Link Real Estate Investment Trust (823) Earnings Call Transcript & Summary

Good afternoon, everyone. Our news conference is about to begin. Please be seated. Before it begins, I would like to inform you that the announcement of our interim results has been issued during lunch hours. The news release has also been issued and uploaded on our website. There will be a presentation deck for the news conference. You can download via the webcast link. [Operator Instructions]. [Foreign Language]

Thank you. Welcome to the news conference for Link REIT's interim results for the year 2023 to 2024. Prior to the commencement of the news conference, we'd like to share with you that Temporal Mall North's LG floor, which served a severe flooding during the Black rainstorm alert in September. It has reopened on the 31st of October after 54 days' restoration. Let's take a look at the video about the completion of the restoration. [Presentation]

Link showcases strong capability in managing assets, and we are grateful for the efforts contributed by the team and stakeholders, which demonstrates collective efficacy. We will continue to work closely with stakeholders in the community to ensure our properties are prepared to appropriately address the impacts of climate change and to ensure the safety of the public. We are also delighted to announce the completion of our second asset enhancement project in Mainland China, Link Plaza Tianhe in Guangzhou, which has had its soft opening on the Mid-Autumn festival in late September. As grand opening is scheduled for the 21st of this month, let's watch a video to look at the latest of Tianhe Link Plaza. [Presentation]

Now let's go back and focus on our interim results, and I would like to introduce our presenters to you: our Chairman, Mr. Nicholas Allen; Executive Director and Chief Executive Officer of Link, Mr. George Hongchoy; Executive Director and Chief Financial Officer of Link, Mr. Kok Siong Ng; and Chief Operating Officer, ex Mainland China of Link, Mr. Greg Chubb. Thank you. May I -- we now invite our Chairman, Mr. Nicholas Allen, to give an overview of the interim results for the year 2023 to 2024. Chairman, please.

Thank you, and thank you, everyone, for joining us today. I'm very pleased to have George, K.S. and Greg with me here on the stage. As we dive into our interim results, I'm pleased to share a snapshot of our financial performance with you. Despite the slower-than-expected retail consumption recovery, our commitment to operational excellence in our capital asset and portfolio management has yielded a solid set of results. Revenue and NPI rose by 11.3% year-on-year and 10.4% year-on-year, respectively, mainly attributable to the stable growth of our Hong Kong portfolio and a new contribution from our Singapore asset. Considering the hawkish rate environment, we managed our capital and financing carefully to cushion the impact on our financial performance. Distributable amount maintained an uptrend and reported a 1.7% year-on-year growth. The fully diluted DPU on an adjusted basis was still able to register a positive growth of 0.4%. Amidst the tight financial conditions, our balance sheet exhibits financial strength underpinned by a healthy net gearing ratio of 18% and an interest coverage of 4.3%. We have come a long way since our initial public offering in 2005. Our track record is a testament to our ability to have delivered shareholder value. Even during challenging times, such as the global financial crisis and the COVID pandemic, distributable amount has grown at a CAGR of 9.6% in the past 17 years. Our market cap has increased substantially, more than trebling in value to HKD 92 billion from HKD 22 billion at the IPO, benefiting from the high liquidity of our shares. Looking forward, let me go through our market outlook and mitigation measures. Let's delve into the landscape of our markets amidst geopolitical, fiscal and environmental concerns. The global economy is undergoing a radical shift, largely influenced by escalating geopolitical tensions, which have resulted in supply chain reconfigurations. The complexities of these scenarios necessitate a revisit of our operational strategies. Moving to our monetary environment, a higher-for-longer interest rate hawkish outlook poses real challenges for businesses by escalating borrowing costs and negatively impacting property values. Furthermore, the increasing frequency of climate-induced disruptions imposes volatility on traditional supply chains, leading to fluctuations in supply and prices. In short, these are treacherous waters to navigate, but they also provide an opportunity for strategic adaptation and resilience-building. Hong Kong's economy has withstood the macroeconomic headwinds faced globally. The low unemployment rate is an indicator of the sustained economic recovery thus far. This, in addition to higher minimum wages, are expected to underpin consumer sentiment and thus retail sales. Over in Mainland China, the economy is showing signs of finding its footing, although growth momentum is expected to be stymied on the back of a struggling property market. That said, a combination of monetary and fiscal policy tools, such as Renminbi stabilization as well as infrastructure spending, are expected to cushion the dampening effects from the property sector. The countercyclical nature of the mainland Chinese economy, with its benign inflation vis-a-vis the rest of the world and government support, should mean its growth rate is likely to outperform other markets. Looking further afield, Singapore's recovery of inbound tourism has undoubtedly boosted the growth outlook for retail, thus having a positive knock-on effect on retail rent growth. Domestic unemployment rate remains tight at 1.9% since the pandemic, which is expected to provide some buoyancy to consumer sentiment. While these paint a rosy picture, it is worth remembering a caveat that the Singaporean economy is still highly exposed to external factors. Meanwhile, in Australia, population grew at over 2% year-on-year, which will translate into growth in the retail sector. In addition to this, tourist arrivals rebounded 23% quarter-on-quarter in the third quarter of '23 to 4.9 million visitors, which provides an added impetus to the retail sector and particularly to centers located in city centers. Against the challenging macro backdrop, our multifaceted approach in mitigating risks underpins our strategic resilience. Our retail and car park portfolios stand out the stalwarts of stability, thanks to our experience derived from years of operational excellence and focus on nondiscretionary consumption. Financially, our proactive approach to hedging and cost-efficient capital management fortify our balance sheet. Despite these, our intention is to avoid complacency and to evolve. The desire to transition to an asset-lighter approach not only helps to build an additional stream of steady income, it is also a way forward to grow AUM whilst protecting the balance sheet from value erosion due to higher-for-longer interest rates. Let me now pass on to Greg to share more on the operational excellence and updates.

