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

Good morning, everyone. A very warm welcome to you all, and thank you for joining us both in Hong Kong physically and online. I'm Michael Smith, the Chief Executive of Hongkong Land. And with me is Craig Beattie, our Chief Financial Officer. We've got a little bit to get through today, so I want to keep this as punchy as we can, but just give us some forbearance. As I near my 1-year anniversary as Chief Executive, I've had the pleasure of engaging with many of you on various roadshows and conferences. I'm incredibly humbled by the support and endorsement since the launch of our Strategic Vision 2035 in October last year. And I would like to take a moment to thank all of you for your interest and feedback over the past 4 months. There are 7 key areas that keep me busy and sometimes awake at night. And these include the first 3, number 1, 2, 3 is capital recycling. I know how important that is to everybody in this room, and it's incredibly important to me and my management team. Number four is to ensure that our 2 key flagship projects, Tomorrow's CENTRAL and Westbund Central become world-class examples that underpin our vision to become the leader in Asia's gateway cities focused on ultra-premium integrated commercial properties. The next thing is to strengthen our leadership bench by bringing in key new management. Next is to implement a performance-based culture, a long-term incentive plan to align senior management interests with shareholders on total shareholder return as well as a revamp of bonuses and incentives for all employees. And last but not least, is to continue to deliver and where possible, exceed expectations that the market has placed on us, evidenced by our 5% increase in full year dividends. We will continue to engage with investors in terms -- investors to ensure we are clear and transparent in terms of how we're progressing towards our targets. Now let me talk you through some of the details of what I just outlined as well as go through our key financial results for 2024. We'll have plenty of time for questions following the presentation. For those of you watching via the webcast, please send us your questions through the website, and we'll include them in the Q&A session. So here's the structure of today's presentation. Without any further ado, let's get started. Delivering on our strategy. As many of you in the room will remember, back in October 29 of last year, we set out a new strategy grounded in Hongkong Land's now 136 years heritage. Importantly, we also set out an ambitious bold set of 10-year financial targets. Our vision is to become the leader in Asia's gateway cities focused on ultra-premium integrated commercial properties, and we'll do that by delivering growth by allocating our capital in the segment that we know best, actively recycling capital to invest in future growth and pivoting our business away from the build-to-sell segment, investing in and executing to the very highest standards, our portfolio, our flagship anchors in Central Hong Kong, Marina Bay Singapore and West Bund in Shanghai. Underpinning these strategic priorities are the 10-year financial targets that you see here, doubling our recurring underlying PBIT, doubling our dividend per share with an aim for mid- to single-digit annual growth in DPS. So this year's 5% to 6% is within that target, growing our AUM to $100 billion with meaningful participation from like-minded third-party capital and recycling up to $10 billion of our balance sheet with an aim of $4 billion to $6 billion by the end of 2027. That execution is founded on the approach -- the execution of this strategy is founded on the approach that we lay out here, which shows how we are reorientating the business to deliver that strategic vision. Firstly, we'll strategically focus on investing, again, I'm going to keep repeating this, ultra-premium gateway assets in existing key markets, whilst also looking for new opportunities in other regional gateway cities. Secondly, we'll bring in new capital from like-minded partners to invest alongside us, delivering an improved return on capital. Thirdly, we'll recycle up to $10 billion of capital to fund this growth. We have stopped investing in our build-to-sell business and are proactively working on accelerating the recycling of capital. Fourthly, we are evolving our capital allocation framework with more discipline and an absolute focus on creating shareholder value. In the last 4 months, since we were last together, we've made good headway on the execution of this strategy. On portfolio recycling, we've recycled about USD 300 million of assets over the last 12 months. This included completions of our China build-to-sell portfolios and the sale of a retail asset in Thailand, a noncore retail asset, which we divested. We are continuing to pursue options to accelerate our monetization efforts and look forward to making announcements of that effect over months and years to come. On capital management, consolidated net debt is down 5% year-on-year. So effectively, we've reduced our balance sheet gearing by about USD 300 