Far East Consortium International Limited (35) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to FY 2020 Annual Results Investor Presentation of Far East Consortium International Limited. [Operator Instructions] Now let me introduce the management with us today. They are Mr. Chris Hoong, Managing Director; Mr. Boswell Cheung, Chief Financial Officer and Company Secretary; Mr. Alexis Adamczyk, Head of Corporate Development and M&A. Now may I invite Mr. Hoong to start the presentation. Mr. Hoong, please?

Thank you. Good morning, ladies and gentlemen. Welcome to our results presentation for the financial year ended 31st of March 2020. And I think there are a lot of -- some spaces here. So please, if you don't mind, observe some social distancing, I think this is under the government guideline. We do need to remind people to observe the rules. If I may just start; for those who are actually on watching the webcast, I'm referring to the Power Point presentation that is available on our website, if you can refer to that presentation, please. I'll start by going through the first page, which is Page 5, to give everyone -- to set the scene really. The year -- the financial year ended 31st of March, we -- especially towards the second half of the financial year, it's been a pretty challenging environment. There are many macro events. The social unrest in Hong Kong. The trade war as well as beginning of the year, the outbreak of COVID-19. So it's been overall a pretty challenging environment for the group, not just us, but I guess for other corporates as well, especially those people who are operating in the hospitality sector. For us, in terms of highlight of the number of results on the property development side, despite the challenges, we recorded a 27% increase of revenue to HKD 4.8 billion. On the recurring income business, we recorded total revenue of HKD 2.6 billion, which is a drop of about 14%. On capital raising liquidity, I'm pleased to say that we managed to complete in total HKD 360 million perpetual bond offering. And because of that, we are able to maintain a pretty healthy gearing level, which we'll go into a bit of detail later on. And for our equity holders, we have declared a final dividend of HKD 0.15, making a total dividend distribution of HKD 0.19 for the financial year. If you move on to Page 6. In terms of highlight of a number of the results that we announced. The detail of the numbers actually on our announcement, it's a 50 pages announcement. So there are a lot of details in that announcement, which you should read through as well. That will give you a lot more information. But in terms of high level number. The gross profit of the company was HKD 2.3 billion versus HKD 2.6 billion last year. So the margin was affected by a number of macro events that I mentioned. Net profit attributable to shareholders, this is after deduction of depreciation, amortization, tax, interest, was at HKD 366 million, which is a big reduction from last year. And I'll explain the number a bit more later on, especially last year, we had some very big revealed profit, which was not repeated this year. On an adjusted cash profit level, we are at HKD 842 million. So this is a number where we added back depreciation. And you'll see that actually the cash profit number is a reduction of 42%. But there, again, last year, there was some exceptional items, which I'll go through a bit later on. EPS was about HKD 0.155. And the cumulative presales -- attributable presales, right? This is purely taking into account our share, was HKD 12.2 billion versus HKD 14.6 billion last year. And last year, as you will be aware, especially at the end of March, there were some pretty volatile ForEx movements and I'll explain that later on, and that has impacted also in terms of our reported cumulative presales number. The NAV figure attributable to our shareholders adjusting for hotel revaluation surpluses was HKD 27.5 billion. Again, because of the challenges facing the hotel sector, we were marking down some value of the hotel assets. So that affected the NAV figure. And the NAV per share figure adjusted for revaluation surplus was HKD 11.06. So it's still pretty robust in terms of NAV figure. If you turn to Page 7, we have broken down our revenue into the different divisions, and you'll see that for hotel alone, if you look at just purely hotel alone, there was a drop of about 26% overall in terms of hotel numbers. And I'll go through the hotel operations in detail a bit later on. Car park was at HKD 760 million versus HKD 720 million last year. Gaming operations was HKD 271 million versus HKD 259 million last year. And others, these are more rental and also interest income, we were at about HKD 240 million versus about the same number last year. So in total, the recurring revenue number was HKD 2.62 billion, and property development revenue was HKD 4.8 billion. So overall, in terms of total revenue figure, we still recorded an increase of 8.9%. So as far as cash profit number is concerned, on Page 8, last year, our depreciation figure went up because of, I guess, a number of new hotels coming into operation, and there was also a change in accounting standards requiring us to capitalize a number of leases for our car parking operations in particular. As a result, that depreciation and amortization figure went up to HKD 438 million. So if you adjust for that and a number of one-off items, which was -- this year as well as last year. This year, we had -- we were marking down some of our investment property valuation. If you adjust for that, and also some preopening expenses of hotel operations, our adjusted core cash profit was about HKD 870 million versus HKD 1.4 billion last year. That is a reduction of about 38% on a like-for-like basis. In terms of margin, our -- on Page 9, the -- we had a bit of preview when we announced our interim results. This year, so far as property development business is concerned, we have a big project in Perth that were completed. And that project, in particular, has a lower margin than normal. It's a fantastic project. But given the higher construction cost in that project, it kind of dragged down the overall development margin. And -- but -- and we said that, we still recorded a 29% margin on the property development. Hotel margin on the post gross profit before depreciation was maintained at still a healthy level of about 54% versus 63% last year. Car park margin was 17%. Gaming margin was about 59% and others and rental income is 86%. So overall, our margin compared to last year was also actually impacted by a number of factors I explained just now. So that it was 35% gross profit margin before depreciation. If you move to Page 10, that give you an analysis of some of the impact on currency movement. And you will see that actually as of 31st of March, right? A number of currencies where we have exposure