Link Real Estate Investment Trust ($823)

On the stage, we have our Chair of the Board, Mr. Duncan Owen; Executive Director and Chief Financial Officer, Mr. Kok Siong Ng; Executive Director and Chief Investment Officer, Mr. John Saunders. So on the screen, you may found today's agenda. And without further ado, let me hand the floor over to Duncan Owen to give an overview of our results.

Thanks, Christy. Good afternoon, everyone. Whether you're in the room as Ross in the key side here or watching via the webcast. Thank you for taking the time to join this session. We're here to report the full year end results for Link REIT 2025 year ending 2026. But before we cover the details of our results, I'd like to just start speaking on behalf of the Board and management to say that we've been listening carefully, reflecting on the views of our unitholders and other important stakeholders. Our response during the final months of 2025, '26, and going into the new financial year has been to go back to basics, focusing on our key competitive advantages as owners and operators of retail miles and car parks in APAC. What that means is focusing on our core assets and our core skills. This is why in January's announcement, we confirm that no less than 80% of Link's balance sheet capital would be invested in core competency. And currently, we indeed have over 90% of our assets in this core area. Whilst we will continue with partnerships, principally for value-add opportunities with high returns, these activities should not ever be more than 20% of the balance sheet, and they will normally be a lot lower. Our immediate focus is, therefore, now on reinvigorating the existing core portfolio, divesting noncore assets, which means the sale of mainly offices and warehousing and buying back shares where pricing is attractive for unitholder returns. Back to basics is also about streamlining our management structure and adopting a more disciplined approach to capital allocation. Turning to the headline numbers for our full year results ending 2026. The overall net property income is down 3.7% year-on-year due primarily to negative reversions in our Hong Kong and Chinese Mainland portfolios. Our distributable amount per unit reduced by 6.4% and to HKD 6.5 billion with a final dividend of HKD 2.54 per unit. In anticipation of the negative reversions in the core retail business, we have undertaken significant cost optimization, which K.S. will update you on in some detail further. It's worth noting that there are encouraging signs that the wider retail sector in Hong Kong is now recovering in consumer confidence and investor interest in returns. Whilst we're seeing rental levels begin to stabilize, negative rental reversions however, will persist at around the same level during the year that we're in now ending '27 as compared to the year-end reporting on now in '26. This is because the renewals in the current financial year will normally be for leases, which were commenced approximately 3 years ago at higher rental levels due to post-COVID optimism at that time. Our cost optimization efforts will help partially offset the impact of these negative reversions on earnings and distributions. We also remain watchful and prepare for continued growth in e-commerce. We've taken steps to reposition our offering and capture revenues where possible from the changing environment, and John will speak later about these initiatives. It remains to be seen how deeply e-commerce will penetrate Hong Kong given a relatively compact nature of the city's communities and the convenience of our miles. The ultimate level of penetration of me e-commerce achieves may not reach the same height whoever has seen in the Western economies. Having said that, it is a threat that we are taking very seriously. It remains just for me to say in the mid to long term, we are confident and passionate about the outlook for Link. We enjoy exposures to Asia's growing consumer markets, and remain a high-quality operating business with a strong balance sheet, an increasingly clear strategy, high levels of corporate governance and capacity to attract high-quality international investors. Thank you for your continued support. I'll now hand over to K.S. And John to run through our results in some detail.

