One of Hong Kong’s largest retail landlords, Link Reit says Covid-19 will push its bottom line into the red this year as it compensates struggling retailers and takes a hit on property valuations.
In a stock-exchange filing, company secretary Kenneth Wong says that since the outbreak of the pandemic, consumer sentiment and retail sales have been adversely impacted and “it is expected that the business environment in Hong Kong and Mainland China will remain challenging the near term until the spread of Covid-19 is effectively contained.”
Link Reit has implemented a HK$300 million (US$38.7 million) support scheme for its Hong Kong tenants, which includes a raft of rental concessions. That follows earlier support for retailers impacted by the social unrest from June of last year.
“We have also offered relief measures to our tenants in Mainland China. Depending on the extent and length of the Covid-19 pandemic, we may have to extend further assistance to our tenants across Link’s portfolio and to increase marketing expenses to stimulate shopper spending,” he said.
The ongoing effect of the pandemic is expected to result in a non-cash loss from an independent reappraisal of Link’s property values at March 31, details of which have yet to be confirmed. However, a preliminary assessment by Colliers International suggests a 12.3-per-cent decline in value to HK$193 billion, a decline of 12.3 per cent against September’s valuation.
Of more concern to investors might be that Link Reit expects the majority of the impact of the retailer support scheme to be reflected in the March 2021 financial year.
Wong says rental reversions, occupancy rates and tenant retention in the year ahead will be highly dependent on the recovery of the overall business and trading environment.
“The Covid-19 global outbreak has increased uncertainty in our future operating performance which is currently difficult to predict. Negative rental reversions and lower occupancy within Link’s portfolio could adversely affect the financial results in the coming financial years, which could be significant to Link but are not possible to quantify at this stage. We are now focusing on possible operational cost containment options and we will continue to monitor and protect Link’s financial and liquidity positions, both of which remain healthy.”
The company has traditionally been resilient during challenging economic conditions given its tenant portfolio is largely dominated by non-discretionary retail