Hongkong Land Holdings Limited (H78) Earnings Call Transcript & Summary

Good morning. Thank you for joining us to review Hongkong Land's results for the first half of 2020. Similar to 2019 results presentation in March, this presentation will be given via webcast to minimize health and safety risk to everyone amid the COVID-19 pandemic. I'm Robert Wong, the Chief Executive of Hongkong Land, and with me is Simon Dixon, our Chief Financial Officer. Following our presentation, there will be an opportunity for questions to be submitted electronically. Please send us your questions through the website, and we will include them in the Q&A session. Before we begin the presentation, I would again like to take this opportunity to thank all of our staff for the ongoing dedication and professionalism they have shown amidst a difficult operating environment. Hong Kong, in particular, is being impacted by the unprecedented challenges of a global pandemic and geopolitical tensions. There has been much speculations about Hong Kong's future, which I want to address upfront. At Hongkong Land, we remain confident that Hong Kong will continue to thrive as the primary gateway for capital flows in and out of the Chinese mainland. It is important to recognize that it is not easy to replicate the special characteristics that Hong Kong already possesses. These include the rule of law, the depth of its capital markets, extensive investors and financial institution networks and a diverse pool of professional services talent. Hong Kong importance and resilience are well demonstrated by the volume of new listings as well as pending listings on the Hong Kong Stock Exchange despite the global economic uncertainties we are currently facing. We are confident Hong Kong will remain a successful finance and commercial hub for decades to come. Today, I will take you through an overview of our results, investment properties and development properties before turning over to Simon to cover financial highlights. I will then conclude with our outlook followed by Q&A. Turning to the results highlights. The group's underlying profits in the first half was USD 353 million, down 24% when compared to the same period last year. The decrease in underlying profit reflects lower contributions from investment properties due primarily to the granting of temporary rent relief and from development properties as a result of fewer residential completions compared to the same period last year. The loss attributable to shareholders was USD 1.8 billion after accounting for noncash losses of USD 2.2 billion arising from the revaluation of the group's investment properties. In terms of underlying earnings per share, the group generated USD 0.15, while the overall earnings per share was a loss of USD 0.78 after the impact of nontrading items. The net asset value per share at 30th of June 2020 was USD 15.41. The Board has declared an interim dividend of USD 0.06 per share, unchanged from the prior year. Overall, the business has been resilient in the first half of the year despite a challenging operating environment. The group's financial position also remains strong with ample liquidity. Other than the West Bund site in Shanghai, which was secured in February this year, the group did not make any land acquisitions during the first half of this year. I will provide a brief update on the West Bund project later in the presentation. I shall now turn to the investment properties. The group has an attributable interest in over 9 million square feet of investment properties effectively unchanged from the end of 2019. The group's Central Hong Kong portfolio is our most significant investment. It comprises some 4.9 million square feet of office, retail and hotel space and is valued at USD 29.4 billion. This is followed by our Singapore portfolio, where our attributable share accounts for some 1.8 million square feet and is valued at USD 3.5 billion. Not included in this slide are projects under development. These primarily include the British Embassy site in Bangkok and the West Bund site in Shanghai. Turning to our Hong Kong office portfolio that forms the heart of our core Central Hong Kong. Given the prime CBD location, there is naturally a high concentration of financial services, legal and accounting firms. They account for 80% of the portfolio, largely in line with the end of 2019. The positive rental reversions achieved partly reflects leases, which became effective in the first half of the year but were concluded prior to the outbreak of COVID-19 in Hong Kong. During the period, our average office rent was HKD 121 per square foot per month, up 2% from HKD 119 in the second half of 2019. Fiscal vacancy at the end of June 2020 was 5% compared to 2.9% at the end of 2019. On a committed basis, taking into account existing lease commitments, vacancy was 4.5% compared to 2.9% at the end of 2019. By comparison, vacancy based on existing lease commitments across the Hong Kong Central Grade A office market was 5.6% compared to 3.6% at the end of 2019. The weighted average lease expiry at the end of June 2020 is 4.5 years compared to 4.7 years at the end of 2019. At 30th of June, only 11% of our Hong Kong office portfolio was subject to expiration or rent revisions during the second half of the year. Including concluded renewals and rent reviews subsequent to the end of June, this has decreased to 7% of our portfolio, of which 4% relates to expiration and 3% relates to rent revisions. Landmark is the preeminent luxury shopping and fine dining destination in Hong Kong, as demonstrated by the number of prestigious luxury houses and Michelin-starred restaurants that we have as tenants. Fashions and accessories continue to account for a significant portion of our portfolio at 48% followed by food and beverages, which account for 32%. Base rental reversions were mildly positive, although average net rent was negatively impacted by temporary rent relief as well as a decline in turnover rent. Our average net rent decreased by 26% to HKD 151 per square foot per month in the first half of 2020 compared to HKD 205 per square foot per month in the second half of 2019, where rent relief was also provided. Excluding the impact of temporary rent relief, average net rent was HKD 230 per square foot per month in the first half of 2020 compared to HKD 233 per square foot per month in the second half of 2019. At the end of June, the portfolio remained effectively fully occupied with 8.4% vacancy on both a physical and committed basis. Turning to our Singapore office portfolio, which is centered around the Marina Bay Area. Similar to our tenant profile in Hong Kong, our Singapore portfolio contains a high proportion of financial services firms due to its prime location and high quality of our developments. Average gross rents across our Singapore portfolio was SGD 9.90 per square foot per month, a 2% increase from SGD 9.70 in the second half of 2019. Rental reversions remained positive during the period. Physical vacancy across the portfolio decreased to 1.5% compared to 5% at the end of 2019. On a committed basis, vacancy was 1% compared with 0.7% at the end of 2019. This compares to the overall vacancy across the entire Grade A Central business