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

Good morning, everyone. I'm so glad to see you all here physically finally after 3 years. So excited that I really want to continue to chat with you all. But since I need to do the result announcement first, why not I finish the formal part of it, and then I look forward to enjoying the chitchat with you thereafter. Again, I also welcome those that are participating in this result announcement through online. 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 opportunities for questions. And for those of you watching via the webcast, do send us the questions through the website, and we will include them in the Q&A sessions. Today, I will take you through some of the key market updates and result announcements for investment properties and development properties before turning over to Craig to cover the financial highlights. I will then conclude with an update on the group's sustainability and other 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. 2022 was a challenging year. As we continue to face uncertainties related to anti-pandemic measures across China as well as global macroeconomic headwinds. In Hong Kong, the office market was affected by uncertainty around the pandemic situations on the Chinese Mainland as well as increasing global economic volatility. Vacancies across the cities increased as a result of high levels of new supply, the increase in supply in Central remained modest. The group's Central portfolio continued to enjoy lower vacancies compared to both the broader market across Hong Kong and the office market in Central, driven by a continued flight to quality demand from occupiers attracted to portfolio's premium offerings. While the demand for flexible working has increased, bringing visible disruptions to the office markets in other business centers across the globe, this is less felt in our portfolios in Hong Kong and also in Singapore. Moving on to luxury retail. Footfall and tenant sales were severely affected by the fifth wave of the pandemic in the first half of 2022. Having said that, once the restriction eased, we saw a marked improvement in market sentiment, even though tourist numbers remain low through late last year. Moving on to the Chinese Mainland. Sentiment for the residential market remains cautious for the majority of the year. The impact of zero-COVID policies and the challenging economic outlook overall have weighted on residential demand. Development activities were low by pandemic-related shutdowns delaying the timing of completion on residential completions. Turning to retail. Trading at our malls were negatively impacted by anti-pandemic measures throughout the year with both footfall and tenant sales lower compared to the prior year. In Singapore, office demand momentum benefited from the lifting of anti-pandemic restrictions in April 2022. Net absorptions were positive and higher than the prior year. Office rents continue to rise due to healthy demand and supply dynamics resulting in low vacancies. Leasing momentum at the group's flagship assets were in line with the wider market. On the residential side, buyer sentiment remained healthy despite cooling measures introduced in late 2021 and in Q3 2022. Presales at the group's 2 residential projects were very well received by the market. Turning to an overview of 2022 results. The group's underlying profit in 2022 was USD 776 million, down 20% compared to the same period last year. Profits from the group's investment properties business were marginally lower, whilst contributions from the group's development properties business decreased due to fewer planned sales competitions and impact of pandemic-related restrictions on construction activities. Profit attributable to shareholders was USD 203 million, which includes a net loss of USD 573 million, arising mainly from revaluations of the group investment properties portfolio due to a modest expansion of capitalization rates in Hong Kong office and lower market rents for the Hong Kong retail portfolio. In terms of underlying earnings per share, the group generated USD 0.344, while the overall earnings per share was USD 0.0899 after the impact of nontrading items. The net asset value per share as at the 31st of December 2022 was USD 14.95. The Board has declared a final dividend of USD 0.16 per share, which brings the dividend for the full year to $0.22 per share, unchanged from prior year. The group balance sheet and funding position remains strong. Now let's turn to some of the progress we made in 2022. During the year, the group commenced the sales of Piccadilly Grand and Galleria in May and Copen Grand in October in Singapore, both residential developments. The project were well received in the market. And as at the end of December, these projects were 85% and 100% presold or reserved respectively. In June, the group's 2030 decarbonization targets covering both Scope 1 and 2 as well as Scope 3 emissions were validated by science-based target initiatives. In July, the group announced an intention to invest a further USD 500 million in the share buyback program that was announced in the second half of 2021, returning up to a total of USD 1 billion to its shareholders. The share buyback program has been extended to the end of 2023. The group continued response to the changing preferences and demands of our tenants and customers by introducing a number of innovative place-making concepts and fresh offerings in 2022, which I will explain in more detail later in the presentation. In terms of land banking, the group successfully secured 4 new sites during the year. 2 of those sites are primarily residential, one located to the next to Western Shanghai and also the other in Singapore. The other 2 are mixed-use sites in Suzhou, the [ x ] cities that we have entered in the Chinese Mainland as well as one located in the Greater Jakarta area. I'll provide further details on these exciting new developments in our business later on in the presentation. I shall now turn to investment properties. Turning first to our Hong Kong office portfolio at the heart of core Central Hong Kong. Performance from the office portfolio was stable and indeed outperformed the broader market due to its prime CBD locations and premium offerings. Rental reversions were negative in 2022 with average office rent decreasing to HKD 111 per square foot from HKD 117 in 2021. Fiscal vacancy at the end of December 2022 decreased to 4.9% from 5.2% at the end of 2021. On a committed basis, vacancy was 4.7% at the end of December 2022, decreasing from 4.9% at the end of 2021. By comparison, vacancy based on existing lease commencements across the Hong Kong Central Grade A office market was 8.8%, a sizable increase from 8% at the end of 2021. The weighted average lease expiry at the end of 2022 was 4 years compared to 4.2 years at the end of 2021. The portfolio's top 30 tenants who occupy close to half of our total office net leasable area in Hong Kong had a weighted average lease expiry of 5.8 years compared to 6.1 years at the end of 2021. At the end of 2022, only 22% of our Hong Kong office portfolio is subject to expiration and rent reversions in 2023. Including concluded renewals and rent reviews subsequent to year-end, this has decreased to 16% of our portfolio with approximately 7% relating to exploration and the remainder to rent revisions. Turning to our luxury retail portfolio in Hong Kong. Landmark, which continues to remain the preeminent luxury shopping and fine dining destination in Hong Kong. Average net rents decreased by 7% to HKD 177 per square foot per month in 2022 when compared to 2021, primarily due to negative base rent reversions. Excluding the impact of rent relief, average net rent in 2020, 2021 and 2022 were HKD 212, HKD 202 and HKD 191 per square foot per month, respectively. Occupancy remained robust, with vacancy on a committed basis remained low at 0.5%. Tenant sales were stable compared to 2021, although remains well below pre-Covid level due to the lack of tourists in Hong Kong. Footfall declined by 19% compared to 2021, partly due to the easing of travel restrictions in Hong Kong, which allowed a significant number of affluent locals traveling aboard during the holiday season. In 2022, the group continued its place making initiatives as a central portfolio. In December, the group expanded its successful premium foot hall concept in the basement of Jardine House by launching BaseHall 2. BaseHall 2 provides a fluid space for multi-concept dining as well as the flexibility to host events for our tenants and customers such as private parties, music events, cooking classes and DJ Nights. Together with BaseHall 1, the 2 venues house 23 unique food and beverage concept and present a collection of Hong Kong's best food and beverage experience under 1 roof. In addition to diversifying our F&B offerings to reinforce the group leading positions in bringing innovative concepts to Central and Hong Kong, the group continued its decades long focus in promoting arts and culture landscape in Hong Kong by welcoming Sotheby's, the world's largest international auction house to its retail space at Landmark Chater. The 24,000 square feet, 2-story, interconnected new space will be the state-of-the-art immersive exhibition space located at the heart of the luxury retail destinations in Central and Hong Kong. This will be Sotheby's third Maison after the highly successful openings in New York and London. In addition to hosting an ultra contemporary exhibition space to host live auctions, private sales and master work exhibitions