George Hongchoy, chief executive officer of the Link REIT, speaks at Wednesday's press conference in Hong Kong. Edmond Tang / China Daily

The Link Real Estate Investment Trust (the Link REIT), the biggest operator of community shopping malls in the city, reported total distributable income (TDI) of HK$2.134 billion was up 17.3 percent on a year-on-year (YoY) basis for the fiscal year ended on March 31, 2010.

The Link REIT recommended a final distribution per unit (DPU) of HK$0.4902, which, together with the interim distribution, represented a 15.9 percent increase in DPU for the whole fiscal year on the YoY basis.

The Link REIT attributed the TDI growth to higher occupancy rates, increased revenue contribution from newly completed asset enhancement initiatives (AEIs) and stringent cost control measures.

The overall occupancy rate is slightly better than the 2009 figures, as the ratio increased by 3.2 percent to 90.6 percent. Overall average monthly unit rent stands at HK$30.6 per square foot, representing a jump of 7.7 percent.

However, the overall tenant retention rate was slightly down 1.5 percent to 71.4 percent, and the overall composite reversion rate was also down 4.7 percent to 20.5 percent.

The Link REIT disputed the notion that the reduction of the retention and reversion rates reflects greater tenant dissatisfaction with rising rental levels.

"The reduction of the two rates reflects the changes in business strategies of the tenants, the rental level, and the economic environment perception of the tenants. In addition, some tenants have retired from their businesses, which may also lead to the reduction of the above two rates," the Link REIT chief executive officer George Hongchoy said in the Wednesday press conference delineating the business results of the Link REIT.

Concerning the AEIs, the Link REIT will invest HK$772 million to renovate the five existing community shopping centers in the 2010-2011 fiscal year. Hongchoy stressed that the Link REIT has sufficient cash resources to undertake these renovation projects.

"As the local economy gradually rebounds, with retail sales and employment figures improving, this will exert positive impacts upon the tenants' perceptions toward the business environment. If their perceptions remain positive, then we can negotiate more reasonable rental levels with the tenants," Hongchoy said.

Concerning the worry that the Link REIT may have obstacles in adding more community shopping centers from the Housing Authority into its portfolio, Hongchoy reiterated that the Link REIT will improve the management standards so that it can attract more future shopper visits in the shopping centers.

Financial analysts cautioned that the investment potential of the Link REIT depends on its future pace of acquiring more shopping malls.

"If the Link REIT cannot absorb more community shopping centers from the Housing Authority, then it can consider investing in other private shopping bazaars to enhance its future returns. In this regard, the Link REIT's investment portfolio may extend to private shopping centers," Francis Lun Sheung Nim, general manager of Fulbright Securities, told China Daily.

Lun added that the gradual improvement of the local economy and the aggressive approach of the Link REIT's management team mean that the stock will fare relatively better in the still volatile equity market.

China Daily

(HK Edition 06/03/2010 page3)