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

Good morning, everyone. Thank you for joining us in person to review Hongkong Land's results for the first half of 2023. We are also very pleased to welcome those of you participating online. I'm Robert Wong, the Chief Executive of Hongkong Land, and with me is Craig Beattie, our Chief Financial Officer. [Operator Instructions]. Today, I will take you through some key updates and half year results highlights for Investment Properties and Development Properties before turning over to Craig to cover 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 half 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. In Hong Kong, Headwinds in global financial markets have dampened office demand, especially from the financial services sector, the well-documented office supply surplus, predominantly, in decentralized areas has resulted in an increase in vacancy across the city. The group's Central portfolio vacancies continue to outperform the office market, both across Hong Kong and within the Central District. This is driven by continued flight to quality, demand from occupiers attracted to the portfolio central location, premium offerings and tenant services as well as strong sustainability credentials. On Luxury retail, trading conditions have improved significantly since the reopening of the border and the return of visitors, with tenant sales and footfall approaching pre-COVID levels. Moving on to the Chinese Mainland. Despite the introduction of policy support measures, sentiment for the residential market was weighted down by the weak economic outlook in China and remained cautious in the first half of the year. The group's focus on premium residential products in selected top tier cities as well as our strong reputation for quality resulted in a better sales performance than the general market. Turning to Retail. There was a strong recovery in tenant sales, and footfall in the first half of 2023 at both WF CENTRAL in Beijing and One Central Macau. In Singapore, office leasing momentum in the first half of 2023 continued to benefit from healthy occupier demand, although market sentiment has turned cautious as a result of softer demand from technology and financial services sector. Office rents continue to rise due to positive net absorption and a tight supply. On the Residential side, buy sentiment remains satisfactory despite recent cooling measures targeted at tempering demand from foreign investors. Presales at the group's recently launched Tembusu Grand project were well received by the market. Turning to an overview of the 2023 half year results. Despite challenging trading conditions in a number of our key markets, I'm pleased to say that the group produced a solid performance overall in the first half of the year. The group's underlying profit in the first half of 2023 was USD 422 million, in line with the same period last year. The total profit contribution from the group's Investment Properties business increased on the back of a much improved performance from our Luxury Retail portfolio which was partly offset by lower contributions from Development Properties business due to less planned residential sales completions. Underlying earnings per share was USD 0.19 per share, a slight increase compared to the same period in 2022 as a result of the buyback and cancellations of 5% of Hongkong Land shares since the share buyback was launched in September 2021. The overall loss per share was USD 0.15 after the impact of nontrading items. The loss attributable to shareholders was USD 333 million after accounting for a net revaluation loss of USD 755 million on the group's investment properties portfolio, nearly all of which related to the Hong Kong office portfolio. The net asset value per share at 30th of June 2023 was USD 14.51. The Board has declared an interim dividend of USD 0.06 per share, unchanged from the prior year. The group's balance sheet remains strong. Now let's turn to some of the progress we have made in the first half of 2023. In April, the group commenced sales of Tembusu Grand, a residential development in Katong region in Singapore. The project was well received in the market, having sold 53% of the units on the launch weekend. During the period, the group increased its investments in 2 existing projects, acquiring a 15% interest in Yue City, a mixed-use project in Nanjing from Country Garden; and acquiring a 50% interest in Dream Land, a mixed-use project in Wuhan from [indiscernible]. Both projects were acquired at a discount valuation which resulted in one-off gains recognized in the results for the first half of '23, amounting to USD 72 million. The group also secured 2 new investments in Indonesia through its joint venture with Astra. Total new investments in the first half of 2023 was USD 100 million. For reference, the group invested USD 1 billion for the full year of 2022. The group's intends to maintain a disciplined approach when assessing new investment opportunities to navigate the current uncertain market conditions. In the first half of 2023, the group continued to progress on its sustainability goals, including the disclosure of Scope 3 emissions for the first time in our Sustainability Performance Report 2022; two, the development of the Scope 2s to measure the carbon emissions impact from our projects; and three, the soft launch of a more comprehensive sustainability partnership program with our tenants in Hong Kong. I will provide further details on all these items later on the presentation. Diving 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 Chinese Mainland. The group expects to launch 4 additional CENTRAL-branded luxury retail properties from 2024 to 2027 in Nanjing, Chongqing, Suzhou and Shanghai with an estimated attributable net lettable area of approximately 163,000 square meter. In April 2021, the group opened a 7-level shopping mall under the lifestyle retail brand, THE RING, in Chongqing. 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 2024 to 2028 with an estimated attributable net lettable area of approximately 197,000 square meters. Upon completion in 2028, the group's total attributable retail net lettable area under the 2 brands will be 3x greater than the current levels. These assets will provide the group with a strong source of growth in recurring income stream. Depending on their performance and market conditions, after rents stabilize, the group will consider whether to continue operating these assets for long-term capital appreciation or to dispose of them and recycle capital invested. Turning now to an update on the West Bund. Construction is largely progressing on schedule, with completion expected in phases starting from 2023 through 2027. The first phase to be completed is the residential component, both for lease and for sale. The residential properties for sale component will be launched later this year. The buildings are now undergoing interior fit-out work, with completion expected by the end of 2023. The second phase, which is expected to be completed in stages between 2024 and 2026, will consist of low- and mid-rise offices, luxury and lifestyle retail. Currently, the basement and superstructure works are in progress. The final phase will consist of the office and luxury retail for lease as well as luxury hotel and service departments, which are expected to be operated by global luxury hotel brand. Currently, the piling and excavation work is in progress. Completion is expected in stages from 2026 to 2027. In