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

Welcome, everyone, to our Link Real Estate briefing for our financial year 2023 and 2024. My name is Christy Lam, the Director of Investor Relations here. Today, we are pleased to have our CEO, Mr. George Hongchoy; CFO, Mr. Kok Siong Ng; COO, Mainland China, Mr. Gregory Chubb, and Group CIO, Mr. John Saunders, here to provide us with the business update and strategic plans. Now I would like to hand over the floor to George, our CEO. George?

Thank you, Christy, and thank you, everyone, for joining us today. I'm pleased to have K.S., Greg and John with me here. I'll first start with the market outlook. Greg will present operational updates across our portfolio and K.S will talk about our capital management strategy. And John will wrap up for our strategies and priorities going forward before we open the floor for Q&A. Let's start with the overview. First, as we navigate through the complexity of the global economy, we are closely monitoring several key themes that could shape in macroeconomic environment and outlook. The Federal Reserve has signaled potential interest rate cuts in 2024. The pace is expected to be gradual and interest rates are expected to remain higher for longer. And still, we believe this will -- could offer a glimpse of hope for rebound in capital market activity and some restoration in consumer sentiment. The caveat to timing of monetary easing is the sustained strength in the U.S. job market as well as sticky inflation. A tax on tankers in the Red Sea have precipitated in supply chain disruptions due to trade rerouting and this has the potential to exacerbate existing risk to inflation. Fortunately, unlike COVID times, port congestion is low, which could help to alleviate this risk. The sustained tight financing conditions despite some interest rate cuts are expected to continue to be a dampener on the economy and thus demand. This will go through the prospects of our key operating markets which have shown various macroeconomic performance. Hong Kong's retail market benefits from the GDP growth and yet uncertainties to the extent to which cross-border consumption affects the retail markets post challenges. Mainland China has shown signs of stabilization which should be further underpinned by economic stimulus. Nonetheless, weak consumer sentiment is not to be precluded even as the economy navigates the macro headwinds. Singapore anticipates a 2% GDP growth in 2024, but would not be spared for macroeconomic risks, especially external shocks and these could be somewhat countered by documental efforts to address near-term challenges. Australia contends with a peaking inflation even as GDP is slowing, in real estate, the different fundamentals and stages in the cycle are manifesting in mixed forecast for retail and office sectors. These observations emphasize the need -- the critical need for strategic adaptivity to explore growth opportunities and mitigate risks in these diverse markets. Now let me spend a bit of time on the strategic areas in which we are able to derive performance. Amidst the softer global market conditions, our focus must shift towards reinforcing the resilience in our portfolio through concentrated strategic areas. Operationally, we are committed to maintain high occupancy rates to ensure stable cash flow for the business. In terms of portfolio management, our efforts will be centered on securing new accretive deals and enhancing asset recycling for improved capital utilization. From a capital management perspective, we aim to continue to strengthen our balance sheet with a comprehensive approach to bolster financial resilience, including unit buyback to reward our unitholders. And lastly, Link 3.0 pathway is designed to secure our long-term growth sustainably for a diversification strategy and a strong emphasis on investing in our talent. Let me now pass the floor to Greg.

