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 2021. 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 sessions. Before we begin, let me take this opportunity to thank our staff across the region for their dedications in serving our customers despite the continued uncertainty brought on by the ongoing pandemic. As you're all aware, this will be Simon's last results presentation with us prior to his return home to Australia. Simon, on behalf of the group and our colleagues across the region, I would like to thank you again for your significant contributions to our business over the 5-years period. 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, of course, Q&A. Before I move into the results highlights, let me first provide a brief update on the business and our key markets. Despite the challenges and macroeconomic uncertainties caused by the pandemic, the business continued to be resilient in the first half of 2021. While the possibility of further waves of the pandemic remains, the group stays focused on implementing measures adopted last year to prioritize the health and safety of our people and customers, manage costs, deliver on place-making initiatives to address changing tenant requirements and customer behaviors as well as further strengthen our financial position. For the group's core office portfolios, we generally saw improved leasing sentiment compared to the second half of 2020 in both Hong Kong and Singapore, with demand coming from tenants looking for a flight to quality. Moving on to the group's luxury retail businesses, the rebound in luxury retail spending in Beijing and Macau, which began from the second half of 2020, has carried into the first half of this year with tenant sales at both properties exceeding that of the first half of 2019, i.e., effectively pre-COVID and also 2020. Rent relief at other properties across the region, including the Landmark in Hong Kong, continue to be assessed and granted on a case-by-case basis. For development properties, our portfolio on the Chinese mainland and Singapore benefited from stable market conditions and healthy demand and supply dynamics. This contrasts with the rest of South Asia, which continues to be severely impacted by the latest wave of the pandemic. In April, the group successfully opened The Ring, Chongqing, its inaugural lifestyle retail series. The property is a 7-level shopping mall with some 74,000 square meters of net leasable area. Much in the same way as our Central series of retail properties were created to inspire a luxury lifestyle. The new retail series, Ring, aspires to deliver a retail experience which combines nature with urban living. At previous results presentations, we provide updates on how the group has responded to the changing preferences and demands of our customers. These assets have continued in the first half of 2021, with the launch of a flexible workspace solution as well as a unique beauty and wellness destination both in Hong Kong. We will provide more details later on the presentation. In terms of land banking, the group successfully secured 5 new development projects, of which 3 are on the Chinese mainland and 2 are in Singapore. The group's total investment in these projects, including its shares of equity contribution and project level debt, amounts to USD 1.4 billion. I will provide further details on these new investments later on the presentation. Finally, on the financing and stability front, we are pleased to have issued our inaugural green bond, which raised USD 500 million and demonstrates our commitment to both sustainability and development of green financing in the region. Turning to the result highlights. The group's underlying profit in the first half was USD 394 million, up 12% when compared to the same period last year. The increase in underlying profit primarily reflects higher contributions from development properties, while those from investment properties remain stable. The loss attributable to shareholders was USD 865 million after accounting for noncash losses of USD 1.3 billion arising from the revaluation of the group's investment properties due to lower open market rents. In terms of underlying earnings per share, the group generated USD 0.17 while the overall earnings per share was a loss of USD 0.37 after the impact of nontrading items. The net asset value per share at 30th of June 2021 was USD 14.75. The Board has declared an interim dividend of USD 0.06 per share, unchanged from the prior year. The group's balance sheet and funding position remains strong. I shall now turn to investment properties. Turning first to our Hong Kong office portfolios that forms the heart of core Central Hong Kong. Despite the ongoing market downturn, the portfolio remained resilient, benefiting from the group's active lease management in recent 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, unchanged from the end of 2020. Rental reversions were negative in the first half of 2021 with average office rent decreasing to HKD 118 per square foot per month from HKD 119 in the second half of 2020. Physical vacancies at the end of June 2021 was 6.4% compared to 6.3% at the end of 2020. On a committed basis, taking into account existing lease commitments, vacancy decreased to 5.5% from 5.9% at the end of 2020. By comparison, vacancy based on existing lease commitments across the Hong Kong Central Grade A office market was 7.4% compared to 7.3% at the end of 2020. The weighted average lease expiry at the end of June 2021 is 4.2 years compared to 4.6 years at the end of 2020. Focusing on the portfolio top 30 tenants, which occupied close to half of our total office net leasable area in Hong Kong, these tenants had a weighted average lease expiry of 6.2 years. At the end of June 2021, 12% 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 3% of our portfolio with approximately 1% relating to expirations and the remainder to rent