million, which is similar to the amount of capital recycling that we've endeavored on. That USD 300 million will be used to fund a share buyback, as we have said, but it's also going to be used to ensure that we can grow our dividend. So I'm pleased to say that we've increased the 2024 final dividend by 6% year-on-year after the last 5 or 6 years of our dividend being flat, demonstrating our commitment to a more progressive dividend policy. In line with the strategic announcement previously, we remain committed to allocating up to 20% of net proceeds from capital recycled into future buybacks. And as I mentioned, we're very keen to come back to you with announcements of that effect and then the launch of a buyback. On third-party capital capabilities, we are pleased to have onboarded Michelle Ling as our new Chief Investment Officer, sitting here, a couple of months ago at the beginning of this year. So she has taken the lead on a whole host of ongoing initiatives, including portfolio recycling. She is also building out our capabilities to partner with capital providers. We've continued to strengthen our portfolio anchor markets with the development of Westbund Central and Tomorrow's CENTRAL very well on track. We'll provide more updates later. And finally, we spoke at length last October about improving our corporate governance and aligning incentives with shareholders. So with the first ever LTIP at Hongkong Land has been approved by our Remunerations Committee and became effective on the 1st of January this year, as we announced last year. So that is now in place. And in the 135 years, we've never had an LTIP-type arrangement where the senior management are very much aligned with TSR and shareholder returns. I'm pleased that the group's leadership position in sustainability has been recognized by the S&P Corporate Sustainability Assessment with Hongkong Land for the first time becoming a member of the Dow Jones Sustainability World Index. Proactive recycling capital, as I mentioned, is the first 3 priorities of mine, is fundamental to the execution of our strategic vision. We have made incremental progress towards our target of $4 billion to $6 billion by 2027. In '24, we recycled over USD 300 million, predominantly from the wind down of our build-to-sell inventory in China. What we would have previously done is reinvested that capital into land. The decision not to do that enabled us to de-gear and help fund the dividend growth. Although market conditions remain challenging, sales performance diverged between different submarkets. The group's products are mostly in well-located areas and are targeted at upgraders, resulting in reasonable sales volume relative to the market headwinds. In line with our strategic vision, we did not make any new investments in the build-to-sell segment. 80% or more of the recycled capital will be used to reduce net debt and build investment capacity with the remaining up to 20% of proceeds allocated to future share buybacks and dividend growth. At our core, we are a people business. Hongkong Land, I believe, has some of the best talent in Asia. One of my priorities since joining just under a year ago has been on reinvigorating our culture as well as strengthening our leadership bench. We've done that through redefining and communicating to all our people Hongkong Land's new strategic vision, mission and values, ensuring alignment with our strategic goals and helping to build a more unified corporate culture. The photos there are the town halls that we went on around October 29, the first week of November, when we went across and met with all of our team and explained exactly what we hope for the future. Conducting thorough independent evaluations to benchmark key organizational functions in our business. So external consultants have come in and looked at our development capability objectively and given us comments, are there any gaps. I've looked at our property management team, something I don't think the firm has done, but by me coming in externally and appointing external consultants to really assess, are we best-in-class? Because if we're not best-in-class and there are gaps, we have to fix them. Investing in human capital by developing existing employees and recruiting exceptional new leaders. On our leadership team, I'm pleased to have brought on board 3 very experienced executives to bolster our capabilities in key areas. Michelle Ling, as mentioned earlier, as Chief Investment Officer. I think it's 25 years that Michelle and I have worked together, which is a bit extraordinary. Michelle's focus will be on formulating and implementing investment and capital management strategies while also facilitating the group's growth through strategic transactions. Jacquie Tan as our Chief Corporate Officer. In this newly created role, Jacquie will focus on organizational transformation priorities as well as overseeing the company's technology, communications and sustainability functions. And finally, as mentioned last week -- as announced last week, Stuart Grant will step down from the Board. He's been on the Board of Hongkong Land for the last 12, 18 