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

Good morning. Thank you for joining us to review Hongkong Land results for 2021. I'm Robert Wong, the Chief Executive of Hongkong Land. And with me is Craig Beattie, 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, let me take this opportunity to thank our staff across the region for their dedication in serving our customers despite the continued uncertainty brought on by the ongoing pandemic. As we speak, Hong Kong is experiencing a fifth wave of infections. This is a difficult time for some of our tenants, our people and countless others in the community. As most of you may already be aware, the group has long partnered with our tenants, especially those in the retail and F&B sectors to overcome market challenges since early 2020. We are committed to continue supporting them through this latest wave of COVID. In addition, you may have seen in a recent announcement by Jardine Matheson, that Hongkong Land has contributed HKD 5 million specifically to support anti-pandemic measures in the city. We have decided to increase this commitment to HKD 10 million and are now working hard behind the scenes to ensure that the funds are distributed to initiatives benefiting those who are most in need. We are also working on finalizing a number of other COVID-related community support measures, which we will look to announce shortly. Today, I will take you through some key market updates and full year results highlights for 2021, investment properties and development properties before turning it over to Craig to cover financial highlights. I will then conclude with an update on a number of corporate initiatives as well as our outlook followed by Q&A. Before I move into the full year results in detail, let me first provide a brief update on our key business segments, along with observations in each of our key markets. Over the past year, we continued to face challenging and uncertain conditions, although I'm pleased that the group's key business segments remained adaptive and resilient. In Hong Kong, while the wider office market continued to be challenging with city-wide vacancy rising during the year, Central continued to outperform the wider market. For group Central portfolio, leasing sentiment improved from prior year and was stable in 2021, driven primarily by a flight to quality from tenants who are looking for a more well-connected locations as well as high-quality building services and amenities. Moving on to luxury retail. Sentiment continued to be impacted by border controls and social distancing measures and have yet to return to pre-COVID levels. However, we have seen a modest recovery compared to the prior year, largely driven by local consumptions, especially VIP shoppers in our BESPOKE program. On the Chinese mainland, the residential market have seen a strong rebound from mid-2020 onwards, although sentiment has turned cautious amidst tightened credit conditions for the sector in the second half of 2021. Whilst operating conditions became more challenging relative to the early 2021, buyer demand remained stable for the group's projects due to the superior locations in well-connected areas of Tier 1 and 2 cities. The tightened credit conditions result in reduced competition in the primary land markets, which provided an opportunity for well-capitalized developers such as Hongkong Land to replenish the land bank. I will go into a bit more detail on the group activities in this regard in subsequent slides. On the retail front, the momentum on the Chinese mainland remained strong, especially for luxury retail. Tenant sales were resilient even when occasional tightening of COVID restrictions were implemented. In Singapore, net absorption of Grade A offices in the CBD was negative during the year. However, leasing momentum at the group's flagship assets improved throughout the year. While some corporates have given up space as part of their rationalization plans, this has been absorbed by strong demand from the technology companies and family offices. For residential, demand generally remains robust throughout the pandemic. This was especially pronounced for smaller or mid- to high-end units positioned below the luxury market. This resulted in the introduction of cooling measures in the late 2021 to moderate demand. Turning to an overview of 2021 full year results. The group underlying profits in 2021 was USD 966 million, stable compared to the prior year. Profits from the group's investment properties business were in line with the prior year, whilst more residential sales completions on the Chinese mainland resulted in a high contribution from the development properties business. The loss attributable to shareholders was USD 349 million after accounting for noncash losses of USD 1.3 billion arising from the revaluation of group's investment properties due to lower office and retail market rents in Hong Kong, partially offset by high valuations for its prime assets in Singapore and the Chinese mainland. In terms of underlying earnings per share, the group generated USD 0.4149 while the overall earnings per share was a loss of USD 0.15 after the impact of nontrading items. The net asset value per share at 31st of December 2021 was USD 15.05. The Board has declared a final dividend of USD 0.16 per share, which brings the dividend for the full year, USD 0.22 per share, unchanged from the prior year. The group's balance sheet and funding positions remain strong. Now let's turn to some of the highlights of our business in 2021. In April, we launched our inaugural lifestyle retail series brand, The Ring in Chongqing. The 7-level shopping mall has a net leasable area of 72,000 square meter and represents the group's first wholly-owned commercial development project on the Chinese mainland. In response to the changing preferences and demands of our tenants in Hong Kong, in June, the group launched Centricity Flex, a 25,000 square feet premium flexible office solution at Edinburgh Tower in Central. The facility offers tenants access to private office suites, meeting rooms and open work area, private work pools, event space and a cafe. In July 2021, the group successfully issued its inaugural 10-year green bond, raising USD 500 million to fund its green buildings and related initiatives. In September, the group announced a USD 500 million share buyback program, of which USD 272 million has been invested to the 28th of February this year. In December, the group secured a 50% interest in a commercial mixed-use site in Guanyinqiao CBD of Chongqing. With an attributable developable