Thanks, Nick, and good afternoon, everyone. So we're taking active steps to enhance our integrated operating platform with the aim to elevate operational efficiency, increase productivity and to drive tenant-customer satisfaction. In achieving these goals, one of our core strengths, which is our operational capabilities in real asset management, really comes into play. This is crucial in maintaining a steady cash flow and propelling organic growth. They're also key in supporting our Link 3.0 strategy, which is the road map leading us into further growth. Therefore, this foundation, our focus to operational excellence, not only institutes a solid foundation for steady organic growth but also allows us to drive scale and reach. Now we'll just have a quick look at some ESG updates, where we've identified four strategic areas across our portfolio over the next 5 years. Reducing our carbon footprint and reinforcing climate resilience remain our priorities. Earlier this year, we submitted science-based target net zero packages for validation, and we're very pleased to announce that we are an early achiever within Asia Pacific for attaining the SBTi validation in line with their net zero standards. Along with our net zero 2035 commitment, this demonstrates our capability in upholding international best practices and our investors' expectations. We also completed a comprehensive energy audit across the entire Mainland China portfolio, and this has identified significant reduction opportunities over the next few years. Lastly, we're now finalizing our ESG data management system for better transparency and accuracy to support our future reporting and auditing. Our sustainability leadership aligns with global and industry best practices, as manifested by our improved 2022/23 ESG Indices performances as shown on the screen here now. For GRESB, it's our first year reaching 4-star rating, where our score improved more than 10% from 79 to 87. Now I'll touch on some operational updates. And first, I'll draw your attention to general trends observed at our retail assets. In Hong Kong, retail reversions proved to remain stable through the various economic cycles. This is included withstanding unprecedented pressures and uncertainty brought by the pandemic. Broadly speaking, high occupancy rates were sustained across all our operating markets. While this is a testament to our properties as desired locations to tenants, it would have also contributed to the ability of our tenants to recover very pleasingly to their sales at pre-COVID levels. Adding to this stability is the adjustment of car parking tariffs on an ongoing basis. And now we'll just shift to Hong Kong and our retail segment, which has continued to demonstrate ongoing resilience. The numbers achieved speak for their relevance and quality of Link's portfolio of tenants. Occupancy rates were maintained at their all-time high of 98%. Rental reversion was the highest it's been since COVID, growing at 8.7%. Correspondingly, these have tied in with the average unit rent exceeding pre-COVID averages, now at $64.30 per square foot. And now we'll look at more detail as to what drove performance via our leasing activity. With more than 300 new leases being signed during the first half and the introduction of new brands were undoubtedly part of our initiatives to keep our portfolio relevant, and these accounted for nearly 40% of the new leases undertaken during the period. The top 5 retail trades listed here on the slide are a curation of trade mixes reflecting current consumption patterns here in Hong Kong. Tenant sales performance was broadly positive at 3.1%, and breaking it down by trade mix, food and beverage continue to lead the pack, growing at a solid 9%. Although supermarkets and food stuff continued to underperform, general retail notably contributed growing at 4.7%. And overall, this helps to explain the normalization in occupancy costs at a very sustainable 12.4%. As a provider of social infrastructure through our car parks, which also complements our retail assets, there is also an additional pull factor for customers, which is the increasing provision of EV charging positions throughout our portfolio. Compounding this is the structural shortage of car parking space in Hong Kong, and it explains