revisions. Turning to the Landmark, which continues to remain the preeminent luxury shopping and fine dining destination in Hong Kong, fashions and accessories continue to account for a significant portion of our portfolio at 49%, followed by food and beverages, which account for 32%. Average net rent benefited from a modest recovery in luxury retail market sentiment in the period, increasing by 2% to HKD 180 per square foot per month in the first half of 2021 compared to HKD 177 per square foot per month in the second half of 2020. Excluding temporary rent relief, average net rent in the first half of 2021 was HKD 203 per square foot per month compared to HKD 194 per square foot per month in the second half of 2020. Base rental reversions were negative in the period and the group continued to provide temporary rent relief on a case-by-case basis. At the end of June 2021, vacancy remains low at 0.9% on a physical basis and 0.8% on a 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. Average gross rent across our Singapore portfolio in the first half of 2021 was SGD 10.2 per square foot per month, a 3% increase from SGD 9.9 in the second half of 2020. Rental reversions remained positive in the first half of the year. Physical vacancies across the portfolio increased to 7.5% compared to 2.1% at the end of 2020. On a committed basis, vacancy remained low at 2.1%, unchanged from the end of 2020. This compares to the over-vacancy across the entire Grade A Central business district of 7%, 8% and reflects the attractiveness of our portfolio and strong execution of an active lease management strategy despite a highly competitive market environment. As of 30th of June, 16% of our portfolio was subject to expiration or rent revisions during the remainder of 2021. Including concluded renewals and rent reviews subsequent to the end of June, this was decreased to 5% of our portfolio with all relating to expirations. In the first half, in 2021, the group continued to respond to the changing preferences of our customers, by introducing new concepts to its portfolio of best-in-class services and offerings. In June, the group launched CENTRICITY FLEX in Edinburgh Tower in Central, a 25,000 square feet premium flexible office solution designed to meet tenants' increasing need for more agile, wellness focused and digitally enabled workspace in Core Central. The flexible leasing terms on offer range from anywhere between 3 months to 3 years. Aside from private office pods and open work area, event space and the cafe, which have already opened, CENTRICITY FLEX will also feature dedicated health and wellness areas before the end of this year. On the retail front, the group also recently launched BEAUTY BOTANICA, a new beauty and wellness destination at the Landmark. BEAUTY BOTANICA provides a unique beauty shopping experience in Hong Kong, which gives customers a chance to discover exciting local and international brands, including niche labels, which are either entering Hong Kong or selling through an online channel for the first time. Turning to other parts of Asia. In Beijing, trading performances at WF CENTRAL benefited from the continued strong rebound in luxury retail spending on the Chinese mainland with tenant sales in the first half of 2021 exceeding those achieved in the same periods in 2019 and 2020. At the end of June, the property was 84% let. The group is in the midst of upgrading the tenant mix to better position the property over the medium term. In Indonesia, Jakarta Land, our 50% owned joint venture, continues to perform satisfactory relative to changing market conditions. Office vacancy or occupancy at the end of June 2021 was 74% on both physical and committed basis compared to an average occupancy of 65% in the Jakarta CBD office market. In Phnom Penh, the office space of our prime mixed-use complex, EXCHANGE SQUARE, was 90% occupied at the end of June. For retail tenants across Southeast Asia, temporary rent relief was provided on a month-by-month case-by-case basis based on local trading conditions. I shall now turn to development properties. On the Chinese mainland, Chongqing remains our largest market and accounts for 64% of our Chinese mainland business by attributable developer 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 presales proceeds contractually secured, Chongqing is also our largest market on the Chinese mainland and accounts for 27% followed by Shanghai, Wuhan, and Nanjing, which accounts for 22%, 22% and 20%, respectively. Market sentiment and sales activities in our key markets remained stable during the period. During the first half of the year, the group's shares of development properties revenue recognized on the Chinese mainland, including its subsidiary and share of joint ventures, was USD 599 million. This represented a 149% increase from the same period last year due to the change in sales location mix, which includes high-value developments in Nanjing. In terms of sales performance, the group shares of contracted sales increased by 130% compared to first half of 2020 to USD 1.4 billion, benefiting from investment made over past several years as well as a change in location mix with more sales launches in Hongqiao. At the end of June 2021, the group shares are sold but unrecognized contracted sales in its developments on the Chinese mainland was USD 3.4 billion, with 55% expected to be recognized in the next 6 months. As anticipated, the group recorded gross margins of 22% in the first half of 2021, down from 36% in 2020 due to higher contribution from shorter term and more recently acquired projects. In the first half of 2021, we have secured 3 development properties projects on Chinese mainland, including 1 in Nanjing and 2 in Wuhan. The Nanjing project secured in May is a primarily residential site located in Lishui district with a total developable area of some 93,000 square meter. Upon its scheduled completion in 2024, it