district market of 6.7% and reflects the attractiveness of our portfolio despite a highly competitive market environment. As at 30th of June, 8% of our share of the portfolio was subject to expiration or rental reversions during the remainder of 2020. To date, the area subject to expiration or rent reversions remains largely unchanged. Turning to other parts of Asia. In Beijing, footfall and tenant sales in WF CENTRAL declined significantly due to COVID-19. And as a result, the group provided rent relief on a case-by-case basis. There were signs of a steady recovery in the second quarter, although the momentum has been partially weakened by the newly discovered COVID infections in June. At the end of June, the property was 87% let. In Indonesia, Jakarta Land, our 50% owned joint venture, continued to perform well relative to challenging market conditions. Office vacancy at the end of June was 80% compared to an average occupancy of 65% in the Jakarta CBD office market. On a committed basis, taking into account existing lease commitments, occupancy was 87%. In Phnom Penh, the office space of our prime mixed-use complex, Exchange Square, was 92% occupied at the period end. For retail tenants across Southeast Asia, temporary rent relief was provided on a month-to-month, case-by-case basis based on local trading conditions. The group has conditionally reached agreement with 2 strategic investors to jointly develop the site. At the end of June, the group had received a prepayment of USD 2.3 billion. A final amount of USD 320 million was received in July. Upon completion of the transaction, which is expected by early 2021, the project was -- will be accounted for as a joint venture with the group remaining as the largest shareholders of the project. The group will also retain project asset and property management rights to the site. The land premium related costs of USD 4.5 billion were paid in the first half of the year. The acquisitions of the West Bund site represent a rare and attractive opportunity for Hongkong Land and is in line with our ongoing long-standing strategy to invest in prime sites in key gateway cities across Asia. The scale of the project is significant. The long-term whole component of the project, which is expected to include offices, retail, service apartments, 2 hotels and a convention center, will have a gross floor area of approximately 880,000 square meters. On a net lettable basis, the long-term whole office and retail components alone will have a size of approximately 450,000 square meters, which is around the same size as our Central portfolio in Hong Kong. We are confident that the project upon completion will become a new landmark and destination of choice in Shanghai. Planning for the prime mixed-use site along the Huangpu River in the Xuhui District is underway. Subject to finalization of design schemes and approval from the relevant authorities, construction is expected to begin in 2021 in early part of that year, with completion expected in multiple phases through to 2027. I shall now turn to development properties. This slide summarizes our current development properties projects under construction and to be developed. They are primarily residential-led, but some of them also features sizable office, retail and hotel components, particularly on the Chinese mainland. In total, they amount to some 5.6 million square meters of developable GFA, down slightly from 5.7 million square meters at the end of 2019. The Chinese mainland continues to be our key market, accounting for 54% of the total. On the Chinese mainland, Chongqing remains our largest market and accounts for 67% of our Chinese mainland business by attributable developable area. We currently have 11 projects in Chongqing with an attributable developable area of 4.1 million square meters. By exposure in U.S. dollars, which comprises completed development costs, less pre-sale receipts contractually secured, Chongqing is also our largest market on the Chinese mainland and accounts for 37%, followed by Nanjing and Shanghai, which account for 20% and 16%, respectively. As a result of the impact of COVID-19, all sales galleries were closed and construction activity suspended for some 2 months during the first quarter of 2020. Development activities at all of the group's Chinese mainland projects have since resumed. At the end of June, market sentiment and sales activities in the group's key markets have largely returned to the pre-COVID-19 levels. During the first half of the year, the group's share of development properties revenue recognized on the Chinese mainland, including its subsidiary and share of joint ventures, was USD 241 million. This represented an 18% decrease from the same period last year due to the timing of completion. In terms of sales performance, the group's share of contracted sales was USD 551 million, an 8% decrease from the same period last year due to COVID-19-related delays of planned sales launches. At the end of June, the group's share of the sold but unrecognized contract sales in these developments on the Chinese Mainland was USD 2.2 billion. This compares to USD 1.9 billion at the end of 2019. 40% of the sold but unrecognized contract sales are scheduled to be handed over and recognized during the remainder of 2020. As anticipated, the group recorded gross margins of 8 -- 28% in the first half of 2020, down from 44% in 2019 due to higher contribution from short term and more recently acquired projects. Turning now to Singapore, where the group has 3 development projects. Similar to the Chinese mainland, sales galleries and construction activities were suspended for some 2 months due to COVID-19. The impact to sales during this period was partially mitigated by the use of virtual sales galleries. Sales velocity have improved since the reopening of the physical sales galleries in mid-June. Restrictions on development activities have also been partially lifted, although the pace of construction during the initial weeks is likely to be constrained due to the government approvals required for subcontracted workers. During the period, the group's development properties revenue recognized in Singapore was USD 184 million compared to USD 185 million in the first half of 2019. In terms of sales performance, contracted sales in the first half of 2020 was USD 301 million compared to USD 255 million in the same period last year. This increase was mainly driven by higher sales at Parc Esta and the launch of Leedon Green in January 2020. At the end of June 2020, sold but unrecognized contract sales in Singapore was USD 670 million, up 17% from the 2019 year-end. As of June 2020, 20% of the sold but unrecognized contracted sales are scheduled to be recognized in the second half of 2020 under the percentage of completion method. This slide provides a brief summary of the status of our development properties outside of the Chinese Mainland and Singapore, which have been launched for sale. In general, development activities have largely been suspended or curtailed since April with market sentiment subdued. This concludes the review of our investment and development properties portfolios. I will now pass over to Simon to take you through the financial results.

