Transcript : Link Real Estate Investment Trust, 2025 Earnings Call, May 27, 2025

Well, good afternoon, everyone. So welcome to our Link's Annual Report -- Annual Results Presentation. I'm Christy, Director of Investor Relationships. So let me introduce what we have on the stage today. So we have our Group CEO, George Hongchoy; our CFO, Kok Siong Ng; our COO, Greg Chubb, and our CCDO, Ronald Tham.

So here is our agenda today. So if you want to download our presentation or our announcement, you can scan the QR code here. So I'll give you a few second if you want to.

Okay. When you all got ready, let's start. So let me hand the floor to George. Thank you.

Thank you, Christy. Let me start with this slide, which gives you a highlight of the presentation that we'll be giving today. Amidst a very challenging macroeconomic environment and serious business challenges in Hong Kong and Mainland China, I'm happy to report that Link managed to deliver a very solid set of results, which are credit to the whole Link team. We have seen valuations come under pressure, and we expect the environment to continue to be very challenging in the year ahead.

Given this, we have initiated a number of efforts aimed at reinforcing our resilience and to protect our DPU. Central to this is a long-term diversification strategy, which has helped us to protect our earnings in recent years, and we'll continue to move forward with this.

As mentioned at the start, Link REIT's results for the financial year are solid, and that reinforce our resilience and -- in face of this uncertain macro condition and diversified -- intensified challenges for our business. While we are pleased to be able to deliver another year of growth in distributable income to our unitholders with an increase of 4.6% year-on-year, we should stress that some of the positive contributions are one-off items.

We achieved a DPU growth of 3.7% year-on-year. However, the NAV per unit declined 9.6% year-on-year, largely on decreasing asset valuation from cap rate expansion in most markets. We've retained a strong financial position with net gearing at a healthy 21.2% (sic) [ 21.5% ], And this, in addition to robust credit ratings and competitive financing costs, provides a solid foundation to navigate the challenges ahead and enable us to capitalize on potential opportunities.

We move into business and strategy. Link has evolved over the past 20 years with active management and asset recycling to drive growth. Since 2015, we expanded into Mainland China, Australia, and Singapore, reinforcing our diversification strategy and solidified our position as one of Asia's leading property investors and manager. A lot has been achieved in these 20 years but it's only the beginning. And we are at an important and exciting pivotal point in Link's development under Link 3.0.

You can see from here how the Link REIT portfolio has undergone significant transformation over the years. From the IPO time, our portfolio consisted of 81% retail and 19% car parked only in Hong Kong. And throughout all these years, we have now transformed into a more diversified portfolio across different geographies and property types.

We have consistently shown that we are able to unlock value for our unitholders even during challenging periods such as the global financial crisis, the COVID-19 pandemic and social unrest in Hong Kong. Since 2005, we have delivered annualized total return of 10.9%, which outperformed the Hang Seng Index and the Hang Seng Properties Index. Our portfolio value has also grown more than fivefold since IPO. The chart shows how the diversification we initiated 10 years ago has enabled us to continue to grow these past few years and become an increasingly sizable portion of our NPI.

Looking forward, we'll continue to pursue further portfolio optimization through Link 3.0 strategy, and we will be updating on this in the presentation. Our commitment to value creation is reflected across all aspects of our business, including our asset management capabilities, supported by operational efficiency, community engagement and innovation. Our proven exit track record and diversified -- and diverse Link REIT portfolio are key drivers for our success. And for further detail, we will refer to the annual report where we will disclose further.

During the year, we undertook several key strategic initiatives to enhance our resilience, and let me highlight a few of these. It was another busy year of portfolio optimization, and we continue to improve operational efficiency. Greg will provide more details in his section. As for the investment management business, we put in place a pan-regional team and infrastructure. The foundations are now fully set for the business. And lastly, through the Nomination Committee, our appointments to the Board were made, including the Chair and INEDs.

Let me first pass to K.S. to share with us the financial updates.

Thank you, George. Good afternoon to everyone. Thank you for coming. We have seen a steady growth across our portfolio during the last financial year. In Hong Kong, we achieved total growth in revenue and NPI. This was driven by relatively better retail sales and savings in utility expenses. In Mainland China, both total revenue and NPI are also up. This was mainly boosted by the full year contribution of Link Plaza Qibao.

On the overseas front, our retail assets in Singapore and Australia recorded nearly full occupancies and positive rental reversions. Our low gearing helped us to keep borrowing costs competitive and weather the storm of valuation declines. I'll come back with more details on capital management and valuation in a while.

In this slide, we are showing a simplified version of our P&L. Despite our G&A going up 19.5% year-on-year, a large part was due to LTI scheme adjustment, legal and consultant fees and uncapitalized expenses from exploring M&A deals. Excluding these items, G&A would have been up 6.9%. Another item to take note would be the net finance cost. The increase was due to the acquisition of Link Plaza Qibao. Excluding such costs, net finance costs decreased by 1.4% due to effective interest rate hedging.

