the stable probably stable DPU expectations are.
Speaker #4: Okay. Next one. How's the China tenant sales doing?
Speaker #5: I think it's a mixed bag. As you go further north, the south the further south you are, probably the stronger the markets are. And as you go further north, it tends to be a little weaker.
Speaker #5: Up in Beijing, as we said before, we have some specific relative issues in respect of that, like the remixing that we've done with Zhongguan Chen which is now largely completed.
Speaker #5: But I'd sort of remind you of the previous comment I made, which is that although there's still some negative reversions, because we've optimized the direct costs, the MPI is starting to get flashish and nearer to the end than the beginning, as it were.
Speaker #4: Thank you. So there should be other questions that we got. So I think we come to the end of our first quarter briefing. So thanks for joining us and have a good evening.
Speaker #4: Thank you.
Speaker #2: Thank you, guys.
Speaker #5: Thanks a lot.
Speaker #4: Good afternoon, ladies and gentlemen. Welcome to Link Reaps, Tier 2, 6 to 7. First quarter operational updates. This is Christy Lam, director of investor relations.
Speaker #4: On this call, we have CFO Mr. Kok Chung-ung and CIO Mr. John Saunders. On the screen, you may find today's agenda. And without further ado, let me hand the floor over to KS.