is expected to yield a total of 720 premium residential units. The 2 Wuhan projects, which are both primarily residential, were secured in June. The first project is located in Guanggu district with a total developable area of some 212,000 square meters. It is expected to yield a total of 1,600 residential units and will be developed in 2 Phase to 2025. The second project is located in Qiaokou district with a total developable area of some 67,000 square meters. It is expected to yield a total of 550 residential units and will be developed in a single phase to 2025. As at the end of June, USD 880 million in land premium remain outstanding in relation to these projects and will be settled in the remainder of 2021. Turning now to Singapore, where the group now has 5 development projects. Development activities have continued as normal, but at a reduced pace due to labor shortages. Market sentiment remained stable despite ongoing COVID-19 restrictions due to the current low interest rate environment and pent-up demand in the market. During the period, the group's development properties revenue recognized in Singapore was USD 306 million compared to USD 184 million in the first half of 2020. In terms of sales performance, contracted sales in the first half of 2021 was USD 172 million compared to USD 301 million in the same period last year. At the end of June 2021, sold but unrecognized contract sales in Singapore was USD 533 million with 59% scheduled to be recognized in the second half of 2021 under the percentage of completion method. The group secured 2 joint venture projects in the first half of 2021. The first project is an executive condominium site in the Tengah area with a total developable area of some 664,000 square feet. It is expected to yield over 600 residential units. Unique from other easy sites, future residents will enjoy easy access to 3 MRT stations and amenities in the future Central Park and forest corridor. This project is expected to complement Tengah identity as the first smart and sustainable town in Singapore. The second project is a predominantly residential development located in the rest of Central region in Singapore with a total developable area of some 395,000 square feet. It is expected to yield over 400 residential units. As at the end of June, USD 239 million in land premium remains outstanding in relation to these projects and will be settled in the remainder of 2021. Outside of the Chinese mainland and Singapore, development activities in other parts of South Asia continued to be affected by COVID-19-related closures and restrictions, while market sentiment remains 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. The group's consolidated profit and loss account is summarized here on this slide. Underlying profit increased by 12% compared to the first half of 2020 to USD 394 million due to higher contributions from our development properties business and more marginally from our investment properties portfolio. Turning to each major line item. Consolidated revenue increased from USD 820 million to USD 886 million, driven by higher revenue recognized by the group's wholly owned development properties projects in Singapore on a percentage of completion basis, partially offset by fewer completions of wholly owned development properties projects on the Chinese mainland. Net operating costs increased from USD 389 million to USD 477 million, reflecting a higher cost of sales associated with higher consolidated revenue recognized from the group's wholly owned development properties projects. The share of results of associates and joint ventures increased by 167% to USD 120 million, primarily due to higher contributions from joint venture development projects on the Chinese mainland and joint venture retail operations in Macau. Net financing charges increased by 16% to USD 73 million due to higher average net debt in the period, partially offset by lower average interest 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. Tax cost for the first half of 2021 remained stable compared to the same period in 2020. Including tax on joint ventures, the effective tax rate in the first half was 22% compared to 20% in the same period in 2020, mainly due to higher profit contributions from joint venture development properties projects on the Chinese mainland. 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. This slide shows the movement in the underlying profit by major component between the first halves of 2020 and 2021. 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 increased by USD 9 million, primarily due to higher retail and hotel contributions from Macau and the Chinese mainland, which are partially offset by lower contributions from the group's Hong Kong office portfolio. Operating profits from development properties increased by USD 65 million, mainly due to higher sales completions on the Chinese mainland and higher profits recognized in Singapore. The group recognized higher taxes, recorded higher net financing charges and higher corporate overheads of USD 33 million. This slide shows the operating profit by business activity and by region, including the group's share of joint ventures and associates. The contribution from investment properties increased by 2% to USD 502 million, with the contribution from development properties increasing by 84% to USD 142 million. Hong Kong remains the group's largest profit contributor, comprising 63% of overall operating profits with Singapore accounting for 18% and the Chinese mainland and Macau 15%. Overall, the operating profit split between investment properties and development properties was 78% to 22% in the first half of 2021 compared to 86% to 14% in the first half of 2020, reflecting the lower first half development properties contributions in 2020 from the Chinese mainland due to COVID-19-related closures. I will now turn to the group's consolidated cash flows. The group