addition to the commercial and residential components, we have focused on the West Bund also includes a significant amount of public and green space for public use. Located on Block C is an art exhibition hall called Orbit, which we aim to become one of the world's leading exhibition spaces for fashion, art and other cultural events. In addition, a Seed Museum who aim to educate visitors and help them reflect on the importance of biodiversity as well as promote more sustainable lifestyles. There will also be a Planetarium to provide immersive astronomical experiences. The high-rise office towers for lease will include a private terrace with an outdoor meeting space. Throughout the development, there will be abundance of green space for public use. I shall now turn to investment properties. Turning first to our Hong Kong office portfolio. Performance from the office portfolio remaines stable. Rental reversions were negative in the first half of 2023 with an average office rent decreasing to HKD 107 per square foot from HKD 111 in the second half of 2022. Physical vacancy at the end of June 2023, increased to 6.9% from 4.9% at the end of 2022. On a committed basis, taking into account existing lease commitments, vacancy was 6.2% at the end of June 2023 compared with 4.7% at the end of 2022. By comparison, vacancy based on existing lease commitments across the Hong Kong Central Grade A office market was 9.4%, an increase from 8.8% at the end of 2022 and the highest it has been since 2004. The weighted average lease expiry at the end of June 2023 was 3.7 years compared with 4 years at the end of 2022. The portfolio's top 30 tenants, who occupy close to half of our total office net leasable area in Hong Kong, had average lease expiry of 5.6 years. At the end of June 2023, only 12% of our Hong Kong office portfolio is subject to expiration or rent revisions during the second half of the year. Including concluded renewals and rent reviews subsequent to June, this has decreased to 8% of our portfolio with approximately 3% relating to expiration and the remainder to rent reversion. Next, I would like to dive further into the overall Central vacancy and supply dynamics to bring some context to our numbers. Since 2017, Hong Kong Central portfolio vacancy has outperformed the broader Central market with the gap widening since 2021. This is in part due to the group's active lease management in recent years as well as the group continuing to respond to the changing preferences of our tenants and customers. The group has continued to introduce new concepts to its portfolio of best-in-class services and offerings, including continuing our efforts to deliver on sustainability initiatives to meet increasing stakeholders' expectations. Prime examples of addressing tenants' changing preferences included the launch of Centricity Flex in 2021, 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 as well as the refreshing of F&B concepts on offer over the past 2 years. On sustainability front, our entire Central portfolio is certified to a highest possible green building standards of BIM Plus Platinum across all 7 aspects under the existing building schemes, including strong energy and water efficiency, waste reduction, indoor air quality and sustainable property management practices. Based on data from JLL in 2022, there was 5 million square feet of new stock in Hong Kong, the highest level since 2008. However, none of it was in Central. From now until 2027, an estimated 10.2 million square feet of new office space is expected in Hong Kong, of which 1.1 million will be in Central, which means that by 2027, total office space in Central is expected to reach 25.1 million, representing a very manageable 4.6% increase from the existing stock as at 2022. Turning to the LANDMARK, which continues to remain the preeminent luxury shopping and fine dining destination in Hong Kong, following several challenging years for the retail market in Hong Kong, LANDMARK delivered an improved performance during the first half of 2023, an increase in tenant sales and the phasing out of temporary rent relief led to an increase in average retail rent to $204 per square foot in the first half of 2023 compared to $168 and $181 in the first and the second half of 2022, respectively. For comparison purposes, if we exclude the impact of rent relief, average net rent in the first half of 2023 were 7% higher than the same period last year. In terms of occupancy, the LANDMARK remains effectively fully occupied. Tenant sales has increased by an estimated 72% year-on-year, largely on par with sales from pre-COVID levels. Turning now to our Singapore office portfolio. Average gross rent across our Singapore portfolio in the first half of 2023 was SGD 10.9 per square foot per month, an increase from SGD 10.6 in 2022. Positive rental reversions were achieved during the year. Physical vacancy across the portfolio was 2.1% compared with 7.5% at the end of 2022. On a committed basis, vacancy was 1% compared with 2.2% at the end of 2022. As at the end of June 2023, only 3% of our portfolio was subject to expiration or rental revisions in the second half of 2023. Turning to other parts of Asia. In Beijing, footfall and tenant sales experienced a strong recovery in the first half of 2023. Tenant sales at WF CENTRAL were up 57% against the same period last year in the first half of 2023. WF CENTRAL welcomed 22 new tenancies, including new duplexes for Gucci, Burberry and Prada as well as an expanded presence for Valentino on the second floor of the mall. At the end of the first half of 2023 the property was 83% let. In Macau, footfall and tenant sales in the first half of 2023 benefited from a return of visitors from Hong Kong and the Chinese Mainland, with tenant sales increasing 58% compared to the same period in 2022. Moving on to development properties. On the Chinese Mainland, the group development properties pipeline includes 35 projects spread across 7 cities, with total attributable developable area amounting to 8.2 million square meters of these, construction of approximately 68% had been completed at the end of June 2023. Chongqing remains our largest market and accounts for 60% of our Chinese Mainland business by attributable developable area. We currently have 14 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 30%, followed by Shanghai, Nanjing and Wuhan, which account for 23%, 20% and 15%, respectively. The property market appears to be stabilizing following the government's increased effort to support developers and further relaxations of very stringent cooling measures that were previously in place. However, market recovery is still quite slow, and the challenging economic outlook continues to weigh on the residential market. During the first half of the year, the group's share of development properties revenue recognized on the Chinese Mainland, including its subsidiaries and share of joint venture, was USD 563 million. This represented a 23% decrease from the same period last year due to timing of completions. In terms of sales performance, the group's share of contracted sales increased by 78% year-on-year to USD 745 million, a result of the group's focus on premium residential product launches in selected top-tier cities. Sales launches in Chongqing, Chengdu and Wuhan, including units at Metro Jewel, or Region Land, LANDMARK Riverside and Real City were generally well received and outperformed the overall market. At the end of June 2023, the group's share of sold but unrecognized