area of 131,000 square meter, completion is expected in 2025 and the development will feature a luxury retail mall incorporating the group's Central brand name. In terms of land banking of predominantly residential site, the group successfully secured 11 new sites, of which 8 are on the Chinese mainland and 3 are in Singapore. I will provide further details on these new investments later in the presentation. The group's total investment in these projects, including its shares of equity contributions and project level debt amounts to USD 3.4 billion. Turning to our portfolio growth road map. This slide shows the pipeline of the Chinese mainland with South Asia outlined on the next slide. You can see from this slide that the existing pipeline on the Chinese mainland has reached approximately 3.3 million square meter GFA with a 55% to 45% split between residential and commercial properties, respectively. In South Asia, the existing pipeline has reached approximately 1.8 million square meter GFA with a 72% and 22% split between residential and commercial properties, respectively. Driving further into the commercial component of our development activities, I would like to take this opportunity to speak more about the positioning of our retail portfolio on the Chinese mainland. Inaugurated by the launch of WF Central Beijing in 2019, the Central brand is Hongkong Land's leading premium luxury retail series on the mainland. The group expects to launch 3 additional Central brand luxury retail properties from 2023 to 2026 in Nanjing, Chongqing and Shanghai, with an estimated attributable net lettable area of approximately 117,000 square meter. In April 2021, the group opened a new lifestyle retail brand, The Ring in Chongqing, a 7-level shopping mall with a net leasable area of 72,000 square meter. This property is the first in a series of malls under development using The Ring brand. The group expects to launch 6 additional malls under this brand from 2023 to 2026 with an estimated attributable net lettable area of approximately 142,000 square meter. Upon completion, these assets will provide the group with a strong and recurring income stream. Depending on the performance and market conditions after rent is stabilized, the group will consider whether to continue operating these assets for long-term capital appreciations or to dispose of them and recycle capital invested. I shall now turn to investment properties. Turning first to our Hong Kong office portfolio that forms the heart of the core Central Hong Kong. Professional services, such as financial institutions, legal and accounting firms continue to dominate in our portfolio of tenants, accounting for 82% of the portfolio, a slight increase from the 80% as at the end of 2020. Despite the current market downturn and rising office vacancy across Hong Kong, the portfolio performed well. Rental reversions were negative in 2021 with average office rent decreasing to HKD 117 per square foot from HKD 120 in 2020. Physical vacancies at the end of December 2021 decreased to 5.2% from 6.3% at the end of 2020. On a committed basis, taking into account existing lease commitments, vacancy was 4.9% at the end of 2021 compared to 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 8%, up from 7.3% at the end of 2020. The weighted average lease expiry at the end of 2020 (sic) [ 2021 ] was 4.2 years compared to 4.6 years at the end of 2020. The portfolio's top 30 tenants who occupied close to half of our total office net leasable area in Hong Kong had a weighted average lease expiry of 6.1 years. At the end of 2021, 18% of our Hong Kong office portfolio was subject to expiration or rent revisions in 2022. Included -- including concluded renewals and rent reviews subsequent to year-end, this has decreased to 17% of our portfolio with approximately 8% relating to expiration and the remainder to rent revisions. Turning to our retail portfolio in Hong Kong. Occupancy remains robust with vacancy on both a physical and committed basis remaining low at 0.3%, unchanged from the end of 2020. The group has also secured long-term commitments from its key flagship retail tenants during the year. Trading performances benefited from improved tenant sales, which increased by 30% year-on-year. Rent relief provided in 2021 amounted to almost HKD 90 million compared to HKD 340 million in 2020. This reflects a reduction in relief provided due to improved trading conditions in the second half of 2021 as well as negative base rental reversions on lease renewal, reflecting uncertain market conditions. Average net rent increased by 16% to HKD 190 per square foot in 2021 compared to HKD 164 per square foot in 2020. Excluding the impact of rent relief, average net rent in 2019, 2020 and 2021 were HKD 236, HKD 212 and HKD 202 per square foot, respectively. Despite challenging trading conditions since the onset of COVID, a number of our strategic retail tenants have made further commitments to the LANDMARK ranging from 3 to 5 years. In support of our retail and F&B tenants, who's businesses have experienced significant disruptions during the latest wave of COVID, the group continues to support them by providing rent relief on a case-by-case basis. Amongst other measures, the group will move to a turnover rent arrangement for F&B tenants for the first half of this year in order to help them through this difficult period. In 2021, the group continued its placemaking initiatives at the Central portfolio. 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 needs for more agile, wellness-focused and digitally enabled workspace in core Central. Today, the space is over 60% committed. Throughout the past 18 months, the group continued to diversify its F&B offerings to reinforce the group's leadership positions in bringing innovative concepts to Central and Hong Kong. To date, 45 new F&B concepts have opened including 7 new restaurants, 10 tenants in BaseHall and 25 pop-ups. We have received positive feedback from tenants not only on the concept the group has brought to market, but also on the conversion and refurbishment of open spaces to provide more rooftop terrace options in the heart of Central. Turning to our Singapore office portfolio. 