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

Good morning. Thank you for joining us to review Hongkong Land's 2020 results. I'm Robert Wong, the Chief Executive of Hongkong Land; and with me is Simon Dixon, our Chief Financial Officer. [Operator Instructions] Before we begin, I would like to thank all of our staff again for their ongoing dedication and professionalism they have shown, despite how the pandemic has impacted their lives and their family. 2020 was a challenging year for Hongkong Land as the pandemic and measures taken to control it have resulted in significant disruptions to the group's operations. The unprecedented level of economic uncertainty following the outbreak has also impacted the group's tenants and customers, especially those operating in the retail and food and beverage sectors. With the exceptions of the group's development properties business and luxury retail operations on the Chinese mainland, which have returned to the pre-pandemic levels, market sentiment remains largely subdued across the group's other key business segments. 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 an update on sustainability and CSR as well as our outlook followed by Q&A. Turning to the results highlights. The group's underlying profits in 2020 was USD 963 million, down 11% when compared to 2019. The decrease in underlying profits reflects lower contributions from both investment properties and development properties. Investment properties was primarily impacted by the granting of temporary rent relief and higher average office vacancy, while development properties was affected by construction delays and lower margins. The loss attributable to shareholders was USD 2.6 billion after accounting for noncash losses of USD 3.6 billion arising from the revaluation of the group's investment properties. In terms of underlying earnings per share, the group generated USD 0.4127, while the overall earnings per share was a loss of USD 1.13 after the impact of nontrading items. The net asset value per share at 31st of December 2020 was USD 15.30. The Board has declared a final dividend of USD 0.16 per share, which brings the dividend for the full year to USD 0.22 per share, unchanged from the prior year. The group's balance sheet and funding position remained strong. Despite challenging and macroeconomic uncertainties caused by the pandemic, the business has proved resilient over the past year. The group responded decisively to the pandemic in early 2020 by first, prioritizing the health and safety of our people and customers, and then taking proactive measures to manage costs as well as to further strengthen our financial position. These assets will continue while the possibility of further waves of the pandemic remains. The group also remains focused on addressing changes in customer behaviors and adopting to new situations resulting from COVID-19. New strategic initiatives to add to the group's existing suites of digital services and flexible spaces are well underway. We will announce further details in the coming months. In terms of land banking, the group secured 1 new development properties project in a prime location in Chongqing. I will elaborate a bit more on this later on in the presentation. I shall now turn to investment properties. Turning first to our Hong Kong office portfolio that forms the heart of our core Central Hong Kong. Despite the challenging operating environment, the portfolio remained resilient, benefiting from the group's active lease management in recent years. At the end of 2020, the portfolio's top 30 tenants occupied close to half of our total office net leasable area in Hong Kong. These tenants had a weighted average lease expiries of 6.7 years. 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 portfolio benefited from a number of leases, which were concluded prior to the onset of the pandemic. Rental reversions were mildly positive in the first half of 2020 prior to turning negative in the second half of the year. Overall reversions for 2020 were broadly neutral. Average office rent in 2020 was HKD 120 per square foot per month, up 2% from HKD 118 in 2019. Physical vacancy at the end of 2020 was 6.3% compared to 2.9% at the end of 2019. On a committed basis, taking into account existing lease commitments, vacancy was 5.9% 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 7.3% compared to 3.6% at the end of 2019. The weighted average lease expiry at the end of 2020 is 4.6 years, largely unchanged from the end of 2019. At the end of 2020, 25% of our Hong Kong office portfolio was subject to expiration or rent revisions in 2021. Including concluded renewals and rent reviews subject to -- subsequent to 2020 year-end, this has decreased to 18% of our portfolio with approximately half relating to expirations and the remaining 2 rent revisions. Turning to the Landmark, which continues to remain the preeminent luxury shopping and fine-dining destinations in Hong Kong. During the year, trading was impacted by weakened luxury retail sentiment