months. He'll be stepping down from the Board to take on the role of Chief Executive of Westbund Central, having overall accountability for the development, leasing and operation of Hongkong Land's most important ongoing project. Stuart has over 30 years of real estate experience, having overseen the management of USD 20 billion worth of assets across Asia when he was a partner and Head of Asset Management at Blackstone for many years. He's been living in London for the last 5 years in a joint venture with Brookfield. He's leaving London with his 2 kids to relocate to Shanghai because of the importance of this project. Stuart has vast experience on how to build unique ecosystems and understands the importance of partnerships, which are key elements that strongly align with our vision for Westbund Central. As I said earlier, the core of our 2035 vision is a focus on total shareholder return. To sharpen all our focus on TSR, we are putting in place a remuneration framework that aligns our people's interests with those of our shareholders. For the first time in our history, senior management and key individuals in the business will be incentivized by a meaningful LTIP based on 2 core KPIs. 85% of the LTIP will be driven by a TSR metric with half being performance against absolute cost of equity targets and the remaining half being against the set of sector peers. So we've selected 20 companies in our peer group. The remaining 15% weighting involves sustainability KPIs focused on decarbonizing Scope 1 and 2 emissions. It's a very, very big change for Hongkong Land. It's a significant part of my compensation going forward. The LTIP is tiered achievement factors with the management bench sharing in both the upsides and the downsides. It's very possible that if we don't perform, we won't get an LTIP any type of remuneration to it. So we really -- it's really based on ensuring that we drive the share price, both on an absolute and a relative basis. We're also relaunching a revitalized STIP for all employees. This cash-based scheme is linked directly to KPIs aligned with our new strategy, including 50% financial and 50% nonfinancial KPIs. This will effectively shift the group's STIP practices from discretionary bonuses to a structured targeted bonus regime. So effectively, I have a set of KPIs or the firm has a set of KPIs, which will be filtered down to everybody across the firm, so everybody is on the same objective to ensure that we meet our KPIs. In addition, in 2024, we rolled out a minimum shareholding policy for executive directors. This policy requires minimum shareholding at multiples of annual basic share -- salary depending on function, further aligning the management team's interests and shareholders. So for the tenor of our careers, we will have a minimum amount of shares that we must hold as further alignment of our interests with our shareholders. When we set our strategic vision, we went through what makes Hongkong Land unique, what sets us apart from our competitors, what distinguishes and differentiates us. And at the core, it's our idea that experience is central. This idea underpins how we design, develop and deliver our properties as well as how we partner with our tenants in managing our properties. I wanted to show you just 4 highlights of the creativity, innovation and placemaking that we delivered on in 2024 and which we plan to continue to deliver on in the years to come. Firstly, for those of you who have been to Singapore recently, One Raffles Quay significant enhancement that we embarked on creating new spaces and experiences in the lobby to elevate the property and enhance its appeal. Revitalizing Centricity, we're refreshing our -- we have refreshed our Centricity tenant app to deliver best-in-class tenant services and improve overall satisfaction for the 12 office buildings in the Central estate. The opening of the Sotheby's Maison, I'm sure all of you have seen that over recent months. We've partnered with Sotheby's to open their new Maison in Chater House, creating a truly unique place not only in the landmark but globally. Sotheby's has not undertaken anything like this in having a real sort of public face anywhere else in the world. The Orbit, West Bund, a world-class exhibition hall, which we opened, has already become a sought-after venue for luxury brand events in Shanghai. Pretty much every weekend, there is another event at that property. Tomorrow's CENTRAL is a bold undertaking and something that I firmly believe only an organization like Hongkong Land can successfully deliver. We are proud to be partnering with some of the world's best luxury brands to completely refresh large parts of the offering of the iconic landmark. Not only is this a testament to the belief that these brands have in Hongkong Land, but also in the future of Central and Hong Kong. Most importantly, the renovation program is well on track. Any of you walking around today will see the signs of this taking place taking shape. In terms of phasing, we expect 2 openings later this year in 2025, 3 more openings in 2026, 2 in '27 and then the full completion with the opening of Hermès and