contract sales in its developments on the Chinese Mainland was USD 2.3 billion, with 47% expected to be recognized in the next 6 months. The group recorded a gross margin of 21% in the first half of 2023, down from the 27% recorded in 2022. Turning now to Singapore, where the group has 4 development projects with a total attributable development area amounting to approximately 110,000 square meters. As of June 2023, all 4 projects have been launched for sale. Hongkong Land's first launch of the year, Tembusu Grand achieved strong first day sales of 53% in April, signaling strong demand for well-located projects in the rest of Central region. Revenue recognized in Singapore was USD 225 million compared with USD 174 million in the first half of 2022. In terms of sales performance, contracted sales in first half 2023 was at USD 487 million, an 80% increase from USD 270 million in June 2022. This was primarily driven by the launch of Tembusu Grand, which achieved strong first day sales of 53% in April. As at the end of June 2023, sold but unrecognized contract sales in Singapore was USD 849 million, with 17% scheduled to be recognized in the second half of 2023 under the percentage of completion method. The government has introduced cooling measures, protect the domestic home buyers and to promote a healthy development of the residential property market. This concludes the 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, everybody. I will now take you through our financial performance in the first half of 2023. All numbers referred to in this presentation are in U.S. dollars unless otherwise indicated. Despite the market headwinds, the group has produced a satisfactory profit performance in the first half. Underlying profit was $422 million, in line with the same period last year. Investment property's operating profits increased by a net $17 million year-over-year. This was primarily due to better performances from the group's luxury retail malls in Hong Kong, Beijing and Macau. Operating profits from development properties decreased by a net $43 million year-over-year, primarily due to fewer sales completions on the Chinese Mainland. There was a net decrease of $23 million in expense items, mainly driven by lower tax charges due to a smaller share of profits coming from the Chinese Mainland as well as a net decrease in net financing charges due to higher interest income from deposits. The impact of rising interest rates in the first half was modest as the group has a significant portion of fixed cost debt. Overall, the operating profit split between investment properties and development properties remained similar to the first half of 2022 at approximately 70% and 30%. Turning to rental income by region. The combined rental income from our office and retail portfolio in Hong Kong increased by 1% compared with the same period in 2022. Improved performance from the LANDMARK retail mall was partly offset by negative rent reversions within the central office portfolio. Rental income from our Singapore portfolio increased by 8%, benefiting from healthy demand and supply dynamics with positive rental reversions across the portfolio. On the Chinese Mainland, rental income increased 10% in 2023 compared to the same period in 2022 due to increased contributions from WF CENTRAL, which enjoys a recovery in tenant sales and footfall. Contributions from our hotel properties in Hong Kong, Beijing and Macau improved significantly as visitors returned in the first half of 2023. 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. Profits from the Chinese Mainland are recognized when projects complete construction and are handed over to buyers. This means that construction progress and the number of projects in the pipeline will cause fluctuations in profitability across reporting periods. Profits in the period reduced by 16% year-over-year, reflecting a fewer number of completions. Profits in Singapore are recognized on a percentage of construction completion basis. Profits in the first half of 2023 were broadly unchanged in comparison to the same period last year. There were lower contributions in Indonesia due to a reduction in planned sales completions. And in other South Asian countries, operating profits decreased, with 2022 profits benefiting from a large residential project in Vietnam. Turning now to an update on our capital management. In line with previous guidance, we endeavor to maintain a steady or increasing dividend as earnings grow. The group expects 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. Dividends for the first half of 2023 will have been maintained at $0.06 per share. In the first half of this year, there were no new land acquisitions as the group adopted a cautious approach towards new investments. The group increased its equity share in 2 existing projects and the Chinese Mainland for a total investment cost of $153 million. As advised previously, we expect capital deployed this year to be below the average investment in the past 6 years. And in the first half of this year, as you can see, the group invested $0.1 billion compared to an annual average of $2.4 billion in the past 6 years. On the share buyback, the total amount invested in the program since it was announced in September 2021 is just shy of $600 million, and there's about $400 million remaining headroom until the end of this year. Let me provide you with an update on our balance sheet. Net asset value at 30th June 2023 was $32.1 billion, down 4% compared to the end of 2022. This was primarily driven by valuation reductions of Hong Kong office assets, which reduced by some 730 million, following a 2% decrease in rents and 5 basis points cap rate expansion. Exchange translation differences of $409 million mainly related to assets on the Chinese Mainland, which had a lower value in U.S. dollars due to a weakening of the renminbi. Final dividends for 2022 of $0.16 per share were paid to shareholders in the first half of this year. 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 group has approximately $580 million bonds due to mature within the next 6 months. $400 million of this has been refinanced with a new 10-year bond issued on the 14th of July. The average tenor of our drawn debt at half year was 5.7 years, although this has increased to 5.9 years with the new bond issuance included. Average interest cost was 3.7%, up from 3.3% at the end of 2022. The impact of increased market interest rates was mitigated by having 54% of total gross debt at fixed rates. At the end of the first half of this year, the group had available liquidity of $3.3 billion compared to $3.1 billion at the end of last year. And our credit ratings by S&P and Moody's remain unchanged at A and A3, respectively. I will now hand back to Robert, who will close with some comments on our sustainability achievements in the first half of this year, a few of our ongoing corporate initiatives and the outlook for the rest of 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. The group continued to make progress on its sustainability journey over the past 6 months. As part of the group's work towards improving and simplifying its U.S. ESG disclosures, 2 separate reports were issued. The first specifically focus on the group's sustainability framework 2030, it's decarbonization pathway to 2030 and climate risk-related disclosure in line with TCFD requirements. The second report focused on providing details on the initiatives undertaken and sustainability performance data across the region for 