due to travel restrictions and other pandemic-related measures. However, occupancy remained robust with vacancy on both physical and committed basis remained low at 0.3%, unchanged from the end of 2019. Fashion and accessories continue to account for a significant portion of our portfolio at 48% followed by food and beverages which account for 32%. Average net rent was negatively impacted by temporary rent relief decreasing by 26% to HKD 164 per square foot per month in 2020 compared to HKD 222 per square foot per month in 2019 when rent relief was also provided. Excluding the impact of temporary rent relief, average net rent was HKD 236 per square foot per month in 2019 and HKD 212 per square foot per month in 2020. Base rental reversions were negative, reflecting falling retail rents across the city. As luxury retail sentiment is likely to remain weak in the short term, average rents are expected to remain under pressure. Turning to our Singapore office portfolio, which is centered around the Marina Bay Area. Similar to our tenants profile in Hong Kong, our Singapore portfolio contains a high proportion of financial services firms due to its prime location and high quality. Average gross rents across our Singapore portfolio was SGD 9.9 per square foot per month, a 2% increase from SGD 9.7 in 2019. Rental reversions remained positive during the year. Physical vacancy across the portfolio decreased to 2.1% compared to 5% at the end of 2019. On a committed basis, vacancy was also 2.1% compared to 0.7% at the end of 2019. This compares to the overall vacancy across the entire Grade A central business district of 6.8%, and reflects the attractiveness of our portfolio despite a highly competitive market environment. As at the end of 2020, 24% of our portfolio was subject to expiration or rent revisions in 2021. Including concluded renewals and rent reviews subsequent to 2020 year-end, this has decreased to 21% of our portfolio, of which 10% relates to expiration and 11% relates to rent revisions. The group continue to refine its best-in-class services and offerings to our tenants and customers over the past year. In addition to the initiatives we brought to market in 2019, including CENTRICITY in Hong Kong, a new -- launched at the Landmark, an omnichannel platform built into the Landmark app and By the Bay app in Singapore. We continued response to the changing preferences and demands of our tenants and customers by introducing a number of innovative concepts and fresh offerings in 2020. In June, the group opened BaseHall, a first-of-its-kind food hall concept in the basement level of Jardine House. BaseHall aims to provide our customers with the best of the city culinary scene by championing Hong Kong's exceptional food culture and incubating homegrown talents. BaseHall has 8 food outlets and 2 bars, all operated by celebrated names chosen for their creative offerings. To accommodate the demand for innovative concepts, rent doors will rotate on a regular basis. In December, the group launched BELOWGROUND in the basement of the Landmark. BELOWGROUND is a hybrid cultural and retail destinations that serve as a bridge to connect traditional retail with contemporary culture. By working alongside world-renowned streetwear brands and creative collaborators, BELOWGROUND aims to become a thriving cultural ecosystem that brings together luxury, fashion, culture and art. This new concept will continually have a curated roster of retail concept and experiences. In Singapore, Bayspace, a flexible workspace, was launched in late 2020. Bayspace has been designed with agility in mind and offers mid- to large-sized dedicated suites and project rooms for tenants looking to expand on short notice in a prestigious setting. Turning to other parts of Asia. In Beijing, trading at WF Central was negatively impacted by the pandemic in the first half of 2020. With the group providing temporary rent relief on a case-by-case basis, trading performance improved significantly from mid-year onwards due to a strong recovery in luxury retail spending on the Chinese mainland. No further rent relief was provided during the second half of the year as tenant sales exceeded that of the same period in 2019. At the end of 2020, the property was 85% let. In Indonesia, Jakarta Land, our 50% owned joint venture, continues to perform well relative to challenging market conditions. Office occupancy at the end of 2020 was 72% compared to an average occupancy of 67% in the Jakarta CBD office market. On a committed basis, taking into account existing lease commitments, occupancy was 79%. In Phnom Penh, the office space of our prime mixed-use complex EXCHANGE SQUARE was 91% occupied at the year-end. For retail tenants across Southeast Asia, temporary rent relief was provided on a month-by-month basis, case-by-case basis based on local trading conditions. Turning to an update on the West Bund site. The group is pleased to announce that it has secured 2 strategic partners to jointly develop the project, including a strategic investor