year-round, the multifunctional space will also include art and luxury collectibles available to the public for instant purchase. In addition, a Sotheby's F&B concept will complement this experience. The space is expected to be open to the public in 2024. Turning now to our portfolio in Singapore. Average gross rent across our Singapore office portfolio in 2022 was SGD 10.6 per square foot per month, a 3% increase from SGD 10.3 in 2021. Positive rental reversions were achieved during the year. Physical vacancies across the portfolio was 7.5% compared with 6.5% at the end of 2021. On a committed basis, though, vacancy remained low at 2.2% compared with 2.9% at the end of 2021. As at the end of 2022, only 11% of our portfolio was subject to expiration or rental reversions in 2023. Turning to other parts of Asia. In Beijing, footfall and tenant sales were negatively impacted by anti-pandemic measures, which include frequent lockdowns in multiple areas of cities. Tenant sales at Wangfu Central was down 7% compared to 2021. In 2022, tenant repositioning assets continued with 34 new tenancy secured during the year included an expanded presence from 6 luxury brands. The opening of Gucci expansion is scheduled the first quarter of 2023, while Burberry, Duplex, [ Palate ] Duplex and Valentino are expected to open in the first half of 2023. At the end of 2022, the property was 82% let. In Macau, tighter border restrictions with the Chinese Mainland has resulted in the decline in visitors and footfall at One Central Macau. Tenants sales in 2022 decreased by 22% compared with the same period in 2021. In Indonesia, Jakarta Land performed within expectations in an oversupplied market. Office occupancy at the end of 2022 was 71%. On a committed basis, taking in account existing lease commitments, occupancy was 72%. In Phnom Penh, the office space of our prime mixed-use complex, Exchange Square was 94% occupied at the end of 2022 compared to 95% at the end of 2021. Turning now to an update on the West Bund. As a result of COVID related lockdowns in Shanghai, construction at West Bund, a 1.1 million square feet -- square meters mixed-use site was briefly suspended. Construction resumed during the second half of 2022 with construction largely progressing on schedule and is expected to be completed in phase through 2027. Phase 1 includes primarily the residential component both for lease and for sale, as well as parts of the premium lifestyle retail for lease components. The residential properties for sale component will be launched later this year. Service apartments for lease and parts of the premium lifestyle retail are expected to be launched by 2024. Phase 2, which is expected to be completed in stages between 2024 and 2026 will consist of low and mid-rise offices, hotels and convention center and other cultural facilities. The group is in the process of engaging the interested parties for the office component. Phase 3 will consist of the office and luxury retail for lease as well as a premium hotel and service apartments, which is expected to be operated by a global high-end hotel brand. The positioning of Phase 3 expected to rival our Central portfolio in Hong Kong. Completion is expected in stages from 2026 to 2027. In 2023, as part of the Phase 1 development of West Bund, the group will be launching the residential property for sale. These flagships residential units are located at the heart of the vibrant West Bund community surrounded by future commercial developments consisting of grade A office towers, high-end hotels, both luxury and lifestyle retail as well as cultural and community facilities. On top of these superior locations, the residential units will feature state-of-the-art craftsmanship and design, together with premium amenities and unparalleled quality attributes deeply ingrained within the Hongkong Land brand. The total developable area is approximately 24,000 square meters with approximately 80 units housed, mainly within the 2 high-rise towers. Completion is expected by the end of 2023. Moving on to development properties. On the Chinese Mainland, the group development properties' pipeline includes 35 projects spread across 7 cities with total attributable development area amounting to 7.9 million square meters. Of this, construction of approximately 66% had been completed at the end of 2022. Chongqing remains our largest market and accounts for 62% of our Chinese Mainland business by attributable developable area. We currently have 14 projects in Chongqing with an attributable area of 4.9 million square meters. By exposure in U.S. dollars, which comprises committed development costs, less presale proceeds, contractually secured, Chongqing is also our largest market on the Chinese Mainland and accounts for 33%, followed by Shanghai, Nanjing and Wuhan, which account for 22%, 16% and also 16%, respectively. Market sentiment remained weak throughout the year due to anti-pandemic restrictions. The impact of zero-COVID policies and a challenging economic outlook overall have significantly weighted on residential demand. During the year, the group's share of development properties revenue recognized on the Chinese Mainland, including its subsidiary and share of joint venture, was USD 1,873 million. This represents a 23% decrease from the prior year, primarily due to planned timings of completions due to lower level of investment into development properties, land bank to conserve capital ahead of the group's acquisitions of the West Bund site in 2020. The group shares of contracted sales was USD 1.3 billion compared to USD 2.6 billion in 2021. The decline in contracted sales is due to fewer planned sales launches and challenging market conditions during the year. Sales performance during the year was mixed and impacted by cooling measures introduced in the local markets as well as the project's locations. Sales launches in Chongqing and Chengdu were generally well received in the market. By comparison, sales launches were slower in Nanjing and Wuhan due to more challenging local market conditions. At the end of 2022, the group's shares of sold and unrecognized contracted sales in this development on the Chinese Mainland was USD 2 billion, with 55% expected to be recognized in 2023. The group recorded a gross margin of 22%, down from 28% recorded in 2021, primarily due to higher contributions from more recently acquired projects. Turning now to Singapore, where the groups have 5 development projects with a total attributable developable area amounting to approximately 220,000 square meters. Of these, construction of approximately 50% have been completed at the end of 2022. With the relaxation of anti-pandemic restrictions, residential market sentiment recovered during the year. Revenue recognized in Singapore was USD 379 million compared with USD 631 million in 2021. 2021 had benefited from construction progress of the wholly owned 1,004 units Parc Esta project, which was handed over to buyers in 2022. In terms of sales performance, contracted sales in 2022 was USD 615 million, compared to USD 328 million in 2021, driven primarily by the launch of Piccadilly Grand and Galleria and also Copen Grand, both well received by the market, having presold or reserved 85% or 100% of its units, respectively. As at the end of 2022, sold but unrecognized contracted sales in Singapore was USD 589 million with 44% scheduled to be recognized in 2023 under the percentage of completion method. Turning to new projects. In 2022, the group continues to be disciplined and opportunistic in the evaluation and selection of development properties opportunities. During the year, the group secured 2 new projects on the Chinese Mainland, 1 in Shanghai and 1 in Suzhou. The group secured a 34% interest in a primarily residential site in the Xuhui District in Shanghai adjacent to our 1.1 million square meters mixed-use project in West Bund. With a gross raw area of 54,900 square meters, the development will comprise 6 high-rise apartment blocks with a total of over 460 premium residential units. Completion is expected by 2024. In Suzhou, the group entered in the joint venture on a commercial project that will consist on the luxury mall and hotel. The total developable area of the site is 130,000 square meter-ish, and it is expected to be completed in 2026. This acquisition reflects the group's strategy of developing a portfolio of luxury and premium lifestyle retail properties on the Chinese mainland. Separately, the group increased investment in 2 existing projects, including acquiring from KWG the remaining 50% interest in WE City, a mixed-use project in Chengdu in November 2022 and also acquiring a 15% interest in Yue City, a mixed-use project in Nanjing from Country Garden, with completion of the transaction expected in the first half of this year. Turning to Southeast Asia. During the year, the group secured 2 new development property projects, 1 in Singapore and 1 in Jakarta. In Singapore, earlier in the year, the group acquired a 49% interest in the residential side in Jalan Tembusu area with a developable area of 60,000 square meters and is expected to yield a total of 638 units. Completion is expected by 2025. In Jakarta, the group acquired a 50% interest in a primarily residential site in the southwest of Jakarta with a developable area of 315,000 square meters. The project will consist of predominantly land houses and is expected to be completed in phases from 2025 to 2032. This concludes a review of our investment and development properties portfolio. I will now pass over to Craig to take you through the financial results.