Thank you, George, and good afternoon, everyone. And I'd like to begin by highlighting the general trends we've observed in our retail assets, starting with Hong Kong. Across our key operating markets, we've managed to sustain high occupancy rates. Hong Kong's occupancy rate was 97.6% as of December. Our retail rent reversions have met our guidance of mid- to high single-digit growth despite a slight dip in rental reversions and an occupancy in the second half as compared to the first half. The average monthly unit rent has increased to HKD 64.8 per square foot and is above pre-COVID levels. Very importantly, our overall occupancy costs have been maintained at a steady and sustainable 12.5%. Next, I'd like to turn our attention to the recent and significant topic of cross-border spending outflows. The trend of Hong Kong shoppers increasing attraction to Shenzhen for entertainment and dining experiences has not gone unnoticed. While this hasn't heavily impacted our portfolios yet, it could represent a midterm headwind. It's critical that we respond with timeliness to these trends. We've addressed this through ongoing investments in AI projects and tenant remixing in efforts to ensure that we're enhancing the customer experience and ultimately convenience. Tenant sales growth managed to maintain a rate of 1.3% year-on-year for the first 9 months of the financial year. The supermarket segment has faced continued competition and reported a 6% year-on-year decline in sales. F&B and general retail have maintained positive growth given our portfolio focus on nondiscretionary and everyday needs, trades and services. We acknowledge the recent network rationalization for chains like U-Select and DCH, which may raise concerns regarding our operations. However, our malls has only 3 new U-Select outlets, 1 of which has recently been renewed and DCH where we have 7 shops, constituting less than 0.1% of our IFA and all without any rental areas. Activity is advanced to secure replacement tenants for these spaces, if required. As we navigate the challenges of cross-border spending outflows and the evolving post-pandemic environment, our strategy is built on agility and innovation. A key pillar of this is the strategic remixing of our tenant portfolio. We changed to rejuvenate our spaces and cater to shifting consumer preferences. To gauge these shifts, we're invested in market research utilizing this to understand consumer behaviors and inform our strategic direction. Also, we're committed to enhancing operational efficiency through the introduction of multiple new operating systems and technologies to counter cost inflation. Last but not least, we're open to recycling assets that might be affected by these trends, ensuring our portfolio remains robust and aligned with market dynamics. I would now like to turn to our focus of asset enhancement initiatives, which stands as 1 of our core strengths. In the second half of 2023, we completed the asset enhancement project at Kai Tin, investing CapEx of HKD 123.5 million and achieving a return on investment of 11.2%. Furthermore, we are well advanced with projects at Butterfly Market and Kin Sang with estimated CapEx spends of HKD 26.3 million and HKD 59.6 million, respectively, with forecast returns on investment of 11.1% and 10.1% for those projects. And importantly, both projects are on track for imminent completion. Now to car parking. The structural shortage of car parking spaces in Hong Kong underpins our steady income growth in this segment, positioning it as a constant driver of revenue. In the first 9 months to December, revenue from car parks and related businesses has held its growth trajectory. Although there was a slight decrease in the number of car parking tickets, it was offset by increases in parking rates. We remain committed to closely monitoring market dynamics and devising strategic responses to sustain our strong performance. And this includes the current rollout of our new car park management system with the installation of this system to be completed across our entire portfolio midway through this calendar year. Now looking further afield to Singapore, and I'm very pleased to report how the properties have performed and also how the integration of the Singapore team has been successfully integrated now 12 months after our acquisition. Growth trends are in line with that of the market. Rent reversions are sustaining a high single-digit growth, and there is inherent potential upside given favorable market conditions. Tenant demand is healthy, and our efforts from tenant remixing to introduce more F&B and other users is paying off. With regards to other initiatives at Jurong Point, tenant remixing and space optimization continues to help grow at top line. And this includes the movement of tenants such as [ Unigro ] to upper levels but relatively lower prime space given their destinational pulling power with shoppers. This then releases prime space for the addition of new offerings and increased revenues. With regards to the suburban retail track, transactions in Singapore over the last year, the market has shown strong demand and a willingness for investors to pay for these stable assets at tight cap rates. This has a positive read through over time for the valuation of our assets in Singapore. Now looking at Australia, where we're seeing green shoots emerge for the retail sector. Very pleasingly, the sales at our retail assets have now returned to pre-COVID levels despite footfall still being on its pathway to recovery. Our assets have benefited from demand for F&B as well as new store openings, some of which are new to Sydney in Australia. An additional vote of confidence is now how tenants are again committing to long-term leases for both existing and new locations. In line with these positive indicators, portfolio occupancy has improved to near full occupancy of 99.4%. And rental growth is now positive coupled with annual contracted step-ups of 5%. Completion of the Sydney Metro City South lines in mid-2024 will enhance rail connectivity to the malls by bringing easier access into the CBD. Our office portfolio has held its ground despite facing the challenges, which have impacted the sector since the pandemic, narrowing down the flight to quality transition, our modern assets are very well positioned with this trend. Notably, we've achieved 100% occupancy at 388 George Street in Sydney with the last lease now signed and due to commence in June of this year. In addition, we've maintained it well above 5 years, which has also helped to cushion some of the sector headwinds. Notably in Sydney, the lack of new pipeline supply over the coming next 2 to 3 years underpins positive outlook for the leasing in the Sydney office sector. However, cap rates may continue to decompress given limited transactional activity for the sector. On that note, I'll now hand over to K.S. Thanks, K.S.