headquartered on the Chinese mainland and a government held SPV. The group retains a 43% state in the joint venture as well as ongoing project and asset management rights. A foundation stone-laying ceremony held in October 2020 was attended by amiable officials of the Shanghai municipal people's government and Xuhui district people's government, the groups, senior executives and senior leaders from the Shanghai business and financial sectors. Planning and development of the prime mixed-use site is proceeding on schedule. Sales launch is expected to commence later this year, with completion expected in multiple phases from 2023 to 2027. I shall now turn to development properties. On the Chinese mainland, Chongqing remained our largest market and accounts for 67% of our Chinese mainland business by attributable developable area. We currently have 12 projects in Chongqing, with an attributable developable area of 4.3 million square meters. By exposure in U.S. dollars, which comprises committed development costs less pre-sales proceeds contractedly secured, Chongqing is also our largest market on the Chinese mainland and accounts for 38% followed by Shanghai and Nanjing, which account for 20% and 19%, respectively. Development activities were temporarily disrupted during the first half of 2020 due to COVID-19, which resulted in some construction delays. However, by the end of the second quarter, market sentiments and sales activities have largely returned to the pre-pandemic levels and have since remained stable. During the year, the group shares of development properties revenue recognized on the Chinese mainland, including its subsidiaries and share of joint ventures, was USD 1.5 billion. This represented a 13% increase from 2019 due to a change in location mix which includes high-value developments in Hangzhou and Nanjing. In terms of sales performance, the group's share of contract sales increased by 14% year-on-year to USD 2.1 billion, benefiting from investments made over the past several years as well as a change in location mix, which includes more sales launches in Hangzhou and Shanghai. At the end of 2020, the group shares are sold but unrecognized contract sales in its developments on the Chinese mainland was USD 2.6 billion. This compares to USD 1.9 billion at the end of 2019. 66% of the sold but unrecognized contract sales are scheduled to be handed over and recognized during 2021. As anticipated, the group's recorded gross margin of 36% in 2020, down from 44% in 2019 due to higher contributions from shorter-term and more recently acquired projects. Going forward, gross margins are expected to trend lower. In late 2020, we secured 1 new development properties project in Chongqing. The 5-hectare mixed-use site is located immediately adjacent to the core Guanyinqiao CBD at the heart of Chongqing City center. The project is expected to yield close to 800 high-rise apartments, 2 mid-rise office towers and a number of low-rise retail blocks. The project will be developed in 2 phases to 2025. As at the end of February 2021, around USD 180 million in land premium remains outstanding, and is expected to be settled before the end of the half year. Turning now to Singapore, where the group has 3 development projects. Similar to Chinese mainland, sales galleries and construction activities were suspended for some 2 months due to COVID-19. Restriction on development activities have largely been lifted by the start of the third quarter, with market sentiment benefiting from pent-up demand during the second half of the year. During the year, the group's development properties revenue recognized in Singapore was USD 522 million compared to USD 516 million in 2019. In terms of sales performance, contracted sales in 2020 was USD 632 million compared to USD 669 million in 2019. At the 2020 year-end, sold but unrecognized contract sales in Singapore was USD 676 million, 18% higher than at the end of 2019. As at the end of 2020, 93% of the sold but unrecognized contract sales are scheduled to be recognized during 2021 under the percentage of completion method. Outside of the Chinese Mainland and Singapore, development activities at the group's development properties project in Southeast Asia have largely resumed at a reduced pace. However, market sentiment remains subdued in light of the ongoing impact of COVID-19 and the restrictions imposed to contain it. 