Thank you, Chair. Good afternoon, everyone. Great to have you with us today. As Duncan has mentioned, we have been managing the challenges in Hong Kong and the Chinese Mainland retail markets. Overall, was down year-on-year, mainly due to negative reversions in our core Hong Kong and Chinese Mainland retail portfolios. Amid continued competition from e-commerce, anemic increases and weak consumer sentiment amid macro volatility. Paper income remained broadly stable with tariff growth from initiatives such as dynamic pricing, offset by a decline in ticket volumes. Our international retail portfolio saw positive rental reversion and continued strong momentum. While we are seeing market rents are beginning to stabilize, negative retail reversion in the Hong Kong retail portfolio are expected to continue into 2026, '27 at levels similar to 2025 and '26. On the cost side, we surpassed the original annualized savings target of HKD 200 million in the second half of '25, '26, with the benefits flowing directly to the bottom line to support GPU. We will enjoy the full year benefits in the year ahead as we move forward with our cost base that better fits our expected revenues. On the portfolio side, we are staying disciplined actively managing our assets and recycling noncore assets. Our recent divestment of the swing by at Thompson Plaza, which we agreed to sell at a premium for [ HKD ] 250 million underscores our commitment to optimize our portfolio. John will talk more about this. Looking ahead, our priority is to stabilize earnings over '26, '27. I should note, however, the external factors such as the evolving U.S. Iran situation could influence the outlook. Rest assured, our team is monitoring developments closely. With that context in mind, let me walk you through the key figures. MPI was down by 3.7% year-on-year due to negative reversion in our core Hong Kong and Chinese Mainland retail portfolios. To mitigate this impact, we reduced staff and G&A cost by 14.5% year-on-year through a broad-based organizational streamlining. As a result, we managed to limit DPU declined to just 6.9% with a final distribution of HKD 0.025 per unit. Total portfolio valuation is to [ HKD 216 billion ] reflecting lower rental assumptions in certain markets, which we will elaborate on later. We continue to maintain a robust capital position amid the challenging and volatile macro outlook through disciplined capital management, effective interest cost control and maintaining an optimal fixed rate hedge ratio. This enabled us to lower our average all-in borrowing cost to 3.4%. Overall, our financial position is robust with net gearing at 23.9%. Now moving on into more detail on key operational and financial highlights. We retain high occupancy levels in our retail portfolio. In Singapore and Australia, we achieved near full occupancy and double-digit positive rental reversions during the period. Meanwhile, the office and logistics portfolio remained steady, supported by high occupancy and leasing demand amid competitive supply. We have benefited from a lower HIBOR locally and have prudently managed our interest rate exposure with expectations of diverging monetary policies across APAC. Asset valuations continue to diverge across markets. reflecting lower market rents in Hong Kong and Chinese Mainland for holding up better in Singapore and Australia. I'll now turn to the portfolio breakdown. As of March 2026, total valuation of the lingering portfolio stood at HKD [ 216 ] billion, down about 4% year-on-year. Core retail and carpark assets continue to form the backbone of the portfolio accounting for 90.4%, with the remaining 9.6% comprising other assets, including offices and logistics. Geographically, Hong Kong and the Chinese Mainland retail remains the key market representing around 82% of the portfolio value, while international retail assets in Australia and Singapore make up around 8%. Looking more closely, evaluation adjustments, movements or mix across the portfolio. Non-retail asset channel recorded more significant refined. Our international retail assets saw valuation gains, particularly in Singapore and Australia. Ongoing weakness in rental performance across Hong Kong and the Chinese Mainland has weighed on valuations. While stronger rental trends in international markets have supported valuation stability in local currency terms. We expect valuations to continue to normalize over the coming months, given they are lagging nature relative to underlying performance and market conditions, with changes reflecting the prevailing operating environment. Our capital position remains robust, supported by disciplined capital management, effective interest cost control and a high fixed rate hedge ratio. As of end March, net gearing remained at a healthy 23.9%, while average borrowing costs improved to 3.4% through proactive interest rate and financing arrangements. During the year, we refinanced around HKD 25 billion at very competitive rates at unprecedented credit margins. including the pricing of USD 600 million senior unsecured notes at a component of 4.875% in February. This extends Link's debt maturity profile and further diversifying our funding sources. Our fixed debt rate ratio within the prudent range of 50% to 70% at 60%, reflecting our continued careful management of interest rate exposure and heightened uncertainty over future rate movements. Over the past 12 months, total debt increased slightly from RMB 53.5 billion to RMB 56.7 billion, partly due to currency translation effects. Our debt maturity profiles remain healthy with the average tenure lengthened to 3.5 years and well staggered over the next 12 years. Strong A range ratings across all 3 agencies support favorable funding terms and future financing flexibility. With that, I will now hand over to John for the portfolio highlights. Thank you all.