to, namely Aussie dollar, Renminbi, Ringgit, Pound, Sing dollar and also the Czech krone, they were all actually affected. I think for those who are observing the currency market, you know that actually, it was quite an unusual time in March where, following the outbreak of COVID globally, there was a scramble for U.S. dollar. And because of that, it kind of affected the currency movement on -- globally, and it was more the dollar [ strain ] that is affected. And because we -- Hong Kong dollar is back to U.S. dollar, when our overseas performance are translated back to Hong Kong dollar, we were also impacted on a financial basis. So assuming that there's constant exchange rate, right, our net figure would have been HKD 30 million higher. And our net asset figure would have been HKD 1.7 billion higher so that is quite a big impact resulting from ForEx movement last year. But having said that, I think for those who are familiar with the ForEx trading, you'll note that actually, Australian dollar is, for example, has recovered more than 10% from 31st of March. If you look at today's Aussie dollar, you're looking at HKD 5.3, HKD 5.4 per Australian dollar versus HKD 4.78, which was the figure that we had to mark to as of 31st of March. So very, very dramatic volatile exchange. But in my view, we should not be too focused on that, given that it's more mark-to-market impact on ForEx and has got no significant balance on the real fundamental of the business. Page 11 is just to, again, just to highlight again that FEC has a diversified business and especially in this sort of market conditions. Because of our diversity, we were able to, I guess, mitigate a lot of the negative impact coming from the challenges that I mentioned just now. And compared to some, I guess, hotel companies, which are 100% focused on purely just hotel, the financial impact on us is significantly, I guess, less given that we have a lot of other businesses that we -- that supported and mitigated the negative impact. And then on Page 12, is really a breakdown of our assets as well as revenue by geography, I think, to give you a flavor. By geography, 38% of our assets is located in Hong Kong. Australia -- Australia is 17%. Europe is about 9%, Singapore 12%, China 10% and Malaysia about 4%. And in terms of revenue contribution, Hong Kong 23%, Australia 29%, Europe is about 9%, Singapore 27%, China 7%, and Malaysia 3%. So it's a pretty well diversified sources of revenue from different regions. What are we doing in terms of making sure that we can weather through this COVID-19 headwinds? I think a lot of people will be focused on this. We have taken a very specific review of the operation to see how we can streamline it. So there were really 2 fronts. One is on the cost side, and the other one is on the revenue side. On the cost side, especially in terms of a number of our operating assets, right, we are going through -- or we have gone through actually a pretty thorough review of both costs as well as expenses. There was some incentive scheme that we had previously, which was canceled. In terms of customer base, right, we are also changing our strategy in terms of acquiring new type of customers, specifically, for example, for hotels, we are starting to take on more local domestic clients, especially in Hong Kong, right? Where a lot of people are living in very small-sized apartments. And if your room rate is actually attractive enough, you are actually taking away businesses from other landlords. People will prefer to be staying in the hotel paying really the same price, right? And that -- we have picked up quite a fair bit of customers in that regard. We are also standing down some employees in places where if hotels are closed or not operating and following some staffs making some strategic decisions on how do we streamline the cost even on car parks as well. We're doing also something similar. And all that has resulted in an annualized savings of about HKD 170 million per -- this is on an annualized basis. I'm glad to say that actually, following -- I think the worst period is probably around March, sort of February, March, April time. And then when we see more stabilization of the situation, things are reopening up, and things are gradually coming back to normal. It's still not normal yet. But so far as the business is concerned, I think the worst is probably behind us now. We are now, so far as properties are concerned, right, all our properties, except 2 small ones in Malaysia, are closed. The others are all open now, right? The casinos in Czech, the hotels in U.K., the hotels in Singapore, the hotels in Hong Kong, the hotels in Australia and Malaysia, they are all open. So that's, I guess, the positive news. In terms of government support, we have also -- we are very grateful to have the compensation and some incentive scheme offered by government. And we've taken advantage of that. And that has -- it resulted in total actually contribution of about HKD 140 million. We estimate for this current financial year. So all in all, the specific cost control measures as well as the government help will help us weather through the COVID-19 headwinds. If I may go through Page 14, this is about what we are doing now, right? To actually position ourselves to return to a new normal. On the hotel side, right? We are looking at opportunities to maybe redevelop some of our property into residential, especially in Hong Kong, there are such opportunity. And we are looking at that closely. We do not -- we are not ruling out actually also monetizing some of our hotel assets, especially in those locations where we feel that it can be easily replicated. As we all know, right? We -- the book cost of our hotels on our balance sheet is very low. We have accumulated over HKD 16 billion of surpluses within our hotel portfolio. So the -- should we need to crystallize some profit, we can sell 1 or 2 to do that. And that is something which we are looking at closely at the moment. In terms of controlling CapEx, there are some earmarked -- some hotels earmarking for development, for example, the one in Perth, Dorsett, for example, the Dorsett in Melbourne. We are also reviewing and maybe delaying some of the CapEx on those items -- on those hotels. For those which are in the middle of construction, we're not stopping those, it's continuing. In terms of new launches, we -- you probably can see that we become a lot more active in selling our new launches. And we still have about HKD 4.8 billion of inventory on our balance sheet. These are completed assets which we can dispose of. And we are exploring the sale of our -- some of our retail assets. And in terms of new launches that are coming this financial year, we estimate that GDP is about HKD 8.9 billion in total. And on length replenishment, we are selectively replenishing land, especially in locations where we are selling very well, for