Thank you, Robert, and good morning to everybody. I will now take you through our financial performance in 2022. All the numbers referred to in this presentation are in U.S. dollars unless otherwise indicated. 2022 was a challenging year, with anti-pandemic measures across China affecting our business. Considering these challenges, the group produced a satisfactory performance. Contributions from development properties were significantly lower than 2021, whilst the contribution from investment properties was steady compared to the prior year. Underlying profits were $776 million in 2022, down 20% compared to 2021. Operating profits from investment properties decreased by $22 million year-on-year. This decrease was mainly in Hong Kong, primarily from negative rental reversions in the office portfolio. Hong Kong retail had a challenging start to the year as the fifth wave of COVID-19 impacted business levels, although retail sales increased in the second half of the year, aided by the relaxation of social distancing restrictions. Operating cost savings helped to mitigate the impacts of lower rents. In Macau, net rental income was also lower as the border with the Chinese Mainland was closed for most of the year, impacting tenant sales. Operating profits from development properties decreased by $240 million year-on-year, primarily due to less planned sales completions on the Chinese Mainland and to a lesser extent, in Singapore. There was also some impact from construction delays in China projects due to pandemic measures, notably on one project in Shanghai. There was an increase in total contributions from projects in South Asia year-on-year, helped by higher completion progress on projects in Indonesia and Vietnam. There was a net decrease in tax charges in the period due to a smaller share of profits coming from the Chinese Mainland, where tax rates are higher than in Hong Kong. Interest costs increased as the group had higher net debt levels due to less proceeds from residential sales on the Chinese mainland. And the impact of rising interest rates was modest as the group has a significant portion of fixed cost debt. Overall, the operating profit split between investment properties and development properties was roughly 70-30 in 2022 compared to 60-40 in 2021. Turning to rental income by region. The combined rental income from our office and retail portfolio in Hong Kong declined by 3% compared with 2021. Most of the decrease is due to negative rental reversions in the office portfolio. Retail rents decreased due to negative base rent reversions, partly offset by a decline in temporary rent relief provided to our tenants. Rental income in Singapore was stable, which benefited from an increase in average office rent. On the Chinese Mainland, rental income increased 8% in 2022 compared to the prior year, mainly reflecting a full year of rental income from The Ring retail mall in Chongqing, which opened in the second quarter of last year. The Ring's improved results were partially offset by a decline in rental income from our other retail malls due to pandemic-related restrictions. Turning to the operating profit of the group's development properties by region. Please note, this slide includes the group's share of joint ventures and associates. Operating profits on the Chinese Mainland declined by $ 229 million primarily due to fewer planned sales completions, as previously mentioned. Anti-pandemic restrictions on construction activities also resulted in some project completions to be delayed to 2023. Average profit margins trended lower compared to the prior year. Operating profit in Singapore development properties are recognized on a percentage of completion basis, and profits declined by $51 million compared with 2021 due to a lower volume of construction works in progress during the year. A large project called Parc Esta is approaching completion, and the majority of its revenue was recognized in 2021. In others, operating profit increased to $54 million, mainly due to higher completion progress on projects in Indonesia as well as the handover of units and a completed development in Vietnam. Let's now turn to an update on capital management. In line with previous guidance, we endeavor to maintain a steady or increasing dividend as our earnings grow. The group expects the dividend to be maintained in a down year, even if we consider this to be caused by temporary factors with the resulting increase in payout ratio. This is particularly evident this year with our dividends per share held constant and a corresponding increase in our payout ratio to 64% due to lower profitability in 2022. Last year, the group committed $1 billion of capital to new projects, $300 million of this related to the acquisition of a China luxury retail development project in Suzhou, and the balance of $700 million was invested in new development projects in Shanghai, Singapore and Jakarta. In the past 6 years, the group has committed total capital of $13.3 billion to new development projects, of which 81% has been in development properties and 19% in investment properties. Development properties are developed for sale, enabling capital deployed to be generally recycled within 2 to 5 years and generating profits for the group. Investment properties are developed and held for recurring rental income and capital appreciation over the long term. The most significant investment property project in recent years was the acquisition of West Bund in Shanghai in 2020. In the past 6 years, the group has invested an average of $1.9 billion a year in development property projects compared to an average of $0.6 billion in the 5 years proceeding, an increase of over 200%. This increased investment has benefited both our capital recycling and earnings in recent years. And looking forward, the recent investments will benefit earnings and cash flow going forward. On share buyback, the group completed a $500 million share buyback program in July 2022, which was followed by the announcement of an additional $500 million to be invested through to the end of 2023. The total amount invested in the buyback program, since it was first announced in September 2021, is $556 million as at 28th of February 2023, with $350 million invested in 2022. The share buyback does not change our previously stated approach on dividends or our focus to secure attractive new development projects. I will now turn to the group's net debt and cash flow position. The group's financial position and liquidity remains strong. As previously mentioned, net debt was $5.8 billion and net gearing was 17%, up from $5.1 billion and 15% at the end of 2021, but down from $6.1 billion and 18% at the end of June 2022, which was our half-year results. The increase in net debt was primarily due to lower sales proceeds from the development properties business. The group continued to generate strong cash flow from its investment properties business, highlighted by $787 million from net rental income and fee receipts, stable compared to the prior year. Cash proceeds from development property sales declined to just over $1 billion, a reflection of the difficult market conditions on the Chinese mainland. The decrease in CapEx during the year to $1.4 billion net outflow compared to $2 billion net outflow in 2021 was primarily driven by a decline in the number of development property site acquisitions during the year, partly offset by increased development expenditure on the Chinese Mainland in respect to the various ongoing projects that have been acquired since 2021. The maturity profile of the group's debt is shown on the left-hand side of this 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 2 years are relatively modest and can be financed using existing committed debt facilities. The average tenor of drawn debt is 5.8 years, with the average interest cost being 3.3%, a slight increase compared to 3.1% in 2021. Market interest rates increased significantly in the second half of 2022, although the impact was mitigated by having a high proportion of our debt at fixed rates. 53% of total gross debt was at fixed rates, and the largest component of our gross debt is denominated in Hong Kong dollars, of which 68% was hedged at fixed rates. At the end of December 2022, the group had available liquidity of $3.1 billion compared to $3.9 billion at the end of 2021. And our credit ratings remain with S&P and Moody's at A and A3, respectively. I will now hand back to Robert, who will close with comments on our sustainability achievements in 2022 and a few of our ongoing corporate initiatives and the outlook for this year.

