Link Real Estate Investment Trust ($823)

Good afternoon, ladies and gentlemen. Welcome to Link REIT's 2025 and 2026 9 Months Operational Update. This is Christy Lam, Director of Investor Relations. Today, we have Group CFO, Mr. Kok Siong Ng; Group CIO, Mr. John Saunders; Group Managing Director, Asset Management, Mr. Emmanuel Farcis. On the screen, you may find today's agenda. Now let me hand the floor over to K.S.

Thanks, Christy, and good afternoon, everyone. On the geopolitical front, recent tensions in Iran have driven a surge in energy price, creating renewed inflationary pressures with the potential for this to feed through stagflation or recessionary scenarios. Global growth outlook remains divergent across markets while most major central banks are currently maintaining a whole stance on interest rates. Although the trajectory of geopolitical developments remain uncertain, we are closely monitoring the situation and assessing its impact on the company. Our business focusing predominantly on nondiscretionary retail continues to exhibit relative resilience, supported by stable underlying consumer demand as we continue to improve on our tenant mix. And our gearing level remains low and our liabilities remain manageable. On operations, occupancy has remained at healthy levels despite a challenging retail backdrop in Hong Kong and China Mainland, with Hong Kong rental reversions standing at negative 7.5% for the 9 months and expected to stay in the high negative single-digit range for the full year. In contrast, operating conditions in Singapore and Australia remain robust with assets close to full occupancy. From a capital perspective, we completed prefinancing of around HKD 15 billion of FY '25'/'26 debt at competitive rates and remain focused on cost and efficiencies to protect margins. Next FY, we have only HKD 12 billion of refinancing needs. Finally, on focus areas. We continue to work on our core assets of malls and car parks to deliver sustainable returns, advance asset recycling opportunities on noncore and mature assets and plan to return excess capital where appropriate. With that, I'll hand over to John for the portfolio review.

Thanks, K.S. As of September 2025, the valuation of the Link REIT portfolio stood at HKD 223 billion. That's down about 1.3% from 6 months ago. Core retail and car park assets continue to form the backbone of the portfolio, accounting for just over 90% of the total with the remaining 9.6% comprising other assets. Geographically, Hong Kong and the Chinese Mainland remain the key markets, representing around 88% of portfolio value, while international assets, primarily in Australia and Singapore make up the balance. As market conditions evolve, valuation adjustments are expected to reflect negative rental reversions. And next, Emmanuel will go through our operational performance.

Thank you, John. Turning to our retail assets. Here is a snapshot of performance across the portfolio. Overall, while near-term conditions remain mixed, our proactive asset management efforts continue to strengthen portfolio fundamentals, enhance resilience against market volatility and position us to benefit from recovery over time. In Hong Kong, retail conditions remain challenging, but selected trades have shown early signs of recovery. We are further embracing the e-commerce trend through piloting new pickup services and seeking to ensure the continued attractiveness of our assets through trade mix optimization, asset enhancement and targeted leasing, particularly from Chinese Mainland tenants. On the Chinese Mainland front, sales momentum has improved across selected categories. Tenant remixing, refreshed layout and new concept remain a key part of our leasing strategy. As for the international business, Singapore and Australia continue to deliver steady performance, underpinned by high occupancy, positive double-digit rental reversions and constructive leasing outcomes. In a nutshell, the continued relevance of our assets across markets is anchored by proactive asset management and resilient fundamentals. In Hong Kong, leasing conditions have remained resilient with occupancy sustained at a high level, also rental reversions continue to sit in the high negative single-digit range. Against this backdrop, tenant sales and occupancy costs have shown early signs of stabilization. We remain well aware of the structural shift driven by cross-border e-commerce. And in response, and as mentioned in the prior slide, we are piloting a new pickup service, starting with a small number of self-operated pickup points. This initiative is designed to reinforce footfall, enhance last mile relevance and deepen community engagement while engaging shopper circulation across the wider mall system. Moving on to car parks. We continue to further optimize the revenue model to strengthen the resilience of our earnings from the segment. Dynamic pricing continued to provide support, while adjustments to utilization and pricing structures are aimed at enhancing income sustainability. Looking at other assets, overall occupancy remained largely sound with Hong Kong office near full occupancy, while Chinese Mainland offices and logistics remain healthy. In Hong Kong offices, market sentiment has shown some improvement, supported by demand from the banking and finance sectors with vacancy pressure in Kowloon East easing. Chinese Mainland offices continue to demonstrate resilient take-up following asset upgrades, although leasing terms remain under pressure amid elevated supply. Chinese Mainland logistics remained well leased amid heightened competition with demand supported by domestic e-commerce growth and third-party logistics providers. Finally, with the international office portfolio, leasing traction has improved with core assets showing greater resilience amid an ongoing flight to quality trend. I will now hand to K.S. to walk through capital management and cost optimization.