example, in London, in Manchester. We have also selectively, last year, right, bought a piece of land in Shanghai as well as Kai Tak in Hong Kong. Those will actually give us the opportunity to capture the turnaround when things gets back to normal. In terms of our balance sheet, especially, I think for those fixed income investors who are watching the presentation, you will see that our net gearing -- because of the perpetual bond issue that we did last year, we -- our equity position is actually pretty strong. And for those companies who are actually in similar kind of business to us, when you measure sort of the leverage ratio on the basis of debt to total assets, we are at 29.9%, which is at a -- still a very, very low level, a very healthy level. On the net debt to adjusted equity basis, we are at about 56.7%, which is still at a healthy level. And this, bear in mind, right, we -- because of ForEx movement, right? That actually impacted the equity in Hong Kong dollar term and when Aussie dollar and some of the positions that we have recovers, right, it actually automatically add back to the equity. So the level of gearing level is actually lower today because of the recovery in the ForEx and treasury positions and all that compared to 31st of March. So that is something which you need to be aware of. If you turn to the next page, it give you a flavor of our liquidity position. We have available liquidity as of 31st of March of about HKD 12 billion. So it's -- we -- at a very high level, and we purposely actually decided to actually increase the level of liquidity to make sure that we can comfortably weather through COVID. And that far exceeds the CapEx and also the debt maturity which is in the next 2 years. But more importantly, you should be aware that we have HKD 12.2 billion of presales, which already -- these are sales that we have already locked in. And of this HKD 12.2 billion, that will be about HKD 6 billion -- HKD 5 billion, HKD 6 billion coming back on to our balance sheet this financial year. So for example, the West Side Place project in Melbourne. That is earmarked to complete. And yet, because the construction liability is incurred, it is actually shown on our balance sheet in terms of liability, but the presales figure is off balance sheet. So that significant cash that are coming back onto our balance sheet to repay the construction loan is actually off balance sheet. So if you take that into account, actually, our net gearing level is substantially lower because it will at least reduce by another HKD 5 billion in terms of net debt. So that is something, which I think is worth highlighting. But in addition, right, to the facility that we have, we also have 7 hotels on our balance sheet which is completely unencumbered. So no debt at all on 7 hotels, which is worth about HKD 4.2 billion. And we have unsold -- and this was all clear of liens residential inventory of about HKD 4.8 billion. So in total, there's about HKD 8.8 billion of unencumbered assets on our balance sheet. So this will be giving us additional cushion should we need the additional liquidity. But overall, in terms of the way we are managing our balance sheet, we have purposely become a bit more conservative in making sure that there is plenty full of liquidity in our balance sheet to weather through any sort of COVID situation. But more importantly, it's also to give us a bit of ammunition, should we identify some interesting, very distressed opportunity, we do have enough ammunition within our balance sheet. And in terms of application of fund, right? We have very -- well, largely now put in the equity requirement for Queen's Wharf and the other items we have already earmarked so far as our cash position is concerned for the projects that we are currently building. So we are in a relatively comfortable position overall. For equity investors, on Page 17, you will see that in terms of dividend, the final dividend of HKD 0.15 will make the total dividend of HKD 0.19 this year for FY 2020. That is a reduction from last year. However, having said that, I want to show you a long-term trend of our dividend. The -- we had a discussion in the Board level about what mindset is in terms of dividend, our -- I guess, a commitment to a progressive dividend remain unchanged. I would like to highlight that the NAV creation will continue, especially, I think when you see currencies recovering, the NAV per share in Hong Kong dollar term will also recover. But at HKD 12 per share versus the share price today, we are still a very big value of stock overall. And if you look at the dividend that we're paying out of HKD 0.19, the dividend yield on our stock is still at a very, very healthy and robust level. So that hopefully will give you some idea of the way we are looking at managing our distribution. Go to Page 19 on our review of operations. The projects that we completed in 2020. The Towers at Elizabeth Quay, this is the project that we completed last year. Astoria Crest in Hong Kong, The Garrison in Tai Wai. And also we have the Singapore project where we are prebooking on a progressive basis, which is shown, I think, on page -- is not shown -- it's not shown here, but that is a big project that we actually have already very much completed and waiting for [ now TOP ] to be issued. The new launch, this was actually done towards the tail end of the last financial year, like it was launched, I think, in February or March in the middle of COVID. Tower 4 at Queen's Wharf residence, we'll play a video on this a bit later on, has sold very, very well because of -- against the quality of the project and also the prominence of this project in Brisbane. This project on the integrated resorts side, we were able to lock in a very, very attractive construction financing and this was, I think, signed last month. And we are now moving on to the full construction of that project. And also on the residential side has sold very, very well. And this is now earmarked for completion in 2024, on the residential. Aspen, London is another project that we launched in the middle of COVID. The reception has been a lot stronger than what we expected. In fact, typically, for U.K. projects, for full year project, you do 25% in year 1, 25% in year 2 and then 25% in each of the year. And this one, we are maybe like the third month into the launch, and we already exceeded the 25% target. So the reception has been stronger than what we expected, and which is a very encouraging results. Other projects that were launched earlier this year, The Star Residence, Epsilon, that is now being constructed. I think the sales level on that project is now over 50%, maybe 60%. Dorsett Place Subang is another project, it's a joint venture project that we have with Mayland. Malaysia is a bit slow at the moment. So -- but to us, right, there's really no CapEx commitment there. All the CapEx are paid