Thanks, Greg. Good afternoon to all. We shall now shift our focus to the Mainland China portfolio. The retail assets have demonstrated a consistent recovery. In December 2023, they exceeded the 90% threshold at a blended occupancy of 92.2%. The achievements have not been without their challenges. Amidst the sluggish economy, we have noticed a shift towards more conservative spending habits, coupled with a growing preference for outdoor activities. Despite the softer market sentiment, our relentless efforts in portfolio management have resulted in continuous improvement in portfolio footfall and retail sales in third quarter 2023. This was particularly evident during the CNY holidays surpassing pre-COVID levels. Moving into further detail about leasing, broadly speaking, our portfolio held up relatively well despite the slower market conditions. With our strict adjustment in leasing strategies and the resort CentralWalk basement coming back on stream, rental reversions are showing signs of improvement. We are now progressively working towards rental reversions in the low single digits. In the office sector, occupancy rate remained a healthy level of 92% surpassing the average levels for the respective districts. We continue to exercise caution in the office sector. On logistics, occupancy rate was impacted by an influx of warehouse supply in Changshu and a slowdown in business sentiment. Our search in the past couple of years for the right view at the right price, was accumulated in the recent acquisition of the remaining 50% stake in Qibao Vanke Plaza, announced on 9th February 2024, it was completed by end of Feb and this addition has started to contribute positively to our portfolio. Given this timing, we are comfortable with the pricing at which the property was transacted and the discount of 26% to book value and having been the co-owner of the property with Vanke over the last 3 years gave us additional confidence about the quality of the assets and the speed of transaction. During the transition period following the completion date, the current retail manager will continue to provide leasing, operations and property maintenance until the mall is taken over by Link officially towards July, August. Moving forward, we are focused on tenant remixing, repartitioning and repositioning or integrating a blend of specialty F&B, trendy apparel and exponential offerings to capture the Gen-Z market in Qibao. Following the Carrefour's exit from Link CentralWalk, we've going the extra month to refurbish and reconfigure the vacant space. The space under renovation is expected require a CapEx of approximately HKD 25 million to HKD 30 million slated for completion by second half of 2024. The new concept involves the transformation of the vacant space into one that draws in bus and vibrancy with a mix of the latest offerings in food and retail. It will also feature a diverse trade mix, including supermarkets, specialty shops, grab and go, entertainment, fitness to capture growing market demand for lifestyle and experiential concepts as well as the cross-border spending we are seeing on weekends. A recent survey indicated that Hongkongers visited Shenzhen on [indiscernible] at least once a month on weekends with shopping, dining and entertainment at top of their agenda. Next, moving on to capital management, Link is strategically positioned to capitalize on upcoming opportunities supported by our healthy balance sheet. Following our recent acquisition of Qibao Plaza pro forma net gearing stands at 20.4%. EBITDA interest coverage as of September was 4.3x and average debt maturity 3.4 years. Average borrowing costs have remained competitive at 3.74%, thanks to a high fixed rate debt ratio of almost 70%. Between January and March, we deployed over HKD 900 million in buyback of approximately 24 million units to bolster long-term value for unitholders with new accretion. In the next slide, I will delve into our FX exposure to provide a comprehensive view of our health and strategic maneuvers. The rights issue exercised earlier last year provided a buffer against the high interest rate environment and eliminated the need for near-term financing. The next refinancing amounting to HKD 9.3 billion is due late '24, '25. This provides us with some headroom to obtain better clarity into Feds intentions on the pace of its monetary easing. Over the next 2 financial years, not more than 20% of our debt is due for maturity per annum. Moreover, our financial stability is reinforced by substantially hedging our non-U.S. dollar attributable income and the currency exposure of our overseas assets. Our A ratings with all 3 credit agencies have remained intact, securing us favorable access to capital and keeping our financing costs competitive. This is clearly reflected in our key financial covenants, which are significantly below the threshold established by these rating agencies, demonstrating our solid financial standing. I'll now hand the time over to our Group's CIO, John Saunders, to provide us with more insight about the strategy.