our ability to grow the segment's income at a very steady rate. Revenue from car parks and related businesses grew 5.2% year-on-year. And it's also underpinning for our valuation uplifts of these assets, and the average valuation per parking space increased 1.7% year-on-year to $737,000 per space. [ Enhancement ] assets is part and parcel of our DNA and has been for some time. Our future CapEx pipeline under planning and statutory approval amounts to over HKD 690 million. Asset enhancements completed or currently underway involved a combined capital expenditure of over HKD 400 million. The Tung Tau market was completed in the first half of the year with a capital expenditure of HKD 28 million and has yielded a return on investment of 15.9% and is a very good example of the value accretion achieved from these projects. Now just touching on the flooding at Temple Mall, where our team demonstrated outstanding operational focus. Within the span of 24 hours, they initiated a swift restoration of these facilities, and after 54 days of accelerated repairs, we proudly reopened the lower ground floor recently on the 31st of October. The rapid reinstatement showcases our strong capability in property management and also demonstrates the collective power of our staff and our stakeholders. Now ongoing regular facilities assessments are being conducted to protect us against future flooding. Currently, we're also assisting tenants to rapidly resume normal operations post the incident. The recent Hong Kong government policy address introduced an upgraded transport blueprint, three railways and three major roads, mapping out a pathway to enhance connectivity. The expected growth in foot traffic resulting from improved transport infrastructure represents opportunities for us. The increase in the number of access points would have a positive effect on the development potential of projects, which fall within the targeted areas. The transport blueprint railway section spans three critical regions, which include the northern area, Kwun Tong and Kwai Chung, areas where we have an entrenched presence via ownership of 40 assets dispersed across those regions. Our development project in Anderson Road in Kwun Tong is also poised to benefit as it is conveniently located near the proposed route of the future East Kowloon line. And now we'll move on to Singapore. And during the first half of the financial year, our Singapore assets provided their maiden contribution following the financial close of this acquisition on the 31st of March. The assets comprising Suburban Retail Mall's Jurong Point and Swing By @ Thompson Plaza have been fully integrated into our platform. These assets saw robust occupancy, positive reversions and have registered nearly full occupancy at now 99.3%. Furthermore, AMK Hub has contributed by the way of a management service agreement with its owner, a partnership we're very proud of. In addition, we've opened a new regional office in Singapore in July to better meet our needs as we expand across the Asia-Pacific region. Looking further afield to Australia, where our retail portfolio there continues to appeal to tenants and shoppers alike. Portfolio occupancy has been maintained above the 98% mark and is a testament of our assets as a desired location for tenants. Remaining relevant to ever-changing consumer preferences through our experience-oriented offerings has helped tenant sales mostly recovering to pre-pandemic levels. Furthermore, the return of international visitors to Australia has helped in boosting footfall to the CBDs. Now before I pass over to K.S. to talk about Mainland China retail, I'll briefly touch on international office. The flight-to-quality thematic has caused further bifurcation in the pace of recovery since the pandemic. Our office assets not only stand out with their strategic locations within their respective CBDs, but also their high quality as evidenced by the high occupancy rate of over 95% and also a solid WALE of around 5.3 years. It is expected that the return of employees to the workplace will recover on a gradual basis, and the adjustment of the office sector is expected to be drawn out over the medium to longer term as tenants continue to assess their office footprint needs. I'll now hand over to K.S. Thank you.