Thanks, Emmanuel. On capital management, Link is well positioned amid the challenging macro outlook, thanks to its strong financial position, underpinned by a healthy balance sheet as reflected in the key metrics shown. Strong access to capital markets is supported by disciplined capital management, effective interest cost control and a high hedge ratio, providing earnings stability amid market volatility. Funding sources remain well diversified, spanning bonds, bank facilities and convertible instruments with well-established banking relationship across the Asia Pac region. Key credit metrics reflect a strong and healthy position with conservative gearing and low funding costs. Active refinancing execution during FY '25/'26 secured funding across multiple tenors at competitive rates, extending debt maturity and optimizing the funding profile. Refinancing execution has also been proactive with HKD 15 billion refinanced as at February 2026, leaving only HKD 12 billion for the coming financial year. This slide outlines the progress of our cost optimization efforts with an emphasis on strengthening the operating platform in a sustainable way rather than delivering one-off savings. At the organizational level, we have adjusted the management structure to better align with our strategic priorities and the external environment. By reducing layer and strengthening our mid-level management, we have improved agility and decision-making while maintaining appropriate oversight. Taken together, these actions underpin annualized savings that are now expected to exceed our previously communicated HKD 200 million target from the next financial year onwards. In parallel, we are improving efficiency across daily operations. Increased use of technology and automation is helping to enhance productivity and consistency, while the consolidation of facilities management arrangements supports cost control amid ongoing inflationary pressures and regulated wage increases. Overall, these initiatives contribute to a leaner and more resilient operating model, providing capacity to support stable and sustainable returns over time for our unitholders. I'll now hand over to John to walk through our focus areas. Thank you.

Turning to our focus areas. Our priority is to sustain unitholder value delivered through harnessing our core strength in retail malls, selective capital recycling and cost discipline. We continue to leverage our core capabilities by actively managing and optimizing our retail and car park assets across Asia Pacific with a clear focus on protecting occupancy and reinforcing portfolio fundamentals. Beyond day-to-day management, we're also introducing targeted initiatives to address structural retail challenges such as rolling out our collection point initiative to respond to community needs and improve footfall and refining our car park revenue strategy as part of a broader approach to asset optimization. Secondly, we will continue to advance capital recycling, focused on noncore assets, including selected office exposures, whilst maintaining flexibility around timing and potential returns of excess capital. Thirdly, cost optimization remains a key management focus. Meaningful actions have been taken to mitigate business pressures with enhanced operating efficiency, including the consolidation of our integrated facilities management arrangements, which is delivering tangible savings and supporting margin resilience. As K.S. mentioned earlier, we've also simplified and streamlined the executive structure, enabling the organization to operate more effectively while continuing to generate cost savings. Lastly, against the backdrop of ongoing geopolitical uncertainty, we continue to closely monitor developments and maintain a prudent, measured approach to both cost management and portfolio positioning. While market conditions remain challenging, our focus on nondiscretionary retail continues to provide a degree of resilience to the business. With that, we thank you all for your time and participation today.

So now let's start. For the first question, we have 2 questions from Karl from JPMorgan. First question is, can you comment on the tenant sales trend so far year-to-date? Has this improved versus the last quarter, in particular, year-to-date? Have our tenant sales outperformed in line or underperformed the Hong Kong overall average? And there's another question. What's your latest guidance on rental reversion for the next 6 months or so? Do you expect the negative rental reversions to be similar or there may be improvement?

I suppose I'll take that one. So on the sales, I think, generally speaking, our sales do not perfectly correlate with the market. But what we've been seeing is a slight improvement on some of our core categories. The market, as you know, has been driven by sales on luxury goods, electronics and where we do have these categories in our larger malls, these have been performing very well. On our core categories of F&Bs and supermarkets, we've been seeing some improvement compared to last year. So that's an overall trend of gradual improvement that we've been seeing, but we are still cautiously optimistic about this. What it means is that basically our tenants have been working on improving their sales through promotions, through pricing, through regearing their supply chains. And we do see some of that starting to pay off.