Thank you very much, K.S. I'll now walk you through the Link REIT portfolio highlights, starting with the performance of our Hong Kong retail segment. Hong Kong retail occupancy remains solid at 97.8%, although revenue declined by 3.9% year-on-year and rental reversion reported a negative 8.2%. Overall tenant sales showed improvement with the decline narrowing to 1%. Food & Beverage delivered 1.2% growth, while supermarkets and food stuff saw a marginal dip of 0.5%. The overall decline in Link's tenant sales reflected softer performance in the general retail segment amid continued increase of competition from Chinese Mainland e-commerce platforms. But overall occupancy costs stayed at a very healthy 12.7%. So taken together, these metrics do suggest that while challenges persist, resilience remains evident in our core retail portfolio. We continue to proactively refine our tenant mix to stay ahead of evolving market trends, and we'll share more details on these initiatives in the next slide. I'm very pleased to say that our leasing team signed 207 new brands and 587 new leases during the reporting period and tenant retention remained extremely healthy at more than 80%. We have also been seeing the green shoots for Hong Kong's recovery in its economy and we've been seeing that in our own portfolio in terms of both stabilizing spot rents and also in terms of improving tenant sales. In response to continued e-commerce disruption, we're actively reshaping our trade mix towards in-person experiences and service-led offerings. These include fitness sensors, learning and interest classes, game and family entertainment but with a reduced emphasis on categories such as fashion and electronics. At the same time, we're strengthening our focus on health and wellness to better serve our communities including the addition of fitness and elderly care facilities to address Hong Kong's aging population. We have also capitalized on growing demand from Chinese Mainland brands, introducing new operators across key segments whilst refreshing the tenant mix and replacing underperforming tenants. Meanwhile, our tenants have also been responding at pace by simplifying their own supply chains. As an example, supermarket retailer selling daily needs produce, where a kilo of butcher might have had many intermediaries between farm and shelf a number of years ago, but now today is being directly sourced. Also today, much of the fulfillment of online grocery or food and beverage retail is happening directly from the stores in our own malls. And I'm pleased to announce that we have launched our own pickup and fulfillment service, Link Collect, which opened in April. The service is all about meeting the needs of our communities, and most importantly, keeping shoppers in our assets. Rather than letting our shoppers leave the malls to go and pick up, particular to pickup centers outside it allows us to retain the footfall and encourage our ancillary spending, perhaps a drink or a bun when people collect their online purchases. It also enables us to reinvigorate quieter areas of our centers, while providing most importantly, information about e-commerce patterns and trends which will allow us to be better educated and refine our strategy and our mix. Revenue from car parks and related businesses remained broadly stable. While monthly income softened due to lower ticket volumes, the increased hourly income helped offset much of the impact. We continue to enhance the car parks and overall experience across our malls using real-time analytics at scale. This enables us to further improve car park efficiency while delivering greater flexibility and value for our shoppers. And with rising EV adoption, demand for charging enabled parking continues to grow. And with Link as a leading provider of public EV charging facilities, we are well positioned to benefit from both the longer dwell times, which support parking demand as well as more footfall. In parallel, we refined our promotional parking arrangements as part of our ongoing optimization efforts transitioning to a nominal $5 per hour charge. We continue to progress asset enhancement with a HKD 600 million pipeline to upgrade and reposition our properties, ensuring that they remain fresh and relevant and well aligned with the needs of the communities we serve. In the second half of '25, '26, we invested HKD 67 million to revamp Yat Tung Shopping Center, as shown on the slide. We have upgrades to the facade and common areas, which enhance the community experience while improvements to the trade mix and activation of common areas created additional sales opportunities. and all of this resulted in an expected ROI of around about 10.6%. During the year, we also revamped the coming fresh market, [ Link ] Plaza, and we completed place-making at both [ Temple Mall and TTM ]. Now turning to Chinese mainland retail. The subdued operating environment continues to impact performance across our portfolio with overall rental reversion printing at a negative 14.3%. Performance across Tier 1 cities was mix, Shenzhen and Guangzhou recorded modest growth, while Beijing remained under pressure and Shanghai's recovery was gradual. The Chinese mainland retail portfolio, though maintained strong occupancy supported by solid leasing momentum. During the year, we signed leases with over 174 brands, driven by demand from lifestyle, retail and casual food and beverage. We continue to make considerable efforts on strengthening the positioning of our Chinese Mainland malls through ongoing tenant remixing, layout reconfiguration asset enhancements and introducing new concept tenants to enhance offerings. Across Singapore and Australia, our international retail assets achieved near full occupancy and extremely good double-digit rental reversions, underscoring strong leasing demand and the strategic positioning of our malls there. The Singapore retail market supported by recovering tourist arrivals, a resilient labor market and steady income growth. Meanwhile, Australia remains strong, supported by population growth and real wage gains. However, looking ahead, we are mindful of the impact of increased inflation and rate hike concerns, which could potentially pressure some household budgets and therefore, spending in our malls. Regarding our office and logistics assets, occupancy remained high despite new supply coming to market. This reflects the enhancements we've been made to common areas, which have been well received by tenants. Now turning to the key side. You'll all be more than well aware that JPMorgan has informed us that it will not be renewing its lease upon expiry in late 2028. However, we've already commenced proactive leasing initiatives to secure replacement tenants. We continue to build the third-party capital partnerships to enhance optionality and drive returns. And now next, we will turn to the outlook and the key focus areas. So to recap, we're focusing back to the basics on developing our core capabilities in actively owning and managing retail assets across APAC. We will continue to simplify our portfolio through recycling our noncore assets to be in line with our message of being predominantly an Asian mall operator whilst adopting a lean operating model with broader deployment of digitalization and automation to remain cost disciplined where capital is deemed surface to near-term requirements and our unit price is at an attractive valuation we will buy back units to drive unitholder returns. The recent disposal of Swing By @ Thompson Plaza illustrates this approach, and we intend to deploy proceeds to buying back units upon the completion of the sale. Through these efforts, we are focused on ensuring that our unitholders continue to enjoy strong total returns as well as setting the foundations for a positive next chapter for Link REIT. So now let me pass the mic back to Duncan for an outlook and closing remarks.

Thank you, everyone. Before we move into Q&A, I sort of just a few words on the macroeconomic environment and the outlook for Link and what it means. Clearly, the macroeconomic environment continues to be turbulent. We see a continuation of trends, including a fundamental reorganization of global trade, more reliance on domestic production and rapid enhancements of AI The medium-term fundamentals for real estate in Asia Pacific, however, remain resilient, benefiting from urban population growth in the key developed markets, strong intra-Asian trading, growing tourism and rising investments in the technology sector. What is increasingly clear is investors will gravitate towards owners with quality assets and operational strength to actively manage through the cycle. Focusing on Link, we are therefore encouraged that confidence and investor interest in Hong Kong is improving. Tenant sales continue to recover, and we are seeing rental levels stabilize. We'll also enjoy the full impact of our cost optimization initiatives this year in the following year ending 2027. However, while the market rental level is stabilizing, we do anticipate and would reiterate that the negative reversions in Hong Kong and Chinese Mainland retail for furnace will persist through 2026 to '27 as we finish renewing the final leases that we agreed some 2 to 3 years ago in times of higher optimism post-COVID. The team continues to drive new revenue initiatives, such as our car part segment, and we will work to sell noncore assets using proceeds to buy back units and reinvest into our existing core portfolio. We're now more confident that we will be able to keep our earnings stable and protect the dividend per unit in the year ahead. Thank you, and let's open the floor now for some questions and answers.