2022. On decarbonization, the group has made progress towards its SBT-aligned Scope 1 and 2 reduction targets of 46.2% by 2030 by achieving a GHG reduction of 20% in 2022 relative to the 2019 baseline. The group is committed to continue undertaking asset enhancement and other energy efficiency initiatives as it progresses towards its 2030 targets. For Scope 3 emissions, the group also made progress with the inaugural disclosure of emissions in the Sustainability Performance Report 2022. To facilitate more accurate and timely reporting of embodied or construction-related carbon emissions throughout its supply chain, the group developed bespoke tools to cover a number of key markets outside Hong Kong and Singapore where industry recognized tools have yet to emerge. The group is now working on implementing these tools into its development cycle in order to identify opportunities to work with contractors to reduce carbon emissions from its development project. On the tenants collaboration front, the group is building on this successful pilot Green Fit-out and Operation Recognition scheme by soft launching a more comprehensive tenant sustainability partnership program at the Central portfolio. The program aims to deepen our collaborations with tenants on our shared sustainability journey, to include not only finding ways to improve our environmental performance, but also combining our efforts in delivering voluntary and other CSR initiatives to the local community. More details will be announced in the coming months. The group is also proud to have received a number of accolades for its property management excellence and putting sustainability into practice over the past few months. Awarded by the International Facility Management Association, Hongkong Land Property Management Limited received the certificate of excellence in IFMA Asia Pacific Award of Excellence 2022 and 2023 in environmental stewardship. In addition, Exchange Square HongKong won the Excellence Building Award 2023 year of excellent building award for existing buildings, which was awarded by the Hong Kong Institution of engineers. These awards are testament to the high standards of the group's operational excellence. 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 digitalization efforts. The bespoke loyalty program aimed at Landmark's luxury clients utilize data analytics and visualization platforms to identify high-value retail customers and launch targeted marketing campaigns. The team engages, our customers in various methods such as brand collaborations events, program engagements and technical offerings. The active engagement from our customers, their increased spending and willingness to join our program illustrate the meaningful outcomes of our assets. On the asset side, we continue to source, test and deploy PropTech and other solutions to the benefit of both tenants and customer experience as well as progress towards the group's sustainability objectives. This year, PropTech acceleration program focused on solutions that prioritize sustainability. Some of the award-winning solutions, which are being piloted and potentially implement across the groups in crew and AI-based robotic systems for building exterior maintenance, the replacement of concrete with plastic balls to reduce concrete use in new builds. Digitalization efforts on the group's operation continue at pace. Recent achievements include the deployment of an enhanced property management platform for over 2,200 users that include tenants, vendors and Hongkong Land Staff to improve communications and interactions with new features such as centralized contract database, improved project payments tracking mechanism and other enhancements that optimize operational processes. Moving on to CSR. Since 2020, the Home Fund, the community building initiative of Hongkong Land, has committed more than HKD 100 million in various projects that target social inclusion, outward mobility of youth and alleviating housing-related social issues. Some of the key highlights in the first half of 2023 include, as part of the Home Fund's collaboration with Ronald McDonald House Charities, Hong Kong, participated in the alternative schooling scheme, which provided learning support for 200 children suffering from critical illnesses. Collaborated with the Hong Kong Christian action to provide prevention and remedial programs to youth. So far, the project has helped 154 young people in just 9 months. In terms of projects to help alleviate housing-related social issues. Home Fund is partnering with the social enterprise, Light Be, to provide transitional housing and career coaching to 50 young people. Home Fund's collaboration with Jack Cub Design Institute for Social Innovation, or PolyU, in 2021, which include the creation of economically designed furniture to 2,000 children living in subdivided units is coming to an end. All of the furniture will be distributed to these children in need by the end of this year. Aside from the Home Fund, Hongkong Land's HERE2HELP volunteer team contributed over 3,600 hours of volunteer hours in the first 6 months of 2023, participating in over 100 programs and touching the lives of over 8,000 people. I will now conclude with our outlook for the remainder of the year. Overall, market conditions are expected to remain uncertain for the rest of 2023, impacted by global economic headwinds and a high interest rate environment. Leasing performance for the office portfolio is expected to remain resilient despite challenging market conditions in Hong Kong. Global economic headwinds are likely to continue to weigh on the office leasing demand, although we expect the Central portfolio to continue benefiting from a flight to quality. Rental reversions are expected to be moderately negative for the remainder of the year. As a result of our active lease management, the majority of the area subject to expiration in the remainder of 2023 have already been accounted for. In Singapore, the office portfolio is expected to remain stable, despite softening market conditions. Positive reversions is expected for the remainder of the year as the market continues to be underpinned by limited supply pipeline. On the retail front, performance at the LANDMARK is expected to improve further in the second half as with the appraisals in Hong Kong continued to recover. In Beijing and Macau, the positive momentum in the first half of 2023 is expected to continue the benefit performance at WF CENTRAL and One Central Macau. In development properties, an improvement in contribution from the Chinese Mainland in the second half of 2023 is anticipated due to a high number of planned project completions. The outlook on the broader Chinese residential market, however, remains uncertain as the weak economic outlook continues to weigh on market sentiment. The group's focus on premium residential products in selected top-tier cities put it in a strong position relative to the wider market. In Singapore, residential market sentiment is expected to remain healthy due to a limited supply in the market despite the introduction of cooling measures and a softening economic outlook. Underlying profit for the full year 2023 is expected to be stable compared to the prior year, underpinned by resilient earnings from investment properties with upside depending on the timing of planned sales completions in development properties. In terms of capital allocation going forward, the group intends to maintain its previously stated approach of prioritizing investment