Back to valuation. Total portfolio value as of 31st March 2025 declined by 4.7% half-on-half, mainly due to, firstly, cap rate expansion in Hong Kong and Mainland China and FX depreciation against Hong Kong dollar for the overseas. Our robust FX hedging strategy effectively mitigated the extent of the decline in the total value of investment properties in Hong Kong dollar terms.

Lastly, capital management. Our robust financial position is well supported by a healthy balance sheet as shown by the key metrics here. As of 31st March 2025, net gearing remained low, while the average borrowing costs remained competitive. Fixed debt ratio is in the upper range of 50% to 70%, and we'll continue to closely monitor the movement of interest rates.

Our financial stability is reinforced through FX risk management, which includes extensive hedging of non-Hong Kong dollar distributable income and overseas assets. Over the financial year, we have been repaying our debt. Debt balance as of 31st March 2025 is reduced to HKD 54 billion from HKD 60 billion a year ago.

Our A ratings from all three credit agencies enable us to secure favorable terms for future funding needs, and we have achieved a lower overall margin in refinancing this year. Furthermore, we remain well below the key covenant thresholds set by the rating agencies. This gives us headroom to capture acquisitions and other opportunities when needed.

Let me pass over to Greg for operational highlights. Thank you.

Thanks, K.S., and good afternoon, everyone. And I'll start with our Hong Kong Retail segment performance first, where retail businesses in Hong Kong continued to face market-wide challenges amid intensifying competition, rising costs and cross-border travel. This has seen total Hong Kong retail sales decline 7% over the period. Portfolio sales for us at Link have declined at a lower rate over the same period at negative 3%, and this is given our focus on food and nondiscretionary trades.

Leasing reversions over the period have turned slightly negative for the full year at negative 2.2% with ongoing pressures, in particular, in supermarket and Chinese restaurant categories. Occupancy across our portfolio has remained stable and has been preserved at a very solid 97.8%, and this ensures a stable and predictable income stream. All of this has seen revenue growth of 1.5% year-on-year, and such results demonstrate the ongoing relevance and resilience of our portfolio with the primary purpose of servicing Hong Kong people for their essential daily needs.

In response to the evolving market landscape, we continue our leasing efforts to service emerging demand and continue to optimize our tenancy mix. For the financial year, we successfully signed over 600 new leases, including the introduction of over 200 new businesses to our portfolio, whilst maintaining a healthy 80% retention rate on leases that expired over the period.

Additionally, we continue to focus on emerging trends. Particularly across fast food and food and beverage categories, as well as family entertainment and traditional Chinese medicine clinics to enrich our offerings and continue to drive improved footfall. By strategically managing our deep tenant customer relationships with brands across Hong Kong, Mainland China and our international portfolios, we aim to enhance the attractiveness of our retail assets and stay relevant with consumer preferences.

Now turning to our Hong Kong car park and related businesses, where we achieved 1.7% year-on-year revenue increases, mainly due to higher tariffs. During the year, we introduced a new car park management system designed to enhance our operational efficiencies and also maximize the utilization. This AI-powered system enables us to pilot systems such as dynamic pricing schemes as well as the introduction of new products and services.

One of those new products is the One-Link Pass, which offers a flat monthly rate and allows pass holders to park at hourly bays in designated car parks across Hong Kong. This product has proven to be very popular amongst customers since its recent launch. We'll continue to develop innovative products to enhance revenue, utilization and increase car parking traffic.

Now we'll move to Mainland China retail. And over the year, we've seen that Chinese consumer spending has remained relatively subdued with portfolio performance differing between North and South. Our Southern assets continued to deliver strong results, while assets in the North faced headwinds amid softer market environment. Occupancy, however, remained solid at just under 96% and rental reversion improved from negative 3.2% at the half to 0.71% for the full year. If we excluded Link Plaza Zhongguancun in Beijing, where we're undertaking significant refurbishment and asset enhancement works, rental reversion across the balance of our shopping centers in Mainland China is strong at 7.6%.

In February last year, as you all know, we acquired the remaining 50% interest in Link Plaza Qibao in Shanghai. And I'm pleased to confirm that we've successfully integrated the assets and the very experienced center-based team to Link. We continue to enhance our Mainland portfolio's performance through active asset management and significant strategic enhancements across our portfolio.

Now we'll move on to our international retail portfolio, where in Singapore, the 99.6% high occupancy rate shows that there is robust leasing demand from tenants, including new-to-market overseas retailers, and particularly F&B operators. Overall, sustained demand for suburban Singapore retail, in addition to the dominant strategic location of our malls, has delivered strong 17.8% reversion over the period.

In Australia, our retail centers there have also sustained near-full occupancy at 99%, and productivity was driven by the ongoing introduction of new brands to optimize our trade mix as well as higher overall footfall and general positive activity in the Sydney CBD, where our three properties are located. As a result, tenant sales grew at 7.7% year-on-year, whilst we achieved solid reversion rate on expiring leases at 4.3%. I'll point out in addition to these positive trends in Australia, it's important to note the income growth is underpinned by the annual increases contracted in our leases there. And this sees us at a weighted average 4.7% per annum on those leases.