[Operator Instructions].

I'm Karl Chan from JPMorgan. I have 2 questions. The first one is important. Can you give us an update on the CEO search. So that's the first question. And the second question is probably for John. Can you comment a bit more about the tenant sales trend for the past 2 months? Do you see a further acceleration in the tenant sales compared to, let's say, the first quarter of this year?

Okay. Thank you for the question. The CEO search, I think as we've said before, there's a comprehensive independent seeking proven candidate with international experience and real estate investment experience across order. It continued to take some time, but we have made some significant headway. There have been a high-quality list of candidates, which has been reduced over time. I think the guidance we gave was it could take several months to identify the right party and the process, and then we could find that have an extended notice period of 12 months before they formally join I think the original timetable is still broadly speaking, one that we would hope to stick to, which is probably at some stage during Q1 or Q2, we would have a new CEO but that mid calendar year next year. So that would mean that we noticed peers, et cetera, we need to be announcing at some stage over the summer period here. So I don't think there's any change. We have had, I think, 1 or 2 people are aware from our -- rumors, 1 or 2 candidates that would be quite developed. But we're currently at a relatively at some stage, but you can never tell these things. John?

Yes, sure. So I mean, overall, what I would say, if you look at, before I answer the question about the recent point, certainly, F&B has been recovering through the course of the year. So we're now back into positive territory on that. supermarket and food stuff, which in '24, '25, was quite sharply negative. -- is all but flat now. The area that's been challenged still is general retail, which is you -- experts would now includes all sorts of things, including households and also fashion, et cetera. And that's the area this is still showing negative, but it is less negative. So by negative 5.5% was by the end about 3.5%. I think rather than give a specific number on each of those, maybe I can give you the color in the context to say that yes, it does seem that, that trend of positivity does continue. I think there was quite a lot of the holiday period, there was good tourism here. Generally, sales are improving. We know, of course, that because we don't have such an exposure to things like electronics and iPhones and jewelry and stuff that as much as we were sort of safe and secure lagging into the downturn. It's been a little slower to recovery but there is a trend there. We are seeing green shoots. We are seeing stabilizing rental levels and continued improving sales. So yes, let's say that we're cautiously optimistic, cautiously.

This is Cindy from Citi. I have 2 questions as well. First is on your noncore asset this time so. Can you remind us the -- between your definition of core and noncore assets. Having said any numerical targets for the noncore asset distention, what do you think could be the primary challenges for you to execute this strategy. For instance, do you see sufficient buyer interest? Or what type of pricing are you looking at? And can you also give us an update on the status of 100 Market Street after it listed for sale things in marching? And the second question is on your buyback. I see as our result announcement that you mentioned accelerating unit buyback. So how should we understand the acceleration? And just now you mentioned 1 condition is when unit price is attractive in terms of valuation what type of valuation metrics do you look at? Is it a yield discount, what type of things will you look at? And have you sit pace on our target for buyback? Or would they be more, say, opportunistic?

There's definitely at least 8 questions in there. Let me different headlines because I will hand to John on the disposals and what color we can give. Very simply, there is the 5% or 10% of the assets that are considered noncore, the majority of those will be obviously anything that's not in APAC and obviously, anything that's not a retail mail. So that was a very simple high level. At a high level regarding the share buybacks, it might be something that K.S. will add to. My statement, I think you were referring to the right pricing levels, it's simplistically looking at the cost of capital and we're cautious that the share price moved further above where we thought we could get better returns elsewhere. We might not do share buybacks -- but at the moment, we would think that there's a plausible case for it being attractive to unitholders. It's really key that we would be buying back shares purely for the economic return to the benefit of the shareholders. not to try and get a response in share base going up, not to get any other particular outcomes to do with dividends, et cetera, is what will make economic returns from a total return from a total cost of capital. So it's a pure economic decision. Do you want to sales?