by our joint venture partners. So not too concerning. Cuscaden Reserve in Singapore also a joint venture project where we only have about 10% luxury projects like this type, right? I'm not selling too well at the moment. But again, our exposure is very small for this project. The upcoming big one that is earmarked to launch, if you turn to Page 23, it's the Bourke Street project in Melbourne, that is a very big project of about 860 apartments. That is coming in this financial year. So this project will be the focus of the market when we launch. The other project that we are looking to launch is the Holland Road project. It was initially earmarked for late last year, but because of COVID, we decided to put it back a bit. So this will come in this financial year. The New Cross Central Manchester project, this is the one that we just launched. And this is not a big project, about 80 apartments, but it's one in Northern Gateway. And there will be more Northern Gateway projects in Manchester coming on stream. And we're going through a planning, approval process now for a number of new development in that area, and this is one of them. And in Hong Kong, there is going to be a new project in Shatin that will be launched in this financial year. And this is in Shatin Height. I don't think we have named it yet, but it's in a -- as we all know Hong Kong, pretty tight supply of housing. Northern Gateway, I mentioned this just now, is this major project, a big piece of land that we've secured. There are -- we are still doing a bit of land assembly. And we will time our land acquisition in accordance the [ drawstring ] that we have. We have seen actually a pickup of interest in U.K. properties in last month or so. And maybe because of the social events in Hong Kong our people are buying a bill of insurance by prebuying some properties in the U.K., and we're seeing actually some pickup, especially in demand for Manchester as well as London properties. Hotels, I think a lot of people are interested to know about how we are doing on the hotel side. I'm going to say that under the leadership of our hotel CEO, Winnie. She's done a remarkable job in terms of staying ahead of the competition in terms of steering through the volatility under COVID-19. And our performance generally has been a lot better than compared to our peer groups, right? In terms of getting new businesses, for example, right, we have worked with governments around the world, with NHS in the U.K., with the Singapore government in Singapore, in Hong Kong. We were the first hotel group to be offering quarantine services to returnees and on also the first to be targeting domestic customers. So our hotel numbers on an EBITDA basis remains positive under COVID, and in term of our -- the performance of the transfer, the Continental European hotels are more challenging. But the positive side is that on the transport side, when casinos were open, actually, we've seen actually pretty much a V-shape recovery on gaming side. But on the hotel side, I'm pleased to say that actually, relative performance, we've done comparatively well compared to the others. And we are also looking at, especially in Hong Kong, where we're evaluating to see what are the right opportunity to convert hotel to residential, assessing the fundamental value of the property, whether it's better to -- especially in Hong Kong, right? There are alternative use, especially if the hotel is held under commercial/residential title it gives you a bit more flexibility there, and we're reviewing that. If you turn to Page 30, it gives you a flavor as to the impact of COVID. So we have split the numbers into first half versus second half. You see that on the COVID occupancy level and RevPAR level our average room rate level has all come down, right? But relative, I would say that relative to our competitions, we've done reasonably well. So all in all, we -- at least, you will see that actually, those hotels are still generating income. 3 additions that we've done in 2020. One of them is a joint venture with AMTD. The other 2 are 100% owned. These are 3 hotels that were open last year and contributed. Of course, there are pre-opening expenses. When we add a new hotel, you will need to ramp it up. Unfortunately, we're the kind of -- the ramping up was actually quite well until we hit COVID in February and March. And it kind of held back a bit. But now we've seen a gradual returning back to normal for some of the new hotels. Kai Tak development. I think for those of you who attended the last results briefing would know that this is actually located in a pretty prominent location in Kai Tak. We are very excited about this project. There will be an office tower as well as a hotel tower. By the time this is open, this is going to be in 2024. So hopefully, things will get back to normal by that time. Kai Tak is a very, very big development site in Hong Kong, one of the major regeneration sites in Hong Kong. There will be a big sports stadium book right next to us. And also many, many residential towers are being constructed at the moment. And there are also 2 big shopping malls being constructed in Kai Tak. So it will be a completely new area bang in the city center location. So this will be a very exciting projects, and we will showcase the approved plan when the plan is finally approved so that you have a feel as to what this project is about. Car parking operations, we recorded a organic growth last year. But having said that, COVID did also hit the car park business, especially from February, March time as commercial activities reduced. But having -- despite that, right, we still managed to record a growth in revenue, partly driven by, I guess, an addition of our new car park under management. We also added 2 carpark properties that we acquired in the second half. So in total, we are now managing over 106,000 bays in car park. And Page 35, this is some photos of big car parking operations that we secured, including the SkyCity Casino car park in New Zealand of 3,300 bays. Gaming operations. Trans World was a business that we acquired 2 years ago. And this last year was the first year that it contributed fully to the operation. The contribution from Trans World has been as expected. Until March, when, again, it was asked by -- because of government policy it was closed. But it was subsequently reopened in June, early June. So there is going to be a few months of impacts. But in March, despite the closure for, I think, 3 weeks of the month, the full year contribution is still positive to the group. We have also taken a number of measures to stand down some employees, negotiate with suppliers. And since the reopening of the casinos in early June, we have seen things going back to -- I wouldn't say 100% on the normal operations or contributions, but at least, I think we're seeing like 80%, 90% of the level of business that we