So next, we have questions from Citi, Cindy. The first question from Cindy is also about tenant sales and impression. So I believe Emmanuel has just addressed it already. And then second question is, how would management interpret the escalated decline in supermarket? Any plan to downside or repurpose some supermarket area? And then -- so maybe we have Emmanuel to address this question or before maybe we go to the next.

So I think on the supermarket, what we are seeing is really the supermarket operators have been investing again into their pricing into their shop presentation, the stock presentation, reducing the price differential between Hong Kong and the Mainland investing in promotion. And from -- when we look at the performance of supermarkets in our portfolio, we do see a slight improvement year-on-year. Every quarter has been seeing some better sales. At the moment, we don't see any consolidation from our supermarkets. We do work on some aspects on their online sales as well. So while there was a footprint, the physical footprint might be the same, the SKUs that might be delivered at a given supermarket through online is expected to increase. So that generate more sales through the same footprint. So we continue to see supermarket as a very important element of our trade mix and the proximity that it provides and how it serves the community living abroad -- living above, sorry. One thing going back also to the question on reversion. I think when we look at the outlook, we do expect reversion to remain negative at around the same level as the one we had for '25/'26. And that is really because of we are continuing to see the wash through the leasing cycle that started about 3 years ago, and that was reflected in higher rents and based on the optimism about the recovery from COVID and the exit -- the reopening of the market in Hong Kong.

Thank you. Next one still is from Citi, Cindy. How is the management thought on buyback? Given your current valuation, buying back your own shares seems to be more attractive than most investments outside. And the fourth question is, may we have an update on fund management business. November, we mentioned initial USD 1 billion raise. When do you target to officially launch the fund? And does it hinge on acquisition pace in Australia?

Yes. Let me take that. Look, at any time, we always maintain portfolio discipline. So I would say the bottom 5% of what we own is always being assessed for potential disposal and recycling. Some of you will have seen because it's in the public domain that we're involved in the sale of an asset in -- office asset in Australia at the moment, 100 Market Street, and we should be able to bring you more news of that going forward. So I think that portfolio discipline is important. And then when it comes to looking at purchases, yes, you're absolutely right. I mean we're trading at a little more than a 7% yield at the moment. So therefore, what was already a high bar to purchase becomes even more telling, I think, when you're trading at that level of yield. So the answer is yes, where we have excess capital, we would, as we've said, expect to be recycling that excess capital back to shareholders. In terms of the third-party side, we've talked about the $1 billion that we have under management at the moment. That does actually include the fund. I would say roughly 2/3 of it is in separate accounts and the rest is in the fund. It doesn't -- it's not contingent on any specific Australian asset per se. We're committed to the journey. I think it's fair to say that with all the Middle East political uncertainty that's ongoing at the moment that it's quite hard work raising capital, but we are at $1 billion spread between the separate accounts and the fund business.

And then we have questions from Goldman, Simon. You talked about signs of stabilization in retail sales and rent. When exactly have you observed? And also, he asked about if there is any update regarding the Link REIT 3.0 strategy and fund management business.

I think when you look at gross sales in Hong Kong, the past 8 or 9 months, we were showing positive signs. And again, I mean, for us, there is a slight disconnection between the sales in the overall market that have been mostly driven by electronics, valuable goods. And again, when we have these categories in our mall, they've been performing quite well, but they are a small proportion. Then when we look at certain categories, along some of the F&Bs, along supermarkets, we've been noticing that for the past 2, 3 quarters. This is still a little bit patchy. And what we are doing is basically focusing on the management of the portfolio in terms of maintaining very strong discipline in terms of cost and efficiency, supporting our tenants as much as possible. We are piloting new initiatives in terms of e-commerce and embracing e-commerce with the launch of a new initiative called link collect, where we will be running our own pickup points. And the idea with this is really to ensure that we consolidate, solidify our role in the community, bring in footfall and bring ancillary sales. So whenever somebody is coming to our pickup point, which we want to be of the highest quality in the neighborhood, they will also spend on the nearby shops. We are also looking at the car park income on that front. So we are doing everything we can in our power to really focus on the performance of the portfolio while retail sales improve gradually. Again, faced with this uncertainty, we control what we can control. So that's the gist of it.

So for the next question, just now regarding the Link 3.0, I think we have already -- John already addressed on the update on the fund management business. And then next, we have -- so we also have [ KF ] asking about the progress of fund management, which we addressed. And then Karl Choi asking about are there any criteria for returning capital to shareholders? For example, certain percentage of proceeds, would Link only sell assets at book or above book value?