CHANEL in 2028. These openings are deliberately phased so that the portfolio remains active throughout the transformation and each brand is able to create its own unique moment. And it's going to be very exciting to attend all of the openings of these Maisons because some of them are going to be incredibly spectacular, or all of them will be incredibly spectacular. Now some of the highlights. We continue to strengthen our anchor flagship portfolios in Hong Kong and Singapore. The group's Hong Kong office portfolio continues to outperform versus the market, benefiting from a flight to quality despite well-documented market headwinds. As mentioned earlier, we have revitalized our best-in-class Centricity app and continue to refresh the services we deliver to our tenants. On Hong Kong retail, Tomorrow's CENTRAL transformation, as I mentioned, is well underway and working very closely with our luxury brand partners on bringing to market world-class Maisons. In the meantime, LANDMARK remains active and achieved positive rental reversions in 2024. Our Singapore office portfolio, the diversification that we benefit from, continues to perform well. All major anchor tenants were retained during the year with positive rental reversions. Efforts continue on accelerating capital recycling with contributions from both the build-to-sell segments in China and Singapore increasing compared to the prior year. Provisions against China build-to-sell inventory, which were largely recognized at the half year, were done to align prices to market to improve turnover. So we're very much focused on ensuring that we can repatriate that capital and reinvest and close the gap that's prevalent in our share price. In China, we're making good progress on realizing our vision for Westbund Central. The first phase of the project was completed during 2024. The luxury apartments for sale outperformed all expectations with all 80 units sold and now handed over at a price of RMB 178,000 per square meter, amongst the highest average prices for residential product in the city. Separately, the initial phase also saw the completion of over 180 units of the group's proprietary branded service apartments, Westbund Central Residences and 10,000 square meters of retail, both achieved high occupancy. The next phase of the project is expected to complete later this year. We've already secured commitments from a strong mix of domestic and international tenants. And as Craig will take you through, there's over 80,000 square meters of office in the next phase. All of that office space is committed. So going into the marketplace with a lot of headwinds in the Shanghai office market, I think, is testament to the quality and the vision that we're building. Despite uncertain market conditions in 2024, recurring rental income was resilient. Growth in Singapore and the Chinese Mainland partially offset lower contributions from Hong Kong. Future rental income growth is underpinned by our commercial pipeline as well as reinvestment and revitalization of our existing flagship assets. The group continues to maintain a strong balance sheet and net gearing position. Our average borrowing costs actually fell to 3.6% from 3.9% previously with diversified debt facilities in place. The final dividend declared is $0.17, which is up 6% from the prior year. On sustainability, I'm pleased to see the group's efforts to become a market leader and fully embed sustainability considerations across its operations are being recognized by leading rating agencies. Turning to an overview of the results. All of these monetary units were in U.S. dollars. The group's underlying profit, including China noncash provisions remained resilient at $724 million, down 12% from the prior year, primarily due to lower contributions from the Hong Kong Central portfolio, particularly as it relates to the landmark refurbishment. Net debt declined by 5% to $5.1 billion as the group made no new investments during the year. The net asset value per share stood at $13.57, down 6% compared to the end of '23, mainly due to the revaluation losses on the Hong Kong office portfolio, and that really is due to market rents. assessment by our independent valuer. The Board has declared a final dividend of $0.17, bringing the full year dividend per share to $0.23 per share, up from $0.22 years previously. And finally, I'd like to take a moment to highlight the resilience of the group's recurring rental income portfolio. And I think a really important piece of Hongkong Land is the resilience by continuing to focus on being the best in what we do by focusing on the relationships that we have with the 2,500 occupiers across our portfolio despite the volatile and in some markets, difficult trading conditions over several years, we've still created an incredible amount of resilience. So rental income from the Hong Kong Central portfolio declined due to market uncertainties and temporary tenant movements at LANDMARK, but that was partly offset by growth in Singapore and the completion and growth in our Chinese Mainland properties. I'd now like to hand to Craig to take you through our leasing update.