saw. So things are getting back to normal. This is the point I'm trying to make. And our alliance with Star is a strategic one. As you know, we own 5% in The Star. And I think it's important to share with you, right, that investment is a long-term strategic one. Of course, with the impact of COVID on Star, which is also a business that suffered in this environment, the share price actually went down a lot. And as of 31st of March, it was actually at -- also at a low point because the casino was forced to shut. But it has since the VIP floor just reopened. And I think today they announced the reopening of the casinos from the 1st of July, I think, it was yesterday, sorry. And the share price has recovered very strongly since 31st of March. So the mark-to-market impact on that investment has also recovered from the low point in -- on the 31st of March. The projects that we're doing with Star -- just a recap. The Star Gold Coast projects, which are currently selling. The Sydney project -- The Star Sydney -- we are still going through the planning process. No rush in that project now given the COVID situation. And so we have a joint venture with them in Gold Coast. And Pyrmont Precinct, we have a piece of land that we have jointly bought with The Star Group, where we will be building residential there as well. But that is going through planning at the moment. Moving on to other businesses. BC Group, this is a business that has demonstrated robust growth in the past year or so since our establishment of this business in 2018. It is a fast-growing platform offering mortgage financing in Australia, targeting at international buyers of international properties. And at the moment, is very much focused on Australia. Despite, I think COVID, the performance of the loan book has been very strong with very few default. And we own about 50.66% of that business. It's not a consolidated subsidiary, but it's the -- in terms of the contribution, is reflected as share of associate income. But the book -- this business is now at over $1 billion of AUM, our loan book, and this business is about borrowing wholesale fund chip and then lending out at a higher rate. And the NIM of this business is over 2% now. So that is going to be contributing healthily to the group's income this year. And the plan for the business is that we will be going to do a securitization issue to recycle the capital, which is in this portfolio. Most of the funding actually comes from credit funds as well as international banks. That's where they get the funding source. Far East Vault. This is -- as we are evaluating, I think, our properties held in different places, we feel that there is an opportunity which we can do. And we are actually starting with Hong Kong. And the first -- it is a safe deposit box business. And we've selected our hotel -- in the basement of a hotel in Silka Far East in Tsuen Wan to be the first operation. So that is being fitted out at the moment with over 4,500 boxes of safe deposit boxes. Again, very similar to hotel where relies on occupancy, but it's -- once you fill it up, it's actually a very steady contributor. It's not a big investment that we're putting in, but we want to use it as a test case to see how the business goes. And we have a good team of people that we have recruited from outside. And for those of you who are looking to have a safe deposit box, try this one. This is a new private vault that we are establishing. And we offer interesting feature like facial recognition, palm print recognition and also the way it's different from other safe deposit box provider is that it offers actually insurance as well on the contents that you put in. So it is a test case. I don't expect it to offer a big huge contribution to the group, but at least it's a way that we are using some of the spare space that we have in hotel to turn it into a revenue-generating space. So this is a new business that we are going into. So just on the short-term and medium-term outlook. I will say that we have undertaken actually pretty quick mitigation strategies under COVID. We have implemented cost control measures. We are reducing some CapEx. We are also looking at way where we can extract more revenue on the property side. I'm glad to say that we maintain a very healthy pipeline of HKD 52 billion. These are projects that we have secured. We have a presales of HKD 12.2 billion, which can be booked over the coming 3, 4 years, and this is a big number and at least -- so that would provide actually some visibility on cash flow as well as revenue contribution. We are launching a project worth about HKD 8.9 billion in 2021. We have inventory of about HKD 4.8 billion that we can monetize. On the hotel side, most of our properties are actually in operation, 31 properties. We still have a pipeline where we can decide to accelerate or slow down, depending on the situation. We are repositioning it to see whether we can tackle some additional new customer-base, monitoring the cost very closely, actively evaluating ways to unlock value in the hotel operations. On the car park operations, we are continuing to review opportunities where we can renegotiate on a number of the lease commitments. And keep growing really through acquiring new contracts, gaming business. I think the big change will come when Queen's Wharf is completed. We will continue to implement the mitigating factors that we mentioned. And things are getting back, hopefully, to normal soon. On the ESG side, I want to stress again, we are a corporate that pays very close attention to ESG. We are forming a new steering committee to govern -- to make sure that there are proper governance being set up, adoption of terms of reference. We pay very close attention to social responsibility. We donated 1 million surgical mask with hang on to Hong Kong during the COVID, under COVID-19. On the environment side, we are increasingly looking at implementing green buildings. For example, the Kai Tak building will be a green building. And on the hotel side, we are looking at replacing single-use items with more reusable items. So things like that, we are actually actively pursuing. And as a result of all the effort that the team has put in, we have also won a number of awards. I'm very proud that the team has been able to achieve a number of very good awards, including Best IR and also gaining a Gold Award for ESG. And also, I think we were named as one of the best mid-capped companies in Hong Kong as well. So these are some of the awards that we have won in the last financial year. Very proud of the achievement. And with that, I conclude my results presentation. And before we move on to Q&A, I'd like to just show you quick -- 2 quick videos of the 2 new projects that we launched, big projects. One is the Aspen in London. And the other one is our Queen's Wharf residence. So after that, then we'll take the Q&A. [Presentation]