Yes. Look, I think, as I said, the book or above book, I think the real focus is whether it's core and whether the asset is fully mature. I think we'll always try and maximize the price that we can get in the market, of course. But then we also need to have thought and look as to what the future outlook is of the asset as well. I think in terms of recycling into -- or recycling capital back to shareholders, I think we have to look at it on a case-by-case basis. We have to be cognizant also of that we are a dividend stock. But we are, I think it's fair to say, very committed to recycling the areas of the balance sheet that we don't see as core and that we've assessed for potential disposals, if that answers the question, I hope.

Thank you. And then we have questions from Mark, UBS. This time you separate retail and car park from other assets, should we expect we want to sell the offices and logistics on hand first? And on the car park, should we expect a full year decline in revenue? And how do we see the retail occupancy for Hong Kong as of today?

Let me start with the second question.

The car park...

On the car park, so there are 2 things. One thing is we've been launching this year a number of new products. So for instance, the one link pass where monthly parkers, if they pop up a certain amount, can have access to a number of car parks outside of their home car park, if you will. We've also been launching initiatives such as differentiated parking rates so that during peak season, during festivals like Chinese New Year. And this has been quite successful in terms of bringing additional revenue and somehow that offsets the decline that we've seen last year in the number of parking tickets, which was an element of the economic situation and the fact that there were fewer cars on the road. Now we are continuing with this type of initiative. So we are looking at structuring our pricing differently in the coming future. At the same time, where we could be cautiously optimistic is the cost of ownership of the car has dropped significantly because of the import of EV from China. And therefore, we do see the number of car registration stabilizing, not yet increasing again. But again, what we are doing is against the market situation is to come up with new products and new pricing structures that can counteract the drop in ticket. If we look at the occupancy in the portfolio, this is a key focus for us. And we do see the occupancy staying at the same level of around 97-ish type of band. And this is very, very important because that maintains cash flow that maintains activity. And it's a result also of the dynamic leasing and reletting that we are doing when we are replacing tenants that are not performing, we are bringing in new tenants as quickly as possible. We are expanding the range of some of our key categories. So for instance, bringing F&Bs from the Mainland, we are keeping a very high retention rate at around 80%. So again, the occupancy, we do expect it to remain within the same level.

And yes. And then just now also Mark asked about would we expect to sell the office or logistics on [indiscernible]?

Yes. Look, I mean, core for Link is being an Asian retail mall operator with car parks in Asia. So I think office, we have to look at as potentially noncore. I think any assets outside of Asia, we have to look at as potentially noncore. We said before that the bulk of what we want to do is going to be an Asian mall and car park operator. So that's the focus. So office, logistics, I think all of those we would deem as noncore. It doesn't mean they'll necessarily all be transacted at the same time or in highly short order. But as I said to you, we're always looking at the 5% of the balance sheet that may need recycling or repurposing, and that is how we would categorize it.

And then CLSA, Alvin also asked about the noncore disposal. So I guess I believe John already addressed on that. And he also asked about if there is any new assets to [ traffic ] or category mix targets for us. John, do you want to address that as well? Like will we target any new regions or category?

No. I think we're focused on predominantly on what we have. As I said to you before, when you're trading at a 7% yield, there's a very high bar for any asset that's going to outperform that as it were. So I think for now, we're happy with the geographical exposures that we have. Overlaid, as I mentioned to you, with the fact that -- I'll reiterate again, core for us is retail and car parking. We're an Asian mall operator. And if we have excess capital, then we'll return and recycle that to shareholders as appropriate.

And then we have questions from Mark. What does China retail rental reversions and the outlook?

Well, the outlook for China is if we look at Northern China, Beijing is still being challenged by 2 things. One thing is weak consumer demand and a number of competition. So we also had in China, in Northern China rentals that were at elevated and unsustainable level. And so we are fleshing this out. So we would expect reversion to remain slightly to remain negative, but to improve from -- in Northern China to improve from where it was. That said, when we look at some of our malls in Northern China, we are -- some of the rebate is being done, but also a focus in terms of positioning and in terms of trade mix that brings in -- that has seen positive results in terms of footfall, in terms of sales. Southern China is faring better overall with positive reversion, positive outcome on the back of some of the reposition and change of that we've been doing in the past 12 months.