Now we'll move on to our International Office portfolio, where we have a relatively long WALE of 4.4 years, which underpins the resilience of that portfolio. Speculative fit-outs continued to be well received by small to midsized office tenants in the Australian office market to help speed up the leasing process and reduce friction, which supports leasing outcomes and portfolio occupancy. Favorable supply and demand dynamics in the Sydney office market, in particular, are also expected to be supportive of leasing activities and further positive net absorption there. This is given the limited new supply of floor space in the short to medium term.

As for Mainland China Logistics, thanks to the efforts of our leasing team, the portfolio continued to maintain a high occupancy of 97.4%, with three of our five assets then nearly fully let. I will point out, however, that demand for new space remains relatively mixed. Our project pipelines sit in Hong Kong at HKD 2.3 billion for retail projects and RMB 180 million in Mainland China for retail projects there. We're always looking to proactively unlock asset value through these programs. And currently, our asset enhancement projects are predominantly tenant-led and are well supported by tenants and are smaller in scale.

This year, we also hit a major milestone now with over 3,000 public EV charging points across Hong Kong and now 58 solar power systems across Hong Kong. This makes Link the city's largest private provider of public EV charging points and the leading private solar power operator. We're planning to continue to expand our reach and network with further EV locations and solar PV arrays across Hong Kong in the near term. Our active approach to sustainability ensures all initiatives align closely with our business priorities and deliver operational efficiencies.

On decarbonization, our ongoing investment in energy saving initiatives has reduced carbon intensity by 21% compared to our 2018/'19 baseline. And this has also delivered some HKD 8.8 million in energy savings this year alone. On climate resilience, we went beyond protecting our assets to create financial value. Proactively communicating our flood protection efforts to insurers resulted in an 11.7% reduction in Hong Kong's property all risk premiums. With this renewal, we also became the first real estate company in APAC to have sustainability-linked insurance.

Next, I'll pass on to George for outlook. Thanks, George.

Thank you, Greg. And here are some of the macro factors from both global and local context that impact our business. We expect conditions in Hong Kong and Mainland China, where reversions turned negative this year to be challenging. And nonetheless, I would like to emphasize that there are still some positive developments in our key markets. For instance, the automatic land lease extension in Hong Kong removes uncertainty for landowners, while the mega events in Hong Kong and Singapore are expected to boost tourism and foot traffic.

In Mainland China, the central government has introduced a series of measures to stabilize financial markets and stimulate consumption aiming to support economic outlooks. These favorable developments provide some cause for optimism amidst the complex macro outlook.

In response to these challenges, we are focused on what is within our control. In order to protect unitholders' return, management has implemented several countermeasures, including operating -- operational efficiency and cost reduction efforts. At the same time, we are keeping a broad vision to identify opportunities for diversification into new assets and geographies. In the longer term, we are cautiously executing our strategy to set the foundation for longer-term growth, and we'll continue to invest with caution into future growth drivers, in particular, portfolio optimization and the real estate investment business.

Let's revisit our Link 3.0 strategy with a brief update. We previously mentioned that through Link 3.0, we aim to offer a REIT plus investment case to be achieved through portfolio optimization and real estate investment management business growth. These two key drivers under Link 3.0, firstly, to actively manage and diversify our portfolio. We've been proactively looking at recycling and acquisition opportunities in our focus markets of Australia, Singapore and Japan. At the same time, we continue to exercise prudence.

Secondly, we continue to expand the real estate investment management capability under Link Asset Management Limited to work with and provide services to different capital sources. We are delighted to have officially launched our fund business, Link Real Estate Partners. We will continue to explore a variety of other ways to diversify our source of income and to collaborate with different capital partners, including reviewing opportunities to accelerate the expansion of the real estate investment management business through both organic and inorganic initiatives.

I want to touch on remuneration. During the year, led by the Remuneration Committee, we've engaged an independent consultant to review our remuneration strategy. And the central emphasis has been to support Link's strategy and further increase the alignment between executive compensation and unitholder interest. Through this process, the Chair and the committee consulted several long-term unitholders, some in this room with us. We are grateful for the constructive feedback, and we are committed to enhance the transparency of our remuneration scheme. You will see further disclosure taking effect of this new plan from '25/'26 in our annual report.

Let me pass to Ronald for the distribution calendar.

Thanks, George. Moving on to our distribution calendar. Last day of the cum final dividend is 17th June, record date is 25th of June. And the final date for scrip election is 18th July and the distribution date is 4th of August. As a reminder, we will be moving to providing quarterly operational updates, which will be uploaded to the stock exchange website. And the next update is expected to be in August.

Now we will now open the floor for Q&A.

[Operator Instructions] I think I can see the first one here. Karl? Yes.