continues to generate strong operating cash flows. During the period, the group generated USD 723 million of cash from its operating activities. This compares to USD 506 million in the same period last year. The increase is primarily due to higher sales proceeds received by the group's wholly owned development properties projects partially offset by higher payments for new sites acquired during the period. Under investing activities, the group had net outflows of USD 86 million compared to USD 2.2 billion in the first half of 2020, noting that 2020 includes land payments for the group's interest in the West Bund site. Under financing activities, the company paid dividends of USD 370 million reflecting last year's final dividend. The group also had a net drawdown of borrowings of USD 89 million compared to USD 1.6 billion in the first half of 2020 reflecting the funding of the West Bund land premium and ongoing treasury activities. Net debt at the end of June '21 was USD 4.3 billion, down from USD 4.6 billion at 2020 year-end. The group's financial position and liquidity remains strong. As previously mentioned, net debt was USD 4.3 billion, and net gearing was 12%, down from USD 4.6 billion and 13% as of the end of last year. The average tenor of our drawn debt is 6.4 years, down from 6.6 years at the end of last year. The average interest cost is 3.1%, down slightly from 3.2% in 2020. Our credit ratings by S&P and Moody's remain unchanged at A and A3, respectively. Following the issuance of the USD 500 million 10-year green bond in July, the average tenor of drawn debt has increased to 6.8 years. As of 30 June 2021, the group had available liquidity of USD 4.4 billion compared to USD 4.3 billion at the end of 2020. The maturity profile of the group's debt is shown on the right-hand side. What is evident is that maturities over 2021 to 2024 are relatively modest. The debt maturities are staggered over a number of years and are well diversified between both the banks and debt capital markets. I will now hand it back to Robert, who will close with some comments on sustainability and CSR and the outlook for the second half of 2021.

Thank you, Simon. I would like to take a few minutes to provide a brief update on the group's sustainability initiatives. As mentioned early on in the presentation, we are proud to have issued our inaugural green bond. The bond raised USD 500 million at a coupon of 2.25% per annum with a 10-year maturity. The successful issuance underscores the group's commitment to both sustainability and development of green financing in the region. The net proceeds from this inaugural green bond will be used in accordance with the newly established Hongkong Land green financing framework. This includes the funding of initiatives that relates to green buildings, energy efficiencies, renewable energy, clean transportation, sustainable water management and climate change adaptation. We are pleased that the group's green financing framework received a full alignment opinion from S&P Global Ratings with respect to the latest Green Bond Principles and Green Long Principles. Separately, we are pleased to continue the momentum of growing Hongkong Land's sustainable financing book. Up to the end of June 2021, the group has executed sustainability-linked loans amounting to some USD 1.9 billion with lenders in Hong Kong, Singapore and Thailand. 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. In terms of progress on understanding and adapting to climate risk, the group completed its climate risk assessment and draft adaptation action plans, which are in line with the Task Force on Climate-Related Financial Disclosures or TCFD recommendations. We will look to implement recommendations and plans arising from these assessments in the coming years. On the green building certifications front, we had reported at the year-end that we are the only asset owner in Hong Kong and Singapore that operates such a sizable investment portfolios with all buildings certified to the highest standard. To provide some context on the scope of our green building program, which includes commercial properties held in joint ventures in, for example, the Chinese mainland and Indonesia, I would like to report that 86% of our commercial properties by floor area achieved green building certification. Of these properties, 66% by floor area achieved the highest possible ratings such as LEED Platinum, BEAM Plus Platinum or Green Mark Platinum. In terms of awards, we are honored to have received the Innovation Award at the IFMA Asia Pacific Award of Excellence 2020 in recognitions of the group's implementation of an integrated smart management systems into our operations at the Central portfolio. With the implementation of this ISMS system, benefits such as increased energy savings through AI system optimizations and a reduction of systems monitoring workload has been realized. Moving on to corporate social responsibility. During our annual results presentation in March, we provided an update on the launch of our HKD 100 million HOME FUND, which is a multiyear effort to focus on creating initiatives, which benefit younger generations. I'm happy to report that we have continued our steady progress in the first half of 2021. To date, actual and completed spend of the HOME FUND on charitable costs reached close to HKD 50 million. In addition to Youth Outreach, Principal Chan Free Tutorial World and Make-A-Wish Foundation, I would like to highlight several other organizations we are or will be working closely with. The first is Mind Hong Kong, with whom the group will be supporting a pilot program to train 50 youth well-being petitioners, who will be able to provide early intervention services for more than 1,300 young people facing mild to moderate mental health problems. The second organization is the Dreams Come True Foundation, which offers inclusive and workplace training, career counseling