Thank you, Craig. Moving on to sustainability, I would like to highlight a few of the group's key achievements over the past year. In May, the group launched its Sustainability Framework 2030. The 4 main spotlights of climate and economic resilience, inspirational connections, operational excellence and vibrant communities and cities cover 18 focus areas linked to measurable targets. Some of the most important key focus areas for the group include climate actions, green buildings, supply chain management, tenant engagement, occupational health and safety, as well as diversity and inclusion. Hongkong Land has a long history of reinvesting in these existing assets and undertaking a robust green building certification program. At the end of 2022, 88% of our leasing portfolio by floor area, including those held in joint ventures, achieved green building certifications, with all our buildings in Hong Kong and Singapore, comprising 51% of our leasing portfolio, achieving the highest possible ratings of BEAM Plus Platinum and Green Mark Platinum certifications, respectively. In June last year, the group 2030 decarbonization targets that are aligned with the 1.5-degree pathway were validated by the science-based target initiatives. These targets include, firstly, a 46.2% reduction of absolute Scope 1 and Scope 2 emissions by 2030 from 2019 levels, secondly, a 22% reduction of carbon intensity for Scope 3 emissions over the same period. We look forward to delivering on the group's decarbonization commitments in the years ahead with the support of our stakeholders, including our friends in the construction sector as well as others in the property development value chain. In line with the Chinese central government ambitions to achieve carbon neutrality by 2060, the group's luxury flagship retail property in Beijing, Wangfu Central, is powered by 100% renewable energy. It is among the first commercial complexes in Beijing to achieve this. The renewable energy is generated by solar and wind power systems from Northwest China. In July 2022, the group published its inaugural Green Finance Report, providing stakeholders updates on our green financing transactions in accordance with the Green Financing Framework. Information on the proceeds of the group's green bonds and green elements of the project finance are captured in the report. Moving on to ESG ratings. The group's performance has seen significant improvements over the past 18 months, achieving strong results across a number of assessments. On the Global Real Estate Sustainability Benchmarks, the group achieved the highest 5-Star rating for Standing Investments, which recognizes and entities placed in the top 20% of the benchmark. On the Corporate Sustainability Assessment administered by S&P Global, the group score 70 out of 100, improving from 52 out of 100 in the prior year. The group also qualified for the first time as a constituent of the Dow Jones Sustainability Asia Pacific Index. For Sustainalytics, the group obtained a company ESG rating of 17.6, that is considered low risk, improving from 20.4, medium risk, in the prior year. Finally, on the Climate Disclosure Project, CDP, the group retains its Climate Change Score of B. Separately, the group is also proud to have received a number of awards in recognitions of our operational excellence. With regard to looking after our people, we are honored to have received 5 awards in recognition of our outstanding people strategy and talent development at the Best HR Awards 2022, hosted by Ctgoodjobs. In addition to the grand award for the Employer of the Year, we also received a best award and recognition strategy award -- grand award, top happiest culture award, gold award, best corporate well-being program award, gold award, again, and best R&D technology implementations, gold award. On property management, the group was recognized for its efforts to adhere to a high standard. At Exchange Square complex in Hong Kong, was awarded the grand award at the Quality, Property and Facility Management Award 2022 under the Large-Scale Office Building Management category, jointly organized by the Hong Kong Association of Property Management Companies and the Hong Kong Institute of Surveyors, Property & Facility Management division. Moving on to a few of our corporate initiatives. Next, I would like to take a few moments to provide a brief update on the group's digitization efforts. On the customer side, the group continues to enhance the competitiveness of its commercial portfolios by enhancing the services and amenities to both the tenants and shoppers. A new LANDMARK app was launched in March 2022 to provide shoppers and loyalty members with a more personalized and intuitive user experience. As part of the LANDMARK's Christmas campaign last December, the group curated the LANDMARK Xmasverse, which delivered a unique virtual reality and experience to our shoppers. The [ inaugural amplifications ] of [indiscernible] was aimed to provide better experiences to tech savvy shoppers and achieve over 16,000 visits over the holiday period. We are also proud to have collaborated with both Tiffany & Co. and Sauvereign on this project. The group's CENTRICITY app, which provides seamless access to services, shared space, privileges and experiences at the Central portfolio, now has over 21,000 users, representing over 80% of the portfolio office population, over the past year, over 300 tenant sessions covering wellness classes and lifestyle workshops. To encourage our customers to adopt low-carbon consumption living habits, a WeChat mini-program was launched by The Ring, our premium lifestyle retail mall in Chongqing. The program attracted over 20,000 users in its first month, who can redeem prizes through participating in low-carbon living activities. Finally, digitization assets on the group's operations continue at pace. Recent achievements include deploying the winning AI model prediction algorithm focused on driving energy efficiency in our retail operation on the Chinese Mainland and progressively adopting a new smart