I am Karl Chan from JPMorgan. So I have two questions. The first question is more on the Hong Kong retail. So just curious, in terms of tenant sales, I think last year, it was down by around 3% for the full year, right? If we just compare the fourth quarter and the third quarter, how was the trend? Is it better? Or is it weakening or similar? So that's on the quarterly tenant sales trend.

And then in terms of rental reversion for the full year last year, it was down by around 2.2% because we recall that in the first half, it was up a bit. So it implies that in the second half, it might be down by around like 4% to 5%. So just curious for the next financial year, what's our expectation on the rental reversion? If it's negative, would the magnitude be slightly better than 4% or 5%? Or would it be similar? So that's my first question on Hong Kong retail sales.

And then a second question is more for Mr. George Hongchoy. So you have been with the company for around 15 years, right? And obviously, under your leadership, the company has grown a lot. Just curious, what's your plan in the next few years within the company? How do you foresee your role in the company?

All right. We will get Greg to answer the first question, give me time to think about how to answer this. But thanks for being the first off the mark on publishing the report on our results earlier today. Greg?

So Karl, just on tenant sales first. We have seen an improvement from the third quarter and the fourth quarter. So the worst was last year, and it's progressively improved over the year. I will say that there is a lag in terms of what then happens with leasing outcomes. So the leasing for us has got progressively worse over the year with regards to the reversion. I think in the current environment with Hong Kong retail sales declining by 7% for us to deliver negative 2%, there or thereabouts on reversions is a pretty credible outcome. If you dig a bit deeper, for our shops, the negative reversion was about 1%. For our markets, it was negative 9.5% there or thereabouts.

So quite a bit of pressure in the fresh markets. But probably the most pleasing thing in all of that and the strategy that Gary and Emmanuel, who run our leasing and asset management teams are in the room today is preserving occupancy. So we've been able to preserve our occupancy at around 98%, which is very, very good and an absolute sharp focus for us as a management team. And it feels like retail sales are starting to improve, albeit we're comping very poor timing last year. So we've got to put it into perspective.

In terms of retail reversion, I don't have my crystal ball with me but I think it just comes back to the purpose of our portfolio, and that remains unchanged here in Hong Kong. So focusing on food and beverage service and trades that Hong Kong has relied for their daily needs, puts us in a pretty enviable position in the strategic locations of our assets is the same thing. So I'm not avoiding your question but I would suggest that reversions won't turn positive this year, they will be negative this year.

And I would suggest they would be low to mid-single digits negative. That would be my best assessment at this point in time. We've started off the year reasonably well, albeit it's still very early days. And the focus for us is retaining tenants. That retention rate that we delivered last year of 80% is a focus, preserving portfolio occupancy is a focus. And if that comes with some negative reversion, we're prepared for that.

I hope Christy have prepared my answers already. So well, time flies when you're having fun. So I think that's the quickest answer that I can give to you. As any -- in terms of good corporate governance, any CEO and the Board should be planning succession from the day the CEO has been appointed. And so we've been talking about succession every year. The Board has a practice of annually doing a CEO mapping. We just completed one recently. So that's something that we want to make sure that we understand who are the candidates available externally whenever something happens. And we used to say since we're in Hong Kong rather than saying the bus, what if the tram run over me and I couldn't come to work. So that's something that we do on a regular basis.

Having said that, I think the other part, which is actually very important for part of this discussion, regardless of whether it is me or not, at the end of the day, it's teamwork. So what you have seen is an upgrade in the management team that we have done over the last few years. I used to be -- we joke about this when we met, I used to be CEO, CIO, COO and CXO. And now you have a COO sitting here, you have CIO sitting on the floor and -- not literally on the floor but we have an expanded team. So I think that alone provides a lot of options for the Board.

And when the time comes, it's not a decision by any one party, it's the Board, myself, my family, all of that. So they might come. But the key issue is in terms of governance. This is a business as usual event that we do every year. We just completed it recently and reported to the Nomination Committee. We'll do that as a matter of course anyway. So, so far, having a lot of fun now.

Next question. To be fair, why don't I take one from the right, Cindy.

This is Cindy from Citi. Three questions from me, if I may. The first question is on future distribution sustainability. So I think at the presentation, you mentioned trying all measures to protect future distribution amid challenges and negative reversion. Just trying to get more color on exactly what measures we are taking for, say, full year '26 and '27 next 2 years. Given all the challenges you have mentioned, will you be more actively looking for organic measures? I remember last time you mentioned looking for non-rental income. Or will you be more actively looking for, say, inorganic growth? So this is the first question.

Second question is on tenant remixing. So just trying to wonder if there's further room to optimize tenant mix in order to cushion the reversion pressure. I think last year, education was actually posting a positive reversion. So is there any consideration to maybe downside some underperforming trades and improve some outperforming ones and introduce more, say, overseas brands into the portfolio? This is the second question.

And the third question is on your 20 years anniversary. So just trying to think about if there's more of a long-term new strategic thinking after 20 years of operations. And also, will you consider any celebration and share the joy with your unitholders?