Thank you, Greg. Good afternoon to all. When we look across the border into Mainland China, the slowing economy, weaker sentiments coupled with changing consumption patterns post pandemic will impact the recovery of the portfolio. Rest assured, we are swiftly adjusting our tenant mix and marketing strategies. Occupancy rate stood at 95.8%, thanks to our committed proactive asset management efforts. Portfolio rental reversion was a negative 5.2% coming out of COVID. If we exclude the two assets, Tianhe and CentralWalk, which is under stabilization due to enhancements during COVID, rental reversion showcased a growth of 6.1%. Portfolio, footfall and retail sales continue to demonstrate recovery, and now they have surpassed pre-COVID levels. That's the picture of the refreshed Link Plaza Tianhe . Link Plaza Tianhe with an estimated CapEx of approximately RMB 300 million achieved an ROI of 12% is poised to leverage middle-class spending power in the mature Tianhe district. The grand opening is slated for 21st November this month. With a committed occupancy of around 95% as of 31st October, the mall has seen a significant 30% year-on-year footfall increase and over 50% year-on-year tenant sales surge post reopening, following the Mid-Autumn festival and National Day holiday. We have introduced over 60 new tenants, over half of whom were first to the district of Guangzhou, with very positive reviews on social media platforms. The photos here give you an idea of what we have achieved with the AEI at Link Plaza Tianhe. Works on the first -- level 1 as well as works on place-making have been done to uniquely position it as a hub showcasing a vibrant urban lifestyle, catering to the evolving taste of consumer and Gen Z. Its features include a designated play area for children, making it a family-friendly and inclusive destination. I also take this opportunity to thank our colleagues who successfully delivered this AEI through the pandemic. The 2 new properties were added to logistics portfolio following completion of the acquisition during the first half. While Changshu North is still in the leasing process, our overall portfolio occupancy for logistics remained strong at 95%. Moreover, most of our assets include a rental escalation of 3% to 5%, and this mechanism ensures the stability of our cash flow, supporting robust growth for our portfolio. We will now shift our attention to capital management. In the face of a challenging macro environment, we have opted for prudence in capital management. Same as other REITs, despite the rate hikes environment, our average borrowing cost remained competitive, is now at 3.74%. Furthermore, our financial strength is underscored by a healthy net gearing ratio of 18% coupled with a solid EBITDA interest coverage of 4.3x. We have also taken a step further by raising our fixed rate debt ratio to approximately 70%, placing us at the high end of our policy range. This will help protect us from higher for much longer rate environment. Our focus rests heavily on long-term value-creation for unitholders. We are geared towards achieving these through various means that include unit buyback, dividend reinvestment scheme and new investment opportunities. Following the rights issue exercised early this year, we have no refinancing needs until late '24/'25. This readjust our balance sheet, offering additional buffer against high interest rates. This is further solidified by our well-staggered expiry profile with an average debt maturity of 3.4 years. Our average borrowing cost of 3.74% displays a more than 100 bps spread below the 3 months HIBOR and Fed fund upper bound rate, which have both surpassed the 5% threshold. Our current hedging policy of a high ratio of fixed-rate debt is achieved through several debt instruments such as medium-term notes and our convertible bonds as well as interest rate swaps. An element of natural hedging is also in place given the spread of debt across different currencies. On the income side, distributable income from overseas is substantially hedged every 12 months. Along the remainder of the right proceeds and our committed facilities, we have HKD 22.8 billion of liquidity on standby. Our A ratings with all three credit agencies remain intact, highlighting our solid fundamentals. This is evident in our key financial covenants, which are substantially below the requirements established and required by the three agencies. On portfolio valuation, our portfolio value declined by 3.5%. Apart from Singapore, most regions experienced varying degrees of cap rate expansions. The portfolios in Australia and U.K. faced the most increases. On the other hand, Hong Kong and Mainland China experienced this to a lesser extent. The impact of the cap rate expansion was mitigated by our increasing rental cash flows, thus minimizing the drop of overall valuation. I'll pass the time now to George on our strategy.