Thanks, Michael, and good morning, everyone. So let's get -- let's take a closer look at our leasing performance for the year. So let's start with Hong Kong office. So obviously, we generally know that the office market was pretty challenging overall. But for us, our portfolio produced, I think, a pretty stable performance, and we continue to outperform the broader market due to our prime CBD location and also our premium offering. Keeping in mind that Grade A office vacancy in Central stood at 11.6% last year, our vacancy of 7.1% has comfortably outperformed the market. Our overall weighted average lease expiry stood at 3.7 years, whilst the weighted average lease expiry for our top 30 tenants, which occupy close to half of our total office space was actually 5.1 years, so higher than the average overall. 8 of our top 10 tenants have been with Hongkong Land for over 10 years and 6 of these have been with us for over 20 years, which really, I think, gives some insight to our sort of client management and how we like to work with our tenants for the long term. At the end of last year, 13% of our Hong Kong office portfolio was due to expire this year. And at the end of February, that 13% has fallen to 6%. So from a risk management point of view, we're already quite well covered this year in terms of upcoming expiries. If I look at the Hong Kong office market overall, we're seeing a sustained flight to quality trend with recovering capital market activity, which is often a leading indicator for demand in core Central. Our Central office portfolio is closely linked to capital markets as many tenants are lawyers, asset managers and consultants plus banks and IPO activity is expected to improve this year, which is a key driver of interest in our office spaces. Despite a subdued market, average rents at our Central portfolio continued to significantly outperform the market due to our unique ecosystem as well as the scarcity of high-quality, well-managed space in Central. And we are well placed to take advantage when the market turns and demand improves. Let's jump now to the retail portfolio in Hong Kong, which, of course, is luxury focused. Average retail rents increased by 3% in the year to HKD 210 per square foot, a second consecutive year of growth. This was driven by positive base rent reversions, reflecting the strength of the LANDMARK brand despite challenges in the broader luxury retail market. Occupancy was 97%, down slightly due to the Tomorrow's CENTRAL upgrade works. Our weighted average lease expiry at the end of December was 1.8 years, and we expect this number to increase as the new long-term leases start to commence in the Luxury Maison stores that we've previously announced. Tenant sales were down 8% compared to 2023, but bear in mind, 2023 was a record year for Hongkong Land and tenant sales last year in 2024 were on a par with those of 2018, our second best year ever. Luxury retail dynamics in Hong Kong are changing, and we think Hongkong Land is really well placed to be a beneficiary of those changes, a lot of which we're driving ourselves through our portfolio reimagination. And the simple fact is that luxury retail will now be driven more by Hong Kong residents and spending by tourists. And just to remind you, 85% of LANDMARK sales come from Hong Kong residents with 15% coming from tourists. So the stats on this slide show LANDMARK continues to benefit from these trends. Our bespoke loyalty program continues to define the ultra-high net worth market. Bespoke VIC sales were up 1% year-on-year, demonstrating the quality and resilience of LANDMARK's VICs, and these VICs account for 80% of total sales in our bespoke program. Last year, the top 100 local spenders in LANDMARK in aggregate spent HKD 1 billion. And amongst these top 100 customers, we saw mid-single-digit sales growth, which I think is remarkable given the overall market environment. LANDMARK continues to be the best place, I think, for high net worth individuals to shop. And also the transactions that we've seen continue to grow not just with the top customers, but generally across the board. And the top 10 transactions totaled over HKD 200 million last year, which was also up 1% year-on-year. And generally, we've seen 6% growth in high-value transactions on our individual customer basis. So pretty strong stats for 2024 overall. Let's jump to Singapore office now, where our portfolio continued to perform really well, driven by a flight to quality and limited new supply despite a moderation of demand in the market there generally. Average rents continue to show growth and were up 2% compared to 2023 and positive rental reversions were achieved during the year, and the portfolio is effectively fully let. Tenant retention, same as Hong Kong remains a key strategic priority for us. And our top 10 tenants have, on average, been with the Hong Kong Land portfolio for 13 years and with one of them being there for 25 years. These top 10 tenants have an average weighted average lease expiry of 4.2 years and represent 43% of the overall portfolio. Over the next few years, we expect limited new supply in Singapore CBD. The government has been moderating supply, as we all know. And I think this scarcity has led to higher absorption rates, meaning that available space is being occupied quite quickly by prospective tenants. As a result, we've seen vacancies across the market decrease, and we expect to see a continuation of the strong demand for the office space in the CBD, which should be reflected in growing yields and ongoing resilience of our portfolio. Let's move to Shanghai now and the Westbund Central project. As Michael mentioned, a couple of milestones achieved in 2024. The residential for sale component was completed last year and was a resounding success. All 80 units were sold out on the day of launch. And as Michael mentioned, they were sold at some of the highest prices in the city overall, which I think demonstrates the high quality and the strong brand recognition of Hongkong Land. The first batch of our adjacent proprietary branded service apartments called Westbund Central Residences were also well received, and they are currently over 90% occupied. And we will launch a further 800 units in phases under the same Westbund Central Residences brand later this year. The retail offering in the first initial phase, which is smaller in scale and more F&B orientated, is over 80% occupied. And then Phase 2 of the project is due to open this year, which, as Michael mentioned, has a larger office component to it. There are 4 towers here, representing 78,000 square meters of office