Yes. Sure. I mean, the Chairman put it quite well. There are 2 lenses. There's the lens of geography. So if it's not in Asia, then that means it's noncore. And then there is the asset class lens. So if it's not a mall that potentially means it's noncore. So as the Chairman said, if you look at roughly 5% to 10% of the balance sheet at any one time, which we always look at, because I think it's good capital management and investment management to always look at whether things earn they keep, if you like. Then, in the focus is on things that aren't walls and things that aren't in Asia. I suppose the 100 markets -- question, yes, there is a process ongoing. It is still ongoing. I don't think it would be right. We're one is in the middle of a process and a commercial negotiation, I think other than to say that it continues as a process and we'll update you as soon as we have further information on that. I mean, a good question, challenges for sale. I mean, obviously, when we disposed of Thompson Plaza, that's another definition in terms of what so that it's noncore, but if somebody offers you a great price and you think it may be to an average cost of capital going forward, you have to look at that as well. I think the key challenge to disposal, as you say, is making sure there's enough liquidity in the market, and we continue to monitor that. But we're running processes and so far, so good, and we'll continue to update you. Supplementing Duncan's response on the buyback. I think Cindy per the announcement, we have intention to use the Thompson Plaza proceeds, which will amount to about HKD 1.5 billion. And then we were announced as deal is being concluded to decide to redeploy.

This is Mark Leung from UBS. I have a follow-up question regarding on the buyback. For example, like Thompson Plaza, I think we are using 100% of the proceeds for using buyback. But how should we think about the percentage of the proceeds in the future. For example, when nonmarket being done, will all of the proceed being used for buyback and not undue the different. New, for example, which our cost equity discount valuation level? That's the first question. And I think the second question is, I see 2 numbers in here. Number one is be identifying around 10% of the noncore. But at the same time, you also mentioned 50% of our assets willing to invest in the non -- in the core areas. So just wanted to gauge what's the difference between the 10% and the remaining 20%.

Okay. Definitely, K.S. can expand on the question about the buybacks. I think the percentages are used in slightly different context. There is a range of 5% to 10% of assets that you might reasonably expect would be sold. What we're saying to unitholders and investors and funds separately to that, so full stop after that point. Separately to that, no less than 80%, but we can reasonably expect 90% plus at the moment. We'll continue to be invested in retail malls as the core in APAC, of which the majority are in Hong Kong and the Greater Bay Area. So hopefully, that clarifies any confusion on that point. K.S.?

So I think, Mark, you're still trying to, I guess, figure out the difficult questions that we will not be able to disclose. But I think where we want to be honest is, as this deal is being done and as we assess where the capital needs are where the unit prices and where the cost of capital relevance is then I think we will make that announcement. So keeping our fingers costs, I think the implicit understanding them is that only when the deal is done and you don't want to rush to go make something too prematurely and couple the deals. And I think that's where we are in terms of the agreement with the Board.

Okay. Before I go on with those here, maybe riding on the questions that Mark asked just now regarding the buyback. So there's 1 question from Sam Wong -- optimist. Can we come from the process of prioritize for buyback over M&A until it is otherwise more accretive. So this question is addressed to John.

Look, I think we've said we would continue to say there's 1 question about value of shares. But I think that's the basics of the understanding of cost of capital. If you're looking to take your money, do you invest it and return to shareholders, unitholders? Or do you look at new acquisitions? And I think you have to have a strong understanding of that cost of capital. So for now, I think what we would say is that where we are right now, the intention is that we would be putting that money back the Thompson Plaza would be used. I mean, as you might have an additional covers.

I think -- thanks for the question. I think, if we could quantify what that number is in terms of total shareholders return expected for M&A deal that you have potentially funded, then thirdly, the Board will have to decide how to get it at that point and the share price to -- which one is the best returns to shareholders.

Just to clarify, I think you might help to add for Sam, just we're not currently considering particular M&A. And anything that will be considered in the future would have to be absolutely compelling. I think it would be fair to say we would consider it a high bar.

Karl from Bank of America. I have a few questions. First, I just wanted to get a little more color about -- from Duncan about your comments on what confidence is about seeing stable earnings in fiscal '27. And I think -- reversion sounds like it's still going to be somewhat quite negative. And so do you expect cost savings to be much more than expected to get to more of a flattish kind of earnings or maybe you have aggressively broad range for stable? And second question is just a quick one on core market. Just wondering if you have seen any negative impact from -- in terms of carbon usage from higher gas prices recently. And third one is a very technical one. I think in the past, if I'm not mistaken, you only executed share buyback when you have completed your script dividend program. Is that still the case here?

Let me be -- I'll deal with the first. I'll let John do with the car parking and I'll let K.S. with the script. The first was broadly directed at me. And if I could just make sure, can you just repeat the first -- apologies, I know you've lost the microphone.

When you mentioned stable earnings since rental reversions are likely to be similar to 2026 levels, -- so that would seem to suggest that the earnings -- everything else being equal, would be down somewhat maybe mid-single-digit rate of operating leverage and financial leverage. Just wondering if noticing anything perhaps on the cost side, will be a lot maybe you see some more cost savings coming through in fiscal '27. At least you anniversary the [ HKD 20 million ] plus savings, but anything beyond that? Or what you mentioned, stable earnings is relatively sort of broad range?