logistics and construction system to optimize key phases throughout the property development value chain. This includes design, construction, procurement, finance and presales. The new systems also maximizes the use of virtual simulations to minimize delays and waste as well as pioneer the use of exoskeletons, which would reduce the risk of work injuries by up to 80%. Moving to CSR. The HOME FUND, which the group launched in late 2020, continues to target its assets on social inclusion, upward mobility of youth and elevating housing-related social issues. Some of the key highlights in 2022 include ongoing work with over 80 NGOs to tackle housing-related social issues. So far, this program has benefited over 6,800 individuals. Launched over 40 programs under future -- under Project Futuremark in collaboration with the Hong Kong Council of Social Services, which benefited over 1,000 young people living in subdivided flats. As part of the HOME FUND's collaboration with JCDISI of PolyU, furniture is being distributed to 2,000 children living in subdivided units. During the [ fifth ] wave of the pandemic in Hong Kong earlier last year, the group contributed HKD 15 million to the HOME FUND in support of initiatives ranging from delivering hot meals and necessities to providing over 5,000 sets of protective equipment to frontline workers in Hong Kong, which benefited over 110,000 individuals. We also built on the strength of our tenant community through a gift matching program to support Po Leung Kuk and FoodLink. Ongoing collaboration with 15 grantees to enhance support for youth through multiyear education, job readiness and work experience programs, which has so far assisted over 4,300 young people. The HERE2HELP volunteer program continued to serve those in need throughout the pandemic and has culminated 5,500 volunteer hours and over 90 volunteer programs since its inception in late 2021. And finally, the Home Fund received 8 awards in 2022, including the corporate social responsibility Project of the Year from RICS awards and the outstanding collaboration project from the Hong Kong Volunteer Award for the improvement project on Christian Zheng Sheng Association, which improved the living conditions of students by revamping their dormitory and equipping the equipment in the kitchens with essential items for cooking and training purposes. I now conclude with our outlook for 2023. In terms of the overall operating environment, we expect a steady recovery across the majority of the group's key markets, especially China, which benefits from a rapid stabilization of the pandemic conditions. On the office front, trading performance is expected to remain resilient despite increased competitions in Hong Kong, while the lifting of border restrictions will spur business momentum, it is too early to tell how rapidly this will translate into occupier demand. Rental reversions are expected to be moderately negative for the most of the year. However, as a result of our active lease management, areas subject to expiration in 2023 at the end of last month amounted to just 7% of the Central office portfolio, total net leasable area. In Hong Kong, the office portfolio is expected to remain stable on the back of healthy market dynamics with positive reversion expected for most of the year. On the retail front, performance at the landmark is expected to improve as the return of visitors will be a positive to luxury retail. The eliminations of [ social distancing ] restrictions should also result in improved domestic spending, based on tenant sales for January 2023, we are seeing signs of promising recovery. Similarly, the removal of the COVID related restriction for the Chinese Mainland and Macau are expected to benefit WF Central in Beijing and One Central Macau. Again, there were early signs of a promising recovery in January 2023. In development properties, an improvement in trading performance on the Chinese Mainland is anticipated. There are signs of a modest improvement in sentiment since the relaxation of COVID-related measures. The group is in a strong position to take advantage of an eventual market recovery as a result of its track record of [indiscernible] site selection and strong execution ability. In Singapore, residential market sentiment is expected to remain healthy despite the introduction of cooling measures and a softening economic outlook. In terms of underlying profits for 2023, a stable outlook is expected with possible upside as contributions from the group's investment properties portfolio should remain resilient. While the extent of the increase in the development properties profits will depend on the pace of recovery of the Chinese property sector. Over the coming year, the group will look to maintain a significant momentum built over the past 2 years on sustainability and CSR initiative and strive to continue improving the way we serve our stakeholders. Going forward, the group will continue to actively access potential investment opportunities to drive earnings growth over the medium term. However, given the significant commercial properties pipeline secured in recent years, including the projects of significant scale currently under construction such as West Bund, the capital deployed for the year will be below the average investment per annum of USD 2.4 billion over the past 6 years from i.e., from 2017 to 2022. For reference, the group invested an average of USD 0.7 billion per annum for the 5 years preceding 2017. The group remains confident that its chosen key markets will continue to benefit from Asian importance to the global post-pandemic recovery and economic growth, and we'll continue to execute on this strategy of investing in and growing its investment portfolio, primarily in core locations in key gateway cities, while taking an opportunistic approach to replenishing land bank to develop properties for sale to enhance shareholder return. Now that's the end of my presentation. Now let's turn into the Q&A sessions, and I'm happy to take questions from the floor or through online.