space, and all of these are now effectively committed, which, again, I think talks to the quality of Hongkong Land and the project, because the Shanghai office market is quite challenging at the moment. And as Michael mentioned earlier, we've continued to grow from strength to strength in our sustainability commitments across ratings, decarbonization, circularity and tenant partnerships. Let's look at the financial results in a little bit more detail. All the numbers on the next few slides are in U.S. dollars, unless otherwise indicated. The group delivered a resilient core trading performance during the year despite the uncertain macroeconomic backdrop. Contributions from prime properties investment portfolio decreased by $54 million year-on-year and positive rent reversions in Singapore office and improved contributions from WF CENTRAL Shopping Mall in Beijing partially offset the decline from our Hong Kong Central portfolio. Operating profits from our build-to-sell segment, excluding the inventory provisions, increased by $106 million year-on-year, primarily due to more planned sales completions on the Chinese Mainland as we accelerate our capital recycling efforts in this segment. Last year, we had some really strong projects in China that completed including the Westbund apartments that I mentioned earlier. So despite the broader challenges, I think some of the quality of our product that Hongkong Land has is reflected in the numbers last year. We did, as we've noted earlier, taken a noncash inventory provision last year amounting to $314 million, which was recorded on selected projects and phases of projects with slow-moving inventory mostly in nonprime locations. Turning to rental income, which decreased by 2% compared to 2023. And going through each of the segments in turn, rental income from Hong Kong office declined by 5% due to negative rental reversions. Although as we've mentioned, the portfolio remained resilient overall and continue to outperform benchmarks in the city. On retail, Hong Kong rental income declined by 9% due to planned tenant movements as part of the Tomorrow's CENTRAL transformation, but underlying rental reversions were positive, resulting in a higher average retail rent per square foot last year. There was strong growth in our Singapore office portfolio, as I mentioned, driven by positive rental reversions. And contributions from our China retail portfolio increased 11%, primarily led by higher contributions by our shopping mall in Beijing following tenant mix changes. Performance from other segments, which include hospitality operations were stable. Turning to the operating profit of the group's build-to-sell by region. And please note this slide includes our share of the group's joint ventures and associates. Profits from the Chinese Mainland, excluding the inventory provisions, increased by 46% year-over-year as more projects were completed and handed over to buyers, and these are the high-quality projects that I referenced earlier. Profits in Singapore and MCL Land are recognized on a percentage of construction completion basis and profits in the year here were also higher as construction progressed on the group's remaining projects. Contributions in Indonesia declined due to less planned sales completions. And on the inventory provisions, these were predominantly in Chongqing, Wuhan and Nanjing. And as I said, we're on selected projects with slow-moving inventory in nonprime locations. Net asset value at 31st December 2024 was $29.9 billion, down 6% compared to the end of 2023. This decrease was primarily from lower valuations for Hong Kong office assets due to the decline in open market rents, but this was partially offset by a higher capital value for the LANDMARK retail complex due to the higher expected rents post the completion of Tomorrow's CENTRAL. Positive contributions from our resilient underlying earnings per share were partly offset by inventory provisions in China. And there was an accounting reclassification of properties held for self-use in our Hong Kong Central portfolio moving from investment properties to fixed assets. Net exchange translation differences or FX movements of $163 million, mainly related to assets on the Chinese Mainland and in Singapore as both those currencies had a lower value during the year due to the strengthening of the U.S. dollar. Overall, net asset value per share was $13.57 at the end of 2024. Let's jump to dividends. And as Michael said, we declared a final dividend of $0.17, up 6% from the final dividend in the prior year, bringing the full dividend to $0.23. And the growth in dividends is in line with our intention to deliver on average annual mid-single-digit growth in DPS as we announced last year as part of our strategy refresh. And despite a decline in underlying earnings this year, if you exclude the China inventory provisions, which are noncash in nature, our payout ratio was 70% within our intention to pay out 60% to 80% of recurring income over time. The maturity profile of the group's debt is shown on the left-hand side of the slide, and the debt maturities, as you can see, are staggered over a number of years and are well diversified between both banks and debt capital markets. We recently secured a HKD 12 billion revolving bank facility supported by our 12 relationship banks at good pricing, and thank you to some of our banking colleagues who are here today. And the purpose of this facility was to refinance existing expiring facilities and this new facility are also green in nature, so again, further adds to our sustainability ambitions. The group remains in a very strong position with respect to further refinancing plans. We have one USD 600 million bond due to mature in the second half of this year, but we have ample liquidity, and therefore, we're in a strong position to decide when to tap those markets. And of course, we're also focused on capital recycling. And therefore, we do expect our net debt levels to trend down over time. The average tenor of our drawn debt at the end of December was very healthy at 6.3 years, and the average interest cost decreased to 3.6%, down from 3.9% in the prior year, driven by lower average interest costs in renminbi and the impact of higher for longer interest rates on the group is mitigated by having 68% of our average gross debt held at fixed rates. At the end of December, the group had available liquidity of $3 billion, quite a significant amount. And our credit ratings by both S&P and Moody's remain unchanged at A and A3, respectively. So I'll now pass back to Michael, who will take us through the outlook for the year.

