Financial Management of a Real Estate Investment Trust

Seminar 2 - Financial Management of a Real Estate Investment Trust

Written Report

Mr Hubert Chak, the finance director of LINK who specializes in real estate investment trust (REIT), introduced REIT, a less popular industry to accounting students in his talk on February 28. He gave us a brief introduction of the business structure of LINK REIT from types of property they manage to the coming expansion into the Mainland China, and also explored a bit in the reputation of this REIT to the general public.

Some of the more popular residential estate shopping centres, such as Temple Mall South, and Wan Tsui Commercial Complex are undergoing their renovation work started in 2017 and 2018, expected to be competed by 2020. ‘Asset enhancement is very important to the company to maintain and increase customer traffic of the shopping centres by providing the sufficient hardware and choose the right and profitable tenants in the malls, which ultimately creates unit-holder’s value from customers’ value.’

Here comes the question: is it possible to achieve both profit maximization and social welfare? The answer is absolutely YES. While most citizens criticize LINK for neglecting society’s willingness in developing its holding properties and sometimes even demolishes collective memorable stores in some public residential estate, Chak clearly stated the difference between a charity and a business corporation, ‘LINK is a business corporation, not a charity. Social welfare, like cultural preservation and people’s livelihood, is the responsibility of the Government not the business sector. As an asset manager, LINK’s ultimate target is to maximize unitholders’ wealth with their properties efficiently and effectively.’

It is easy for the public to put blame on the business sector without full understanding of the company’s business model, or even the type of business the company engages in. Although LINK received lots of criticism, it still focuses on shopping malls facilities enhancement to provide better shopping experience to shoppers. They further develop new projects on differentiated theme-based shopping centres in the mainland China, such as EC Mall in Beijing that focuses on younger generation’s entertainment and sports fashion retailing, and also integrate the concept of sustainability and environmental-friendliness in their latest commercial development of The Quayside, which is located in Kowloon East. All these are signs of innovation and engagement in corporate social responsibilities that indicate LINK REIT is trying to incorporate shoppers’, or better as citizens’ preference as well as the society as a whole into their business projects with the first priority of fulfilling unitholder’s value. As a matter of fact, it is impossible to not to take citizens’ opinions into account in designing shopping centre layout because they are the shoppers.