[Operator Instructions]

I'm Jacky Chan from AMTD. I have a couple of questions I want to ask about. Like first question on land bank replenishment. Because as we mentioned just earlier that we will have around HKD 6 billion of presales proceeds coming back on the balance sheet like this year. So given the complicated global environment at the moment, and we've got business all around the world, where are we looking to deploy our capital, that's coming back in, right. Obviously, some of them will go into construction of ongoing projects but in terms of land acquisitions, considering like we've got U.K., we've got Australia, we've got Singapore and so on, on Hong Kong, where are we looking more into or in terms of the allocation side? Second question on hotels. Do we actually see like Chris just mentioned a little bit that probably February to April was the worst, and we probably are saying the worst is behind us? So in FY 2021, do we actually see that we should expect a hotel revenue recovery given -- as things stand, obviously, things are changing every day. But as things stand, do we expect a hotel revenue recovery in FY '21? And also on the hotel front, in the announcement, we mentioned about the discussions with Eagle Hospitality Trust. Can management tell us a little bit more about that discussion, whatever you can shed some light to us, please? How does that come into our strategy? And what's the plan on that front? How does that impact the spin-off that we proposed earlier and so on? My final question is on the margins outlook. We saw a gross margin decline to 30% this year because of some project -- residential projects, which are lower margins compared to previously. How do we see that going forward in FY '21 and onwards?