Thank you, Robert. Good morning all. The group's consolidated profit and loss account is summarized here. Underlying profit has decreased by 24% year-on-year to USD 353 million. Turning to each major line item. Consolidated revenue has increased from USD 804 million to USD 820 million, driven by higher completions from wholly owned development properties in Chongqing, partially offset by lower effective rents from the investment properties portfolio, primarily due to temporary retail rent relief provided. Higher completions at wholly owned development properties projects in Chongqing is also the main reason for the increase in net operating costs compared to the same period in the prior year. The share of results of joint ventures decreased by some 65% to USD 45 million, primarily reflecting lower sales completions in joint venture development properties on the Chinese mainland during the period. Net financing charges have increased by 7% to USD 63 million, reflecting increased average net borrowings partially offset by lower average interest cost. The tax line represents the tax charge for the company and subsidiaries. Tax on joint ventures is recorded within the share of results of joint ventures. The decrease in tax cost is in line with the lower overall operating profit and higher net financing charges during the period. Including tax on joint ventures, the effective tax rate in the first half of 2020 was lower than the corresponding period last year due to a lower earnings contribution from the Chinese Mainland, obviously, where taxes are somewhat higher. Non-trading items entirely represent investment property revaluations. And turning to the next slide, the movement in underlying profit by major component. The investment properties and development properties components include their share of the group's pretax operating profits derived from joint ventures and associates. Given the significance of the group's joint ventures, this presentation of our results provides a clearer summary of our performance during the period. Operating profits from investment properties decreased by USD 62 million, primarily due to temporary retail rent relief provided to tenants across the region. Operating profits from development properties decreased by USD 116 million, mainly due to fewer completions on the Chinese mainland. The group recognized lower taxes on lower operating profit and recorded lower corporate expenses. Turning to operating profit by segment and region, again, which includes the group's share of joint ventures and associates. The contribution from investment properties was USD 493 million, 11% lower than the first half last year, primarily due to temporary retail rent relief provided. The contribution from development properties was USD 77 million, 60% lower than the first half last year. This was principally due to fewer completions taking place in the Chinese Mainland, as anticipated. I will now turn to the group's consolidated cash flows. The group continues to generate strong and stable operating cash flows. During the period, the group generated USD 506 million of cash from its operating activities. This compares to USD 438 million in the same period last year. The modest increase is primarily due to working capital inflows on reduced activity levels, partially offset by higher tax payments due to timing. Under investing activities, the group had net outflows of USD 2.2 billion compared to USD 356 million in the first half of 2019. This includes a gross investment of USD 4.5 billion for the West Bund site, partially offset by USD 2.3 billion of prepayments received in relation to the conditional sell-down. Under financing activities, the company paid dividends of USD 367 million, reflecting last year's final dividend. The group also had a net drawdown of borrowings of USD 1.6 billion compared to USD 55 million in the first half of 2019. Net debt at the end of June 2020 was USD 5.6 billion, USD 2 billion higher than the 2019 year-end figure. Moving to the next slide, which summarizes our net investment in medium-term lease assets held on our development properties book. So these are commercial assets that are initially held for rental and subsequently exited once rents stabilize. Out of the total net investment of USD 1.7 billion, 25% relates to properties already completed, while the remaining 75% relates to assets currently under development. The group's share of the total remaining estimated costs to complete is approximately USD 1 billion. Upon completion, the carrying value of these assets will amount to USD 2.7 billion. To date, 2 medium-term lease assets are in operation. These are the retail components of Landmark Riverside in Chongqing and LCM, the retail component of Parkville in Shanghai, which commenced operations in 2016 and 2018, respectively. At the end of June 2020, occupancy at Landmark Riverside in Chongqing was 80% on a physical basis and 84% on a committed basis. In Shanghai, LCM was 91% occupied on both a physical and committed basis. The remaining medium-term lease assets are currently under development with completion dates ranging from 2021 through to 2025. The next significant medium-term lease asset to complete is the retail component of Yorkville North in Chongqing with completion scheduled in 2021. This is a retail mall which will have a net leasable area of some 80,000 square meters. Moving to treasury management. The group's financial position and liquidity remains strong. Net debt was USD 5.6 billion and net gearing was 16%, so up from 9% as of the end of last year, due primarily to the funding of the West Bund site in Shanghai. The average tenor of our drawn debt is 6.2 years, broadly unchanged from the end of last year. The average interest cost is 3.5%, down from 3.8% from 2019, and our credit ratings by S&P and Moody's remain unchanged at A and A3, respectively. As of 30th of June 2020, the group has available liquidity of USD 2.7 billion compared to USD 3.2 billion at the end of 2019. The group's maturity profile is shown on the right-hand side of this chart. The debt maturities are well-staggered over a number of years and diversified between both banks and debt capital markets. I will now turn back to Robert, who will discuss the group's outlook.