Let me start with the floor, Robert. There's a few questions here.

Yes. Okay. I think the -- when you raise the questions, please name your company and your own name and before the question, please.

Sam Wong from Jefferies. Two questions, if I may. First, is that with all the changes in the China DP market, would you imagine the contribution from China DP to decrease going forward, looking past the booking of West Bund. And how should we think about the business mix in the future, in the longer-term future? So that's the first question. And the second question is regarding the dividend. So what are the conditions for DPS to go up? Do we -- should we expect any EPS increase before the net income hitting the $1 billion market gain?

Okay. Maybe I'll take the first part of the question, and I'll leave it to Craig to take you the second part of the questions. I think in the presentation, I mentioned about -- in the last couple of years, we have invested quite a fair bit in the investment properties. Of course, you understand the characteristics of investment in investment properties, it takes a longer time to have the profits gradually realized. Generally, DP projects have a very short payback period. The typical DP projects, the -- say in China, will be less than 2 years of payback period. And then some projects, if it is the relatively low rise, say, less than 20 levels, actually from day of acquisitions, we can book the profits and i.e., completed within 2 years. And then whereas higher level of residential properties of, say, 20, 30-story, probably takes 3 years to recognize the profits. So you will see that with the more investments in investment properties, the like West Bund that we have committed quite a significant investment in West Bund. We also invested in the Chongqing Luxury Mall and also [ Suzhou ] last year. So these are all exciting developments that really underpin the long-term earnings growth of Hongkong Land. As you know that our main strategy is, of course, to build up a portfolio of long-term -- attractive long-term assets. And then we are very much well positioned on track into implementing this strategy and hence, have a very solid foundation for long-term growth. So one cannot expect the best of 2 wells to exist at the same time. So with less investment in DP, certainly, the short-term DP business may not have achieved the same level of the contributions as before, especially as I mentioned the last year is actually last year, lower DP earnings is primarily due to the conservation of capital back 3 years ago when we tried to conserve capital for the West Bund acquisitions. And that's actually directly result or part of the reasons. I would say a good part of the reason is actually why the earnings of DP. Of course, the market has an impact. But I would say quite a major effect is we slowed down the investment in DP 3 years before. And then I think the -- going forward, I don't think we are giving up that business, okay, because our execution ability has been well proven in China. We got a very strong brand in China now with our increasing presence in the 7 cities that we operate. Most of the buyers are now finding the ops. Hongkong Land is really the provider of high-end property. So that strong brand is already seeing the benefits, the evidence suggest, what, in the last year when we launched projects in Chengdu or in Wuhan or in Chongqing, our sales level is actually multiple times of the combined sales value of our competitor projects. So you will see that, that strong brand value is there. So there is no reason why for us to stop that. But I think we also need to take a measured approach in terms of new advancements. Going forward, as and when we have a capital return from both DP and investment properties. So we will still evaluate the -- where are the more investment properties. And if there aren't any immediate opportunities available for us, we would not hesitate to proud that investment into the DP properties. As we stated, it is more an opportunistic approach in terms of investing in properties. It is a business that it would not lock in a lot of our capital in a very long-term manner, but it could enable us to enhance the short-term returns. So it complements very well. So that part of the business will still be with Hongkong Land, but it could have a cyclical also pattern depends on the -- our investment in the investment properties also depends, of course, to market conditions as well. So that's largely, I would say, sum up our mentality and also going forward, the -- where we are. But if you look back, okay, some 3 years ago, as we have a lower investment level, but we gradually come back, correct. If you look at what we have, yes, in year '19 -- 2019, yes, we slowed down our invest -- in 2020, we slowed down. So that's why it impacts 2022 to a certain extent in '23. But since then, we have also ramped up our DP investment. So you'll find that actually we may be hitting a bit of a cyclical low, but how fast again, how fast it comes back to improve our earnings in the conclusion sections that I just mentioned, it really depends on the pace of recovery in the China market. And in terms of pace of recovery, say, in China, our experience in recent weeks, this is the latest experience we have. Certainly, we see a rebound in the order of -- compared with the second half of last year. We actually, the DP sales have improved by about what in the order of 30%. It's not a V-shaped rebound. We don't expect a V-shaped rebound anyway. But having 30% increase in the sales level compared with the second half of last year. But still, you are talking about 50% below the level -- average level we achieved in 2021. So it's still well below the 2021 level, but we see quite a good level of activities coming through the door. So I'm cautiously optimistic about the market conditions, but things would not change overnight. Then I think this sort of gradual pattern of recovery is what I would expect anyway. So maybe I ask Craig to cover the second part of question about the dividends.

So on the dividends, I think as I said, our approach here is to maintain our dividend and ideally grow it over time. I think in recent years, clearly, our dividend has been flat, which was a cautious approach that the board has taken recognizing the challenges with COVID. Now that hopefully, COVID is behind us in this part of the world and we start to look forward, I think what we're looking at now is really our investment properties portfolio and how that's looking to evolve over time, the stable income that the IP portfolio produces, gives us the ability to look at increasing our dividends over time. So as we look to the Chinese mainland and what we're developing there, particularly with West Bund, there are a number of other projects, we do see a pathway to rising IP income in the years ahead. And therefore, with that increase in stable income, there is the ability for dividends to grow over time. But it really needs to be viewed at what's going on with the group's earnings needs to be looked at in terms of the broader market context. And as I said, we took a cautious approach during COVID. And I think the third point is also around investment opportunities because, of course, we continue to look to grow. So we try to balance those things. But ultimately, our objective is to grow dividends over time. Hopefully, that answers your question.

Okay. Let me -- the next question, Yes. Okay. Please.