Thank you very much, K.S. And good afternoon, and welcome to everybody. Allow me, if I may, briefly introduce myself. My name is John Saunders, and I'm the newly appointed Group Chief Investment Officer, at Link REIT. As group CIO, I'll oversee investments for both balance sheet capital and third-party money, obviously, with a goal to ensure alignment across those investment mandates. Taking a look briefly at the current portfolio, there is still, of course, a significant weighting to Hong Kong. After the pro forma consolidation of the additional acquisition of Qibao Vanke Plaza back in February, however, the exposure to Mainland China has been stable at just a little bit over 15%. We -- overall, I would say, though, continue to see the effects of diversification, including, of course, the recent growth in the Singapore footprint. Moving on now to the strategic plan. In addition to management of the existing portfolio, my role as Group CIO also encompasses oversight in terms of the Link 3.0 strategy, particularly as it relates to third-party capital. It is expected to ensure a good coordination between the on balance sheet as well as off balance sheet capital strategies. And the strategic plan that's mapped out here, I think sums up quite well our multifaceted approach to evolve into a world-class trusted APAC real estate manager and investor leaning in on our asset base, our talent and our values as an experienced fiduciary. Whilst the third-party balance sheet capital will continue to be invested in more stable assets. The third-party capital would have more flexibility to be invested higher up the risk curve towards value-add investments with, of course, commensurately greater returns and commensurate fee revenue. In terms of the 3 core areas of operations, we will continue to look for attractively price diversification opportunities in these current weaker markets. Although the [indiscernible] new investment will continue to remain high. The operating platform continues to be 1 of our absolute key strengths, which gives us a distinct leg up as we start to grow out our third-party capital management business. In respect to that, I would say that this will be a journey and 1 that we are at the start of. However, I would make the following 4 comments. The first is that it's a very good time to have a strong balance sheet. The second is that third-party capital managers are currently under some degree of stress with many managers suffering legacy issues and an overall lack of capital which brings me to the third point that, that affords us a market opportunity to look at building both organically and inorganically or potentially a combination of both. But regardless, it is a very good time to be looking to do this and patience has, must and will remain the key as markets, frankly continue to move towards us.

Thank you. Thank you, John. So we now will open the floor for Q&A. Please submit your questions using the Q&A function. So may I have the first question? Okay. First question. On rental reversions in Hong Kong, do we have our one-through reversion in Hong Kong target in FY '25 and for our car park run-through income growth target in FY '25 as well.

Greg?

We won't provide guidance. But I guess the main statement to make is we'll be looking to capitalize for Hong Kong retail on our high occupancy rates, our continued growth in tenant sales and a very strong position in each of the markets that we serve. So the prospect of us continuing to print positive reversions is our focus. We certainly have seen our reversions moderate from the first half into the second half. But 1 of the notable aspects is we've continued new leasing volumes at a fairly steady rate to what we have over the last few years and over 40% of the new leases that we've written in the last 9 months have been to new tenants to the LEAP portfolio. So our focus, as -- I think I mentioned at the full year is a combination of balancing the financial outcomes and the physical outcomes and they're equally important as we continue to drive the performance of our assets. With regards to car parking, our car parking business is very well positioned. We've seen tickets moderate a little in the second half in some assets. But certainly, our ability to continue to increase rates is something that we will continue to focus on. I'll also add that the inclusion of our new car park management system where we've now rolled out 10 of our properties, and we'll have our full portfolio rolled out by middle of this calendar year will give us ultimate flexibility to be able to manage that portfolio to the maximum. So we remain cautious, but we remain very committed to driving outcomes and performance across both the retail and the car parking portfolio in Hong Kong.

So there are quite some questions regarding the [indiscernible]. So the general questions would be around how's the impact and can we quantify the impact of cross-border spending outflow in our Hong Kong shopping mall. And also, do we see any -- the pickup of the property market in Hong Kong post policy, which would help us to disclose any noncore assets in Hong Kong?