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 amenities and services. Average gross rent across our Singapore portfolio in 2021 was SGD 10.3 per square foot, a 4% increase from SGD 9.9 in 2020. Positive rental reversions were achieved during the year. Physical vacancies across the portfolio increased to 6.5% compared to 2.1% at the end of 2020. On a committed basis, vacancy remained low at 2.9% compared to 2.1% at the end of 2020. This compares to the overall vacancy across the entire Grade A Central Business District of 8.6% and reflects the attractiveness of our portfolio relative to the market. As at the end of 2021, 19% of our portfolio was subject to expiration or rental reversions in 2022. Including concluded renewals and rent reviews, subsequent to year-end, this has decreased to 18% of our portfolio with approximately 15% relating to exploration and the remainder to rent revisions. Now turning to West Bund, where I will provide some updates on the latest developments. The site, which has a total developable GFA of 1.1 million square meters has been master-planned to fully utilize its riverfront location to create a brand-new commercial hub and LANDMARK in Shanghai. Starting from the left-hand side of the slide, premium Grade A offices for lease will have a GFA of some 420,000 square meters spread across 5 towers. Upon completion, this will be the most modern and amongst the greenest offerings in the cities with specifications, which will satisfy the demanding requirements of tenants in the financial and professional services sectors. Moving to the middle of this slide. The office for sale component will include 7 blocks of low-rise office blocks with a total GFA of around 231,000 square meters. These offices provide a rare opportunity for financial institutions and corporates alike looking to secure their long-term homes with spectacular riverfront views. Moving on to the retail component. Referring to the left-hand side of the slide, the luxury retail components of the project will have a GFA of over 200,000 square meters. This new shopping destination will have a similar positioning to the LANDMARK in Hong Kong and features the group's Central brand. In addition to luxury retail space, the site will also include over 27,000 square meters GFA of lifestyle retail offerings, which will feature premium brands as well as trendy local brands to target younger, for example, Gen Z customers. Part of the retail offerings will also be positioned to support the needs of residents on site as well as those in nearby areas. The residential component will feature circa 80 luxury apartments for sale spread across 2 towers and over 1,600 units of service apartments for lease. Upon completion, the residential components of the project are expected to bring up to 3,000 residents into the area. Finally, close to the [ riverfront ], the project will feature an art venue exhibition, a conference center and 2 luxury hotels with a GFA of some 84,000 square meters. The exhibition venue will play host to fashion and arts events and feature a rooftop garden with unobstructed views of the Huangpu River. Sustainability and environmental protection considerations were incorporated from the very early stages of the design process. The office buildings will feature low energy consumption designs and a state-of-art centralized energy management center. The West Bund project has already received a Platinum precertification from LEED on the planning and design of the site as well as precertification under the WELL Community Standard. We previously guided that construction on the site have commenced, and that completion is expected in phases from 2023 to 2027. This slide is meant to provide some more color on the development time line for the project. As you can see, the development schedule have prioritized the northeastern part of the site. On the right-hand side of the rendering before progressing -- progressively moving towards the Southwest, the left-hand side of the rendering. Phase I which is already under construction, includes primarily the residential component, both for lease and sale and part of the lifestyle retail component. Completion is expected by 2024. For which -- Phase 2, for which construction has partially begun, includes low and mid-rise offices, hotels, the convention center and the other cultural facilities. Completion is expected by 2025. Phase 3, the final phase, which comprises the for lease components to the positioned, similarly to our Central portfolio in Hong Kong, will be completed in early 2027. Turning to other parts of Asia, which performed within expectations during the period. In Beijing, trading performance at WF CENTRAL outlined continued to benefit from the strength of luxury retail sentiments on the Chinese mainland, with tenant sales in 2021 up by 42% compared to the prior year. At the end of 2021, the property was 85% let. In Macau, strong rebound in trading performance at One Central Macau largely due to the relaxation of border restrictions with the mainland Chinese. Tenant sales in 2021 were up by 78% compared to the prior year. In Indonesia, Jakarta Land, our 50% owned joint venture performed well despite difficult market conditions. Office occupancy at the end of 2021 was 72% compared to an occupancy of 66% in the Jakarta CBD office market. On a committed basis, taking into account existing lease commitments, occupancy was 73%. In Phnom Penh, the office space of our prime mixed-use complex, EXCHANGE SQUARE was 95% occupied at the end of 2021 compared to 91% as at the end of 2020. For retail tenants across Southeast Asia, temporary rent relief was provided on a month-by-month, case-by-case basis, subject to local trading conditions. I shall now turn to development properties. On the Chinese mainland, Chongqing remains our largest market and accounts for 66% of our Chinese mainland business by attributable developable area. We currently have 15 projects in Chongqing with an attributable developable area of 4.9 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 33% followed by Shanghai, Nanjing and Wuhan, which accounts for 18%, 17% and 17%, respectively. Despite market sentiment weakening in the second half of the year amidst tightened credit conditions for the sector, contracted sales performance at the group project remained satisfactory, reflecting the group's astute selections of projects and disciplined approach to land options over the past several years. During the year, the group shares of development properties revenue recognized on the Chinese mainland, including its subsidiaries and share of joint venture was USD 2.4 billion. This represented a 60% increase from 2020 due to timing of completions as well as construction delays caused by the pandemic in 2020. In terms of sales performance, the group shares of contracted sales increased by 24% year-on-year to USD 2.6 billion. The group's projects, which are concentrated in Tier 1 and Tier 2 cities remains well