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. The group's consolidated profit and loss account is summarized here. Underlying profit decreased by 11% year-on-year to USD 963 million due to lower contributions from both our investment properties and development properties businesses. Turning to each major line item. Consolidated revenue decreased from USD 2.3 billion to USD 2.1 billion driven by lower rental income from the investment properties portfolio, primarily due to temporary retail rent relief and higher average office vacancy in Hong Kong, and fewer completions of wholly owned development properties projects on the Chinese mainland. Net operating costs remained largely unchanged compared to the prior year, with savings from fewer completions at wholly owned development properties projects on the Chinese mainland, largely offset by modestly higher operating costs for investment properties due to higher leasing costs as well as pandemic-related costs incurred to enhance the health and safety of our tenants and customers. The share of results of associates and joint ventures decreased by 2% to USD 268 million, primarily due to marginally lower contributions from joint venture development properties on the Chinese mainland and retail rent relief granted in Macau. Net financing charges decreased by 4% to USD 116 million, reflecting lower average interest costs and higher capitalized borrowing costs. 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 costs reflects the impact of lower overall operating profit and lower land appreciation tax and withholding tax on the Chinese mainland. Including tax on joint ventures, the effective tax rate in 2020 was 23% compared to 25% in 2019 due to the aforementioned lower land appreciation and withholding taxes. Nontrading items represents the loss on investment property revaluations mainly due to the fall in open market rents in Hong Kong, with no changes to cap rates. Now this slide shows the year-on-year movement in the 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 & Associates. Given the significance of the group's joint ventures, this presentation of our results provides a clearer summary of our performance during the year. Operating profits from investment properties decreased by USD 101 million, primarily due to temporary retail rent relief of USD 54 million predominantly in Hong Kong as well as higher average vacancy in the group's office portfolios. Operating profits from development properties decreased by USD 151 million, mainly due to construction delays and lower margins on the Chinese mainland. The group recognized lower taxes, recorded lower net financing charges and lower corporate overheads of USD 139 million. This slide shows the operating profit by business activity and by region, including the group's share of Joint Ventures & Associates. The contribution from investment properties declined by 9% to USD 963 million, with the contribution from development properties falling by 22% to USD 524 million. Hong Kong remains the group's largest profit contributor, comprising 54% of overall operating profits, with the Chinese Mainland and Macau accounting for 29% and Singapore, 14%. Compared to 2019, there has been a slight reduction in the relative contribution from the Chinese Mainland and Macau. Overall, the operating profit split between investment properties and development properties was 65%, 35% in 2020 compared to 61%, 39% in 2019. I will now turn to the group's consolidated cash flows. The group continues to generate strong operating cash flows. During the year, the group generated USD 981 million of cash from its operating activities. This compares to USD 1.2 billion in the prior year. The decrease is primarily due to lower dividends from the group's joint venture development properties projects on the Chinese mainland, partially offset by fewer wholly owned development property sites acquired during the year. Under investing activities, the group had net outflows of USD 1.4 billion compared to USD 658 million in 2019. This includes USD 1.9 billion in net outflows in relation to the acquisition of the group's 43% interest in the West Bund site as well as net repayments of USD 599 million from joint venture projects. Under financing activities, the company paid dividends of USD 511 million, reflecting the 2019 final dividend and 2020 interim dividend. The group also had a net drawdown of borrowings of USD 1.5 million compared to USD 25 million in 2019, reflecting the funding of the West Bund land premium and ongoing treasury activity. Net debt at the end of 2020 was USD 4.6 billion, up from USD 3.6 billion at 2019 year-end. The group's financial position and liquidity remains strong. As previously mentioned, net debt was USD 4.6 billion, net gearing was 13%, up from USD 3.6 billion and 9% at the end of 2019. During the year, the group issued USD 969 million in debt under its medium-term notes program. The issuance contributed to the lengthening of the group's average tenor of drawn debt from 6.1 years to 6.6 years as well as the reduction of its weighted average borrowing costs from 3.8% in 2019 to 3.2% in 2020. Our credit rates by S&P and Moody's remain unchanged at A and A3, respectively. As at December 31, 2020, the group had available liquidity of USD 4.3 billion, compared to USD 3.2 billion at the end of 2019. The maturity profile of the group's debt is shown on the right-hand side. The debt maturities are staggered over a number of years, and are well diversified between both banks and the debt capital markets. I will now hand it back to Robert, who will close with some comments on sustainability, CSR and the outlook for 2021.