in new assets to drive long-term growth and shareholder value, whilst endeavoring to the payment of steady and over time, increasing dividends. The group is confident in its chosen key markets and we'll continue to execute on this strategy of investing in and growing its investment properties 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 shareholders' return. Investment in existing assets through buybacks will continue to be considered as an opportunistic basis, and will be weighted against the group's other priorities, including funding new acquisitions, paying steady and over time, growing dividends as well as maintaining a strong balance sheet. Over the past 2 years, we have seen an increase in stakeholder expectations on the group's performance on sustainability and delivery of CSR initiatives. The group is committed to maintaining momentum on delivering sustainability and CSR initiatives by deepening our engagement with tenants and other stakeholders. Overall, we expect uncertain market conditions persist over the short term. However, the group's relentless focus on delivering world-class services to tenants, strong reputation with homebuyers and customers continue to position it well in navigating these uncertain markets. Now I'm happy to take any questions from the floor or online.

All right. Okay. Maybe ladies first, yes.

Sarah Cooper from Bank of America. I have 2 questions. First of all, just curious how you're thinking about the attractiveness of your stock price at the moment relative to the gearing levels, the developments that you need to continue on within and then overall, that versus other opportunities in the market, clearly, thinking about buyback? And then the second question is, obviously, Hong Kong is in a very different position from a office point of view than are many other markets around the world, but we are seeing a huge focus on amenity and a shift in attractiveness or an improvement in the situation for the buildings with the right amenity. How are you -- are there any new thoughts around improving some of the existing Hong Kong Central portfolio given that some of the assets are a little older at the moment relative to the new supply?

I think the first question effectively relates to share buyback. Maybe, Craig, would you like to take this question and I'll come on to the second question later on.

Sure. Sarah, thank you for the question. I think on the buyback, maybe if I just show a little bit of what we're thinking generally about capital allocation. With interest rates going up, clearly, our expectation on returns across all the portfolio has increased. So the first point to note is that our internal hurdle rate, if you like, for new deals has naturally gone up. So I mean you've seen in the first half that we've been quite selective with capital that's being deployed. Clearly, the buyback at the current level provides, I think, a very attractive opportunity to create value for shareholders over the long term. We have bought some shares earlier in the year. We haven't bought anything for the few months but the price has come down by about 20% in the last 2 months. So I think at a sort of 6% dividend yield at current levels of just over 6%, clearly, it is attractive. But we have to acknowledge at the same time that the cost of funding that buyback has gone up and the cost of borrowing currently is about 6%. So it's broadly neutral based on this point in time. So I think there's a number of factors in play, but I think it's hard not to acknowledge the attractiveness of the buyback at these current levels.

Well, on your second question, it's actually quite an important question to Hongkong Land. I don't think that the -- we take these issues very likely. Yes, our buildings average age is longer than the end market with [indiscernible]. So actually, I think the last time when we hear a question about, okay, your Hongkong Land property is getting or is actually in, I remember in the late 1990s, I heard these questions. And then since then, that Hongkong Land have been back on a program of refurbishment since 1990s. So the question about the deal with the age of the buildings, it is not today, how should we deal with it. Actually, we start off from many years ago. To talk about our commitment to improve the basic hardware first, okay, I turn on to the software later on because it's a combination of hardware and software when it comes to providing the right office space for our customers. The hardware in the last 5 years, we've spent an average of USD 100 million per year in improving our hardware. That includes what the replacement of the AC systems, improving the replacement of the lift systems. So without that such an improvement program, how can we keep our service level at the top standard. And also, it also goes a long way in terms of satisfying the ESG goal when we have strong commitments on also energy savings, et cetera, obviously, improving the AC system -- goes a long way in terms of energy efficiency. Going forward, we -- I don't think that will slow down that CapEx because we recognize that there is a changing demand of our tenants, et cetera. If you look -- also look back at what we have done in the past, when the tenants have increasing demand on the E&M facilities, actually, we have done also a lot in improving the E&M. When you talk about 3G, 4G and 5G, et cetera, we are ahead of the market before the launch of these facilities. We already put in place infrastructure that on the first day, these available for tenants to use, we are already ready. So we are very forward-looking in terms of making sure the hardware is very relevant. And I don't think the fact that, okay, our tenants deciding to leave our portfolio is because of the fact that, "Oh, your property is getting old. So I think I'm happy enough with your properties." No. I'm not aware of the tenant's departures, cases which are not plentiful anyway, that they are because of the fact that the building facility is getting low. And in fact, actually, new tenants keep coming in. And then recognizing that we are really up to speed with modern standards in terms of the facilities. And actually, in terms of our ESG potential, we are very, very strong. So that's why I think the -- it's more a perception. When you look at the numbers of the average age of the buildings, people seem to think that we are old. But in fact, when you look at -- actually, when we have guests regularly coming to visit our portfolio, none of them would have guessed our average age of the buildings that we want to tell them that -- oh, you're talking about 40 years plus. How come when I work along your property, it doesn't seem to be 40 years old plus. So it is the key is about how we focus our energy in improving the hardware. I talk about the software. I think, again, a number of years ago, we recognize that it's just not about in a competitive environment. It's not just about making sure that lobby looks nice, everything the service -- the live surface, E&M to make sure everything is in place. It's not just about that. So that's why we call a few examples how we're improving our software in the equation. Our digital platform, centricity, digital platform is designed. It's a digital platform that we designed to -- and they provide service directly to each staff of the tenants. So now each staff of the tenants can request service through the digital platform. So against the traditional way of dealing -- management dealing with tenants is usually through the main