received despite market sentiments becoming more cautious in the second half of 2021. At the end of 2021, the group's shares of sold but unrecognized contracted sales in this development on the Chinese mainland was USD 2.8 billion, with 62% expected to be recognized in the next 12 months. As anticipated, the group recorded a gross margin of 28% in 2021, down from 36% in 2020 due to higher contributions from more recently acquired projects. In 2021, we secured 9 new development properties projects on the Chinese mainland, including 3 in Chengdu -- in each of Chengdu and Chongqing, 1 in Nanjing and 2 in Wuhan. All 3 of these new projects in Chengdu are primarily residential in nature with the expectation to complete by 2023. The first 2 projects are wholly-owned and located in the Jinjiang District with an aggregate total developable area of some 183,000 square meters. The 2 sites are 2.5 kilometer apart and will comprise 32 mid-rise apartment blocks and 8 low-rise apartment blocks, providing a total of 1,214 min-to-high-end residential units. The third project is located in the [ Qinhuai ] District with a total developable area of 107,000 square meters and will comprise of 35 apartment blocks yielding a total of 840 units. In Chongqing, the group secured a total of 3 new projects with the first 2 being primarily residential sites and the remaining project being a commercial mixed-use site. The first project is RE City located in Dadukou District with a total developable area of 748,000 square meters and will comprise 285 buildings with a total of 6,500 units of high-end residential apartments. Completion is expected in multiple phases from 2023 to 2026. The second project is located in the Guanyinqiao CBD with a total developable area of 28,000 square meters and will comprise 3 mid-rise apartment blocks with a total of about 170 high-end residential units. Completion is expected in multiple phases from 2024 to 2026. The third project is a commercial mixed-use site in the heart of Guanyinqiao CBD, adjacent to CENTURY LAND, a mixed-use development, Hongkong Land has secured in December 2020. With a total developable area of 261,000 square meter, the site will be jointly developed with China Resources Land and will comprise a commercial component encompassing a large-scale shopping mall, a Grade A office building and a residential component consisting of 10 high-rise apartment blocks with a total of 730 high-end residential units. Upon completion in 2025, the luxury retail mall will feature the group's Central brand name. In Nanjing, the group secured a primarily residential site located at Lishui District with a total developable area of some 93,000 square meters. Upon this scheduled completion in 2023, it is expected to yield a total of 720 premium residential units in 13 high-rise apartment blocks. The 2 Wuhan projects are both primarily residential sites. The first project is located in Guanggu District with a total developable area of 212,000 square meters. It is expected to yield a total of 1,600 residential units and will be developed in 2 phases 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 2021, USD 644 million in land premium remained outstanding in relation to these projects and will be settled in 2022. Turning now to Singapore, where the group now has 6 development projects. Despite ongoing impact from the pandemic, residential market sentiment was robust during the year, resulting in the introduction of cooling measures in late 2021 to moderate demand. During the year, the group's development properties revenue recognized in Singapore was USD 631 million compared to USD 522 million in 2020. In terms of the sales performance, contracted sales in '21 was USD 328 million compared to USD 672 million in 2020, which benefited from the sales launch of Parc Esta in the first half of 2020. As at the end of 2021, sold but unrecognized contract sales in Singapore was USD 332 million, with 75% scheduled to be recognized in 2022 under the percentage of completion method. Turning to the new projects in Singapore. The group secured 3 residential developments which are all joint ventures. The first project is an executive condominium site in the Tengah area with the total developable area of some 664,000 square feet. It is expected to yield over 600 residential units. This project is expected to complement Tengah identity as the first smart and sustainable town in Singapore. The project is expected to be completed by 2025. The second project is predominantly residential development located in the rest of central region in Singapore with a total developable area of 395,000 square feet. It is expected to yield over 400 residential units and to be completed also by '25. In February 2022, the group acquired a 49% interest in a residential site in the Tanjong Katong area with a developable area of 590,000 square feet and expected to yield a total of 640 units. Completion is expected by 2026. Outside the Chinese mainland and Singapore, in the rest of Southeast Asia, market sentiment has seen moderate improvements with a gradual reopening of borders across the region, while the recovery in construction activities continues. This concludes a review of our investment and development properties portfolios. I will now pass over to Craig to take you through the financial results.

Thank you, Robert, and good morning. I will now take you through our 2021 full year performance. All numbers referred to in the presentation are in U.S. dollars, unless I otherwise indicate. The group produced a resilient profit performance in 2021 despite the operating challenges we faced in our key markets. 