Thank you, Simon. I would like to take a few minutes to briefly share with everyone several of the Hongkong Land's recent sustainability achievements and our aspiration to contribute to the long-term developments of the market we call home. On the green building certification front, I'm proud to report that all of our commercial buildings in Hong Kong and Singapore continue to retain the highest possible green building ratings in their respective jurisdictions. We are the only asset manager or owner in the region that operates such a sizable investment portfolio with all buildings certified to the highest standard. In terms of awards, we are honored to have received the Sustainability Achievement of the Year award at RICS 2020 Hong Kong in recognition of the group's continued efforts to adhere to the highest environmental standards in operating the central portfolio. On financing, we are very pleased to have taken a significant first step in participating in a sustainable finance market by converting HKD 1 billion credit facility into a sustainability-linked loan in August last year. The group subsequently entered into a number of other similar loans bringing the total amount of sustainability-linked loans to HKD 4.4 billion at the end of 2020. The interest rates for these facilities are indexed against ESG targets. For example, demonstrating continued improvements on greenhouse gas emissions, electricity consumption, food waste and solar energy generation. Moving on to corporate social responsibility. In November 2020, the group launched the HKD 100 million HOME FUND. The setting up of these funds represents the establishment of a multiyear asset to focus on creating initiatives which benefit younger generations and our aspiration to foster a more inclusive society. In the first phase of the fund collaborations, the group worked with a number of community organizations in a series of programs that benefit younger generations and families facing housing issues. I would like to highlight 3 of them in particular. The first is youth outreach, which is dedicated to helping at-risk youth grow into responsible community members through engagement with unique and innovative cultural platforms. The second organization is Principal Chan Free Tutorial World which provides free learning support to underprivileged children whose families are experiencing financial difficulties. The organization puts emphasis not only on academics, but also personal resilience and mindset growth. And the third organization is Make a Wish Foundation, which is one of the Hongkong Land's long-term charity partners. The establishment of this fund reflects our business purpose to inspire, support and empower the community for a better future. We expect the fund to not only help us achieve our goal of giving back to the local community, but also provide community engagement opportunities for Hongkong Land's employees, tenants customers and business partners. I will now conclude with our outlook for 2021. While market sentiments have largely recovered to pre-pandemic levels on the Chinese mainland, with retail further benefiting from the reshoring of luxury spending, we expect challenging operating conditions outside the Chinese mainland to persist over the short term. The group remains confident that its chosen key markets will continue to benefit from Asia importance to the global post-pandemic recovery and economic growth over the medium to long term. For investment properties, we expect continued impact from market uncertainty resulting from the ongoing pandemic. On the office front, trading performance is expected to remain resilient as a result of our active lease management in recent years, rental reversion in Hong Kong are expected to be negative in the first half of 2021, with the extent largely depends on the timing of a recovery in market sentiment. Reversions in Singapore are expected to be broadly neutral. On the retail front, WF Central in Beijing is expected to continue benefiting from the reshoring of luxury retail spendings on the Chinese mainland. However, the performance of the group's retail portfolio outside the Chinese mainland will depend largely on the timing of any of the easing of travel and other anti-pandemic restrictions with rental reversions likely to be negative in 2021, reflecting lower market rents. In the development properties business, it is hoped that high completions on the Chinese mainland will lead to improved profit contributions. While we expect the operating environment to be challenging in the majority of the group's key market in 2021, and due to uncertainties regarding the duration of the pandemic, we expect the group's performance to remain largely stable relative to 2020. As Simon has previously mentioned, the group's balance sheet and funding position remains strong. Going forward, the group will continue to maintain a disciplined and consistent approach in assessing potential opportunities as we look to replenish our land bank across the group's key markets. This concludes my remarks, and we are pleased to take your questions. [Operator Instructions] Thank you.