Thanks for the questions. If I may answer some, and I'll probably get Alexis to answer the Eagle Hospitality questions. On the development -- the area where we are focusing our effort at the moment, as you probably noticed, we are looking at U.K. very closely. We're also looking at Hong Kong very closely, to be honest, and Australia as well. Those are the 3 countries that we have a very strong development team and also still experiencing population growth, and therefore, demand for housing. And last year, for example, right, we did buy more land in Manchester. We also have struck a deal with -- high level deal, MoU, with Sainsbury in the U.K. for the redevelopment of one of the shopping -- supermarket store in Whitechapel in London. Those are the sort of transactions that we like because we can make use of the current land ownership of an operator to develop. We are still very healthy in terms of pipeline, right? HKD 50 something billion. So we are not in a rush to have to replenish land bank quickly. But having said that, we're looking at opportunities. And as we digest our land, we've been looking to replenish it in locations where we feel that there's strong population growth and strong demand for housing. And those regions that I mentioned still remain actually pretty healthy so far as demand for housings are concerned. On the hotel operations, when I mean the worst is over, I mean we're not in a closure stage, right? We are in reopening stage, which is looking at really recovery. I can't really comment on whether or not what the impact on 2021 revenue will be on the hotel side. My expectation is that it's not going to show recovery this year versus last year. To fill up the rooms, you still need to sacrifice in terms of room rate. And last year, to be honest, it wasn't until January that [ the amount ] declined overall, right? So the full year impact for this year, unless you see a very, very strong recovery in the second half, it's still quite difficult to predict on the hotel performance at the moment. I don't think even if you speak to anyone in the hotel sector, nobody can tell you how the performance will -- it's actually -- we are in a situation where it's quite difficult to predict. What we can do is to control the cost, look at ways to maximize revenue. And hopefully, you're not losing money, right? You're still staying afloat. Whether or not things will recover very strongly in the second half is very unpredictable, I must say, right? I'll answer the last question first, and then maybe Alexis can answer Eagle. On the margin, I think the margin -- the upcoming projects will be West Side Place, which is due for completion this financial year. The margin for that project is actually one of the higher-margin in Australia, right? But Australia margin is typically lower than Hong Kong or China, right? So -- but we think that the margin, at least will be better than Perth. And the overall margin, I think, will be okay for this financial year for the residential development side. But we also have some uncompleted units. For example, in Guangzhou, the margin is very high, where we are going to be booking some as well and also, we're also selling down some of our residential car parks in Guangzhou and Shanghai. So that will hopefully contribute to the residential development profit there as well. And Eagle, I'll let Alexis answer.