department. So the one that we know best is the main director or the partner in charge of the administrations of the tenant space. But now we are engaging each staff of the tenants and understanding their needs and so that we can feed back to them. And even the digital platform, now people don't have to ring up the management to talk about the complaint for AC, they can adjust the temperature through the app. We are rotating out all these initiatives now quite a large percentage of our portfolio in Central. Now in that -- so who -- you can check -- still many buildings you still need to bring up, oh, I feel cold. Can you adjust the AC, et cetera. Now a lot of our -- so we are about to complete that initiative as well. This is just to give you an example, the -- about the software side. I mentioned in the presentation, the centricity flex. So we recognized that people need more flexible space, flexible lease terms, et cetera. And then -- and hence, we built in the Landmark 2 floors of flexible space. And then they are generally well received and then they regularly full as well. So it's also a part of our service apart from the fact that you come and lease our vacant space, pick by itself, if you want uncertain about your requirements, please come. And we do have plenty of examples that people first join our centricity flex space first, and then becomes our tenants. We could have quite a number of -- since it was opened some 2 years ago. Then again, the -- we recognize that it remains a very challenging market with new builds coming in. I think the -- but I don't think we lose any attention in making sure that our product is very competitive. All right. Okay. Yes, please.

Sam Wong from Jefferies. I have 2 questions, if I may. First, just on retail sales, very strong performance in the first half. So could you please also give us a bit of details on demand for month progression of the sales momentum. So are we seeing any slowdown in June and July, for example? And the second question is on office vacancy. Obviously, you can see, obviously, it started to pick up again in Hong Kong despite the slighter quality trend. So do you think it's just a short-term sort of fluctuations or if there is anything structural in the weakness? Should we expect obvious vacancy to pick out from here?

Okay. Retail sales, I mentioned in the presentation, yes, the first half is quite satisfactory. You have also pick up from statistics in the market that despite that the visitors have not fully returned to Hong Kong. I mean gradually, it's just talking about 60% of the previous peak of the visitors arrival. We already -- the sales -- tenant sales have already reached the pre-COVID levels. We do not benchmark equity levels of last year or during COVID time. We benchmark -- we try to benchmark our retail sales against 2018. So it's actually returned to that level, so which is encouraging. And the -- yes, I think there will be fluctuations from time to time. You are right that actually the last -- the month of June actually slowed down a bit into retail sales. And we do not expect these things to keep really one direction is really is quite cyclical in nature. So it's not entirely surprising, especially, you also pick up that general market sentiments have come off in June, actually, which is a well-known fact. I think whether the market sentiments have affected their sales to a certain extent, that could be part of the reasons. And hence, the weather, of course, going forward is about predictions. Our thinking on the ground is probably second half, I would not be particularly pessimistic about retail sales of our portfolio in Central. It's not -- we are not solely relying on market sentiments to make it work because I think we also need to think about how to grab the market share. So that's why we have a lot of initiatives that we have implemented in order to grab the market share. These initiatives -- just to highlight some examples. We have significantly beefed up our customer service teams. The team sizes have increased a lot. We have completely renewed our digital platform in analyzing our customers' behavior. So our customer loyalty program. We have -- this is completely new. It's actually beginning of last year, we have replaced a system with a completely new digital platforms in registering our bespoke sales results and then also the loyalty program, and that enabled us to understand -- to serve our customers better. And then equipped with these full data and also capability, we could now be employing more targeted sales approach and then we try to test, which we can actually analyze, which customers are more keen to shop in one particular brand or multi-brands, and then how often they shop and what type of products are they shopping. And then with these information, then we can divide them into different types of categories and then try to use different marketing means to approach them. Some of them may prefer more the point reward, some of them are experienced base rewards, et cetera. So we test various means of these based on the data that we receive. And then we find it is actually -- in the past we found these analytics. We generated -- sent out mass marketing approaches. Everyone will get the same offer, et cetera, irrespective of their preference, et cetera. So that is our approach in the past. And we don't think this is the right approach. And now we are even focusing more energy on the top tier of the -- basically, the first 10% or the top 10% of our customers constitute, I would say, 70% of our sales. So that's also explained that we should spend more effort in analyzing the elites, the shopping elites to help the performance. Another approach that we try to grab the market share is, we beef up our collaboration with the brands. That is also very important. Instead of just we -- you do your own marketing yourself, I do my marketing yourself. We just hope that they all work together. It's hugely inefficient. I think the last 12 months, we have -- we actually worked with the brands, okay, you collaborate with them with some defense actually, and we bring together a dozen of brands and then creating some events jointly. And actually, for just an example, we -- a dozen of brands get together and provide some -- the programs for our customers. In May, the 10 -- that program lasts for about 10 days and the sales that registered in that 10 days represent the highest ever on record of Hongkong Land in terms of sales by the customers in that 10 days' time, 10 or 11 days' time. Usually, the sales record -- and the record sales record happened in Christmas. So Christmas come early to Hongkong Land this year. So again, this illustrates that with efforts of trying to collaborate with tenants could produce very, very interesting results. And then I think that this is what we will continue to do. And then I think with this approach, so that's why the -- I remained relatively positive about the performance of the retail sales in the second half. Of course, unless the market has a significant -- the downturn and the sentiments significantly reversed in the wrong direction. Obviously, one cannot tell. But based on our own experience and the effects that we have seen so far, I think the retail performance should be fine, if you ask me. Office vacancy, of course, generally, you're asking about the office outlook. Of course, the office outlook is, as I mentioned in the concluding statements, is relatively uncertain. Obviously, we all know about the macro environment are quite