Okay. I got the first question from Goldman Sachs. Justin Kwok is asking, as you have stated in an announcement, your 3 big Chinese cities exposure are now Chongqing, Shanghai and Nanjing. Looking ahead, in terms of growth CapEx, would you intend to deepen the exposure in each of these 3 cities or broaden further into more cities? This is the first question. Well, I think you all know that in Hongkong Land has been investing in 7 major cities in China. Apart from the Shanghai, Nanjing and Chongqing mentioned by Justin, we are also investing in Beijing. We are also investing in Chengdu and the Wuhan and also the -- and out of Hangzhou. So altogether, we have 7 cities that we have been investing into. Obviously, for those areas that we have already have existing investments, it would be natural for us to continue our search for investment opportunities in these cities. As market is highly competitive, as one can imagine, in China in terms of securing new opportunities, we are on a constant look for new opportunities outside that 7 cities as well. So one should not be surprised for us to announce some new investment outside that 7 cities because we should remain open mind in terms of securing new opportunities so that we can place our investment timely according to the market cycles. The second question from Justin Kwok is, can you share more details on the Shanghai West Bund project in terms of JV structure partners and expected timing and quantum of contributions? I think I mentioned in the presentation that we have found 2 strategic investors to join us, and that transaction has been completed. We retained 43% interest in the project. And the -- we remain the largest -- single largest shareholder and the driver developer of that project in terms of managing the construction and also the subsequent asset management. One is the private enterprise in China and the other is the other is local government entities. Expected timing. I also mentioned the -- of course, we have already started construction of the first phase. The first phase relating to the residential sales component. And later on this year, we will start the presale. And the -- as we move forward, of course, completion will gradually take place for this residential phase. And then subsequently, it's the office component also for sale. That which is the subsequent few years from 2025 to 2027, and actually with the residential completing in 2023. So the -- gradually, you may say that the contributions of the sales component should be realized upon completion of these components. You asked about the quantum of contribution. Of course, we normally would not disclose the contribution of each project and make the predicted timings of these contributions. But one would have -- I will give you some guidance about this, the timing of these. Most of the -- the bulk of the project is for long term hold. So the rental component obviously will set in gradually after completion of the project as from 2027. And the sale component, residential, one would expect that the sale component will be completed and recognized in the year of completion of 2023. And then when the office component, when it's gradually completed also for those components for sale, 2025 to 2027, then, of course, then we'll also be recognizing contribution from these office components for sale. Whether we will be able to sell the office component, I think we are very confident about that. It's just a matter of how much profits we will make from this sale component. We are not in a hurry, I must say. A lot of inquiries already knocking on our door about the office component. We are probably the last prime commercial site that can offer a very prestigious office overlooking the river. The -- and so it's a very prestigious address, so that's why we are also not surprised that we receive a lot of inquiries. So we are not in a hurry to sell the office component. It's just to pick the right buyer that is suitable to the project profile. And we -- because we are building up a new financial cities in Shanghai, which we will add -- we are confident to add into the financial dimensions of the Shanghai market.

Perhaps, Robert, if I can just add to that. It's -- Justin, your -- we believe your question's asking about profit contributions. If it's asking about capital contributions going to the project, just to note that we funded the land premium. So that's been fully funded in 2020, some USD 1.9 billion Hongkong Land's share. The remaining CapEx required for the project is intended to be funded with nonrecourse project debt, so at the project level, and also presale proceeds. So no more contributions from our central balance sheet.