and job matching in order to enhance the employability of young people with special needs. And the third organization is The Hong Kong Council of Social Services, which runs 2-year support programs in education, social connection, family relations, health and hygiene and employment experience for 1,000 young people living in subdivide flats. Aside from HOME FUND related initiatives, we have also made progress in a couple of other major areas. In order to ingrain a volunteer culture across the group, we have established a volunteer leave policy to assist our employees with balancing their operational responsibilities and engaging with local communities. As part of our growing CSR program, we have also taken the opportunity to engage and work with our tenants. In the first half of 2021, we have engaged with over 80 tenants the benefit-in-kind donation programs and green events. I will now conclude with our outlook for the second half of 2021. The guidance we provided at the 2020 year-end generally remained unchanged. Outside of the Chinese mainland, we expect challenging operating conditions persist over the short term despite signs of stabilization or partial recovery in Hong Kong and Singapore. For investment properties, we expect continued impact from market uncertainty resulting from the ongoing pandemic. On the office front, trading performances is expected to remain resilient as a result of our active lease management in recent years. Rental reversions in Hong Kong are expected to remain negative in the second half of 2021 with the expense largely dependent on the pace of 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 strong luxury retail sentiment on the Chinese mainland. This strong sentiment has also driven a strong recovery in retail tenant sales in Macau. However, uneven improvement in trading performance of the Landmark will depend largely on the timing of any easing of travel and other anti-pandemic restrictions with rental reversions expected to be negative for the remainder of 2021, reflecting lower market rents. In the development properties business, it is expected that higher completions on the Chinese mainland will lead to improved profit contributions. While we expect the operating environment to remain challenging, in a majority of group's key markets, we expect the group's performance in 2021 to remain largely stable relative to 2020. As Simon previously mentioned, the group's balance sheet and funding position remains strong. The group remains confident that its chosen key markets will continue to benefit from Asia's importance to the global post-pandemic recovery and economic growth, and we'll continue to actively assess potential investment opportunities to drive earnings growth over the medium term. This concludes my remarks. And we are pleased to take your questions. If you would like to ask the question, could you please raise it over our website and stating your name and company? Thank you.

Let me now turn to the questions session. Okay. Let me see what questions have come through. All right. The first question comes from Hong Wei Wong of OCBC. He's asking a general question about what is the outlook on Hong Kong in office -- in the office market as well in Singapore? Talking about the Hong Kong market, of course, the -- or any market, we should, of course, focus on 2 aspects, supply and demand, with particular reference to the Central market. Everyone knows about 2 major buildings are coming on Central. Net leasable area is in order of about what, 700,000 square feet. What would be the scale of that new supply represents over to the stock? It's about just 3% of the total stock of Central market. So by any definition, 3% of the overall stock of Central in terms of new supply is by no means significant in nature. With normal market demand improvements, et cetera, this should be -- comfortably be absorbed. Then, of course, 1 must point to the fact that, what about then the demand equation, when the supply is pretty manageable in my view? And of course, the Central -- as I mentioned, the bulk of our tenant base is financial tenants, legal and accounting firms, which are very, very much -- they very much -- they constitute 80% of our portfolio. So the -- invariably, our business must really very much depends on Hong Kong, whether it will continue to grow strongly or stay as strong as before or maintain the status as the key financial markets in the region. Needless for me to explain, the capital market is active -- is very active. And also the IPOs keep coming through, et cetera. And really evidenced by the fact that 1 of the key tenant base is the legal professions are really doing relatively well because the legal profession is a key part of the activity of the capital market. So if one believes the financial market will continue to perform healthily, especially in the Hong Kong market, then 1 would believe that the demand equation should be reasonably positive. Of course, 1 huge uncertainty must be the pandemic. How would that develop, which no 1 knows. So I would say, generally, I am cautiously optimistic about the business. Especially, you can see, we have seen despite not a huge return of demand in last 6 months, but our portfolio is managed to edge up in terms of occupancy despite a very relatively soft market. Of course, we've seen some rebounding activities. But by no means, these activities have gone into the full-blown recovery. So Hong Kong market, I would conclude that cautiously optimistic. The -- as evidenced by recent activities and the fact that Hong Kong should remain as a key financial market. And hence, Central should benefit quite well when they are serving essentially that segment. Singapore. I'll say, Singapore is even better. Even though the districts may show that or from the vacancy perspective, Q1, you got 6.8% vacancy. Now it's gone to 7-point-something percent. Vacancy in the Singapore market has