Greg, go ahead.

I have the first two. Yes, I can talk to just some of the operational efficiency measures that we're talking to. So pleasingly, for the period that we've just spoken to today in Hong Kong, we've seen our NPI margin improve from 75.3% to 76.3%. So that's come with a combination, I should say, of factors to try and enhance our operational efficiency. We're very fortunate to have a business with significant scale here in Hong Kong, and we're continuing with a number of things that I won't talk about today to try and enhance that operating margin. So that's a real focus for us.

In terms of tenant remixing, what we're finding is that, one, we're retaining about 80% of the tenants that have expiring leases. That gives us an opportunity to introduce new retailers to our portfolio. So we've spoken about the 600 new leases that we've written over the period and 200 of them are tenants that haven't had shops with us before. I think that's a pretty good ratio.

I will say, however, that leasing to new tenants comes at a more -- a bigger negative reversion than it does from us retaining tenants. So what we're seeing is that quite clearly in Hong Kong, when we retain tenants, we get a better outcome on balance than when we're having to lease to new tenants. That doesn't mean that we won't take steps to continue to evolve our tenancy mix and offering. And I think with the 200-odd new leases that we've been able to bring in, it allows us to do that.

And your other question around overseas retailers, we are seeing a reasonable introduction of new overseas businesses to our portfolio, and most of them are from Mainland China. I will say in other markets like Singapore, for example, we're seeing a significant number of Mainland retailers entering Singapore, and we're benefiting from that. I don't know if there's anything else you want to add on the distribution piece, George but probably the most important thing that we're really focused on are those operational efficiencies. And I think a big step for us over the last 12 months is enhancing the operating margin here in Hong Kong.

On Slide 7, a lot of history, a lot of things that we've done over 20 years from 1.0, 2.0 to what we talk about 3.0. These particular description is not really the matter that I think one should focus on, but we've dealt with a lot of cycles. I think we've built a business where the corporate culture, the resilience of the business, the team have been able to deal with a lot of these cycles. Every time when we go through each of these, in the middle of it, we are faced with immense uncertainty. We didn't know when we got out of the protest, we don't know when we got out of GFC or COVID.

Again, now we're facing a time where people are saying that there's a lot of uncertainty because of politics and other reasons. So I think one of the good things that Link have done over the years is built a very resilient set of assets, very strong balance sheet that can withstand some degree of financial stress. We will see if there's a significant market crash, we also need to handle that, but we've done a lot of stress tests and scenario planning.

And then looking ahead on Page -- on Slide 30, we talk about as part of Link 3.0, how we optimize the current portfolio further. Recycling in Hong Kong may be a little bit challenging. But in Mainland China and elsewhere, we'll continue to do that. So actively managing it to try and improve the productivity of the balance sheet, at the same time, growing the real estate investment business, and that's something that we can talk about in a bit more detail later on.

And yes, we will celebrate. It is on November 25 when we were listed 20 years ago. So we managed to find a venue that is free, luckily. So in a mode of cost cutting, that's quite important. So mark your calendar afternoon of 25th of November, come and have a drink. And it is free for you to come to drink, we'll pay for the drink. But the venue luckily is free, and we hope to really celebrate the past success. The past is not less important, except as a reference for us to really think about how we're going to manage the next cycle. And we're in the midst of that. There's a lot of things that we already talked about. And operating efficiency, cost control and all those are extremely important for us to deal with this.

We are in a high-margin business. So when revenue comes down, there's only so much we can do. But there need to be a discipline in terms of controlling costs, so that when we rebound, we are a strong business. We need to make sure that the team is in place for us to handle when the new opportunity comes. So how can we, at the same time, do that, build a team that take care of new opportunities and at the same time, be efficient and be resilient through this cycle. So the team is focused on quite a lot of those ideas. We're happy to discuss more later.

Okay, Mark?

This is Mark Leung from UBS. I got about, I think, three questions. I think the first one will be more like a housekeeping one. I think management, you mentioned in this year, we got certain one-off items. Just not sure if you could elaborate what kind of key one-off items and amounts we should be aware. I think that's the first question.

And then the second question is regarding on the recent logo changes. So could you walk us through what was the rationale for the logo -- company logo changes? And definitely, we recently launched the Link Real Estate Partners. In the long run, how should we think about on the corporate structure? Because I think there's some, I think, news reporting that we may do some spin-off maybe in Singapore. I would like to hear your thoughts.

And last but not least, I think George also mentioned about the cost control. From which areas you would mostly pay attention to in terms of cost cutting?

So I think if you think about it in our business across so many geography and the, I guess, the complexity that we are in now, we do have quite a fair bit of one-off items year-to-year. Specifically to last year, I think what we have mentioned publicly is that we have been going through some, I guess, tax clarification in Mainland, and we ended up in a, I guess, a favorable tax resolution this year.