Okay. The second question is from UBS Mark Leung learn. His question is, what is the rental reversion outlook for your central office portfolio in 2021? I think I -- in my outlook commentaries, I have said that the reversion in 2021 on the office portfolio in Central would be negative. Of course, how negative it would be, it depends on how fast the market recover and how the pandemic be panned out, et cetera, et cetera. So it will be hard. And then normally, we would not make predictions on the exact level of adjustment until the result -- the next result announcement. The second part of his question, also from Mark Leung of UBS is about, how do you see the Hong Kong office leasing demand going forward against the backdrop of work-from-home impact and potential normalizations of the Chinese corporate leasing demand. It's very good question. Basically, you're asking about what do Hongkong Land see about the office market, generally going forward. The impact of -- the taking into account the impact of work from home and also leasing demand across the border. I think let's go back to some macro statistics. The -- obviously, Hong Kong has gone through and an unprecedented level of negative take up last year. I think over the last 30 years, Hong Kong has never experienced a negative take up of the according to JLL Statistics. A negative take up of 2.7 million square feet of net leasable space in a single year has never happened before. The last 2 times that we experienced some meaningful negative take up is probably what in 2002 and also 2013. These are the 2 years that we have more negative take up than positive take up. But looking at the magnitude of these 2 years, we are just talking about 1/10 of what we experienced. So it's only about 200,000 and 300,000 square feet of negative take up in these 2 years in the past. So the severity of the negative take up of last year is significant by any standard. And looking also at the macro trend in the past, if history can guide us on some of the trends, you'll find that after a period of negative take up, generally, the market will be -- will react to that with a very strong take up of -- in the order of 1 or 2 years of 2 million to 3 million square feet of new take up subsequent to the negative take-up year. Would that happen again in Hong Kong? I don't see any reason with the severity of the contraction of the market experienced in 2020, and with the -- with a lot of favorable factors, the knocking on our door, including -- of course, including the pandemic appears to be gradually under control, which is the most important factor. Business confidence certainly built up. Most important, Hong Kong rely a lot on the strength of the China economy. China, being one of the strongest economy. Coming out from China, of course, will benefit Hong Kong. A lot of the countries, and then the governments are printing money to prop up the market, i.e., they are very keen to really -- to prop up the market and instill a lot of business confidence to the market. So against the backdrop of such a concerted asset of reflating the market, I would not be surprised that in the rebound of the market in the next 2 years would be stronger than everyone thought. The -- if history suggests that we are having a 2 million to 3 million square feet of net take up going forward each year, I would not be surprised to see these figures even higher than that number. So the -- based on the reasons that I've just explained. Yes, work from home has been quite an issues of debate, whether it's significantly the real the trend of the office take up because of people now get used to work from home. At the moment, I would say, based on our direct experience of conversation with our tenants, yes, there are people talking about work from home and hence, giving up space. But they are mixed. The messages and comments from our tenants, but from our major tenants range from people that, yes, we are thinking about contracting ourselves because work from home but they are equally enough people to say that work from home we damaging to building up the culture of the company. Face-to-face remains the key component to really to instill innovative culture and also bringing up the youngsters, the problem, et cetera, Hong Kong environment is not really conducive to people working from home because of small average size of it. So it's far from being concluded that work from home is a strong force in the market. And in fact, based on the indicative changes or requirements from our tenants, it remains to be a minority, a very minority of our tenant base. And so my current conclusion, of course, we need to monitor, and it could be too early for me to conclude anything about the impact of work from home. Just based on all the information received to date, work-from-home impact does not seems to be coming through the door very rapidly and in a strong force. And it may come gradually in the market. And I'm sure in the long run, the market will adjust itself to the changes of this pattern, at least in the very immediate future. I don't see the work from home being a strong force in reducing the demand. The last part of your question is about normalization of Chinese corporate leasing demand. Have we seen that? No. The answer is we haven't seen that. With the border largely closed it will be hard to see a lot of the Chinese -- or new inquiries. But one interesting developments, I would say, in our recent leasing inquiries is while we are not seeing a lot of new net demand in Hong Kong, but we are seeing a lot of inquiries now coming through to us to look for flight to quality, i.e., people that have been staying in buildings of less-than-ideal standard. They are now looking for better buildings. When rents in Central have adjusted quite meaningfully