Karl Choi from Bank of America. First of all, thank you very much for the improved disclosure. Two questions. One is on Hongkong office. As you mentioned, there's a lot of competition, a lot of supply, not necessarily in the Central, but also in [indiscernible] West and also coming up in [indiscernible]. Hongkong Land has done a good job locking up your existing tenants for longer. But do you see the need for any other changes in either operating or capital allocation strategies as a result? For example, I think one of your peers link has talked about inviting third-party capital into investing in the existing portfolio to free up capital for investments elsewhere for more growth. Would that be something that you consider. And second is on Hong Kong Retail. Any more color on retail sales recovery in February after the full reopening? And also in your conversations with your luxury tenants, do they expect tourist spending to recover to pre-COVID levels? And if so, how long do you think it would take?

Okay. About the office portfolio in Central. Actually, it's pretty healthy signs of also recovery experience by us. Just to give you some statistics, the -- in January, we received new inquiries in the order of low 20 number. So we measure -- we track our new inquiries level from time to time. The average requirements for the inquiries in January, it's just talking about relatively small space, just average per inquiry. They just mainly 2,000 square feet or below. But in February, we found quite a marked increase in inquiries level, actually 50% increase to the 30 number levels. And actually, the average size of the inquiries is also markedly improved to every 5,000 square foot per inquiry. So how would you compare with the sort of all-time high sort of the -- in recent last 2, 3 years, what would be the inquiry level? Typical, it will be high 30s to 40 level number per month typically. So the inquiries level, you will find that from these statistics, we will -- you will find that. We are about 80% of the sold off normal good level of inquiries in February. So it's -- I would say, it's quite a rebound, slightly better than I expect. You all know that January, we do not a very exciting market anyway with Chinese New Year closely following Christmas. So the inquiry level, we do expect the pattern or why would people want to look for space in such a holiday season. So that's why their demand, their requirements is actually I want the space within the next few months sort of inquiry. So they really need it, then they come forward to us for that. Then for the February inquiries, their requirement is not immediate. They are talking about the second half of this year and the last 2 quarters, okay, their requirement is last 2 quarters. So it's a more normal pattern that we will see. So I think the -- we could see good signs of a pickup in the inquiry level. Certainly, I won't say that it's all turned into heavy transactions, it takes time, of course. But at least there are signs of a pickup as evidenced by these statistics. Again, I think the -- our portfolio, I'm reasonably optimistic about our portfolio. You mentioned about the active lease management strategy. Our -- against a market throughout the course of last year is pretty uncertain in many respects and yet we are able to improve even the occupancy level. Again, the quality of our assets and also our active lease management is also playing a part. And other reasons evidence that gives you that or give me the confidence is at least our top 30 tenants representing again, half of our portfolio, none of them is telling us that I want you to give you -- none, not a single tenants come back to tell us that, can I give you back some significant space. So if all the top tenants are not talking about contracting that space requirement, what is the message to us? This message is they must take a reasonable, good medium, long-term view about the business. If they take a very -- the pessimistic view about the business, they must be that -- there must at least one or two people telling you that can -- can you find replacement tenant for me that, et cetera. But none, then that is also a very strong evidence. While we are waiting for an expected recovery in the market, I think the -- you also noticed that our expiry -- the percentage of expiries of our portfolio this year or rent revision this year is relatively low, total, what, 22% this year. And then we have already dealt with quite a number of them now it's dropped to the [ '16 ] level unconcluded. So it's relatively low level of rent revisions and expiry. What does that mean to us as well? That means while we are waiting for the market recovery, we don't have -- we have time to wait for a more meaningful recovery. And then next year will be a more meaningful level. Then we have a good briefing space, if you ask me, good briefing space to await for the recovery of the market. You mentioned about supply, yes. It is really quite a level of supply, especially in the decentralized locations. Otherwise, the land price of Bangkok site won't be that interesting. I would use the word interesting for that site. But it's also reflecting the WELL is a very strong location for retail, but it's invariably indicates a very weak outlook for the centralized locations, I would say. I won't say that decentralized location has nothing to do with us. But again, the Hong Kong position itself is a financial center. You find that actually, most of the demand, even in the last 12, 18 months, we find that, people were looking for new space are more talking about intra-central expansions. So it's a reflection of the central positioning for the financial sector. So if we believe that the financial sector will remain quite stable and actually healthy, then the central business can't be too wrong put in this way. Yes, we will be constrained in terms of rapid rental growth because, okay, once you have a quick rental growth, people will stop thinking about cheaper locations, which is correct. But you find that when bulk of the new inquiries are coming from the financial sectors and invariably, they prefer central locations rather than other locations. They know that it will be very, very -- it's quite a strong cost savings if they move elsewhere. But that is not what they want to position their business. So Central, I would say, even the new supply coming in, in Central, but they're just talking about immediate supply, you just talk about 3% of the inventory. So it's relatively modest. It's not like the decentralized locations is quite a fair bit of supply. We just talked about in Central. We've got -- we just talk about 3% of the new supply. So I think all in all, I'm reasonably confident about the performance of our portfolio, that's why we conclude that it should be relatively resilient in our performance in the IP assets. But market has dropped. That market has dropped since the peak by some 30%. So we are still well in the period of negative reversions, but I won't see this negative reversion trend to be multiple years of duration. I think we already experienced last 2 years already multiple negative rental reversions in the order of -- in terms of negative reversions, we talk about in the teens level, low to mid-teens level, negative reversion level. I do expect this year probably will be in decimal order again. And then that should, I think, unless the markets goes south, I do not see this period to be doing much longer after the end of the year, if you ask me. Okay. Yes.

Yes. Robert, sorry, just to pick up on the capital point, I think was asked about joint venture partners, et cetera. I mean, I think your question is about Hong Kong, but I'm not going to comment specifically about Hong Kong. Maybe I would just share generally how we think about our capital. The performance of the capital is under regular review. And of course, we are looking to improve that performance over time. So we have a number of assets, our investment properties, which generate lower yields but provide good income, capital appreciation over the long term. We've got our development properties business, which provides a higher yield and faster recycling of capital. And then we've got about 12% of our balance sheet currently under development, mainly in commercial properties in China and in other markets. We always look for opportunities to recycle capital where it makes sense to do so. So it's under regular review. Joint venture partnering, I think the group has a long history of this quite successfully, actually, the Singapore investment properties portfolio is a very good case in point, but also more recently in China, what we're doing there, and much of it is in joint venture. So we are very open to working with joint venture partners, and we're always looking at our capital base to see how we can improve it.