On top of those one-off items included will be things like deal expenses as we look at deals throughout the year. As an accounting practice, if you consummate the deal, it gets capitalized in the balance sheet. If not, the deal gets aborted, then the expenses needs to be expensed out into the P&L. So put together, I mean, we wanted to highlight that this year, if anything, when you put all the numbers together, plus and minuses, is a significant number that we want to mention to you guys. And it's probably in the range of about $100 million this year.

Perhaps just a little bit more -- elaborating a little bit more that the in fact the G&A costs, which includes some of the staff costs, each year, if we do well in unit price, then staff cost goes up because the LTI accrual actually goes up. So it's a good thing. While that goes up, our investors are actually making more money but there is that alignment. And so this year, our unit price has gone up 20-odd percent year-to-date. So that is reflected in the staff cost increase as well. And let's hope that will keep going up partly because we do want unit price to go up.

We have looked at a number of inorganic transactions. And we haven't done any. Otherwise, we would have announced them. And by not doing them, we have to write off the cost. And that's what K.S. was mentioning, the consultancy and the legal costs relating to certain M&A transaction that has not materialized.

And I want to just expand on that because some of you have asked about the G&A costs going up again on staff costs and the staff costs relating to the number of people that we have hired under Link Real Estate Partners. And there is this choice of building organically where the staff costs will go up as you build the team in order to come up with the revenue from the fund business or we do an inorganic transaction where the staff costs will not be seen so much because it will actually be capitalized as goodwill when we buy a platform, right? So obviously, afterwards, we will have the staff costs, but we will have a much higher income.

And now by growing it from scratch, we'll probably have a bigger J curve for a period of time in order to deliver that business. So there's always this strategic discussion whether we do it organically, where there's a higher hit on the P&L and deliver that business or do it inorganic where you have a goodwill hit but not a P&L hit to deliver that.

The reason why I want to mention that is in order to -- for our unitholder to protect our bottom line, while we have this hit to our P&L with the increased staff cost for the Link Real Estate Partners staff, we also want to look at efficiency that we can gain by being rationalizing the team, improving processes and delayering, et cetera and those things to save staff costs from the organic business, so that we can actually fund partly, if not wholly, the building up of the fund management team. So those are some of the trade-offs that we're looking at. And I think so far, that's something that we will continue to need to do as we build this business in the coming years.

The local change actually, firstly, I think it's worth saying that it's almost costs us nothing. We've done most of it in-house. So we didn't pay $5 million to change the name back to the same alphabet. So that's important. But the key is we actually really haven't changed. For 20 years, we are employees of Link Asset Management Limited. But we put a local Link REIT, which is the REIT that we manage but we're actually employee of Link Asset Management Limited. So what we would like to do is actually to tell people that we are employee of Link Asset Management Limited. This is the part of the business -- part of the functions that we perform.

We manage Link REIT for 20 years. We will go through -- we will, in the future, through Link Real Estate Partners, which is a 100% subsidiary of Link Asset Management Limited, manage other funds. And so we will have multiple vehicles to attract different capital sources to manage and to deliver fee income, deliver different investment opportunities to our unitholders. And so there's a slight shift of focus. But at the end of the day, hopefully, that shift allow people to -- when they read our report, when they try to understand us, realize that we are as much a fund manager as much as a REIT since we are stable together, unlike some of our peers in this part of the world.

You mentioned spin-offs and all that. We study all sorts of options, C-REITs, S-REIT, A-REITs buying some platforms, selling assets in portfolio, individual. As we responded in the past, until the deal was done, there's really not much we can talk about because there's so many variations of timing and opportunity. So not much to share. I know you've read an article in Singapore but there's one author coming up with one idea.

So the rationalization that we are doing, hopefully, will help us to mitigate some of the challenges in terms of cost increase as well and make us a little bit more efficient as we move into the next phase. The focus continue for the portfolio to invest in Asia Pacific. And hopefully, the market return for some of the location for us to do more diversification and recycling.

This is Raymond from HSBC. I have got also three questions. The first question is regarding to the Link 3.0 strategy. Can management provide us the latest update? And say, for example, what should we expect the AUM scale of your fund management business in the next 12 months or sometimes, say, by 2030, so we can have more sense about the scale going forward?

And the second question is about financing cost. So like the company did a very good job in managing financing costs. Should we expect further optimization improvement in financing costs in the next 12 months' time given the easing or global environment here?

And the third question is about the asset value. We did see some changes in the asset value recently. Can management comment about the changes or trend of the capitalization rate? Or will there be any further compression in value of your asset?

I'll talk about the financing costs. I think we have done well in the last financial year. I think it's part process, part the market driving the CNH cross-currency swap that gave us a premium. And the fact that we were not fully hedged on RMB was a lever that we could play with. As of today, we are broadly and largely hedged across all our overseas assets. That said, I guess, the last 2, 3 weeks was a surprise for all of us considering most of you are working in the banks, how fast the HIBOR has plunged. And it all started from, I guess, the U.S. Tariff Liberation Day, everybody start focusing on U.S. fiscal positions, trade deficits and suddenly, the capital start flowing into Hong Kong. And also because there was a CATL IPO that everybody is watching and the flow suddenly has picked up very quickly and HIBOR has dipped to 0.5% and bouncing back up to 0.6% for 1 month.