Thank you, Simon. Since the start of the year, the group has performed well despite challenging global macroeconomic situations brought about by the pandemic. In particular, the group's office portfolios in Hong Kong and Singapore both saw positive rental reversions during the first half. Looking ahead, Hong Kong is expected to experience negative rental reversions in the second half of the year, while reversions in Singapore are expected to be neutral to slightly positive. Overall, the group's office portfolios are expected to remain resilient despite global economic uncertainties. Based on the latest positions, areas subject to expiration up to the end of 2021 amount to just 16% and 19% of the total net leasable areas of our Hong Kong and Singapore portfolio, respectively. As the total area of expiries is relatively low in the short term, and such areas are spread evenly, the potential for significant fluctuations in vacancy over the next 18 months is likely to be limited. However, our retail portfolio is expected to be impacted by further rent relief for the Landmark. In particular, the gradual improvement in consumer sentiment in recent weeks is likely to be curtailed by the latest wave of infections and the resulting tightening of anti-pandemic measures in Hong Kong. The extent of the rent relief around the region will depend on the timing of any easing of travel and other anti-pandemic restrictions. For the group's development properties business in the second half of the year, high sales completions in both the Chinese Mainland and Southeast Asia are expected. Market sentiment have largely returned to the pre-COVID levels on the Chinese Mainland over the past quarter and have also begun recovering in Singapore. For the rest of Southeast Asia, sentiment is likely to remain subdued until the pandemic subsides in the respective markets. Overall, the group's underlying earnings in 2020 are expected to be lower compared to 2019. The extent of the negative impact of earnings will continue to depend on the length and severity of the pandemic. Despite the challenging operating environment, the group continues to look for ways to enhance services delivered to our tenants and customers. In Hong Kong, the group recently launched BaseHall, a new premium food hall concept at Jardine House. BaseHall aims to provide an elevated food hall experience to champion Hong Kong's exceptional food culture and provide our Central portfolio community with the best of the city's buzzing culinary scene. Separately, the group is building on the successful launch of the BESPOKE salon by digitizing and personalizing interactions with our shoppers. In June, Hongkong Land launched tech commerce within its Landmark app, which allows customers to virtually select products on offer from multiple brands, interact with brand representatives while on their mobile phones, and complete their purchases either via their phones or in-store. The group is first to market amongst landlords in Hong Kong in implementing this service across multiple prestigious brands. The group is working on a number of other new exciting initiatives across the region, which will enhance the experience of our tenants and customers. We look forward to sharing more details with you in due course. Overall, the group's balance sheet remains strong with ample liquidity. Going forward, the group will continue to maintain a disciplined and consistent approach in assessing potential opportunities. The challenging operating conditions brought about by COVID-19 and geopolitical tensions are likely to persist over the short term. However, the group is well positioned to benefit from Asia's increasing importance to global economic growth over the long run, as it will upon the completion of the West Bund site own and manage prime commercial portfolio of scale in 3 of the Asia's leading financial and commercial hubs of Hong Kong, Shanghai and Singapore. This concludes my remarks. And we are pleased to take your questions. If you would like to ask the questions, could you please raise it via our website, stating your name and company. Thank you.