gone up 1% in vacancy in Singapore in the -- from first quarter to the second quarter. And of course, it's not a good sign. But if you look at the rental -- average rent in the segment, Q2 registered a very, very marginal increase in rent, but at least not a fall, but an increase of about 1.1% average rent in the area. So 1 would say that rents have certainly stabilized. Our direct experience can be measured by the fact that on a committed basis, even though our physical vacancy is talking about also in the 7% region, but on a committed basis, our portfolio is just 2.1% of the leasable area remains uncommitted, which also shows that we have a continuous -- the demand coming through the door, especially for those tenants looking to quality buildings, which certainly we offer. One thing is that is supporting the market quite strongly in Singapore is the new economy company. That certainly is the type of tenants that you would not see a lot in Hong Kong relative -- on a relative basis. So in the Singapore market, that support by the fact that you do have a new economy company. And then this is also our direct experience that we have seen quite a fair bit of demand coming through. But I would not say that Singapore market is solely supported by the new economy company, actually quite a broad-based demand pattern that we can see across. So I would be reasonably positive about the Singapore market. Of course, the -- what I see a very strong rebound. There is still a steady level of supply coming into the market in the next couple of years. And the supply numbers versus the historical demand number, they are more or less balanced. So I would say the single home market while the -- I do not see much downside. Would I see a very strong V-shaped recovery? Probably not, but well, it's hard to say. It's all -- again, it all depends on how the overall economy pans out. All right. Okay. So I think I answered the questions on the first part. The second part of the question also from OCBC, Hong Wei Wong. Is Hongkong Land looking to deepen exposure in Singapore residential market, residential developments? As you're aware, we have acquired 2 projects recently. And you're also aware that we have also participated in 2 recent tenders. The answer to this question, yes, we will -- Singapore -- the residential market has demonstrated its resilience against in the downturn. Despite the COVID situation, the transaction level actually managed to edge up. The -- even in the midst of the pandemic level, Singapore total number of units sold have registered no reduction in activities, even throughout the pandemic period. So the fundamental is very strong in terms of residential demand. If you look at the unsold inventory of units in Singapore, historically, you're talking about 30,000 unsold inventory, but now it's down to 22,000-ish units. So it's quite a reduction in the unsold inventory numbers. That reflects what? That reflects increased activities in the market and the -- and hence, the pricing has registered a 4% to 5% increase since the beginning of this year, the average price increase. Two factors, of course, we have to monitor in Singapore when we enter the market. It's about the supply situation and also the regulatory measure, cooling measures. Would that come in? It's -- of course, it's hard to predict these things, more predictable on the supply equation, less predictable on the cooling measures. But one should not be carried away by the ever increasing pricing in the Singapore market because I'm sure authorities will watch that very closely. So that's why any of our business will be a very measured basis rather than basing on a very strong recovery in the market with the uncontrollable price increase. This would not be our basis of bidding. We are pleased to get the 2 sites in recent times. Subsequent result of the tender results of other sizes seems to suggest that we pay at a reasonable -- very reasonable price. We hope to secure more sites in Singapore on a reasonable basis going forward. All right. Okay. Let me -- the next question is from Mark Leung of UBS. He asked about given the new buildings in Central have stopped re-leasing, what is our leasing strategy to cope with intensifying competitions going forward? I just mentioned about, yes, okay, new buildings coming in, but it's by no means a lot of new supply coming in. In fact, the leasing strategy, the -- it's not just recently developed to try to deal with the new supply. We manage our portfolio on a long-term basis. We aspire to create stable earnings for the shareholders. So that's why I mentioned quite a number of times in the past and also in the presentation that we have an ongoing active leasing strategy. What does that mean? The -- that means it has been implemented for a number of years, that we try to term out the lease commitments of the tenants in return for -- if they are prepared to sign long leases with us, we are quite prepared to offer them discounts on rent, so in order to benefit both parties. I do have stable commitments, long-term commitments from our tenants -- key tenants. And while tenants enjoy some rental discount. You also note that in my presentation, our top 30 tenants have a lease -- average lease expiry of 6.2 years. So it's quite a long commitment from our tenants. And with these solid leasing strategy, I think we are not -- we can cope with any competitions, I must say. It's not just the 2 buildings, any new buildings coming into the market, I think we can cope with that. Of course, coping with competition is not just about leasing strategy. It's also about how we keep on changing our service level. It's very, very key part of it. And the -- again, the -- you all know that we have made a lot of improvements, the introduction of CENTRICITY platform to assist our tenants. Recently, the FLEX space, the CENTRICITY FLEX space, FLEX solution, again, is to really provide the -- provide