And I think your question about the joint venture of third-party capital for our Hong Kong business, I think you're referring to, are we thinking about selling our assets in Central property? That's a deal. So I think I want to be very clear on that point that none of our buildings in Hong Kong is for sale. Just I don't want to be representing the situations. None of these buildings are for sale. And then this is our backbone. Of course, I don't also want to answer a question like if one gives you a very attractive price, what are you going to do, okay? This is something that -- but of course, every management is duty bound to consider all options, correct. But at the moment, I can say that none of our buildings is for sale. Obviously, when circumstances changes and develop, et cetera, of course, we need to consider all possible options. So just in order not to create misunderstanding on that front, I just want to be clear on that. Retail sales that you asked about the question on retail sales. Yes, I think we also see quite a reasonable rebound in retail sales in the order of, I think, January, we have a team level of double-digit growth in our retail sales. But in the absence of the [indiscernible] arrivals, especially from Mainland was rather limited in January. The -- it's just representing probably 5% of the peak level of tourists from China. This is arrival number. If you look at those from China. So it hasn't really come back. So the -- so it's more local demand, but the sentiment has improved. But it's also holiday seasons. A lot of people has gone overseas for holidays. So that has also constrained the improvements in the retail sales. And then we are expecting when tourists gradually come back, visible, I'm sure when we see some of statistics for February, we must be experiencing some good uptick in tourist arrival, which, in the sense they will also improve our retail sales level. I think the pre-COVID level, our tenants retail sales for the Central retail portfolio. We are talking about what about HKD 10 billion to HKD 12 billion total per year. Last year, we were talking about HKD 8-ish billion. So to give you an idea. So in the absence of tourists, we're still talking about 30% lower, roughly 30% lower. And the -- our customer mix, Central portfolio January 50-50, but the mainland tourist or tourist demand as well as local demand that has certainly -- the local demand has certainly caught up some of the sales left by the tourist level. So I think going forward, I think the -- with the tourist arrival coming through, we are seeing interesting performance. Actually, we are not just passively relying on tourist arrival to save us. No. I think it's actually the local market and then our mall is actually -- our offering is quite a strong appeal to local customers. So that's why we have stepped up the customer service side and collaboration side with the tenants. We created a new team with the new appointment of Chief Customer Officer, appointed about a year ago. Why would we need a Chief Customer Officer exactly. We think that customer experience and tenants collaborations. We are seeing very exciting developments. We have the first collaboration with a cluster of tenants October last year. And then one of the weekends that we launched the sales for the high-tier customers. We achieved the highest number of sales level for that tier of the high tier of customers, just simply an ordinary weekend in October through customer tenants collaborations and offering some unique experience to customers, you find that we can turn very interesting. Even that weekend result is even better than Christmas sales results. So it gives you an idea, I think this is how we see ourselves that we are not passively looking for people coming through our door, we should actively go and engage and provide interesting experience to our customers. And then I think the February already, we have also got very, very interesting results through very strong tenants collaborations. And then I'm hopeful that -- I do hope that -- I'm hopeful that we should be returning to the tenant sales level. I would be very disappointed if we do not have the same the pre-COVID levels or at least recoup the previous level of retail sales for our Central portfolio for this year. I would be rather disappointed. But anyway, the -- we will work hard in order to achieve that result. And then I think the overall environment seems to suggest that we have a good chance to do so. All right. Yes, please. I'll try to take 3 questions from the floor and then 3 questions from online, just to be fair to all the interested parties.

This is Raymond from HSBC. I've got 2 questions. The first question actually is about buy, not for the selling properties in Hong Kong. So the land prices in Hong Kong has [indiscernible] in terms of pricing? Just mentioned like Macau site is getting very interesting. So does management think by the pricing in Hong Kong is getting more attractive from the risk reward perspective. So will you deploy more capital in contract investment in Hong Kong versus other regions in Asia, like Mainland China. This is the first question. And the second question is about capital management. Like congratulations for acquiring several prime sites last year. So with the growing land banking opportunity in the market, would the management consider to deploy more capital to land purchase instead of the share buyback in the coming 12 months' time?

Okay. I'll leave again, I leave the second part of the question to Craig. I will just come on to the Hong Kong, basically, are we looking at opportunities in Hong Kong? Well, I think from time to time, we have not stop look at Hong Kong opportunities, I would say, we never stopped that. But we just find that in the other places seems to suggest a more interesting upside for us. And also, we have already quite a large asset base in Hong Kong, any uptick for you to invest in Hong Kong, you certainly invest into the future of Hong Kong prospect, et cetera. We already have quite a large portfolio in Hong Kong. So that is a natural also tendency to think about, okay, are we -- with balance sheet while we're still talking about almost 70% of our assets still concentrated in Hong Kong. Do we really want to concentrate too much in one location. So I think this is always a question for us to think about. I think we have significant exposure in Hong Kong. That's why it has to be very, very compelling for us to think about. And then the -- that is about IP assets, residential assets, I don't think Hong Kong residential assets have got a payback period of less than 2 years anyway. So I think the -- and hence, I think the residential assets could lock up your capital for quite a relatively long period of time, all relative compared with our opportunities in China. So when I talk about, you need to have a very agile strategy to invest in both short term and long term. Short term is hopefully very short term that you can turn around very quickly so that you can react to good opportunities without locking in capital, but you don't want to have Lido capital for too long. So that's why a market that offers you a very, very good payback period would be more interesting. So I think the -- all in all, yes, we have not ruled out the Hong Kong as a market, but there is a general preference towards outside Hong Kong and our track record over the -- probably the last 10 years suggest that, okay, 90% of the investment is in China. So we certainly are a believer in China market. And then I think it served us well, both in terms of DP and in the foreseeable future. I think the IP assets will be an interesting earnings driver of our business going forward, buying opportunities versus share buyback. Great.