Thank you, K.S., and good afternoon, everyone. Let me present an update on our strategy. Currently, the Link REIT portfolio is skewed towards Hong Kong, followed by Mainland China. Our international portfolio consisting Australia, Singapore and the U.K. accounts for 11% of our portfolio value. Retail continues to be a heavyweight accounting for 70% of our portfolio value. Over time, it is our intention to grow overseas. The rationale behind this is the benefit of diversification, which enable the REIT to ride different growth cycles across geographies and sectors. Targeted markets are Australia and Singapore due to the transparency and liquidity of the markets. Cap rate expansion in Australia has caused value -- capital value to adjust downwards already, which could present us with opportunities, particularly where there is a significant dislocation in pricing. This growth could be funded through capital recycling of portfolio assets or partial sell-down of stakes to seed co-investments, which is also a segue leading into Link 3.0. I'll provide an update and our latest thinking about Link 3.0. Link has two businesses; a property ownership business that generates rental income and an asset-light people business that focuses on fund and asset management under Link Asset Management Limited. Since IPO, we have done well with our property ownership business by delivering an annualized total return of 12% and a distribution CAGR of 10%. Meanwhile, our asset-light business, Link Asset Management Limited, has been dedicated to managing Link's asset and funds only. This is now a full-fledged fund and asset management business with over 1,300 people across the region that covers its cost from its property ownership business. We think of our strategy in three parts: our asset business, our operating platform and the fund management platform. Our property ownership business will remain our main driver of income, providing stable core and core-plus return, while our asset-light business will provide us with a new S-curve for incremental growth. We'll remain fully dedicated to driving growth from our assets, both organically and inorganically. For the operating platform, as mentioned by Greg, we'll continue to enhance our operating excellence [indiscernible] Mainland China and Singapore and to look for opportunities to build our operating capacities in Australia and the logistics sector. It is envisaged that Link Asset Management Limited will develop capabilities to manage multiple platforms, including listed platforms and private platforms. And in recent years, we see more real estate investment by private capital rather than public equities. That's a shift that involve different return and thematic requirements. As we look into the future, we expect a shift in the global real estate capital landscape, gravitating towards high-quality asset managers capable of delivering consistent and superior returns, and we want to be one of them. We continue to focus on operational excellence in our capital, asset and portfolio management to create unitholder return. We integrated our Singapore acquisition smoothly while continuing to drive the recovery of the organic portfolio. Our team has also been carefully managing our capital and financing to cushion the impact of a hawkish rate environment. While turbulent market conditions are expected to persist in the foreseeable future, we will continue to explore new growth avenues under our Link 3.0 strategy while being cognizant of adopting prudence and patients in doing so. We remain committed to proving ourselves to be a trusted partner in sustainable growth, not only in the past but also for the future. And finally, here are the dates for payment of distribution with scrip election available as set out here for your information. Now let's move on to Q&A. Thank you.