I'll pick up on the first one, and I'll probably hand to George for the second point. I mean I guess the only thing that I can point to is that we've seen a moderation in sales from the first half into the second half of the reporting period. Our sales growth at September was about 3.3%. It's moderated to about 1.3%. Pleasingly, both food and beverage and general retail sales remained positive and we've seen some pressure in supermarkets, obviously, at negative 6%, which is down from negative 5% at the September reporting period. It's a really mixed bag and it's very hard to find patents at this point in time. There's a lot of discussion around what's happening in the northern precincts, close to the border in Shenzhen. But there's no clear patterns that we can derive at this point in time. Some of our properties continue to operate in positive comps and some are slightly negative. But it's something that we're taking very seriously. We continue to really focus on analyzing the performance of each of our asset. And we've undertaken some fairly significant customer research over the last few months as well. And what I will say it's something that we'll continue to focus on very mindfully to make sure that we can respond very, very meaningfully to any of the issues that might come from spending leakage. George, do you want to comment on the capital markets side of things?

The market has starting to reopen as interest rates -- while we're not going down yet. It doesn't look like it will go up further. So I think a lot more investors are to explore opportunities. We have discussed with different investors as well as we have started looking at more opportunities in different parts of our geographies. There is not too much more to add at this stage because as we said many times, these transactions takes time, takes 2 parties at least to agree. I would say, though, I just want to supplement what Greg said about this northern leakage that we talk about and a lot of media coverage and some of our peers have [indiscernible] own results and talk about that. As Greg has mentioned, there's no clear pattern yet. We're doing regular survey to understand it. Having said that, we've gone through different cycles. We've gone through a change of customer shoppers taste over the years. And so just need to make sure that our asset management team and our leasing team continue to fine tune the tenant mix and trade mix and order that we keep our occupancy level high. So we are very focused on it, but we don't see any impact to be too significant.

Okay. So next question will be still regarding our Hong Kong volume. What's the Link REITs retail mix between F&B supermarket food stock and general retail? And how aggressively would we change the mix in cross-border spending outflow brand continues.

So we've got about 29% of our portfolios in food and beverage. That's increased a little bit over the last 6 months. With regard to supermarket and food stuff, it's a bit over 20% of our trade mix and that has come down very, very slightly. So what we've gained in F&B, we've pulled out of supermarket and food stuffs. And importantly, our markets in Cook Food stalls is just under 20%. So -- if you look at that on a consolidated basis, about 70% of our portfolio is related to food and beverage and food stuffs and is a real hallmark of our portfolio. Link is famous for its asset enhancement projects and continuing to invest in both the physical and the -- I guess, the customer experience, and it's something that we will continue to explore. I wouldn't suggest that we will aggressively change those statistics, but we will always continue to interrogate them. And there's a number of asset enhancement projects that are currently underway or currently under investigation that will see us potentially change some of the aspects of our retail mix and offerings. And that's something that the business will continue to do irrespective of market conditions.

I think it's important to emphasize the resilience of our portfolio given that they are in community shopping centers. The convenience of them shopping from especially Monday through Friday, if some of them do travel across the board or we can experience by and large, day-to-day, especially F&B food-related retail continue to remain strong because it's convenient. And not a lot of people go across the border to buy the weekly grocery and there's a restriction or bringing in fresh meat and all that into Hong Kong anyway. So I think there are a lot of these elements pulling together allowing us to remain fiduciary.

Okay, next question would be regarding our China portfolio. It seems Vanke is in liquidity pressure as bond price movement. And they're trying to sell their SCPG malls as per news pro. Will you consider buying more most in Mainland China? And if yes, what is your criteria and hurdle rate? And also if they are kept on Mainland China exposure.

Yes. Look, I think there certainly some good deals to be had in China at the moment, as evidenced by the deal that was done in February. At the moment, I think we feel fairly comfortable with the China exposure somewhere around the 15% level. I think there could be opportunities to recycle some capital going forward. So I think at the moment, we're keeping our options open. I do reiterate that we're comfortable with the current exposure levels and we'll keep looking for opportunities both to recycle and to take advantage of market dislocation where necessary.

And any concern on asset revaluation losses, particularly in China. Any concern on asset revaluation losses?

I think so far, we are not seeing any other than our deal, which the value was continue to hold pretty close to our first 50% book value. The second 50% that we bought that was much lower was considered a distress in line with market. So far, we are not expecting any big valuation changes. And besides our deal, we have not seen many other deals in the market that warrant us to worry about the valuation losses in -- especially malls in China.