uncertain. Interest rates, can someone tell me when will the interest rate come down. And then -- again -- and also the geopolitical situation is also getting the unpredictable. We use the words and also the China -- and China, which is quite affected to Hong Kong as well, so China environment is also concerning. So a number of these are affecting the market quite a lot. And then with these uncertainties, certainly, would people be brave to take up a lot of space at the moment or committing to new office space. Obviously, it is -- I won't be able to give you a precise answer. Of course, some indications, I would say, if rent remains stable at this level, I should see the negative rental reversions should gradually go away in the next 12 months. But of course, if the rents keep -- if you believe that rents keep going down and then sharply, then obviously, we would have a longer period of negative rental reversions. I think in an uncertain market, I think while I'm unable to tell you the -- when will the recovery comes, when will the vacancies really out of control data, et cetera, very hard to predict that. But one can say that, I would say, Hong Kong Central market should continue to outperform. The fact that central market, again, I mentioned in the presentation that the new supply in the next couple of years, cumulatively, you talk about 5% new supply of the existing inventory get increased by 5%-ish. The wider market has got a much higher increase in terms of percentage terms. So the supply in the central market remains relatively healthy, I would say. And the fact that for those -- the property owners, who pay more attention about quality of buildings, services, especially on the ESG side that trying to work hard on the ESG credentials should continue to outperform. You have seen a strong story of flight to quality in the last 2 years. And why is that is again because those are more ready for recovery should benefit for an outperformance. So I think I'm sure Hongkong Land will belong to that category of outperformance. When the market comes along and recover, so we should be the first one to recover more faster than other people. We already demonstrate our outperformance in terms of our vacancy level, generally well below the market norm as well. So the -- I'm reasonably confident that well, I cannot give you a precise answer about recovering, I hope I know the answer. But I'm very confident that Hongkong Land will continue to outperform. All right. Okay, maybe fair to the people online that I will come to you later on just -- I pick up the questions. For those questions that the debt I have largely covered, I would not mention it. So don't feel offended that if I did not mention your questions because I think quite a number of questions is about the office outlook, et cetera. I think I have covered that part. But if you have any specific areas on the office side and also the retail sales of Hongkong Land, please come forward and raise again that you want me to elaborate. Otherwise, I would not repeat the question here. The question is from HSBC, Geoffrey Choi. He talked about, of course, outlook of Hong Kong office market, which I have covered. He also asked about the Mainland China portfolio, what is our view on the outlook of Mainland China portfolio? Our Mainland China portfolio, of course, at the moment, our IP assets in China relatively small. So it is mainly about our development properties market. I've mentioned about, of course, the market in China is also generally weak at the moment. Actually, after a brief [indiscernible] -- until probably April, then you will find that -- we found that the market has turned in particular or test turned weak. Weekly sales, our weekly sales, they have rebounded from the -- used to be RMB 100 million, RMB 200 million on a 100% basis per week and have rebounded to -- up to $500 million per week sort of sales in March and April and then now have come back to more $100 million, $200 million just to give you an idea about the sales have. So that is certainly an indication of the weakening of the market. And then -- but you see that the government is key not to let the market in China to -- especially the property market collapse. It is such an important economic pillar of the whole China economy. You have seen a lot of stimulus measures have been put out. Last few days, you probably also read the announcement that they would further relax the availability of mortgages used to be the -- your background, have you got any mortgages in the past and then have your outstanding mortgages. So I think the -- now they will be relaxing that part. The -- as long as -- as long as you do not have any -- they do not check your track record. As long as you do not have any mortgage, they will treat it as your first purchase, which in the past that they would not just look at what you have got at the moment. They would just chat and they also look at your history. Now if you do not have any on the books, you will be considered as a first-time buyer sort of treatment. Of course, first-time buyer means that you may have preferential interest rate plus the higher percentage of loan-to-value ratios. So again, this is an indication of how they really want to provide their availability -- more availability of mortgage loan to customers. They also announced that the transfer of secondhand properties have tax exemptions now. As long as this is your main residents, again, this is also a -- and other measures that they put out. So this is just indications of the -- it's just announced few days ago or last week -- later part of last week that they make such an announcement. So it's a wave of -- wave of new measures coming in. Central government, they saw -- you saw a statement saying that the -- because China property market have the supply and demand have faced structural change, they should do something about that, okay? So immediately after that recognition of structural change, I'm sure they refer to structure challenge of the property market in China. And hence, they immediately after that statement, they put out some additional measures. There won't be any silver bullets to deal with such a challenging market, it takes time. Even in the past, the seamless measures or even cooling measures, it takes time. Generally takes 6 to 9 months before it takes effect to really impact the market. I mean I would not be able to predict whether, again, this time, we just wait 6 to 9 months and you will get it. I think, of course, it's too simplistic to make such predictions. No one knows. I would say, it takes time. So I think we need to be patient. Again, the segment of the market that this is the overall environment. The government is keen to see the revival of the market. It takes time for that to take effect. But Hongkong Land business, if our energy continue to focus on the upper end of the market, focus on the quality of our products, even in a weak market, we are already seeing -- continue to see outperformance of our market, a typical projects that while other people cannot sell, we can still continue to sell. I'm not saying that we can still be sold at hotcake, but we generally still enjoy outperformance in the market. So when the market recover, like the office segments or in Hong Kong, I'm sure we will also enjoy the outperformance in the -- as long as we focus -- continue to focus our energy on product quality, et cetera, which will remain our key competitive advantage in China. All right. This is the online and then Pravi, yes.