Thank you, Robert. It's -- perhaps I'll kick off with the Q&A. There are some that have already come through. So the first question is from Justin Kwok from Goldman Sachs. Firstly, can you share a bit more detail related to West Bund? Who are the joint venture partners, earliest date for preselling the for-sale properties? We've got nothing further to add, unfortunately, at this stage because the key terms remain subject to confidentiality requirements. So from what we've said in the presentation, clearly, we have received cash proceeds on a pre-sale. It does remain conditional. These are strategic partners. The land premium has been paid and Hongkong Land will remain as the largest shareholder post transaction, which we expect to close the end of 2020 into early 2021, and we have nothing further at this stage. In terms of the earliest date for preselling the for-sale properties, one would expect the earliest date is really once construction commences. So probably from 2022 onwards would be the way to think about that. The second question from Justin, post West Bund acquisition with reference to your strategy and capacity, what's the guidance for further M&A in terms of both quantum and locations? What I would say here, and Robert may wish to add to this, is that we obviously need to continue to recycle capital and reinvest in those markets that we're already in. The opportunities and capital will continue to flow to where the opportunities are. We've stated for some time that it was our intent to acquire a sort of super prime, grade a site in one of the key international gateway cities in China. We've done that with the West Bund acquisition. So one perhaps could expect that attention will turn somewhat away from that and will remain very much on the development properties business in China, and we'll continue to invest into the markets that we're currently in, in Southeast Asia. Also, Justin has asked on the retail rental relief. There's actually a number of questions on this. So people are very focused. Have you been expensing the entire sum during the period? Or are you amortizing? We are expensing. So rent relief provided to our retail tenants has been expensed. It's been expensed because it's discretionary in nature. It's a sort of month-to-month discussion between ourselves and our tenants. It doesn't result typically in an amendment to the underlying lease and it more approximates the cash position. So for all of those good reasons, we've taken the conservative view and expensed those rent relief payments through 30 June, and that is consistent with what we were doing last year when there was also some retail rent relief provided due to the sort of social situation. So hopefully, that answers those questions for you.