[Operator Instructions]

[Interpreted] My question is this. In the first half of the year, I can see that in Hong Kong, rental reversion is quite stable. But looking in the second half of the year, will there be any difference? Now when I look at the economic recovery and retail growth, it seems that they are short of expectation. So will there be any difference in terms of rental reversion? Can you give us an update? Secondly, looking at Mainland China, I can see that your rental reversion and your performance is also show -- is also showing a discrepancy. So in the second half of the year, when the economy recovers, will there be improvement? There is intense competition among shopping malls on the Mainland. In Shenzhen -- in many different shopping malls, there is intense competition. It seems that vacancy is on the high side. So has the condition improved in the future? Will you change your strategy for Mainland China?

Mr. Chairman, about the operation question, shall it be handled by Mr. Chubb and the financial one for K.Z.?

So I'll take the reversion question first here in Hong Kong, if that's okay. So a very pleasing first half at 8.7% reversion. We have undertaken a good proportion of the activity for the full financial year in the first half, so a good outcome. Your comments about the economic conditions in Hong Kong are well noted. So I can't see that the spreads or reversions in the second half will exceed those of the first half and may well moderate a little bit. The lead indicators for us that are very positive that our portfolio occupancy at 98% continues to be at an all-time high. Our occupancy cost for [indiscernible] here is very sustainable and a good position for both our retailers and ourselves for future growth, and our rental collections in the very, very high 90% range. So all of those metrics give us a lead through to the positive, I guess, performance of our retailers, but I guess, moderating rental reversions in the second half is probably the way that I would best explain it.

I think on the question on Mainland China and your observation across the borders in Shenzhen, I think a couple of observations as well as macro is that clearly, we all can sense post pandemic, Mainland has been trying to recover. Still a nice GDP number between 4% to 5%. But underlying that number, I think that's a bit of a confidence in shopper sentiment changes. We do see changes at the consumer shopping pattern. And clearly, if you look at Shenzhen, then there's a cross-border whereby many of us are going across on weekend due to the currency strength, some clean, nicer shopping environment, better service and to spend in Shenzhen. I think where we have come in terms of our strategy is there's a need to readjust the tenant mix. Clearly, retail is not as strong as F&B, experiential entertainment. I think where we were pretty fortunate was we did the AEI during the pandemic when business wasn't great anyway. Coming out of the pandemic, I think the hardware has been stabilized into what is good for purpose or the business and taking this opportunity, as some of you have seen in our malls, to quickly fill it up with the right software of what the shoppers want. I think competition has always been difficult and tough in Mainland because you are not as easy to urban plan as Hong Kong or Singapore and supply does come frequently and some of them are much better. But within our own catchment, I think our task remains to competitively beat up our competition, get the footfall in. I think the other highlight would be the footfall has actually come back to pre-COVID or even exceeding pre-COVID. It's just that the wallet spend and the type of spending has changed. So I think it's up to us, and I mentioned, is how do we use marketing strategies, fitting the right tenant mix, what the shoppers want and continue to sweat the shopping mall on a per square foot sales basis to try to get back the results that we are all hoping for.

Any other questions? Yes, the lady in the front.

[Interpreted] Economic Daily. Now during the last result announcement, the CEO said that right now in the M&A market, the difference between the buy and sell price is quite big. But after a year or so, has this price difference narrowed? Have you changed your strategy in relation to M&A where there are increasing Hong Kong people going to China to -- for shopping? So if you look at your shopping malls, what is the percentage of Hong Kong people in the Mainland? And in Hong Kong, can you -- do you have ways to make more Hong Kong people shop in Hong Kong?

[Interpreted] So when it comes to acquisition, well, I believe, in the coming few months, there will be more opportunities, because it has been quite some time that the interest rate is high. And so some property owners and investors have reached a point where they will adjust the price and sell. So we can see that there are more projects available for us to consider. But of course, our costs have also gone up. So the investment return target that we are asking for has changed, but we are still considering various projects. But so far, nothing can be reported to you for the time being. As regards Hong Kong shoppers and Hong Kong consumers going to the Mainland, I think the CentralWalk in Shenzhen Futian is a good example, 30% to 40% of consumers or shoppers there are Hong Kongers. So when we read digital data and also data from payment platforms, we can see that many Hong Kong people have gone there, and we also offer some concessions. In shopping malls in Hong Kong, we have to do something more appropriate. Sometimes, people go to Shenzhen and Guangzhou for shopping. They buy some daily personal and living products. So we'd like to enhance our attractiveness here in Hong Kong. For families, who go to Mainland China for 1-day activity, well, we hope that there will be more such activities in Hong Kong to retain Hong Kong people here for shopping. Now for RMB, it has weakened. So when Mainland consumers coming to Hong Kong for shopping, well, their desire is now weaker because of currency. We need to wait for a change in currency in order to attract more people to come.