And can you provide some color on the cap rates of your Hong Kong and China assets? And you see risk of cap rate expansion there.

So far, I think what we are hearing and seeing in the market cap rates are holding. I think 2 perspectives. One is our cap rates have never progress very aggressively during low interest rate environment. And if you look at our Hong Kong, it's somewhere 4% plus, minus, China is 4.5% to 5%. So I think looking at where rates are for both Hong Kong and China and the fact that risks are starting to plateau and signals of risk coming down. We are not hearing any cap rates widening of decompression at this stage of the game.

Okay. And then regarding the gearing. So is the current gearing level of 20.4% much with company expectations, any road map on refinancing in the next 2 years, especially on the rent issue side.

I honestly think 20.4% was pretty safe in the last 12 months looking very comfortable into the next 12 months, and we believe the 3 Fed rates cuts are coming. And I think if there's no more valuation downside risk operating at this level is probably slightly suboptimal in my view. I think we would then capitalize on opportunities to gear up for the right reasons. Refinancing in the next 2 years, I don't see any issue with the cash at hand today as well as the fact that where we are with our credit ratings and we look at the secondary markets of our securities in bonds, we are trading pretty tight in the sub-100 credit margin. So I have no issue at all with the refinancing. I think key is that the underlying assets the last [indiscernible] which Greg is running Hong Kong portfolio, Singapore portfolio, China, I think the cash flow continues to support a strong interest EBITDA average. So I think we are probably the last kid on the broad credit market, whether it's bank or nonbank should be worried about. So clearly, unless there's a huge dislocation, I'm actually feeling comfortable with all the refinancing.

And the next question is about the effective funding cost expectations in FY '25.

Not a lot to signal other than the fact that we are pretty static in our -- what we call ABC, average borrowing cost, because of the higher portion of fixed rate debt ratio. So we have a 50% to 70% policy with the Board. We have operated at a ceiling, we don't intend to keep it to this fixed. We probably let it roll off a little bit as we look at where the U-curve is signaling. And so I think with that, this is probably the upper range of our ABC for this season of the difficult period. And then we'll probably see either plateauing or starting to come down slightly. And this all depends on which geography the next investment cycle brings us to, whether it's in Australia, Singapore, Hong Kong or China and of course, Hong Kong now being the most expensive in terms of rates. Other than that, I think 3.75, 3.85 is there about the rating ship we will be operating in for the next financial year.

And then because we're going to do some acquisitions, what is the balance on the gearing.

Our view is that going into 2 parameters from a balance sheet perspective and then from P&L clearly the assuming deals are yield accretive and all great even if we have to take a total return approach where it's not immediately yield accretive, but it still creates shareholder value in the long term, bringing gearing to slightly nearer to 30 plus/minus, I do not see an issue if so long as we can keep our coverage at about 2.5%. Currently, we are comfortably above 4% and we don't see interest rates going up and coverage coming down gearing. So I think all those fear factor, cloudy days have probably dissipated for a while. And I think this is where like what John Saunders has been articulating. It's a great time to be where we are as the sun starts to shine through the clouds, and we are going to a bit more, I guess, aggressive view, honestly, before compared to the last 18 months, where we were struggling with the rights issue. Should we do it, should we not do it? Is it going to be higher for longer. So I think those dialogue is probably getting keener.

So there's a few questions about Link 3.0 strategy. So first one, on 1 hand, we are okay in to buy investing quality assets globally. And on the other hand, we are running as asset strategy. So how do we align both concept and the Link 3.0.

Let me perhaps start with a strategy, what we're doing -- trying to go down to a little bit more detail when -- what are the asset types and how we're going to do it, which geography and all that. I'll start with the first thing, which is very good to have John joining our team. He just started 2 weeks ago, giving them some more time to get the business plan in a little bit of detail. And as we continue to engage with you, we'll share more and so give us some more time to give you the very specific detail. I guess you're asking a lot of these details to try and model what we're going to look like. I would say it [indiscernible]. We have been a manager of 1 REIT. We've done that for quite a long time. That balance sheet that has produced a very steady distribution over many years since IPO, we are looking at his manager, also managing other funds, other vehicles so that those will target funds that are not necessarily looking at a REIT like return to core type return but more value-add return, for example. And as a result, they need to be separate from how the REIT investor will now mean look at investment risk and return. We will obviously use our balance sheet to put some money into these as a GP stake, and we will put money in there to make sure that we have the alignment of interest that's necessary. So we're going to build that part out. So in the future, when we look at acquisitions, I guess the simplest to say today is if as a core, core -- slightly core plus type asset, more [indiscernible] REIT, this higher octane and we'll probably put in some funds that will set up and whether it's a specific mandate or discretionary funds and things that will be developed over time. And so it will be a little bit more complicated to model without actually having launch any at this stage. So bear with us, but that's the direction of travel that we are looking to implement to Link 3.0. John can give a little bit more detail.

