Result first take: Return capital via unit buyback instead of discretionary distributions
- Result below expectations with the omission of discretionary distribution in 2HFY22
- Budgeted HK$150m for unit buyback in FY3/23 instead
- Mildly positive rental reversion for Hong Kong retail portfolio
Link REIT’s FY3/22 distribution income grew 6.8% to HK$6.42bn, below our estimate. The discrepancy came primarily from the shortfall in discretionary distributions. Excluding the discretionary distributions in both years, distribution income would have risen 9.7% driven by higher rental earnings, partly offset by increased financing costs.
Final DPU declined 1.5% to HK$1.46, taking the full-year DPU to HK$3.06 (FY3/21: HK$2.9).
Total revenue improved 8% to HK$11.6bn thanks to higher income from its Hong Kong car park and related business, increased overseas office income and China retail income.
The Hong Kong retail portfolio recorded mildly positive rental reversion of 4.8%. (1HFY22: +3.4%, FY21: -1.8%).
Despite the retail market disruption led by the COVID resurgence in 1Q22, tenant gross sales grew 7.8% on psf basis in FY3/22 (1HFY22: 8.9%). Rent-to-sales remained healthy at 13.1%.
In a response to the fifth wave of COVID, Link REIT upsized the tenant support scheme in Hong Kong to c.HK$220m from HK$120m.
In Hong Kong, retail portfolio occupancy stood high at 97.7% in Mar-22, up from Sep-21’s 97.5%.
Revenue from China portfolio showed 24.4% rise partly driven by contributions from newly acquired Happy Valley Shopping Mall in Guangzhou. Retail reversionary growth for wholly owned malls in China stayed positive at 8.8% in FY3/22. Newly acquired Qibao Vanke Plaza in Shanghai posted strong reversion of 27.5%.
Excluding Happy Valley Shopping Mall in Guangzhou which will undergo asset enhancement shortly, retail portfolio occupancy stayed at 92.3% in Mar-22. Link Square in Shanghai was 97% let in Mar-22 with negative reversionary growth of 8.1%.
In Hong Kong, Link REIT completed asset enhancement projects at Hing Wah Plaza and Tai Wo Plaza in FY3/22 with respective ROI of 13.2% and 3.6%. The Rmb286m renovation at Link CentralWalk in Shenzhen was completed in Jan-22 with ROI of 11%.
Three asset enhancement projects at Tai Yuen Market, Lok Fu Market and Tak Tin Market are currently underway with total capex of HK$127m. The planned asset enhancement works at Happy Valley Shopping Mall will be conducted in phases. The first phase is expected to commence in FY3/23 with an estimated capex of Rmb150m.
Total debt stood at HK$50.2bn, up from Sep-21’s HK$42.5bn due to the new acquisitions in Hong Kong, China and Australia. This puts its gearing at 22%. Taking into account the recent new acquisitions in Australia and China, its pro-forma gearing reaches 24.9%.
Instead of the payment of a one-off discretionary distribution (HK$0.07/unit) in 2HFY22, Link REIT intends to return the capital to unitholders via unit buyback. The REIT earmarked HK$150m for unit repurchase in FY3/23.
We currently have BUY rating with TP of HK$81.80.
Result first take: Return capital via unit buyback instead of discretionary distributions
- Result below expectations with the omission of discretionary distribution in 2HFY22
- Budgeted HK$150m for unit buyback in FY3/23 instead
- Mildly positive rental reversion for Hong Kong retail portfolio
Link REIT’s FY3/22 distribution income grew 6.8% to HK$6.42bn, below our estimate. The discrepancy came primarily from the shortfall in discretionary distributions. Excluding the discretionary distributions in both years, distribution income would have risen 9.7% driven by higher rental earnings, partly offset by increased financing costs.
Final DPU declined 1.5% to HK$1.46, taking the full-year DPU to HK$3.06 (FY3/21: HK$2.9).
Total revenue improved 8% to HK$11.6bn thanks to higher income from its Hong Kong car park and related business, increased overseas office income and China retail income.
The Hong Kong retail portfolio recorded mildly positive rental reversion of 4.8%. (1HFY22: +3.4%, FY21: -1.8%).
Despite the retail market disruption led by the COVID resurgence in 1Q22, tenant gross sales grew 7.8% on psf basis in FY3/22 (1HFY22: 8.9%). Rent-to-sales remained healthy at 13.1%.
In a response to the fifth wave of COVID, Link REIT upsized the tenant support scheme in Hong Kong to c.HK$220m from HK$120m.
In Hong Kong, retail portfolio occupancy stood high at 97.7% in Mar-22, up from Sep-21’s 97.5%.
Revenue from China portfolio showed 24.4% rise partly driven by contributions from newly acquired Happy Valley Shopping Mall in Guangzhou. Retail reversionary growth for wholly owned malls in China stayed positive at 8.8% in FY3/22. Newly acquired Qibao Vanke Plaza in Shanghai posted strong reversion of 27.5%.
Excluding Happy Valley Shopping Mall in Guangzhou which will undergo asset enhancement shortly, retail portfolio occupancy stayed at 92.3% in Mar-22. Link Square in Shanghai was 97% let in Mar-22 with negative reversionary growth of 8.1%.
In Hong Kong, Link REIT completed asset enhancement projects at Hing Wah Plaza and Tai Wo Plaza in FY3/22 with respective ROI of 13.2% and 3.6%. The Rmb286m renovation at Link CentralWalk in Shenzhen was completed in Jan-22 with ROI of 11%.
Three asset enhancement projects at Tai Yuen Market, Lok Fu Market and Tak Tin Market are currently underway with total capex of HK$127m. The planned asset enhancement works at Happy Valley Shopping Mall will be conducted in phases. The first phase is expected to commence in FY3/23 with an estimated capex of Rmb150m.
Total debt stood at HK$50.2bn, up from Sep-21’s HK$42.5bn due to the new acquisitions in Hong Kong, China and Australia. This puts its gearing at 22%. Taking into account the recent new acquisitions in Australia and China, its pro-forma gearing reaches 24.9%.
Instead of the payment of a one-off discretionary distribution (HK$0.07/unit) in 2HFY22, Link REIT intends to return the capital to unitholders via unit buyback. The REIT earmarked HK$150m for unit repurchase in FY3/23.
We currently have BUY rating with TP of HK$81.80.