alternative ways of solving tenants' needs from time to time. Now the market is -- I just mentioned a little bit about the CENTRICITY FLEX space. Now tenants facing uncertainty of the market. It would be hard for them to really make commitments to a lot of space in weekly and they may like some flexibility in the space. Some of the tenants may be going through some changes. And hence, the -- so the CENTRICITY FLEX space is exactly -- we fit out 2 floors at the Landmark and then offer them the flexible solutions. They can come in at any time and on a short-term basis or up to 3 years and then all fitted out to a very high standard. Generally, very much welcome by our tenants for that. Of course, we just launched it. And then we will continue to improve our level of services along with. And then I think the -- this is also a very key part of our strategy. It's not just using rental discount as the only means to ask our tenant to stay. The second part of Mark Leung questions from UBS is about how should we look at the leasing demand once the border reopen between Hong Kong and China? That must be very positive, I must say. So far the Chinese demand has not been very significant. It's more about sitting tenants taking additional space or actually tenants trying to look for more quality buildings and then come to our portfolio. So quite a lot of cases in this nature. Chinese company has not been very visible in recent times, and then I'm sure border reopening is 1 of the factors. So I'm positive about that. So turning to another question from Alvin Huang from CLSA. So asking can you give more color on the Singapore office vacancy? Which categories are leaving and which categories are taking up the space, outlook on future? Okay. The first one, let me deal with it. I think the general Singapore office vacancy, I think I have mentioned about that. The -- it has gone up from 6.8% in Q1 to 7.8% in Q2. Rent has -- the really -- but the rent is holding up quite well in Singapore. Which categories are leaving and which categories -- I also mentioned about the categories that are taking more space are those that are the new economic company, but also quite a broad-based sort of tenants taking up space. Who are leaving? I think the banks, of course, the -- but on the banking sector, on the one hand, they have -- the banking business generally have a contraction in business. But on the other side, we found that the wealth management side of the banks tends to take up some more space. So it seems that there is a balancing act within the banking sector. While 1 part of the business is contracting, whereas we see other part of the banking business is improving. So the -- so we do not see a significant reduction in space even from the banking sector. You asked about the -- Alvin asked about the outlook on future vacancy rents as it seems that more tenants are taking up space. It seems that more tenants are about to give up space and how does the early marketing look up? Well, I think the -- I think I just explained, I'm reasonably positive about the Singapore market, given what we experienced about quite a broad-based improvement in demand. So the -- as long as we continue to practice active leasing strategy and also the fact that making sure that our service level is best-in-class, I am not that concerned about our business in Singapore. The next question is also from Alvin from -- about the -- from CLSA. He asked about the question about the China residential margins. What kind of margins in unbooked contracted sales and newly acquired sites? I think we have mentioned about the latest margin for the -- for our results. We are talking about the latest one, it's talking about in the low 20s regions. Going forward, the -- I won't particularly mention about that is the margin of contracted -- unbooked contracted sales. But generally, margins will be along that level, low 20s, high teens because of the price control in China. That would generally be the features of margin for the newly acquired sites as well. The next question is from Macquarie, Hwee Yee Ong. Do you see a green premium in rent paid by tenants and the difference between tenants view? Okay. I can -- it's hard to say that whether people are prepared to pay you the green premium. But I must say that's a growing trend. We are serving major corporates. Major corporates generally are very conscious on the ESG front. And there is a growing number of tenants, the adopting sign base, targets, declaring zero carbon targets by 20-something years or at least. When people say, going for science-based targets, what does that mean? That means a significant proportion of their suppliers, I would say 3/4, could be 3/4 of their suppliers may need to adopt really very green policy. And the -- certainly a space provider like us to our tenants is a key supplier of these major corporates. If we are not really going for the top standards in terms of green policies, et cetera, how can these major corporates satisfy their targets? So the -- I would not say that because of us being very green, so that we will get rent -- better rents. I would say that if we are not going for the top class, the standard going forward, which we are adopting top class standard, we will be losing our top tenants or the major corporates over time. And that means we will be losing our business, and we would not be able to survive. So I think it is very, very important that we should -- Hongkong land, which I think we are working very hard on that. And I think we are also among the top developers really adopting top centers as well. Any difference between tenants view in Hong Kong and Singapore about these issues on the green premium in rent? I don't think there is much difference because they're all international tenants and then they are generally very green conscious or very conscious on sustainability front. Can they ask some question on the financial side. Maybe...