Okay. So we can't be too specific about the earnings. So there is a range, but there are a number of levers that the team will use to save costs. It depends on how many shares are in circulation at the time. It depends on the cost savings. Cost savings alone will never match top-level rental income moving down and revenues moving down. They're one of a number of levers that management would use to try and protect earnings and maintain them as close to stable as possible. So there is a little bit of a range in that. But clearly, if you've got a circa 2.5% dividend this year, there'll be a range around that and costs and levers and how many shares what else has done in terms of elsewhere, where income might be going up in other regions, we'll counterbalance that and mitigate it to a degree. So it's a real balance. I think the only point, I'd make for -- the car parking is I absolutely -- I think most people understand that there is some sensitivity whilst market rents are stable. So if your market rent is 100 today, pretty stable. If a rent 3 years ago was delta at 105, then the reversion is back down to 100. But that's only from one part of the portfolio, of course, it's not a simple set its third year, but it's only for one part. But we expect we're moving towards the end of that period of declines. If you think of this is of typically 3, 2 or 3-year leases, you would work out that lag impact on rents on revenue stabilizing is that sort of time zone. And we've obviously incurred it a little bit for a year or so now already.

Yes. I can give you a very simple or very complicated answer. Basically, the simple answer is no, there's been no effect in the near term. Obviously, we'll continue to monitor it. But obviously, what I would also say is there are other things going on in the parking business as well. On the positives, metered parking in Hong Kong has basically doubled in price. The illegal parking penalty has also gone up. And the other very interesting development, of course, is the number of EVs because with over 70% of new cars being EVs, our public housing estate tenants who are primarily the users of our car parks -- most of our car parks. They're the buyers have cheaper secondhand cars. So roll the clock forward 2, 3, 4 years, suddenly having that big concentration and network of EV starts to look like quite interesting optionality. And then the final point is about parking to take the opportunity to raise is the $5 privilege parking, which replaces the free parking. And I would say so far, it's early days, but the result of that seems to be positive and sticky. So I'm pleased that we've done that.

So on the question on buyback doing the DIS window, it's usually not recommended because you start to mess with the outstanding shares and then, of course, optimal DPU and you got to do a lot of announcements. So I think by practice, most companies will not touch the outstanding units in the DIS period. And then after that we were consider ourselves out of blackout.

This is Jeff Yau from DBS. I have 2 questions. In the call, before COVID, rental sales based of could be as high as 14%, 15%. Now it has already improved to -- 7% with the rental capital. At what level of when to sell rate so would the rental reversion turn positive in your opinion? And second question is also relating to the share buyback. On one hand, you'll find by some share with the proceeds from the asset disposal. Will you consider or we will continue to also provide the unit holder with the script dividend option because -- it seems to be the opposite of the share buyback.

Yes, sure. I mean, look, I'm not sure there is a magic number that you say right, if we hit this, then definitely we get positive reversions. But -- and obviously, positive reversions are really a combination of the leases that are expiring, some of which this year are expiring from that period immediately post-COVID, where you had quite a lot of optimism, not all of which came through, combined with the spot rent the market rent. I think the way I would answer it because there is no magic number in the same way, there's no magic number with the office market. But if you're at 15%, you're not going to get rent increases, but if you're at 2%, you definitely will. But where the crossover is in a way who knows. But I think the right way to look at it is we are seeing stabilization of the market rent. And we are in the zone where there aren't really any impediments to that carrying on. So long as the general economic growth in Hong Kong carries on so long as the general retail sales trend in Hong Kong carries on. And obviously, the magic question is, well, exactly when the reversions turn positive. Again, that's hard to answer because it depends how quickly what the delta of change is basically in that market rent. But what I would say that in recap, what I would say is I think we're in the zone now. We're seeing the rents stabilizing. And we just need to see that Hong Kong's economy and Hong Kong's retail sales continuing that positive part. We are heavily, heavily focused on the Hong Kong portfolio. So whether that trajectory is, we intend to be on the absolute front foot of it. But it require some help from the continued help from the economy.

On the share buyback and the DIS, I think over the years at most AGMs before we reactivated DRS unique holders and to us, please leave that option there. It's a service to unit holders convenience that every one they can reinvest. And I think we have kept it there and the feedback from the investors depending on different levels of discount has generated a different amount of subscription. I don't think it's in huge conflict, the buyback because the DIS in itself is a very small number. And I'd say it's purely an option and a convenience to unitholders. If we take it away, it put it back, I think it's very noisy and then we will echo on the discount to reflect the capital needs at the time.

Okay. Maybe let's address 1 question, online first. So [ John Lam ] from UBS. This question says, how do you see the impact of e-commerce penetration? Do you see it as a structural trend that may last for a few years until it is similar to Mainland China in terms of the e-commerce penetration level.

John, do you want to take that?