The gentleman in the middle.

[Interpreted] I'm from Sing Tao Daily. Now Link would like to develop light-asset third-party management business. So can you give some examples? Some time ago, when you acquired asset in Singapore, well, that is property management service. Is that the first time that you are doing work in this area? For the light asset model, does that include selling existing assets to -- and cash so that you can increase your balance sheet? Are there opportunities to sell assets here in Hong Kong? In the recent 2 to 3 months, the government introduced Night Vibes. So if you look at your asset portfolio, if spending pattern can extend to evening and night, then do you think there will be a sign of recovery?

[Interpreted] Well, for third-party asset management, in Singapore, we helped the then seller to manage the shopping mall. We do not only manage a shopping mall. We are actually looking into third-party capital management or fund management. We are looking into different options for new investments. For example, those properties in Singapore were back then, we had considered whether we should bring in other capital and funds. At that time, after a change in the market environment, we did not continue that work. For assets that we own, in the future, we may consider selling part of them, not 100%, but part of them. We may retain a minority ownership and continue managing them or when we invest, well, some time ago, we have also thought of bringing in other capital and funds to do co-investments. Another option is that there may be other funds or PE funds and investment projects that we can design ourselves and then launch. So all along, we have been preparing on all these but that will take some time. For light markets on Night Vibes, Greg?

We're participating in a number of activities across Hong Kong. One of our most recent activities was a nighttime cinema at Lok Fu, and there's a number of other initiatives that we're undertaking. And probably just complementing the comments on Singapore, one of the things that is important to note with our acquisition in Singapore is that it came with a very good and experienced team of 130 executives there. So we've got a very strong capability in Singapore that complements our capacity and capabilities here in Hong Kong.

I'd just like to supplement there because I think it comes back to the comments that were made earlier about what's market sentiment at the moment, are transactions going to be coming back into the market, your question about the difference between buyers' and sellers' expectations. We've now had higher for quite a length of time. I think we're going to have higher for longer. That would be my view. And as that maps out, I think that pain in certain areas is going to increase. So my view is that we are going to see prices get a little bit more sensible and that is what we have been waiting for. Having done our rights issue, having had cash to one side, we're trying to look at when is the right time for it to come back into this market. And we said to you 6 months ago that we were waiting, and we are now. But I personally feel that, that is getting closer. And I think you would all know and have views about what pain is out there in the marketplace. And that's also very important for our aspirations in third-party capital because in order to raise funds, you have to have a meeting of minds about what returns can be generated, and those are ultimately price based as well. So from our point of view, I see next year as an opportunity year, and I see that there will be opportunities for us, both M&A and in Link 3.0.

Any more questions? Yes. So it will be 2 last questions. Yes.

[Interpreted] I'm from Now TV. Just now you said that next year will be a year of opportunities for M&A -- for acquisition. Now right now, given your capital base, can you afford projects that you are considering? Before the end of next year, you said that there won't be any need for refinancing. So is it true that your capital base is already in our acquisition projects?

Short answer is yes. Our gearing, as K.S. explained, is running a net basis around 18% at the moment. And you also will, I'm sure, appreciate that part of our strategy is to co-invest on assets as well. So when you bring in the firepower that comes with co-investing plus generally the significant firepower that we have at an 18% gearing. I have supported my short answer, which was yes. And I think the gentleman here with the headphones will have the second question.