This is Praveen from Morgan Stanley. I have a couple of questions. The first one is just a follow-up on buyback. I understand the difficulty in the higher cost of debt environment. But imagine that you buy a little bit or not and then the year ended, would you start a new program because let's assume this $500 million ends in December 2023. Is it an ongoing program? Or is it just happened for the last 2 years? That's the first question. The second question is about the cap rate. I've seen that cap rate has expanded by 5 basis points. But when you look at the U.S. rates or rates generally, it's going up and still not paused. Just to understand, do you think there's a risk on further expansion in future? And would that result in your gearing looking a little bit higher than today? And the last question I have, which is a numerical question. Both in China and Singapore, you have this number, $2.2 billion and $745 million sold but unrecognized. Would you tell us the margin structure for that business?

Okay. Maybe if I take a couple of those questions, Praveen, on the buyback, first of all. I think what you're essentially saying is will the Board want to extend the buyback beyond the end of this year, given that we're in July, seem to be August. I think it's too early really to sort of pass comment on that. The key point is, we've got ample headroom in what's already been announced through the end of the year. So we'll need to see how things progress in the coming months with respect to how much we deploy and whether we feel the need to extend that going forward. I think the main point, though, on buyback, and you alluded to it around the fact that it's -- we've had it for the past 2 years, and will it carry on? It is very much view as an opportunistic allocation of capital. The group remains primarily focused on expanding for growth over the long term generally by acquisitions. So if I go back to our capital allocation priorities, it's to invest in new projects with attractive rates of return, which, as I mentioned earlier, our expectations on that have gone up. So of course, we are being quite hardnosed about that. Secondly, it's about dividends and maintaining and ideally growing our dividend. And thirdly, it's about the buyback. So I think that -- those principles we've been very consistent on, and there's no plans to change those principles. So we really just need to see where we get through the end of the year, and we'll update you on that when we announce in the early part of next year. So I think that's the point on buyback. On the cap rate expansion, I think as you all know, the valuation of properties comprises both the cap rate, but also the rent levels. And in Hong Kong, what we've seen is that the rent levels and the valuations have adjusted. So they've come down in the last couple of years given sort of more challenging market conditions that we've seen. So the valuation of the Hong Kong portfolio has gone down, not just because of cap rate but also because of rents. The recent cap rate movement, 5 basis points end of June, 5 basis points at the end of 2022, quite mild actually, particularly compared to what we've seen with interest rates going up, but also in other markets around the world where commercial properties have been the cap rates have adjusted more quickly. I think here in Hong Kong, the market landscape for central prime properties is quite unique. It's tightly held, limited supply. I mean, Robert touched on the supply that's coming through, but is quite modest in the scheme of things overall. So I think that type supply dynamics has a big bearing on valuations generally. Secondly, we've already seen a sort of fairly reasonable movement in the valuation primarily through rents. As I mentioned, and then the cap rate piece. So I think it's -- the recent trend on cap rate expansion has been quite mild. The big, big point here in Hong Kong is that there's just really an absence of market transactions to point to for large single building transactions. And ultimately, I think people always look to the market transactions to get a feel for what people are willing to do deals at. So in an absence of any transactions, there's no real third-party evidence to point to, to suggest that cap rates should be expanding quite significantly. I think going forward, it's not really appropriate for me to try and call the market generally, but stating the obvious, it's going to be driven by, I think, what happens with interest rates. And it's not so much the short-term interest rates, it's more the longer-term interest rates. So I tend to look at the 10-year treasuries and 10-year Hong Kong dollar bond rates, which have been moving around a little bit, but I mean, depending on your individual views, the sort of general feeling is that we're getting close to the point of rates potentially picking out. But what that means for rates over the longer term, I think we'll have to see. So I would just round off by saying that generally, our Hong Kong portfolio has moved down in value by close to 20% in the last couple of years. So whilst you can look at the cap rate and so to say, it's not moved very much. I think the overall value has moved by a reasonable amount. Question was on China, Singapore, I think, on the residential profit margins. Do you want to pick that up, Robert, or do you want me to carry?