Coming.

Okay. Okay. The next question is from Heitman -- company called, Heitman and Jason Lai. Given the recovery in sales in WF CENTRAL and a broader improvement in sales performance in Tier 1 cities, high-end malls in China, what is the key reason that occupancy level has yet to improve more significantly? Yes, I think the WF CENTRAL entered the market at the wrong side of the cycle, which is unfortunate. So we are undergoing a phase of transformation bringing in top-tier brands. Pleased to say that the Cartier and Tiffany are coming in. They will be taking up space later part of this year. So it is a process that we are swapping out the second or third tier tenants and then bringing the top-tier retail tenants. So it will take some time for that to happen. And the -- of course, the improvements in luxury sales in China only happened a couple of months, of course, since the end of last year. And hence, it will take time. And then the changing the tenant mix cannot be done overnight. The next question from Jason is how should we view the first half of 2021 China development gross margin of 22%, which drops quite a bit from the year before? Is it the level management expect to achieve going forward? Yes. I think the question is -- I think we have forgot about the drop in margins for a long time. The -- going forward, we will be -- our margins will be less coming from large projects acquired in earlier years. Of course, large project acquired in earlier years, the carry out in multiple years and enhance our relatively low cost and, hence, you have better margins. But more recent acquisitions, they are smaller projects in nature, i.e., from the acquisition date to launch day of the sales will be pretty close. And hence, the margin will be -- but I think at low margins, this is not an attractive business, but it represent quite a stable market to enter into. And also the fact that -- is the selling price is more or less quite predictable. I think the -- with the predictability in the selling price, I think you see we compete now on the quality of our developments, which we are very confident about our quality and hence, the -- we will be able to really succeed -- continue to succeed in this field. From JPMorgan, Cusson Leung, talking about, have you seen any signs of potential leasing inquiries picking up? Yes, I think in the presentation, I said we obviously have seen picking up in the inquiries. The next question from Karl Choi of Bank of America. The -- can you discuss the Hong Kong retail tenant sales performance in the first half? Certainly has -- have improved. I think as I mentioned in the presentation has improved compared to the -- compared with last year. We generally see an improvement in sales activities by 30%, 40%. But what about compared to pre-COVID level? It's still quite reduced to the order of 30% to 40% pre-COVID level. Even though last year, of course, we are still in the COVID. So COVID -- versus COVID period, yes, we have seen quite a significant increase. And hence, our rental relief being granted is much reduced than before. And then the -- going forward, how should that see the sales performance? It has to be relating to the opening of the border. We used to serve some of the -- a significant part of our sales are directed towards the tourists in the past and they are absent generally. Obviously, we do -- cannot see a meaningful rebound of the sales activities without the border being opened again. Can you discuss why subsidiary DP margins fell a lot in first half? Was it dragged down by single projects, so that the drag may dissipate? No. I think I have explained or maybe Simon now can.

I think I understand this question. So this is referring to the wholly owned projects, specifically. So 1 can pick up from the segmental analysis the -- effectively the EBIT or operating profit margin on these. The short answer is, 1 would expect it to dissipate in the future. So it hasn't been dragged down by a single project. It's just a relatively lower sales contribution from the wholly owned projects in mainland China and hence a slightly higher fixed cost base has been recognized going through. So certainly in the second half, we'd expect to see that normalize.