The Link Real Estate Investment Trust Stock Code : 823 Link Sustainability with Everything We Do Annual Report 2013/2014 BETTER COMMUNITIES, SUSTAINABLE GROWTH The Link Real Estate Investment Trust is the first real estate investment trust listed in Hong Kong. We are Asia’s largest REIT and also one of the world’s largest retail-focused REITs in terms of market capitalisation. We aspire to be a world class real estate investor and manager, serving and improving the lives of those around us by providing value and quality service, partnering with local communities and delivering sustainable growth. With a portfolio focused on community shopping centres that serve the daily needs of the people of Hong Kong, we serve the community by creating vibrant and unique retail experiences that meet the needs of the people who live around our shopping centres. By doing so, we are able to provide an effective platform with which the businesses of our tenants can flourish, enhance value for unitholders of The Link REIT and support the local economy. Our portfolio is vast and the tastes and preferences of the people who use our shopping centres are continually evolving. In order to remain competitive, we are committed to continual improvement across all aspects of our business. This report sets out the improvement and progress we have made over the last financial year ended 31 March 2014. To be a world class real estate investor and manager serving and improving the lives of VISION tho se around us Building relationships with our stakeholders through • Providing value and quality service MISSION • Partnering with local communities • Delivering sustainable growth Managing and operating our business with VALUES Respect • Excellence • Integrity • Teamwork CONTENTS 2 PERFORMANCE HIGHLIGHTS 120 TRUSTEE’S REPORT 4 PORTFOLIO IN BRIEF 121 INDEPENDENT AUDITOR’S REPORT 8 CHAIRMAN’S STATEMENT 123 CONSOLIDATED FINANCIAL STATEMENTS 12 2013/14 MILESTONES 123 Consolidated Income Statement 124 Consolidated Statement of 14 OPERATING LANDSCAPE Comprehensive Income 18 REPORT OF THE CHIEF EXECUTIVE OFFICER 125 Consolidated Statement of Distributions 24 MANUFACTURED CAPITAL 126 Consolidated Statement of Financial Position 29 INTELLECTUAL CAPITAL 127 Consolidated Statement of Changes in Equity and 34 FINANCIAL CAPITAL Net Assets Attributable to Unitholders 39 HUMAN CAPITAL 128 Consolidated Statement of Cash Flows 42 SOCIAL AND RELATIONSHIP CAPITAL 129 Notes to the Consolidated Financial Statements 167 VALUATION REPORT 46 NATURAL CAPITAL 219 HKQAA ASSURANCE STATEMENT 50 CORPORATE GOVERNANCE 220 GRI CONTENT INDEX 50 Message from the Board Chairman 227 HKEx ESG REPORTING GUIDE INDEX 51 Our Corporate Governance Framework 229 UNITED NATIONS GLOBAL COMPACT INDEX 54 Corporate Governance Report 230 DEFINITIONS AND GLOSSARY TERMS 95 Biographical Details of Directors and Management Team 232 FIVE YEAR PERFORMANCE SUMMARY 103 DISCLOSURES 235 INVESTOR INFORMATION 103 Disclosure of Interests in Units inside back CORPORATE INFORMATION 106 Long-term Incentive Plan 112 Connected Party Transactions 118 THE LINK TOGETHER INITIATIVES PERFORMANCE HIGHLIGHTS ANOTHER YEAR OF IMPROVEMENT REVENUE NET PROPERTY INCOME DISTRIBUTION PER UNIT (HK$’M) (HK$’M) (HK cents) $7,155 $5,202 165.74 ¢ 10.0 % 12.7 % 13.2 % 4,990 5,353 5,932 6,506 7,155 3,328 3,644 4,185 4,616 5,202 97.37 110.45 129.52 146.46 165.74 09/10 10/11 11/12 12/13 13/14 09/10 10/11 11/12 12/13 13/14 09/10 10/11 11/12 12/13 13/14 To provide a comprehensive view of how THE LINK we add value to the communities we TOGETHER INITIATIVES operate in, we have presented a selection of our social and environmental indicators HK$10.4 MILLION alongside our traditional fi nancial indicators. donated for charitable These indicators measure our progress and causes performance in key aspects outlined in our Sustainability Framework and will serve as key benchmarks against which we will GREENHOUSE GAS assess our overall performance as we link EMISSIONS sustainability with everything we do . 0.7% reduction compared to last year 2 The Link Real Estate Investment Trust OCCUPANCY VALUATION AVERAGE MONTHLY UNIT RENT (%) (HK$’M) (HK$ per square foot) 94.4%$109,899 $42.1 0.3 % 15.2 % 9.6 % 90.6 91.5 92.9 94.1 94.4 53,781 67,318 76,672 95,366 109,899 30.6 32.8 35.8 38.4 42.1 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 35 TENANTS JOINING OUR 35 1.9% PORTFOLIO ASSET ENHANCEMENT PROJECTS completed to date ANNUAL INJURY RATE OF STAFF TENANT SALES # OF EMPLOYEES MYSTERY SHOPPER SCORE (OUT OF 100) customer satisfaction with our service 8% performance participated in the Employee improvement Unit Purchase against last year 86 452 Plan Annual Report 2013/2014 3 PORTFOLIO IN BRIEF A WORLD CLASS REAL ESTATE INVESTOR AND MANAGER KEY STATISTICS * HONG KONG ISLAND 8% 11 million sq ft KOWLOON 32% TOTAL INTERNAL FLOOR AREA NEW TERRITORIES 60% TRADE MIX AS AT 31 MARCH 2014 * 5.9% 19.6% 8.3% 17.2% 