That said, clearly, in the short term, and I echo HKMA's warning that it's going to be temporary that HIBOR will be so low and SOFR rate is still hanging at about 2.8%, 2.9% for 3 years. We will benefit because 1/3 of our $55 billion debt is actually floating. And largely, the floating is pegged to 1-month of HIBOR. So I think we have an opportunity as far as I can see now that given the structural geopolitics that potentially HIBOR will continue to stay low but not as low as today. And I think that gives Hong Kong itself a great chance.

And if you look at some of the peers who are highly geared, clearly, the stress level is not so high. And that also has given a boost to the capital markets, equity markets and equity options starts to be opening up again. So I think overall, it's going to be a year that as of now, hopefully, we can continue to manage risk, on the financing.

As for the credit margin, I think what we do clearly is run a tight process as usual, and we have continued to see credit margin tightening between a good credit and average credit and a not so good credit borrower. And we are probably on the, I guess, good to better credit borrower. So we have seen credit margins continue to be very competitive for us. But that said, there's only so much it can compress. We are probably at the marginal end of that credit margin compression.

On the valuation and cap rates, Greg, you can supplement. But I think what we are seeing is across the office and logistics portfolio, rentals are not expected to be going up. If anything, we are still managing a negative rental reversion. So on NPI rental basis determining valuation, I think we will continue to see stress or cap rate expansion for office and logistics.

For retail, for Singapore, Australia, we expect things to be flattish. I think things are doing okay. Singapore rental reversion, as you have seen, it's almost 18%. Australia is coming to mid-single digits. So I think that's okay. Hong Kong, a bit of stress. I think from the cash flow basis, again, Greg has articulated that rents continue to be slightly on the negative side. But if you look at cap rates, I think Hong Kong, Singapore, Australia, possibly we are not expecting interest rates to be jumping that fast, and that then supports the cap rate from not expanding. And hopefully, there is a chance of compression.

The fund management business, Link Real Estate Partners up and running. I think that's one point that we can't say. There's a lot of legal restriction for us to say a lot more. Let us underpromise and overdeliver. But what I can say is compared to past meetings that we have, we have completed totally all the infrastructure setup, from documents, to fund accounting systems, to reporting, setting up the Board, having the investment committee constituted, everything is done. And so we're ready, and it is in progress. But I don't think we can say a lot more than that.

I think we continue on that theme of manage your expectation and underpromise, overdeliver. We won't give you an AUM target yet. Sorry, you can't more the word yet. But I think once we get to a point where if we are successful in launching the first fund and you see the momentum, the type of investor who come with us and the confidence that we will then be able to displace to you rather than just talk about it without a concrete result, I think you'll be a lot more confidence in the path that we are going. But I mean, for today, I would rather reserve sharing with you too much detail.

Okay. Any more questions? Percy?

This is Percy from DBS. I have three questions, if I may. First one is mainly on operational in China. I understand that the China rental reversion is still under a bit pressure, mainly dragged by Link Zhongguancun. Just wondering when are we expecting the end of the drag for this property in particular, and in general, for the rental reversion for other properties in terms of the outlook.

And secondly is on REIT Connect. We saw that the CSRC, they recently reiterated REIT Connect again. Just wondering if management can share any colors or insights regarding the time line or implementation details for us.

And thirdly, it's regarding the share buyback. We've seen that Link has done some share buyback and those shares has been put in as treasury shares. Just want to know what's management view regarding how would you manage these shares in the longer term or if you would even consider to sell out these shares.

I'll talk to the Mainland question first, Percy. So at Zhongguancun, we're a fair way through the repositioning of that asset, and it's predominantly leasing activity. We've seen a new competitor right next door open up its first stage in the last few weeks. Pleasingly -- and again, it's very early days, but the impact that we're anticipating from that has been less than we first thought, given the first stage of this project is predominantly food and beverage. So we've perversely seen an increase in our footfall since the property opened next door, and the team there is making good progress. So I'm hopeful over the course of this year, we will have been able to work through all of the strategies that we've anticipated there at Zhongguancun.

But I will also say that Beijing as a market is very challenging of all the markets that we operate in. It is very, very challenging at a consumer level, where Shanghai is pretty stable. And certainly, in Shenzhen and Guangzhou, we're seeing much better outlook. Probably the most pleasing thing for me more broadly is ongoing tenant demand in Mainland China remains strong from local brands. Particularly for leisure sports brands are growing like crazy in Mainland China, and we're getting our fair share of that, which is pleasing.

And I will just close off by saying, again, as we said during the prepared remarks, if we exclude Zhongguancun, we printed positive reversions through the shopping center portfolio for this year. And again, the same strategy that we're embarking on here in Hong Kong about preserving occupancy remains consistent for us in Mainland China as well.