2021 underlying profit was $966 million, in line with the prior year. The contribution from investment properties was stable in 2021, while there was higher residential development properties profit on the Chinese mainland. These higher profits led to an increase in tax charged. Net interest costs increased due to a higher level of debt. Operating profits from investment properties increased by a net $10 million in 2021. And our retail portfolio in Hong Kong, Macau, and Beijing had a better year due to increased consumer demand. This improved performance was partially offset by negative rental reversions in Hong Kong office. Operating profits from development properties increased by $120 million, primarily due to more sales completions. Overall, the operating profit split between investment properties and development properties was roughly 60-40 in 2021 compared to 65-35 in the prior year. Turning to rental income by region. The combined rental income from our office and retail portfolio in Hong Kong was stable in 2021 despite broader market challenges. In office, there was a decrease in average rents, although the level of reduction was lower than the market overall. There was a modest increase in average vacancy in our office portfolio during the year, although the portfolio was 4.9% committed at the end of 2021. Rents increased in our LANDMARK retail portfolio due to higher tenant sales and a reduction in rent relief provided to tenants. Net effective rents in LANDMARK retail were HKD 190 per square foot compared to HKD 164 per square foot in the prior year. In Singapore, rental income from our portfolio benefited from positive rental reversions, increasing average office rent to SGD 10.3 per square foot from SGD 9.9 per square foot in the prior year. Vacancy levels increased marginally. In Beijing, rental income from WF Central increased due to higher foot traffic and tenant sales and the luxury retail sentiment on the Chinese mainland remained strong, and the mall introduced a number of new tenants during the year, which helped with its overall positioning. There was improved rental income from One Central Macau which benefited from the relaxation of borders with the Chinese mainland, leading to improved tenant sales. In Jakarta, market conditions remain challenging with significant oversupply. Despite these market challenges, Jakarta Land occupancy levels were stable compared to 2020 with a slight decrease in average net rent. This slide shows the operating profit of the group's development properties by region, including the share -- group share of Joint Ventures & Associates. The Chinese mainland remains the group's largest contributor to development properties, comprising 82% of operating profits followed by Singapore at 15%. Operating profits in the Chinese mainland increased by 28% to $530 million. During the year, 699,000 square meters was handed over to buyers, an increase of 44% compared to the prior year. In 2020, residential sales completions had been impacted by construction delays caused by the pandemic. Average profit margins reduced during the year and were 28% in 2021 compared to 36% the year before. Operating profits in Singapore development properties remained largely unchanged compared to the prior year. And just to note that we recognize profits on a percentage of completion basis in line with other Singapore developers. In 2021, profits benefited from increased construction activities as COVID restrictions were relaxed, although there were fewer sales during the year due to the timing of new product launches. In others, while operating profit remain largely unchanged compared to the prior year, there was a change in mix, with higher contributions from sales completions of The Marq development in Vietnam, offset by losses incurred in the initial setup of new projects in Indonesia. Let me provide a brief summary on our approach to capital management. The group actively reviews capital investment decisions with a general objective to improve shareholder returns over the long term. This is achieved by investing in new projects as while as providing return to shareholders in the form of dividends and occasionally share buybacks when considered attractive against other potential investment opportunities. In 2021, the group invested $3 billion in the acquisition of new projects compared to $3.5 billion in the prior year when the West Bund project in Shanghai was acquired. Hongkong Land does not have a formal dividend policy, but in line with previous guidance, we endeavor to maintain a steady and increasing dividend as earnings grow. And similar to past years, we would expect the dividend to be maintained in a down year if we consider this to be caused by temporary factors with the resulting increase in payout ratio. Over the past 5 years, the group returned $404 million of capital to shareholders via share buybacks. In September 2021, the group announced a $500 million share buyback program of which $272 million or 54% had been executed as of the end of February 2022. Please note that the buyback program will remain in place until fully invested or December 31, 2022, whichever comes first. The share buyback does not change our previously stated approach on dividends. I will now turn to the group's net debt and cash flow position. The group's financial position and liquidity remained strong. As previously mentioned, net debt was $5.1 billion and net gearing was 15%, up from $4.6 billion and 13% at the end of last year. Net debt has increased by $1.5 billion since the end of 2019, reflecting the large investment in the West Bund project, in which the group has a 43% share, and increased land acquisition of predominantly residential projects in the Chinese mainland due to better availability of attractively priced opportunities. The group continued to generate strong cash flow from operations, highlighted by $792 million from net rental income and fee receipts. This is a net number, which also includes direct costs associated with our subsidiary properties, primarily the Central portfolio. This reflects the fact that our operating profit margin decreased slightly from 78% in 2020 to 76% in 2021, as well as timing differences on rent relief provided to retail tenants in 2020. The increase in development costs during the year to $1,674 million, primarily reflects the higher number of land acquisitions I referred to earlier, which was financed by higher proceeds from residential sales totaling $1.7 billion. In terms of CapEx, the group had net outflows of $432 million compared to $1.4 billion in 2020, and the 2020 CapEx included $1.9 billion in net outflows in relation to the acquisition of the 43% interest in the West Bund site. Share repurchases during 2021 were $192 million. The maturity profile of the group's debt is shown on the left-hand side of the slide. The debt maturities are staggered over a number of years and are well diversified between both banks and debt capital markets. The scheduled maturities in the next 3 years are relatively modest, and in 2022, can be financed using existing committed debt facilities. The average tenor of our drawn debt is 6.5 years, with the average interest cost being 3.1%. Our credit ratings by S&P and Moody's remain unchanged at A and A3, respectively. At December 31, 2021, the group had available liquidity of $3.9 billion compared to $4.3 billion at the end of 2020. I will now hand back to Robert, who will close with comments on a number of ongoing corporate initiatives as well as the outlook for this financial year.

