Link REIT's NPI up 10.5% to HKD2.26b

Tenants’ gross sales grew 11.6%.

According to Maybank Kim Eng, Link REIT's 1H3/13A results show that NPI rose 10.5% YoY to HKD2.26b while DPU rose 12.6% to HK 71.08 cents. Average monthly rent rose 3.9% to HKD37.2 psf with overall occupancy rose to 93.2% from 92.9%.

Here's more from Maybank Kim Eng:

Tenants’ gross sales recorded a satisfactory growth of 11.6%. Rental growth from shops (accounting for61% of group’s revenue) remained healthy at 12.7% YoY while car park rental growth is impressive at 12.3% and 12.4% for monthly and hourly, respectively. The segment contributed to 20% of the group’s revenue.

Total property operating expenses on the rise: Staff costs hike of 20.9% YoY has offset the benefit of 2.8% drop in property managers’/security/cleaning fees Other major cost items such as rent and rates, utilities and marketing expenses grew at a lower pace than revenue.

In all, the expenses rose 11.2% YoYto HKD941m while the property operating expenses ratio accounted for 29.4% of revenues, virtually flat comparing to 1H3/12A’s 29.3%.

Cap rate compression of car park more significant: Overall cap rate compressed by 27 bps with 41 and 25 bps drop in car parks and retail spaces, respectively.

The compression translates into a before-tax fair value change of HKD6.8b in investment properties (+8.9% from end Mar, 2012), versus HKD3.3b a year ago. Gross gearing dropped further from 15.9% by Mar 2012 to 14.9% at the end of the interim period.

Volatility seen in discretionary retail sales but remain resilient in daily necessities segment: Jewellery and clothing segment recorded extreme volatilities since mid-90s with YoY change in retail sales value range of -30% to +50%. Yet, for the supermarkets and F&B segment, where a majority of Link’s tenants are in, recorded steadier growth over the years.

Overall retail sales grew 10.6% across all sectors with 7.8-9.8% growths for clothing/department stores/jewellery segments for 9M12A, comparing with 21.6-46.6% growth in 2011. Restaurant receipts rose 4.9% for 9M12A, comparing with previous 2 calendar years’ 5.1-6.4% growth.

To spend HKD1.37b on Asset Enhancement Initiatives (AEIs) for 10 projects completing in Nov 12 until late 2014: Link REIT has gained approval in upgrading 10 existing commercial complexes with HKD1.37b over the next 2 years.

Among them, Yau Oi and On Ting Commercial Complexes, adjacent projects in Tuen Mun, will be the most substantial ones with budgeted HKD339m completing in late 2014. Leung King and Choi Hung projects, in Tuen Mun and Kowloon respectively, will be completed in 2012/late 2013 with budgets of hKD243m and HKD214m, respectively.

We believe that the AEIs will continue to help Link in achieving better tenant mix and positive rental reversions. 3 and more than 11 projects are pending approval and under planning, respectively with aggregate projected capex of no fewer than HKD1.2b.

Total debt rose but gearing dropped: Total debt rose 3.7% YoY to HKD13.1b but gearing dropped by 1 ppt to 14.9% due to higher investment property valuations.

The ratio was far below the maximum allowed 45% under REIT code. Average outstanding live of debt facilities reduce by 0.1 year to 4.2 years but the average life fixed-rate portion of debt rose from 5 yrs to 5.5 yrs.