Okay. Thank you. So we've got a few questions regarding the disposal. So I believe we have already addressed it. And then we have these questions regarding [indiscernible] Do you have any update for the search for the next CEO? And should we expect a new CEO will be onboarded? Maybe for these questions, I will answer because our management here is not involved in the search. So we are still doing -- running the comprehensive search at the moment, seeking the proven candidate for the -- with international experience and then also it will be a proven real estate investor and business manager for a listed company. It will take time. And if there's any update, then we will update very timely to you all. And meanwhile, we have this interim structure backed by the very strong team, which some of them you're seeing here. So we have our group CFO and CIO to cover the group CEO responsibilities at the moment, reporting to the Chair and the Board. And the Chair has also agreed to commit more time in this point of time as the independent Nonexecutive Chair for Link under the new arrangement running from Jan 1 until the end of May 2027. So I believe that at the moment, we are still in a very -- covered by the very strong team, and we'll update very soon. And next, let me see if there is any further questions. Okay. We got this question from Goldman, Simon. To make sure I understand correctly, given your stock is trading at relatively [indiscernible], undemanding valuation, is it hard for you to find value-accretive acquisition opportunities?

Yes. As I said, when your own stock is trading at that sort of level, we always have a very high bar for acquisitions anyway. It has to be a strategic fit. So again, that for us is malls in Asia. But in very simple terms, when you can buy your own stock at over 7%, that raises the bar even higher and then focuses one's mind in terms of excess capital recycling.

Okay. So we have time for maybe 1 or 2 more questions. So let me see. So we have one question regarding about the fund management. Why do you want to remain committed to the fund management business when global operating environment is so uncertain and private market going through some stress?

I think that's a fair question. I mean the -- I think in reality, it's a very small cost for a significant amount of optionality, I think, is the best way to describe it. We've achieved some success with the fund and with third-party capital. So as I say, we're close to $1 billion, very close to $1 billion in total third-party capital AUM. And we are committed to the journey. But I think these capital raising environments, they ebb and flow. It certainly doesn't help what's going on in the Middle East in a general risk sense. Then again, having said that, some investors globally are more wary of investing into the U.S. and some of the benefits of that capital flow can be into Asia. So it's a long journey. I won't describe it as anything else but the cost is relatively small and is already baked into our numbers. And the optionality remains very significant. So we'll continue to push ahead with it.

So okay. Another question from Karl Choi. How should we think about interest expense in the second half of '26 versus the first half?

Thanks, Karl. I think if you just track our fixed rate at about 2/3 of our loan books, and the fact that first half, clearly, there was a nice HIBOR dip in March, April. Second half, we'll probably see financing costs increase slightly. But I don't think you are going to see it go a lot more beyond what we announced for the last set of results at 3.2%, largely because of the huge component of the fixed and we have no incremental significant debt under management over the last 6 months.

Another one, Australia. Any update for the land lease Australia mall deals?

Yes, I have -- I don't think it's necessarily public information, but I think our involvement in that particular deal is unlikely. I refocus you back on to the question of high bars and recycling of capital.

And then for the fund, so there are some follow-up questions on the management -- on the fund. Regarding the fund, how sticky are they? What's the expectations by the third parties for capital deployment?

Yes. So the answer is they're pretty sticky. The fund investors are stickier than the separate accounts, but both are sticky. If you have a separate account, then it's dependent on the desire for both parties basically to continue with the investment of that asset. With the fund, typically, people are locked in from between 7 and 10 years, and the deployment schedule is typically 4 years. So both sides of that equation are sticky. And the deployment schedule deliberately has a long runway to deal with bumps in the road like we're seeing in the Middle East at the moment, et cetera.

So any more questions from the floor? If not, so we will be looking forward to the upcoming final results in May. Okay. We've got one more. Maybe we can address that as well. Thanks, Cindy. Since you have increased the priority of capital recycling, what makes you change your mind?

Yes, I'm not sure it's a change of mind. Maybe I was doing a less effective job of communicating the desire previously. As I say, we -- I'm very keen -- the whole management team is very keen on having very strong portfolio discipline. So we will -- we're always looking at what are our keepers and what are the ones that aren't performing so much. So I don't think it's -- I think there is very much a priority. I think that is a correct assumption and statement. And we'll hopefully bring you some good news on that in -- at a future time.

Thank you. So with that, as if there is no more questions, we've come to the end of this quarterly update, and we look forward to see you again in our final results. The date of the final results announcement will be told very soon. Thank you.

Thank you.

Thank you very much.