I think Zhongguancun, when we first invested in it, was extremely attractive. It's a district with footfall that doesn't grow at all right, unlike any other shopping mall that we have, partly because it's all universities, students, young people, tech companies all around that area. And then since then, you have tech company layoff. You have New Orient being attacked by the government. So they shrunk the business, they are very close to our mall. We have a competitor next door that didn't perform at all and now renovating and upgrading.

The good thing is there is no new supply. The government is not allowing new supply within the 5th Ring Road, and this is within that area. So there is really no new supply, except that the mall next door, which was fully run, that's now being upgraded. So that gives the competition that Greg mentioned. But I think there is some stabilization in the tech sector.

People are -- hiring will come back. And that's where a lot of the software companies are. And the university continue to -- the attendance hasn't really dropped and may be helped by politics that maybe there will be more students at Chinese universities. And so I think the market have changed since we invested. And hopefully, we can manage through this cycle and see it rebound.

REIT Connect wise, it has been talked about for a long time. We have no insight when the timing is. But I think what we are encouraged by the comment by CSRC is that they started to talk about it for the longest time with SFC Stock Exchange, Hong Kong Stock Exchange talking about it. China have remained silent. And then recently, even the head of CSRC talking about. So I think the timing is sooner.

I think that will increase liquidity to our stock because I think we trade relatively better than a lot of the C-REITs. I think we are an attractive proposition. As a result, the IR team actually have done a lot of road show in China. We will actually, after this round of result announcement going to China as well. So we hope that when it eventually comes, it will -- we will be benefiting from it.

Share buyback?

On the share buyback, I think as a background, the last financial year, we bought back about 17 million shares at about $33 per unit, and that amounts to about $550 million, $570 million. And according to the new stock exchange rules, you have the ability to either leave it in treasury or you can cancel it, which was the past. And clearly, leaving in treasury by accounting is eliminated anyway. But that gives us the opportunity to hold that in future if we want. Say, for example, today, there's an acquisition and we want to have a mix of equity option and that clearly, this can be taken up because there's actually a gain.

So I think it's a good thing. It's not new. I think many exchanges have this toolkit for issuers and Hong Kong is probably a bit late into this. But having this does give us the flexibility. So clearly, we will leave it there for now. It's not a big number considering the overall scheme of things but it does give a bit of flexibility for us.

Okay. Thanks. Shall we take just last two questions. Karl here and front here.

Karl Choi from Bank of America, two questions. First, can you give a little bit more color on the new executive management plan? You mentioned there's going to be a new plan to be implemented. Any major changes compared to the old plan?

As I've mentioned, the review that's done, which we've done on a regular basis, I think the last major review was done almost 10 years ago with some minor changes during the last 10 years. So we just completed a more comprehensive review recently led by the Remuneration Committee with external consultants, a number of meetings with unitholders. So I think what I'll report, probably not fair to just highlight a few key points and miss out others at this forum, but you can see a lot more detail in the annual report. So I urge you to just wait and look at that in more detail.

Suffice to say, there are a few key points and the key principle listed here. One is that we want to ensure that there is a clear alignment of interest between the executive team and our unitholder. And we want to increase the disclosure so that, that alignment is clear. I don't think that it was not aligned properly in the past, but I think disclosure have distorted the picture. And I think the disclosure that you will see this year will help you to understand the alignment a lot better. So that hopefully is an improvement.

Some of the targets have changed. Some of the KPIs have changed and the change really to make sure that they are indeed more aligned. The long-term incentive plan, we will actually disclose the exact KPIs, and they are absolute total unit return and relative total unit return and carbon intensity reduction. And so adding a sustainability target is important for us as a business because obviously, we have always been a leader in this area, and we have a carbon reduction target that we announced many years ago, and we continue to be on that path.

And then on the short-term incentive, again, various measurable targets from both financial results and the nonfinancial result based on, say, reversion, occupancies and all that. And obviously, we have a target to launch a fund despite not talking about too much about it. So that's also one of the targets that we need to achieve. But you'll see more details in there and a lot more disclosure. And the disclosure that we also have added includes both the numbers relating to grant and numbers relating to the final award at vesting.

And the confusion in the past is we focus a lot more on at the grant, and it's a little bit difficult for you to find the number at the final vesting, although it is somewhere in the report, and we just want to make it easier for you by putting it all in two pages rather than all over the report. So hopefully, that will create a little bit more transparency, which we thought we had but it's a little bit difficult to find, and we want to make it easier for our reader. So that's something that you will see.

So look at the report first. And if there's any question and feedback to come back to us. But it's something that the Remuneration Committee, and you see in the report that they've met over 10 times over the last year, a lot of work in order to achieve this result, hopefully, also with the consultation of some of our unitholders allow us to have a scheme that will be acceptable to the market and we'll talk more after you read it.

Okay. I think we have run out of time unless there's a really burning question. Otherwise, thank you for all your questions, and thank you for coming.

Thank you very much.