Maybe I just...

You would add to the second point perhaps.

Maybe I'll just supplement on the second point about the target for further acquisitions. So I think the -- as mentioned in our presentation, we have not acquired any other sites other than West Bund project. In fact, we have not stopped looking for new opportunities. In the first half of the year, I must say, after evaluations, the most attractive one, naturally, that is the one that we have acquired, which is the West Bund site. We'll keep on reviewing the opportunities. Market in China has visibly picked up, I would say, in the next -- in the last 6 to 8 weeks. We have seen sales launches in China, especially first-tier cities and strong second-tier cities have performed quite well, including our projects launches. And the interesting opportunities seems to be coming through in China as well. So I would hope in the second half of this year, we will be able to make some land acquisitions. In terms of targeted locations, I don't think we will change our strategy that we have set ourselves out since a couple of years ago, as evidenced by the fact that we have allocated 60% to 70% of the new investment in China. So the main target that we will be making new investment will remain in China. Southeast Asia, of course, is an area that we will not forget. Singapore residential market is an interesting market for us to also keep a close eye on. But not many sites are being -- the supply to the market, and hence, the chance of acquiring a site in Singapore may not be high, though we are closely monitoring the Singapore market as well. In terms of quantum, I don't think we will have a FX target. This should be a very dynamic one depending on the market conditions and also the opportunities at the moment. So we do not fix ourselves a definite quantum, though, of course, we have some guidance about what constitutes an appropriate financial discipline.

Okay. Thank you, Robert. The next question is from Phil Zhong from Morningstar. In relation to share repurchases, any plans for a share buyback at this point? I'd say at this stage, we don't rule them out. We don't rule them in. So we'll continue to assess relative to other opportunities to deploy capital. So that's been consistent with my response to this question for probably a number of years. The share price does look attractive to some. Obviously, to others, not so, which is factored into the price. I'd also add, I think, at this juncture that -- and you'll see from our interim dividend per share. And just to reiterate, and we've said this in the past, we are -- management is strongly committed to a stable dividend when we're thinking about overall capital management. The next question comes from David Ho -- sorry from [ Jason Lee ] from [ David Hanko ]. My apologies. Were rent release expensed or amortized when incorporated in the average retail rents disclosed of 151 per square foot in the first half. So they were expensed. So the average that we've disclosed is consistent with how we've accounted for it. I think we must say that we've been extremely transparent with this. So you've got all the information in front of you and can work backwards. And I note that a number of you already have -- to work out what the average effective discount provided on the monthly rent roll is for our retail tenants. So you all look like you've got that broadly right. The next question is from UBS, Mark Leung. Could you elaborate more about the West Bund? So on the West Bund project, again, just to reiterate that in terms of the price that has been agreed, the percentage that will be held, et cetera, the details of the transaction, we really do have nothing more to add at this stage due to confidentiality requirements. So more will be forthcoming when that transaction closes, which we fully expect it to.