Thank you, Craig. I would like to take a few moments to provide a brief update on the group's digital transformation initiatives, which began in early 2020. The group's digitization strategy is to identify, escalate and deploy off-the-shelf as well as emerging technologies focused on the 3 core areas of customers, assets and enterprise. Customers refer mainly to enhancing the competitiveness of our portfolio by maintaining their relevance as unique ecosystems, especially for our flagship portfolios in Hong Kong and Singapore. This will largely be achieved by modernizing and enhancing our service and amenities. The second core area is assets, which refers to our efforts on both new builds and existing assets. The key aims are to: one, deploying [ prop tech ] and other solutions to ensure the infrastructure at our existing properties are amongst the best in class; two, make better use of digital tools to build more efficiently and sustainably; and three, facilitate the group to design products more tailored to our customers' needs. On enterprise, we have been working to drive operational efficiency, scalability and synergies across the regions. The various initiatives and implementations of new systems are aimed at modernizing the core to enhance data-driven decisions making at the operational levels. Some of the key improvements and milestones delivered over the past 18 months include a new LANDMARK app, which the group will be launching shortly. This new app, along with accompanying data management system behind it provides shoppers and loyalty members with a more personalized and intuitive user experience. The new platform also provide more flexibilities in co-creating [ content ] with our tenants and partners as well as advanced data analytics capabilities. The implementation of a state-of-the-art Integrated Smart Management Systems at the Central portfolio. The ISMS integrates all the building systems of our 12 buildings in Central together with IoT sensors, security cameras, AI technologies and mobile apps to enhance security, improve response times for tenants and drive energy efficiency. A similar system was implemented at The Ring in Chongqing, which opened in April last year. On the enterprise front, we continue to make progress towards enhancing and automating our operational and financial systems. Finally, we launched a broker app in September 2021, which is the first of its kind in Hong Kong. The app streamlines our interactions with the agency community, enhance the visibilities of availabilities to market and provides the group with real-time inquiry data. Moving on to sustainability. I would like to take a few minutes to highlight our progress, key initiatives over the past year. In 2021, the group focused much of its effort on climate change and related risks. To mitigate the potential impact of climate change, a comprehensive climate risk assessment was conducted on the group's commercial properties portfolio in order to improve business resilience and readiness for extreme weather events. The study considered the best and worst-case scenarios developed by the intergovernmental panel on climate change, which assume global temperatures will rise by below 2% or 5% by 2100 relative to pre-industrial levels. Physical and transition risks identified as well as a preliminary adaptation action plan were disclosed in line with the recommendation of the Task Force on Climate-Related Financial Disclosures in our sustainability report last year. In the coming years, we will continue refining the risk assessments and the adaptation plans as well as engaging governments and our peers to tackle climate risk. As part of the group's commitment to accelerate its contribution on climate action, the group announced in February 2022 its pledged to setting Science-Based Targets that are aligned with the 1.5°C pathway. The targets subject to validation by the Science-Based Targets initiative will result in the group's commitment to a 46% reduction of Scope 1 and 2 emissions by 2030 from 2019 levels and a 22% reduction in carbon intensity for Scope 3 emissions over the same period. Another key area the group has focused on to tackle climate change is this robust green building certification program. At the end of 2021, 93% of our commercial properties by floor area, including those held in joint ventures, achieved green building certifications. This includes all our buildings in Hong Kong and Singapore, which achieved the highest possible ratings of BEAM Plus Platinum and Green Mark Platinum, respectively. On property management, I'm proud that the group was awarded the Facilities Management Team Award and COVID-19 Achievement Award at the CIBSE Hong Kong Awards 2021 in relation to the outstanding operational performance of the Hong Kong Central portfolio. We were also honored to be the winner of the IFMA 2021 Asia Pacific Awards of Excellence in the Facilities Management Technology category in recognition of our efforts in delivering the aforementioned Integrated Smart Management System at our Central portfolio. Finally, on green finance, the group successfully issued its inaugural 10-year green bond raising USD 500 million to fund its green buildings and related initiatives. The group also had sustainability-linked loans with an aggregate facility amount of USD 1.9 billion at the end of 2021. The facility's index tiered discounts to interest rates against ESG targets, which incentivized the group to demonstrate continuous improvements in energy efficiency, reducing food waste and renewable energy generation, while maintaining green building certifications from the group's Central portfolio. Moving on to corporate social responsibility. In November 2020, the group launched the 100 million Hongkong Land HOME FUND. The setting up of this fund represents an initial injection, demonstrating our commitment to long-term development of our future generations and our aspiration to contribute to the fostering of an inclusive society. Some of the key highlights for 2021 include the HOME FUND committed over HKD 50 million in charitable causes since November 2020. The number of NGO partnerships increased from the initial 3 in Hong Kong to now more than 60 today. Signed up 6 grantees to enhance the group's support for youth through multiyear educational programs with a target to assist over 1,400 young people in Hong Kong and establish a matching gift program in Hong Kong to encourage and maximize charitable giving by tenants and employees. In addition, one of the key focus of the HOME FUND is to alleviate housing-related social issues. To this end, the HOME FUND has recently unveiled 3 new projects to assist economically disadvantaged young people and families by improving their living environment. The 3 new projects include: enhancing learning developments of 2,000 children living in subdivided units by creating economically designed furniture; support low-income families with urgent housing needs by providing more than 3,000 room nights to a minimum of 100 people; enhanced student living conditions by supporting the renovation of Christian Zheng Sheng College, a private boarding school dedicated to supporting teenagers with drugs and behavioral problems. Aside from HOME FUND-related initiatives, we have also made progress in 2 major areas. In order to engrain a volunteer culture across the group, we have established the HERE2HELP volunteer program which achieved over 850 hours and served more than 12,000 people in need. Finally, in addition to the previously mentioned matching gift program, we have engaged with over 100 tenants to benefits in kind donation programs and green events. I will now conclude with our outlook for 2022. Outside of the Chinese mainland, we expect challenging operating conditions [ persist ] over the short term despite the partial recovery in Hong Kong and Singapore. On the office front, trading performance is expected to remain resilient as a result of the unique positioning of our CBD portfolios as well as our active lease management in recent years. Rental reversions in Hong Kong are expected to remain negative for the remainder of 2022 with the extent largely depending on the pace of recovery in sentiment. Reversions in Singapore are expected to be positive on the back of robust demand from the family office and technology companies. On the retail front, strong luxury retail sentiment on the Chinese mainland is expected to continue. Given the impact of the fifth wave of infection in Hong Kong, the group expects net effective rents at the LANDMARK to be lower in 2022 with the magnitude depending on the timing of easing of pandemic-related restrictions. In the development properties business, lower contributions are expected from the Chinese mainland due to the timing of completions, which is expected to impact this year as well as lower margins which is in line with wider sector trends. Development properties contribution from Southeast Asia are expected to be broadly stable. Despite uncertain market conditions on the Chinese mainland, we continue to expect satisfactory performance from our development properties portfolio. As the group has over the past several years demonstrated a good track record of astute site selection, disciplined approach to [ land ] acquisitions as well as joint venture partner selection. Over the coming year, the group will accelerate a digital self-transformation and sustainability initiatives to better serve its stakeholder. Overall, we expect uncertain market conditions to persist over the short term due to the potential of further wave of pandemic and related restrictions. However, the group's disciplined approach to assessing investment opportunities and relentless focus on delivering world-class service to tenants in recent years, continue to position it well in navigating these uncertain markets. 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.