Yes, sure. Look, I think George has done a very good job of explaining the direction of travel. I think the point is well made that Link already is manager of capital. And this business really is about matching capital to opportunities. So the balance sheet, I think, is fairly clear on its areas of interest. And in terms of the risk return spectrum, the balance sheet is fundamentally still focused on sort of core, core plus. Well, really core that we -- core risk that we get core plus returns on because of the great work that the asset management teams do on their asset enhancement. And I think that's very much 1 of Link's superpowers, if you like. And then there is another pool of capital that's looking for is looking for higher returns value and is willing to take a little bit more risk in order to achieve that. But when our excellent deal teams are out there looking for opportunities, you come across the whole risk spectrum across a number of different geographies and across a number of different asset classes. So in the past, without having that third-party capital to harness, we've been seeing a lot of opportunities that we haven't match capital to with the growth over time of the third-party business that allows us to fully utilize our excellent sourcing capabilities in both different geographies and different asset classes. But as George said and as I said earlier, this is the beginning of a journey. We're building a plan and we have a strategic direction, but it is a very good time to be doing this because of the general dearth of capital in markets and because of the problems that a lot of managers are having with both legacy investments and legacy structures.

And just looking at the people on the screen, and John during the investment and you talk about making sure that we have proper alignment dealing with different risk profile for both balance sheet and the fund management platform during different type of fund investment on the top right of this chart that we show is the operating platform and Greg taking on a wider role to make sure that we actually have an integrated platform across the geographies so that we have the -- our operation standardized, we learn from each other a different part of the region, making sure that in terms of systems and process that we really take it to the best cost level. So I think that's one upgrade that you see, and you've seen it in the phases in front of you right now, but also in terms of the daily operation, this team has been looking at how to make sure that we can take Link to the next stage.

And in terms of -- when we talk about the investment acquisition of opportunities, what markets and what sectors are we looking at?

Yes. Look, I think, obviously, we've been expanding into Singapore. And I think that's been both a successful for it and also allowed us to build competencies and begin to start moving towards a degree of scale in that market. So that's certainly favored. And again, you've seen us move towards some growth in footprint in Australia, which is also a market that continues to hold interest. So I'm not sure we're quite ready to divest the sort of entire secret source of exactly where we'll go and with all the different asset classes. But it's very much a developed market strategy and the ability, as I said before, to grow our footprint and to use that sort of special source of the asset management and asset enhancement capabilities that we've already been doing in those and other markets, I think it's something that will continue to serve us very well.

So I see quite -- some questions regarding the buyback, seeing the weakness of the share price likely pass our plan for buyback. Do you have any buyback budget?

So I think we did almost $1 billion buyback of almost about 1% of the outstanding units on the basis that we thought the pricing looks pretty good in terms of yield accretion as well as innovating the Link's support for the unit price in recognition of the unitholders. I think that will be still the position that we continuously balance what we see in the market versus where the unit price is, what opportunities and allocate our balance sheet accordingly. But I think the bigger long-term picture is the fact is that buying back is basically buying back the same portfolio undiversified what we have today, which is also the issue of where capital is not flowing towards China, Hong Kong market. So I think there's a need to do some in short term, but the longer term, it does steer away from where we want to be in terms of the portfolio allocation. I think granted, there's a need for us to fulfill our duty to unitholders in the short term, but there's also the longer-term picture as we steer the ship into where we won in terms of diversifying the portfolio. So I think the long story short there will be a buyback, but it's not going to be announced. It's not going to be a big budgeted number of the balance sheet that we want to make it a programmatic buyback like it was when we do a big divestment and when the sun was still shining brightly in Hong Kong and China, and it made a lot of sense to buy back the portfolio mixed at a time. So I think giving you a lot of the thinking behind the buyback is to help us all understand where we stand. It's hard to say that we are to put a fixed number to it.