Okay. On the second part of the question is what is the July retail sales situation in China, has the strong momentum continued? Well, I would say, the retail sales in China have already reverted back to the pre-COVID level. In fact, the luxury end of the market, they, in fact, performed very well. Take Wangfujing, our shopping mall in Beijing, as an example. Our May sales result was a record since the opening of the mall will give you an idea. But of course, I also mentioned in the presentation, the resurgence of the COVID cases in Beijing have actually put a setback to the sales situation. So in a way, I think the -- generally, the situation in China is heading towards the right direction. Do we think that the strong momentum will continue? Of course, it's a combination of if COVID is going to be -- continue to be under control. I would say, every belief suggests that the situation in China should be quite manageable, given what they have done in the past. The rest, I think, is -- obviously China would not be just be independent of itself. It's also being influenced by the world economy and also the geopolitical tensions, blah, blah, blah, et cetera, all these will be affecting the overall performance. It would be very, very hard, I would say, whether the strong momentum will continue. But it seems that they have strong confirmed fundamentals -- towards the economy in China. And the second question -- the third part of the questions also from Mark Leung of UBS is have we seen the recent leasing activities demand declined in Hong Kong after the launch of the National Security Law and escalating Sino-U.S. frictions? I don't see any visible evidence to suggest that these are linked. I think the macroeconomic situation is very uncertain at the moment. Inquiries across the market has been very, very low. It's not just in Hong Kong, I would say in Singapore as well. So if one thing that Natural Security Law has a big impact in Hong Kong, what about Singapore? Why would Singapore -- has also a low level inquiry. So it must be related more to the macroeconomic environment rather than any specific situation, as highlighted by Mark in his question.

Okay. Thank you, Robert. The next question from Ranger Global, Todd Voigt, in the U.S., again, is on share repurchases, which we've answered. Then from Ken Yeung at Citi, around the rent relief accounting, which has been answered. The reversionary outlook for your Central office portfolio, which has been answered. And then finally, the -- any interest in the upcoming commercial land tender in Central. So presumably, this is referring to the post office site in Central. Robert, perhaps you'd like to answer this.

Yes. I think you see -- of course, it's an outdoor step. Certainly, it's an opportunity we will look into. But the -- as I mentioned and explained before, new investment opportunities, we generally do not comment on how we're going to do about it. In general, we will look at every opportunities when any comes along and then make a decision as and when really get offered. And with the terms of the land grant also announced, we certainly will take a very close look at that, but we will not be making any announcement of any investment opportunities that we will be making.

Okay. Thank you. The next question is from Praveen Choudhary at Morgan Stanley. Really, this question is asking a few things. Firstly, views on the sort of work from home, social distancing measures, et cetera, what impact that will have on office leasing demand; and then a specific question around have we had any initial discussions with large tenants who want to hand back space in the second half of this year or into 2021.