[Interpreted] I'm from RTHK. My name is Gary. I have two questions. First, about the macro situation. Regarding retail sales in September in Hong Kong, the growth has slowed down. And just now, we discussed about Hong Kong people shopping on the Mainland. So this year or next year, will this continue to affect the overall recovery of the market? And for your business results in the second half of the fiscal year, will your revenue be affected because of that? And this year, well, there are natural disasters like very heavy rainfall and flooding. In Chai Wan and Wong Tai Sin, your shopping malls were affected by flooding. So how much was the loss to your company? And when it comes to insurance compensation, has that been handled already for tenants? Has there been a rent-free period? And how long has it been lengthened? In the future, do you need to do further AEI? And how much expenditure would that incur?

[Interpreted] Perhaps, Greg can talk about the Black Rainstorm incident. If you refer to the macro environment, Hong Kong's economy stays in good shape and there is economic growth. Unemployment rate is still very low. Wages and salaries in different industries are rising. Minimum wage has increased. So for Hong Kong locally, retail momentum is still there. Well, in our shopping malls, there are very few Mainland shoppers, but if they come to Hong Kong for shopping, that will boost our consumption as well. So we hope to see more tourists especially mainland visitors coming to Hong Kong. Overall speaking, my view is positive. I don't see too big challenge when we discuss with our tenants. As Greg said just now, our rental versus our sales is around 12%. That is a reasonable level.

The performance of the second half, revenue continued, I guess, positioned to what we've just reported for the first half. We don't see there to be any change. I think one of the things that we're very, very focused on, given we are in an inflationary environment, is managing the operating expenditure on a day-to-day basis across our portfolio to mitigate any impacts of the inflationary environment. So more of the same is probably the best way to explain it. The thing to point out is that we're very focused on everyday needs and nondiscretionary retail. We always have been and we always will be. So well over 60% of our trade mix is associated with food and food-related categories. So we're very much here to service the day-to-day needs of the local Hong Kong population. Your other question with regards to the Black rain event. So obviously, we had issues at Temple Mall North, where the lower ground level was inundated. That impacted 8 tenants. We are supporting those 8 tenants, and they are all in the process of refitting their premises as we speak, and we are hopeful that they will all reopen for business well before the end of this calendar year. So hopefully, progressively from -- towards the end of November into early December. With regards to the total loss, we've gone and taken proactive steps to refurbish the area. And as we noted in that video we showed earlier, on the 31st of October, the last piece of that for us was turning the escalators back on, which we were very pleased to do. Now we're just working through the insurance claim. We don't believe that there will be any impact to us as we have appropriate insurances across our business. So I'd like to just call out the efforts of all of our operational teams that worked tirelessly over a matter of 50-odd days to get back to the position that we are. And we've worked very proactively in partnership with our retailers to bring them back to where they are. So hopefully, that answers your question.

[Interpreted] Let me do a very brief conclusion. At the beginning, we showed a slide that tells you the annual distribution every year, which is on the rise year after year. So our focus is such that we hope to continue to increase distribution year after year. In the past few years, because of COVID-19, there was impact on the market, but we still were managed to achieve this increase in distribution. One strong impetus is that we are diversified in our investment geographically. So we will continue this direction. And when it comes to Link 3.0 and third-party capital management, well, there will be new impetus for us. At the beginning of the year, we conducted rights issue, and there were different views at that time. And then in the past few years, we saw a high interest rate and rising interest rates. So this shows that our rights issue is a positive move. I think now it is a test of our patience to look at suitable investments and make good use of capital arising from the rights issue. I believe unitholders want us to make use of the funds in a smart way, but not in a very quick way. So we have to be patient in considering projects with good returns. Only those projects are worthwhile for investment. So from the beginning of the year till now, as our Chairman said, well, our view is interest rates will be higher for longer. So in case, there will be impact on other investors, so we will be in a very good position to negotiate and to consider hoping to acquire some very good projects. Thank you.

This brings to the end of today's news conference. Thank you very much. Thank you, gentlemen. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]