Yes, sure. I mean, I think e-commerce isn't going away, and I don't think we've reached full penetration yet. That's certainly the case. So we continue to evaluate the impact in the implications. But I think our strategy is to embrace not to avoid. That's one of the reasons prime reasons why we've done Link Collect. Link Collect allows us to keep the footfall. We should never be -- we have this unique situation with many of our malls where the customers of our tenants live above the shopping center. They should -- we should never allow them to leave because within reason, because obviously, that's been losing footfall and losing the ability to generate sales. But the most important thing about Link Connect is, it gives us just a much, much better insight into what part of the basket is being affected. And I think if you're armed with better knowledge allows you to make better decisions, so there will be a change. So there's been a change already. We've made -- if you think about where the more mix was and the kind of tenants we had somebody like Japan Home stores you look how their footprint has shrunk within our malls and how other things have come in to take over. So having that knowledge gives you the ability to mix better because there will continue to be penetration. There's a question, of course, how -- what number it gets to? And what percentage it gets to? Will it be the same as China, because Hong Kong is a little bit different and the distances are so small, Will it be less. But in some respects, I think that's the wrong question to try and figure out because I think we just don't know. The real question to figure out is make yourself a subject matter expert through things like Link Connect. And then you've got better equipped to make decisions to protect and optimizing.

Okay. Another question is from online Goldman Sachs, Simon. Two questions. One is on general retail. The other one is on cost savings. On general retail, you mentioned more focus to diversify to other experienced categories. Can you provide further breakdown of the general retail categories? And the second question is on the cost savings, which is in excess of HKD 200 million. How much further cost savings expected ahead?

So maybe a question one for John and question for K.S.

Yes. Look, I think if you're going to alter the mix in that way, and it's not just general retail, although general retailers departments been hit the hardest. You're going to alter the mix, then you've got to have things basically that experiential, you've got to have things that can't be done online. So -- as we know, if you're ordering bulk dry goods or if you're ordering homewares and things like that, frankly, that's pretty easy to just go on and -- just do that. I think for -- and it covers other areas like supermarkets and stuff. But if you're going to eat it, then I think a lot of people will actually want to sort of go and have a look at it or by produce from Hong Kong, especially if it's fresh. But the rest of it is really to do with the experiential stuff. So education, gymnasiums and experiential food and beverage. It has to be something that you need to do or you want to do in person. That's basically the name and the trick to it, but we'll continue to evolve that.

So if we look at the cost savings achieved. We set a target of HKD 200 million. We delivered slightly beyond that, and we are starting to see the annualized savings that will come through this year. I think that said, that's quite the act of all of us having to meet year-to-date and saving hotels cost. And you get to see us in reform our working environment. I think at this moment, whereby we are looking at all possible places to be able to save and we can, I guess, put in a DNA of being a proven high -- owner of a company. That's where we are in this stage of trying to cut costs. I think some of this is slightly inconvenient, but you get a sense of what we are trying to do. I think the head count and streamlining continues over time as we start to look forward -- there are ways whereby some of these cost-focused AI tools like Copilot that all of us are starting to use can get our team to do more with less, and we will continue to look at that. But I think I'll shy away from giving a big target number. The easy part of the last 2 years has been done, and we are now -- we're not looking at a staff to say if we do something, there will be a trade-off, and we have to decide whether that benefit makes sense.

Next question is from [ Radisan of Coach ]. So he is asking, what is your expectations on the trend of the rental in your Chinese mainland portfolio in the upcoming year?

Yes. I mean, obviously, there was a strong negative reversion, but a lot of that was to do with [ Jotun ] churn. And we know there's been competition there, and we've had to significantly re-leasing remix that mall. So actually, if you took out the effect of that single property, the reversions would be more like minus 3.3%, but minus 14.3%. And there are still challenges. So I think hopefully, if we've got through the impact of that specific asset, then that's already from a reversion point of view going to make a big difference. Closing the rest of the gap that perhaps is a little bit more challenging. The retail market is still a little weak in China. So we'll have to see. But I think the key message is an awful lot of that was down to one property that we have now largely relet and remixed.

Any more questions from the floor?

Patrick Wang from -- Intelligence. So my question is about the credit rating. So if you look at that, I think, past years, we observed the NAV per share is coming down, right? And the overall revenue coming down a bit. So which means that the buffer, right, in terms of the -- your credit rating is also levering a bit. How we see the potential risk of that? Is this anything we can do in addition to like the cost-saving exercise and also how do you figure out the potential risk with the potential credit rating downgrade could happen at some point that we're having -- coming down in the future.

So thanks, Patrick. I think this is something that we watch very closely with the Board as far as this credit rating, which is key to our capital management. I think what you've seen us and maybe we're a bit lucky is that we have been able to refinance in a band to bring ABC down, and that bring interest average up. And that then why isn't up the buffer again. So the other metric clearly is the LTV. I think today at about 25%, 24% on a net basis, there's still enough buffer for us to be comfortable to say we still have a strong balance sheet and credit ratings at risk. So I don't think that is a major concern today unless you say things continue to get worse interest rate getting up value than keeps coming down. I think there is one part in absolute that everybody gets it, then you say across Hong Kong, all the developers and where am I competitively other than 1 or 2 guys with net cash. I think at SMTA, we are probably in the upper quarter. So again, from a competitive pressure, then the banks and the credit provider has the same effect who else is still competitively better credit. And so I think that game is both absolute and relative. So at this stage, I think, we are still pretty comfortable. So I don't think we are today with where we are seeing the stabilizing of the rents in the market that we -- like what we -- where we were 2 years ago. So I think it's okay. Let's see how. In terms of -- if resale rates move, I think we model it out because of the hedge because I think we are quite comfortable. We are up pretty much prepared in the worst case of excessive rate type that might affect us having hedged 60% now.