Yes. Maybe I'll just briefly explain our experience on the ground. At the moment, actually, in the midst of the high uncertainty, no one is going to make any significant decisions, especially on the -- on leasing the space. Work from home becomes the features of many organizations, and then it's proven to be working. The people are adjusting to that way of life. But in fact, I would say, even without the COVID-19, work from home will become a lifestyle and also becomes a feature of the offer to the new employees of the community. So I think work from home will gradually creep into, becomes a part of the culture of the business community. COVID-19 probably has accelerated the trend that people work from home. So what does that mean? Of course, work from home, they generally will come along with hot desking because less people are probably in the office and then -- and then it's likely to suggest that the demand for office space would be lower in the medium and long term. Yes. Probably so. But would that be significant? I don't think so because I think people still treasure face-to-face communications, physical collaborations. All these are very much still the key to -- a key part to an organization to really continue to prosper. So I think that will be impact to that. And then I think Praveen, I think you have recently issued a piece of research on work from home and impact and then you are suggesting a single-digit fall in the demand in office space. I may not entirely disagree with you. I mean probably there will be some demand implication. But I think it will be slowly, slowly changing, the behavior. No one can change that rapidly. It will be changing slowly, slowly, in my view. And the demand side of the equation will still remains -- the biggest impact of it will still be the macroeconomic situation, will still determine the next 2 to 3 years sort of the demand of office space. And the work from home pattern will gradually creep in. But when these things -- these long-term factors creeps in, the -- it would generally be matched and rebalanced by the supply equation as well. So I don't see the work from home will have a significant impact in the short-term arena. But I would say, in view of the uncertain outlook, in view of the fact that the corporates are quite uncertain about their head counts and business volume activities, et cetera, probably the demand for flexible space would increase. So this is an aspect that Hongkong Land will look into very closely. When I say flexible office space, i.e. fitted office space, that would be done by a service provider or the landlord and then to be leased to our corporate tenants on a flexible terms basis, not a typical -- the 3-year or 5-year lease or 5-, 6-year lease. Probably that demand will increase. And hence, I think the Hongkong Land will be actively looking into that aspect of the demand in order to really satisfy the tenants' needs in the changing market environment.

Thank you, Robert. It's -- I think there's a similar follow-up question then from Justin from Goldman's, which we can perhaps move past. Desmond from Morgan Stanley in Singapore is asking what has the rent reversion for the Hong Kong office portfolio been since the start of the COVID-19 situation. So clearly, we've already talked about rental reversions in Hong Kong and expectations as we move into the second half, that they will turn negative. On the retail side in Hong Kong, really questioning whether rent relief will be provided after June. We'll continue to provide rent relief. This is a sort of month-to-month discussion with tenants. So as the situation continues to be challenging, one can expect us to continue to provide rent relief. And one would think that the situation will continue to remain challenged until we have a way forward on the health outlook. So it's -- I think you could assume that we'll continue to provide that provided that COVID-19 still has a significant impact on tenant sales. Then on the specifics on the Xuhui development, West Bund. As mentioned, I can't provide any more detail than what I've already provided. And then again, on the post office site. From JPMorgan, Cusson Leung. Has there been any expansion in cap rates? So no, it's the valuation movements. So you see the overall valuations for our investment properties portfolio declined at the interim by approximately 6% sort of Hong Kong, Singapore, and that was really entirely off the back of changes in the outlook for open market rents with cap rates held steady.

Okay, maybe I'll take the next question is the -- from Karl Choi, Bank of America Securities. His first part of the question is, could you discuss the retail tenant sales performance in the first half of 2020 and the improvement you saw in June? It was around March and April where the COVID pandemic set in and had quite an impact to the sales performance of our Landmark portfolio. The sales dropped about 70% in these 2 months. And then we found that in May, when situation stabilized, the sales drop is in the order of 50%. And in fact, in the first part of June, we experienced even further improvements in the sales to the drop level of just 30%, 40%. So it's a steady improvement in the sales performance of the Landmark until second half of June, as you all know. And as we are all experiencing that the resurgence of the COVID cases in Hong Kong have put a setback to the sales. But interestingly, despite the resurgence of the COVID cases, our sales drop in recent 10 days or 2 weeks have not been that significant, probably due to our strong promotion program that we are currently implementing. So we are still in the order of about 40% -- roughly 40% drop, which is unlike at the height of the drop, we are talking about 70% -- 60%, 70%. We thought with the situation in Hong Kong, we will be going back to 60%, 70% drop, which has not been the case, I would say in the last 2 weeks, when the situation really worsened. So I think the -- I hope the worst is over, but it's too early to call for that. This is still -- we are dealing with something that is highly uncertain. So it would be hard to say how it would pan out going forward. I think the second part of the question is about the strategic investors also about the project in Shanghai, which I think Simon has explained and also our interest in the Central General Post office site. Again, I think I have answered that part of the questions.