Okay. I have quite a number of questions in front of me. The first question is from Mark Leung of UBS. His question is -- the first part of his question is how should we consider capital allocation between share buyback and new project investment going forward? Maybe, Craig, would you like to answer this question about the capital allocation aspects.

Sure. Thanks, Mark. I think in terms of our allocation between buyback and new project investment, you'll have noted in our presentation that the group on average has invested between USD 2 billion to USD 3 billion each year in new projects, and clearly continuing to expand and grow the business remains the focus of the group generally, overall. I think the buyback needs to be viewed through the lens of a few things. One, how we see the market generally in terms of opportunities for new projects. Two, the share price of Hongkong Land itself because that, of course, has a huge bearing on it. But three, I think we need to be realistic about the liquidity in our stock. You'll note that the $500 million program that's underway has taken about 6 months to reach the 50% point. So it's not that quick to deploy capital to buy back shares. So when you view that against the USD 2 billion to USD 3 billion I mentioned in terms of capital that we generally have available to invest each year, I think you can probably get a sense as to the absolute size of a buyback program at any point in time. But as I say, it very much depends on market conditions generally, which we keep under review.

Okay. Mark, his second part of the question is how much rental concessions we offered or will we offer to our retail tenants in Hong Kong? Of course, we are still in the midst of the fifth wave of pandemic. But we -- what we have decided, as I mentioned earlier, that we will change all the rental charge basis from a fixed basis for our F&B tenants to a turnover basis. That would be for the period of first half of this year. So to enable our F&B tenants to be able to plan their business ahead, we need to be proactive in rolling out our assistance plans, especially to the F&B tenants. So I think the advanced notification of tenants that they will -- we will be charging their rents on a turnover basis during the first half of this year will certainly help them. Then how much are you talking about in terms of rental concessions to these type of tenants if we are offering them the turnover basis of charges? Just for reference, all our -- the fixed rents payable by our F&B tenants in our portfolio amounts to about USD 1 million per month. So this is the base rent that we are waiving, the base rent. But they are paying us turnover rents. That would be the -- so how much turnover rent will we consider is everyone's guess. In the past, last year, our experience that when we are humming along the pandemic, when we changed the base rent into turnover basis for some period of last year, our experience generally means that we have a 20% to 30% reduction of our base rent effectively. But would that be the same this year for the whole of this year or for part of this year? Or would the percentage reductions higher for some parts of this year or lower? Of course, it would be very, very hard for me to make predictions. But just to give you a sense of the magnitude that the F&B tenants will be -- we'll be talking about a total of USD 1 million base rent per month. So just to give you a sense and what was our experience last year when we changed the basis. So hopefully, I think will give you some clue about the magnitude of change. You may also ask all about other tenants. We are providing a total of -- last year, a total of HKD 80 million rent relief that was provided. Do we need to pay -- do we need to give them the same level as last year? Very -- again, very hard to say. How long will the pandemic -- the fifth wave will last, blah, blah, blah, et cetera very, very difficult to tell. Again, a sense of magnitude. If -- I'm not saying that we will. If a 20% to 30%, the rental concessions is given to our tenants, it means USD 3 million to USD 4 million. Okay. I mean, again, a magnitude of the sense for you. Do we need to give 20% to 30%? How many months do we need to give it? Would that be larger, smaller? Again, this gives you some sense of the magnitude which, of course, we need to look at the market conditions before we finally decide. But one thing is sure that in today's situation, where we face such a difficult positions, we do adopt the philosophy that we should face the trouble together rather than asking our tenants to take the lion's share of it. That has been our philosophy. And the last measures that we have agreed to our tenants is for those trades or businesses that has been required by the government to shutdown, basically the hair salon and some -- the health and beauty trade, that they have been asked to shut down their business during the pandemic situation. We will not be charging them any rent. And we also waived their service charges. But in our portfolio, the percentage of these tenants that were required to be shut down is not that -- that number is not very high. It's not significant at all. But at least as a help to our tenants facing severe trouble, we have agreed to waive all the rents during this closure period. All right. Okay. The third part of Mark's question is how do you see the office market outlook, given the inflated supply and remaining strict travel restrictions? I must say the -- our experience towards the last part of last year and also the first month of this year, of course, until recently, is pretty encouraging. We continue to close leasing transactions. The leasing transactions that we conclude so far in the last, I would say -- in the last 2, 3 months, in fact, the new deals that we have concluded can offset the upcoming vacancy that we are expecting in our portfolio in the first half of this year. So unless there's something very surprising happening that at the very least, our vacancy level in -- by midyear should be reasonably stable, given the deals that we have already concluded, quite a lot of deals that we have concluded in the last few months. And then, of course, if we are able to do more deals, then I think we probably experience better vacancy positions by midyear. But again, if you ask me what happened in the second half, et cetera, I think it's a prediction issue that I generally would not want to comment much. You talk about supply. You look at -- of course, you have to look at different segments of the market. And then we are operating our business largely in Central and which is our key market. The Central, looking at supply, is it a very high level of supply coming to the -- to Central. You look at the net effective supply, in fact, in the next 2 to 3 years, it's only at 3% to the equation. And I mean to the 3% of the total stock. Is it a very large number over a couple of years' time? By any standard, it's not a very large number. So to Central, that number is very, very