Any other questions from the floor?

[indiscernible]. I got maybe 2 more questions. I think the first one is for Duncan. You mentioned you want to provide a pretty good unitholder return, right? Do you internally have you maybe on your mind, you have any targets or total shareholder return want to deliver to her annually. I think that's the first question. And second question is regarding on the reversion FY '27, we basically guided the reversion will be largely flattish for the rated. So how about in it, do you think under the current condition, we should able to actuate neutral rental reversion for Hong Kong hotel.

Okay. We'll have a second to John. The first is it's a moving target. It depends on cycles, the cost of our own capital and what happens through time -- what we want to do most of all is create a sustainable pattern of economic down to unitholders, of which a significant path through time can be a distributions. So I think it's a moving target that do we have what I could give you one today and it might be different next year and it would have been different last year. So I don't think you would expect any fixed target the closest that we would get as a guide is pre-leveraging. We'll often look as we work -- have high single-digit returns. And so it all depends on what the capital upside or downside is from that in the term of the cycle on what the positive carriers on the debt or not, if that hopefully gives you some color.

Yes. I mean, look, I can tell you what I do know. I know that the reversions for the rest of this year are probably going to be fairly similar to where they are, which I know you know already. The challenge we're trying to predict next year is for the for this year, a lot of the leases are written and a lot of it's already written in stone. But actually, we're -- a lot of the future is not written for next year. So we're reliant -- some of it is because you have a certain embedded rent level. It will certain -- the things I can tell you, it will certainly help that we get over this hump of the big reversions from the post-COVID leases. And I can reiterate that rental stock rentals do seem to be stable. And therefore, it really comes down, quite frankly, to how much growth you get in the spot rent. You all run the model, you know the math. That's what's going to determine exactly what point we get positive. But as I said before, it is encouraging that spot rent levels are stabilizing. It is encouraging that we've seen continued growth in both Hong Kong's economy and sales.

Any further questions from the floor?

This is Karl from JP Morgan. Maybe just 1 follow-up question on the cost savings. So we're expecting around $200 million of cost savings at this financial year. That includes a salary for the new CEO and then for the next financial year because the new CEO will be onboarded. So should we expect the cost to be roughly stable? Or actually, there may be a bit of increase in terms of cost when the CEO is onboarded?

I don't think we'd want to second guess what the cost of running cost of the CEO would be, but it would be what you might respect for a company of our size and what the previous CEO earned in the last stage of his tenure. We business plans for all things -- so there's normally been an allowance for that, but KSA want to make a wider comment on costs moving forward.

So the answer is that -- I mean, clearly, this year, next year's numbers, we have included the full cost we've budgeted half year or something in our plan. Then -- Duncan depending on the quality of candidate the numbers might be real. And I see, I think there is this small moving part in the scheme of things, but I don't think that's going to be material in the scheme of the DPU.

Okay. This is Raymond Liu from HSBC. I just actually first quarter similar question, which is about the fund management business under the -- strategy. So we're going to see that like the new strategy is actually focused on factor basics. Should we think of like Sun management business is now of a much lower priority or no priority in the next 12 months or 24 months? Or there will be new strategy going forward for this new growth in diseases?

Again, one for John. But the key the core competence and what we do is own and operate our own mills. We've said 80%, maybe 90% of that. So I mean that's quite a good indication, and that must be a priority. We do see all sorts of benefits in having investment partnerships, as I said in my entry and it can be a very effective way of aligning ourselves over long-term investors to get access for our balance sheet to investments we might otherwise not be able to do.

Yes. So there are clear benefits to having third-party capital. I think the way we describe it and have for a little while now is good optionality. But sort of as somebody mentioned earlier on about buying things and other stuff. The what I'm -- what the Chairman asked me how I'm getting on with a lot is divesting noncore and focusing on the Hong Kong portfolio. He does ask about third party, and there are options on the -- but I get a lot more questions. The majority of your questions are about the investments in pro-core and focus on the Hong Kong portfolio.

Maybe I will after the last questions online then. So there's another question from -- is asking about how we're going to handle the assets in [ Jun Tang ].

Yes. Well, look, we're continuing to work on it. We've done a lot of leasing and a lot of the -- there was significant competition and it did lead to vacancy. And now we've closed up a decent amount of that vacancy. And so we're continuing to sort of push hard. I mean, I'm not going to say it's been easy. It's been hard work, but we're going to continue doing what we do, which is maximize occupancy and maximize rents where we can. But I think A lot of work has been done at that asset and then a lot of releasing has been done.

Thank you. So that comes to the end of our briefing. Thanks, everyone, for coming, and thanks management for the sharing.