So the question of additional questions regarding our Hong Kong portfolio. So I will jump back to the Hong Kong portfolio first. So regarding Hong Kong office portfolio, how is the occupancy?

So the key side as of December was in the mid-80% range, but we've been successful in re-leasing a large tranche of space. So -- that lease is due to commence middle of this calendar year, and we'll be back at about 98% occupancy, and we've been successful with the retention of 2 of our large tenants at the key side as well. So pleasing outcome with that recent new lease. So, yes.

And then some questions regarding the traffic -- the shopper traffic for the Hong Kong's mall. In the last few months, can we share more color in terms of the shopper traffic. And has it dropped significantly as the result of the cross-border spending outflow?

No, it hasn't. And again, the patents are just very hard to decipher at this point in time. We operate in clusters. So we've got 10 clusters in Hong Kong, and they're fairly equally balanced in terms of the number of assets and the IFA in each of the clusters and some assets in a particular cluster will be up and other assets will be down. And it's very similar to the spending patents. So it's something we're endeavoring to understand. As I said earlier, we're cautious, but we're certainly not alarmed and we've got the ability to respond given the purpose of our portfolio and serving the everyday needs of the Hong Kong population. So we'll be focused on convenience, we'll be focused on providing the best quality goods and services that we can and endeavor to have price competitiveness, which I think is an important factor. So we've got the ability to respond, and we'll be doing a very best in the near term to do that.

Okay. So our next question is about our tenants in Hong Kong. What is the sales split between weekdays and weekends?

It's fairly equally balanced again, given we're servicing for general everyday needs, goods and services is not in, say, what you would experience in a more discretionary related retail environment with the heavier spike to weekends. It's certainly more balanced for us through the 7 days of the trading week. That's the best way I can answer that question.

And then next 1 is about also Hong Kong portfolio. So how would we position ourselves in light of the cross-border spending trends and shoppers preference of entertainment and experience.

Entertainment is not our thing, convenience and everyday needs is. So we'll be ensuring that, that is -- we're doing that the best that we can. We'll continue to evolve our tenant mix. We'll continue to monitor the market. But you won't see us shifting to entertainment and try and compete with Southern China, for example, on entertainment experiences. We'll continue to play to our strengths, which is all about convenience and everyday needs, and we'll continue to do the best that we can in that space.

Okay. Next question is about the acquisition opportunities in Hong Kong. So with Hong Kong budget deficits, there are some suggestions that Hong Kong government might consider to sell down and retail properties. If yes, do you see this as an opportunity for you?

We'll look at any opportunities. We obviously have a hurdle rate that we set up for different countries, different type of asset class and if it provide us the right return, we will be interested. And obviously, we have a critical mass in Hong Kong. We have the team based here -- a large team based here. So hopefully, we will be able to underwrite the return a lot better. So -- but -- we don't know when those might come to the market. But we will look at all the good opportunities.

So given the time is coming up so it will be the last questions now. Some of the market participants are actively looking to buy some commercial assets at a cap rate of around 6% or above. Will it be any negative impact to the overall portfolio valuations? And what is the current cap rate on average do you use to value the retail and office in Hong Kong?

Some transactions in Hong Kong have been done recently, a lot of those cases were situation where the sellers are under distress. So using those benchmark probably not reasonable when our value is certainly not looking to those without any adjustment. So we don't see those transactions having any direct impact to valuation downwards. They are obviously marked transaction that will have some [indiscernible] parking effect, just like our acquisition of the 50% of Qibao [indiscernible] mall. The values are not looking at valuing the time mall that the value that we pay because the asset is worth with a certain amount, we just happened to buy it at a discount...

We are, like I say, cap rates in between 4% to 5% for Hong Kong. I think there's still no indication that this is widening. So I'm not seeing that as an issue.

So I think it's been end of our briefing today. Thanks all the management, and thank everyone of you for joining us, and we will see you again very soon in our upcoming annual results. Bye-bye.

Thank you.

Thank you.

Thank you.

Thank you.