healthy. What is more problematic? I'm sure you look at the -- for the completion in the next 12 to 18 months, yes, it is a decentralized location. Take [indiscernible] as an example, the vacancy level could easily double from current what, 13%, 14% to that vacancy level could double if the new build is not filled up in the next 12 to -- that would mean that easily the vacancy level of, say, [indiscernible] could increase to over 20%. The other decentralized areas, also, you'll find that the vacancy or at least their additional stock coming on to the market, will be doubling. Will easily be doubling that vacancy level, which, of course, they will be a little bit more impactful to the decentralized area. Your next question must be then would that drive the overall market down? Yes, I won't say that the Central market will be completely immune from the rest of the market. But look at the demand pattern that we have experienced in the last 4 to 6 months. We found that the tenants actually were [ clicking ] space are more financial-related tenancy. There is a general trend for these type of tenants to favor central location, no matter how cheap you could offer elsewhere, these tenants tends to favor central locations, and that may explain a little bit why the Central appears to be outperforming the rest of the market probably before -- because of the nature of the demand that we experience. So what happened in future, of course, is everyone guess. But Hong Kong should remain as a very important financial center. The growth of the business and financial sectors appears to be healthy despite the challenges that we're all facing. So all in all, if we just focus on the Central office business of Hongkong Land, I'm reasonably confident, even though I would caveat that is cautiously, I would say, cautiously optimistic about the Central business given the experience that we have. Inquiries level is another indicator. And last quarter of last year, we generally received what, 30-ish -- 30, 40 new inquiries each month. I thought the inquiries last month must be single digit, which is not the case, which is still we got 20, of course, 20-ish last month, the -- so the inquiry level is still there. Of course, I would not be telling you that there are a lot of people rushing through the door to sign leases at us. But at least, I think the development is not as bad as we experienced. But going forward, then we all recognize that we -- it is a challenging time. And of course, we all hope that this challenging time will be resolved sooner rather than later. Okay. The second -- the next question is from Ken Yeung from Citi. He asked about the office. What is the degree of negative reversions achieved in 2021, and what is the outlook on reversion rate? Generally, we do not discuss about the extent of reversions. But I think, Ken, you can make some reference to our statistics because we all disclose. Each year, we disclosed the average rent that is expiring each year. And then what is our average rent at all our reporting dates. That should give you some ideas. And also you have statistics about the percentage of expiring and rent revisions. So just for instance, last year, you know that the average expiring rents or leases that is subject to lease renewals or rent efficiency is $124 last year. That is the average expiry, and 25% of the space is subject to that change. And then our average rent dropped from what $120 to $117 throughout the course of last year. So that should give you an idea about the impact of the negative reversions to our business. If you talk about the outlook of rent reversions, again, that is something that we won't -- we can only tell you the overall trend. Yes, we are still facing a negative reversions and then you may have to make your own assessment. We have also disclosed our average expiring rents this year is $130. And then you also understand how much of these -- how much of these spaces are up for renewals or rent revisions. Again, do your own judgment rather than for us to let you know our internal budgeted numbers.

I'd probably just add to that, that the space that's up for expiry this year or rent review is 18%. The 25% that Robert referred to was for 2021.

Correct. Okay. Your second question from Ken of Citi is China projects. Talk about what is our appetite of acquiring projects from other distressed developers in China. Of course, we would not be shy of any acquisition opportunities. But our experience tells us that not many attractive opportunities from distressed developers are available in the market. Their assets tends to have quite a number of issues attached to it, and then that makes the due diligence process quite challenging. And our focus is, of course, is either for a very liquid projects like residential projects that we could have a quick payback period of 1 or 1.5 years or very prime real estate in [ fair-located ] locations for long-term hold. But you know that prime assets are rarely transacted in the market anyway. Even in today's situation, the developers tend to hold on to that tight. And when you have a very good short-term projects of 1 to 1.5 years of payback, these things generally are doing all right, and then hence, they are not plentiful. And then we found that actually a lot more easy to go to the public market, more straightforward, able to control the timing of -- not much due diligence needs to be done. And hence, we still favored the roots of going to the auction room to acquire projects rather than coming through the really the maze to try -- where are the jewels when it could be challenging to really identify and look behind the scene, whether these projects are good or not or whether they are employed with a lot of issues. And the third part of your question is Chairman statement indicated that IP contribution will remain stable for 2022, how does that price in the impact of -- I think that basically, the question is the current fifth wave of COVID, how does that impact our IP contributions. Basically, that's the nature of the question. I think it should mainly affect our retail business, the fifth wave. Of course, if you think that COVID is going to hang on for many, many, many more months, of course, then the whole business segment will be affected. But for the time being, the [ sense ] is more impactful to what's the retail sector. And then I just mentioned earlier on, to give you a magnitude of sense of the impact. The -- if we are to give how much rental concessions, how much F&B tenants is contributing to our bottom line. I think I have given that sense to you, then obviously I would encourage you to make your own assumptions, which is a matter of crystal-ball gazing, about the impact of COVID into Hong Kong. Share buyback...

It's probably right to say though, of course, that our -- the bulk of our income and investment properties relates to office, and therefore, the retail support that we're giving is sort of modest relative to the overall size of the rental income.