Well, you remember, we had announced plans to create a separate listing, a separate entity to hold some of our properties. We've done quite a lot of progress on that. But given the market environment, we've slowed down the execution of that work stream. Now we've been on the lookout, as Chris mentioned earlier on, for potential distressed, difficult situations that we could save and get involved in. And hospitality, the one, the Eagle Hospitality is one of these situations. It's a REIT manager that's gone through some challenges. But it provides a platform for us. It owns about 18 properties, 17 properties are leasehold. It's in the U.S. It's a market that we think is interesting. And in particular, it's a platform that we could use as we always think about creating new revenues for the group. Asset management is one of them. So having a REIT manager we think is a very valuable asset for us. Now when it comes to our own properties, we've slowed down the execution of our own REIT, but we remain very open-minded. And we continue to explore opportunities to potentially unlock value with our portfolio. And Chris mentioned, we have about HKD 16 billion of revaluation surpluses. It's not because we've slowed down the execution of our REIT that we've completely stopped exploring ways of monetizing our portfolio.

Next question, please. Any more questions from the floor? If no, maybe we move to answer the questions from WeChat -- from the webcast.

Actually, we have received some questions on the webcast. I'll just go through one by one.

Maybe one at a time.

Ryan Lee. As we see that there are HKD 6.5 billion debt needs to renew within a year. Can you share with us on your financial plan this year? That's the first question. I think I may answer this question. Yes, we have a short-term liability, HKD 6.5 billion coming up within this year. And on the other hand, we're actually -- Chris has mentioned, we have a project stage 1 West Side Place in Melbourne coming into delivery of the key starting 2 months later. So within this financial year, I think the presell amount of this stage 1 is something about HKD 5 billion approximately. So that will help a lot on the current liability settlement. And actually, most of the construction loan actually from this project. On the other hand, we have, like the presentation also mentioned that we have HKD 6 billion cash liquidity and as well as the investment securities. So well, we have a corporate facility and construction facility on our capacity, which is talking about HKD 5.8 billion as well. So I think within the first -- I mean for this current liability, I think we are actually handling okay on this debt. And there's a second question also from Ryan Lee. As COVID-19 is still serious overseas, what is the current sales progress in U.K., especially in Manchester, and Australia?

Yes. So as I mentioned, right, it's performed better than what we expected on the sales. The new launches has gone on reasonably well. And the key really is how long this will take. But from what we are seeing, momentum still seems to be still holding up, especially in the last 2 months with the social incidents in Hong Kong. We've seen more people from Hong Kong buying insurance. So the last exhibition has gone -- we have an exhibition at the Mandarin Oriental. We had 150 groups of people turn up in that weekend. It's quite remarkable, especially, I think, given the circumstances in Hong Kong. So of course, the key is for people to continue to feel that they can -- they are wealthy enough to invest, right? The longer, I think, COVID last, the weaker the economy will be, right? So we are all hoping that the situation -- it's not going to go away, but will there be a vaccine that can turn around the situation? That's, I think, is the hope of the general, I think, situation. But having said that, we all have to position for the worst or to prepare for the worst. And therefore, we are carefully raising liquidity, delaying a bit of CapEx in case things last longer than -- the COVID situation lasts longer, we still are able to maintain a healthy cash position to weather through the uncertainty ahead.

Yes. Well, another question from [ William Chan, I think, is Cheuvreux ]. Congratulations on the strong revenue, and thank you for the presentation. I want to ask how many hotel -- Hong Kong hotel sites can be converted into residential usage? As you know, how long this process application will usually take for such conversion?

Yes. Hong Kong, for us, is quite unique because we have actually quite a few properties that can be easily converted and these are all leases, which means that we announced today that we're going to stop and then convert. We can almost do it in -- within a few months we can do it. But having said that, right, we are also quite cautious because we are seeing actually a number of hotels in Hong Kong also being redeveloped. So on the supply side, actually, it's not just not growing, but it's shrinking. And as we all know, right, Hong Kong, in the past, there has been a very, very tight supply of Hong Kong hotel wins. And we could be missing out on a very big boat on recovery, if we switch all our hotels to residential. We're not saying we're doing that, but I think we've got to be carefully evaluating to see which are the older properties, right, which you need to upgrade anyway. Instead of spending the money to upgrade, why don't we just the opportunity to turn it into a residential tower? That is the soft approach we are taking. We do not want to miss out on this big potential recovery and as we have seen during SARS when recovery comes in Hong Kong, it actually can be a pretty dramatic turnaround. And there are now actually talks of bubble traveling. If China opens up again, you will see actually a pretty fast recovery. So while we want to look at ways to unlock value in hotels, we also do not want to miss out on a big turnaround, right? That could potentially come, right? So...

Well, another question from Eric. Which hotels in Hong Kong are held under commercial or residential land use that are considering the conversion?

Well. I think the one that we are looking at in Hong Kong is the Silka in Yau Ma Tei. That's the one that is [ earmarked ], I think, for potential. But again, I don't want to prematurely make that announcement, but that is definitely a potential property that can be easily converted.

And what typical development margin should I expect on Melbourne and Manchester?

I think Melbourne, we'll be looking at 30%...

20% to 30%.

Well, I think more than 20%, but that is because it's quite high-density and the land cost is quite low. I would expect it's more closer to above -- definitely above 25%, 25% to 30%, yes. Taking out the -- everything, including interest and marketing and selling and all that, right?

Also Manchester?

Manchester is about maybe 25%, 30%, roughly.

No more questions.

Any questions from the floor? If no questions, we will conclude the Q&A session here, and this is the end of our presentation. Thanks again for coming.

Thank you very much. Thank you. Thank you.