throughout the course of last year, they found that it could be sensible to think about Central location again because it's a lot more affordable. I'm not saying that recentralization is coming, but it is an indication that people found that at the current rental level of Central, especially we have a range of offerings to our tenants, at the lower end of our range, they found that is quite affordable. And that could indicate a good indicator of are we still facing a strong period of negative rental reversions. Based on the recent inquiries that when people are starting to think about looking at quality buildings like our portfolio, I'm reasonably confident that the worst is over. While we may still face some pressure on rent reversions, as I've explained, but would that be significant? Okay, that is yet to tell. I'm not going to make predictions about that, but I'm trying to explain the latest phenomenon in the market and to draw some insights from it. Another aspects about the office outlook must be the supply side. The -- yes, the overall market supply in the next couple of years is larger than historical level on an average basis. The -- but if you look at just Central, the net new supply over the next couple of years would be in the order of -- net space, I'm talking about net space, 1.3 billion square feet of net space. 1.3 million square feet of net space over the next couple of years, in total, represent about 5% of the total stock of the Central market. So 5% is not a scary figure, in my view. Generally in a normal market. The Central tends to serve expansion requirements of existing tenants rather than a whole wave of new demand coming through the door. That is the experience of our portfolio. Generally, people who settle in Central with a small requirements, and over time, they expand. So I would say this pattern of new supply to the Central market is quite manageable. The probably the impact has been largely exaggerated by people during a period of very pessimistic times. All right. The next question is about the -- from Goldman Sachs, Colin Yao. Talking about color of Hong Kong office reversion outlook. I think I have answered the questions with the one that I've just mentioned to before. Also color on Hong Kong retail rent release guidance and magnitude for 2021? Yes, Hong Kong retail, the Landmark sales -- at the worst of the market, we are suffering 50% fall in sales and gradually gets better when the pandemic is more under control. So towards the last quarter of last year, our sales level drop is more towards the 10% to 30%. Like in December, our drop in sales level is about just 11% compared to the year before. So it has -- have largely the reduced -- the magnitude of fall have reduced quite a fair bit. With the much reduced level of retail sales, obviously, our rent relief do not need to be that much. At the height of it, we are offering up to the 50%. Or sometimes food and beverages, the F&B sector, we may need to offer even more than 50% rent relief when we change it to pure turnover basis. Towards the later part of last year, our rent belief number is more in the single-digit region. If you ask about the magnitude of the retail rents for 2021, it would not be difficult for you to figure out that. With the rent relief, our average rent for last year is $164. Without rent relief, we are talking about $212. So of course, when things settle a little bit, for year 2021, one would expect the average rent for this year should be in that range of $164 to $212. Must be because I don't think -- the rent relief, we grant to people, of course, we believe is fair. That would enable the tenants to pass-through difficult times. When things are not that bad, obviously, we expect the rents to be better than what we have granted to the tenant last year. So the -- obviously, I can't give you a magic number of what exactly are we talking about for 2021. But one, it can't be -- I don't think it will be more than the number $212, when we are not granting any rent relief. Neither, I don't think that will be -- drop lower than $164, unless something really surprising happening to us throughout the course of this year. Update on Shanghai, mixed-us project. I think I have updated that. The -- so I won't answer, Colin, again on that front.

Perhaps, Robert, this next question I'll take from Cusson Leung at JPMorgan. Now that the company's balance sheet is much stronger, what's your latest view towards the Central post office site or any potential for capital returns to shareholders? In terms of the way that we view our capital budget and capital allocation, there's no change there, really. In terms of our capital budget, as you know, we size that by reference to our net debt capacity, clearly by introducing partners to this very large site and project in Shanghai. We have freed up some additional capacity. In relation to the specific questions on the post office, we understand the interest in the site. It's contiguous to our central portfolio. However, consistent with past policy, we don't comment on specific opportunities so there's really nothing to add in that regard. In terms of the potential for capital returns to shareholders, this, I think, refers to share repurchases and dividends. Share repurchases continue to be part of our capital allocation framework and will be kept under review. However, our priority continues to be investing for organic growth in our existing businesses and supporting those and to maintain a steady and growing dividend over time. So there's no change there. I think that the concept around maintaining a steady dividend over time is well illustrated in 2020, where the dividend has been held steady despite an 11% fall in underlying earnings per share, resulting in an increase in the payout ratio.