Jake's View

Sorry CY Leung, the Link Reit is pursuing profit, not social responsibility, because that’s how it was sold

The Link Reit offering circular from 2005 reveals how it was designed to appeal to investors

PUBLISHED : Wednesday, 29 June, 2016, 4:48pm
UPDATED : Wednesday, 29 June, 2016, 5:00pm

The Link has a particular corporate social responsibility because they serve the needs of public rental housing tenants.

Chief executive Leung Chun-ying,

SCMP, June 29

First we refresh ourselves on the background. The Link Reit is a large portfolio of Housing Authority shops and carparks which was privatised in 2005 to raise money for further construction of public rental housing.

For its listing on the stock market it published an offering circular. Here is what this document said about its responsibilities going forward:

“The Manager’s key objective for The Link REIT is to provide Unitholders with stable distributions per Unit with the potential for sustainable long-term growth of such distributions. The Manager intends to accomplish this objective by optimising the performance and enhancing the overall quality of a large and geographically diversified portfolio of real estate assets in Hong Kong …”

There was not a word here about corporate social responsibility. The purpose was straightforwardly stated as serving the interests of investors. The words “optimising performance” might not have been quite so straightforward but the intent was clear – brighten up the shops and hike the rents.

Sir. What we have here is cheap electioneering at a time when your polls are way down

Bear in mind that these are not the words of some later private controlling interest but of the Housing Authority itself, the government agency that sold these properties and that could have stipulated other conditions. It was even more direct elsewhere in the circular:

“...the rental and carpark rates, tenant trade mix and the incurrence of certain costs … may not always have been in line with private sector market practice as a result of being influenced by public policy and socio-economic considerations. These policies and considerations will not apply to the operations of the Properties following the Listing Date, save for certain limited commitments …”

Or get this:

“... sustainable-income producing properties in Hong Kong which are integrated with the Adjacent Housing Estates, providing a competitive advantage and strong barriers to entry.”

They actually said it – “strong barriers to entry”. They pushed the stock on the basis that it could shut out the competition by having a lockhold on the premises. The Housing Authority promoted this as a good thing. I repeat, not a bad thing but a good thing. Yes, let your jaw drop.

We also have the present chief executive of the selfsame government that let these statements pass now saying, “I’m curious about whether the top management of Link is incentivised in such a way that they seek rental and profit maximisation.”

Here is what the circular said on the subject:

“…incentivised to add value through a remuneration structure which includes a performance-linked element, based on the individual performance of the relevant Directors or officers …”

Be curious no longer, Mr Leung. The Housing Authority structured remuneration at the Link Reit to get the maximum return for shareholders. It could also have made formal provisions for the benefit of public housing tenants but it did not. It would have brought down the price it could get for the stock. This government agency went for the money instead.

What I find curious, however, is that you, Sir, were Convenor of the Executive Council at the time and Exco had to approve this privatisation. How could you not have known? Why not even a peep of dissent then?

What is more, you are a career estate agent, for a long period the commercial property man at Jones Lang Wootton, a major Hong Kong property agency. You know quite well that people in your trade are paid on a performance basis. What is all this about being puzzled at how the Link Reit’s people are paid?

And just how much corporate social responsibility did you yourself talk when you yourself arranged commercial leases? Did anyone hear sympathy from you then for little old ladies who had to walk longer distances to the wet market, which, by the way, only a few have had to do because of the Link Reit. Occupancy of stalls at Link wet markets has risen since privatisation.

Will you please stop pretending and come clean, Sir. What we have here is cheap electioneering at a time when your polls are way down. You are just trying to whip up some public support for a re-election bid to chief executive.