29.5% 19.2% 9.7% 7.8% 8.3% 24.9% 22.9% 11.1% 14.3% 1.3% 80,000 CAR PARK SPACES % BY LEASED IFA % BY MONTHLY RENT * Food & Beverage Supermarket & Foodstuff Services Markets/Cooked Food Stalls Education/Welfare, Office and Ancillary Personal Care, Medicine, Optical, Books and Stationery Others # 12,000 # Includes clothing, department stores, electrical and household products, leisure and entertainment, and valuable goods. TENANCIES SHOPPING CENTRES CAR PARKS As at 31 March 2014: As at 31 March 2014: Occupancy 94.4% Utilisation 88.1% Average monthly unit rent (HK$ psf) 42.1 For the year ended 31 March 2014: For the year ended 31 March 2014: Income per bay per month (HK$) 1,566 Revenue (HK$ ’M) 5,657 Revenue (HK$ ’M) 1,498 Valuation (HK$ ’M) 91,245 Valuation (HK$ ’M) 18,654 * Being approximate figures as at 31 March 2014 4 The Link Real Estate Investment Trust KEY PROPERTY ENHANCEMENTS IN 2013/14 LOK FU MARKET Lok Fu Market is an integral part of Lok Fu Plaza, our flagship property, and is the latest property to be treated to The Link REIT’s transformational new model for fresh markets in Hong Kong. The Link REIT invested HK$120 million to modernise the 30-year-old market and the notable achievements of this project include: • Modernised shopping environment for shoppers and tenants • Upgraded ventilation and lighting systems • Introduced new and unique tenants selling high quality produce from around the world • Increased footfall CHOI WAN COMMERCIAL COMPLEX The rejuvenation of 34-year-old Choi Wan Commercial Complex was completed in December 2013 with an investment of HK$222 million. Sustainability and green building concepts were injected as key elements in the redesign process, including: • Minimised heating load and energy consumption by encouraging natural ventilation • Enhanced green spaces for the local community to enjoy • Upgraded children’s playground facilities • Preserved the historic banyan tree, an iconic feature of the Choi Wan community BUILDING MANAGEMENT SYSTEM (“BMS”) A comprehensive BMS was installed across 69 air-conditioned shopping centres in The Link REIT’s property portfolio. The BMS improves operational efficiency and reduces the environmental impact of our energy consumption through: • Real time monitoring of indoor air temperatures • Enabling the remote management of indoor environment of all 69 properties from a centralised location • Enhanced effective management of properties through zoning In the future, the BMS can be expanded to control and manage all electrical-related features of shopping centres, including lighting, automated fire alarms and CCTV, and has the potential to drive further efficiency across our operations. Annual Report 2013/2014 5 INTEGRATED REPORT A COMPREHENSIVE INSIGHT INTO OUR BUSINESS Linking sustainability with everything we do is our way of ensuring that we are creating long-term value for our Unitholders and the communities that we serve. Our growth, survival and the returns enjoyed by our Unitholders are all contingent on the communities we operate in fl ourishing and being successful. To operate our business in a responsible and sustainable manner, we strive to implement global best practices in everything that we do. Assessing our performance and reporting on our progress is critical to ensure that we are continually improving, and we do so across a range of both fi nancial and non-fi nancial measures. Transitioning towards presenting an Integrated Report (“ < IR > ”) is our way of bringing together material information about our organisation’s strategy, governance, performance, integrity and prospects in a way that recognises the commercial, social and environmental context within which we operate. The International Integrated Reporting Council (“ IIRC ”, www.theiirc.org) has outlined guiding principles for preparing an integrated report, which are summarised below. STRATEGIC FOCUS AND FUTURE ORIENTATION Our Chairman’s Statement outlines the vision and strategy of The Link REIT, highlighting what we do and how we do it. The Report of The Chief Executive Offi cer provides insight into how we create value for our interested audiences. CONNECTIVITY OF INFORMATION We chose to follow the IIRC Framework, as we believe this allows us to best demonstrate how we create value for the communities and improve the lives of those around us while generating strong fi nancial results for our Unitholders. Information in this report is complemented by our other engagement channels including our corporate website (www.thelinkreit.com), Channel 823 corporate magazine and other publications. These are all readily available to all of our interested audiences. 6 The Link Real Estate Investment Trust STAKEHOLDER RELATIONSHIPS We utilise a range of methods including direct dialogue, surveys and corporate publications (electronic and print) to maintain open communication on our value creation strategies with our various audiences.