Thanks again, Craig. So look, just to wrap things up, looking towards the remainder of 2025. For Hong Kong office, our view is that rental reversions will remain negative, although we are seeing some green shoots in terms of inquiry levels with demand largely driven by the asset management sector. And as Craig mentioned, I think increased capital markets activity in Hong Kong will definitely be a positive for Hongkong Land. We expect the flight to quality trend to continue as tenants continue to prioritize quality of space over size of space, whether it's amenities and services, the ecosystem we've created or ESG performance. With limited future supply in core Central, there is potential upside dependent on the recovery of the capital markets activity in the city. For the LANDMARK, trading in 2025 will be impacted by ongoing renovation as some leasable floor area will be temporarily out of action. The priority will be to ensure that LANDMARK continues to have the right mix of offerings to serve customers and office tenants during this period as we work to deliver on our vision for Tomorrow's CENTRAL. In terms of the luxury retail market, we believe ultra-high net worth consumption will remain resilient. In Singapore, we expect both performance of the portfolio and economic outlook to remain stable. With a tightly supplied market, particularly in the Marina Bay District, our portfolio should continue to enjoy very low vacancies. For China, we are cautious on the short-term trading outlook as we actively monetize assets from the build-to-sell segment. Whilst markets remain challenging, especially for office assets, as we mentioned, the leasing momentum that we have managed to generate for nearly 80,000 square meters of space in Westbund Central has been steady, and the next phase of the project is on track to open in the second half of this year. Circling back to our strategy and priorities for the remainder of the year. On portfolio cycling, as I mentioned at the beginning, it's the first, second and third most important thing that we are all focused on is to accelerate asset disposal or recycling initiatives where viable. We have not been sitting still and have been pursuing a number of opportunities across the markets in which we operate, although some of them will take longer than the 4 months since the strategy was first launched. But we do look forward to sharing more good news and good announcements over the short and medium term. For capital management, we intend to maintain a strong balance sheet whilst keeping an eye out for strategic investment opportunities. But really, the first part of our strategy is recycling capital. That's really the most important thing we're focused on rather than reinvesting those proceeds. So to Craig's point about de-gearing our balance sheet, making sure that we have dry powder to be there when opportunities present themselves, but really the recycling is the first part of the equation. In terms of third-party capital, we have and will round out our capabilities. Our goal is to partner with like-minded capital that also believes in the ultra-premium segment and the strong high quality of recurring cash flows it brings. So we're not out to just grow AUM for the sake of growing AUM. We're going to look for the LP capital -- for the third-party capital that really appreciates the uniqueness of what we have the skill base to do and want to come alongside us. And finally, both our Tomorrow's CENTRAL and Westbund Central flagship projects have seen strong starts, but there's still a lot more to come, and we look forward to sharing with you more exciting announcements that are coming up. Again, I'd like to thank you all for your support. We want to make sure that we're very clear and transparent with everything we do, and we're happy to take any questions. Thank you.

This is Raymond from HSBC. Thanks for sharing a lot more detail about your transformations as well as incentive schemes here to enhance the shareholders' return. Maybe I have 3 quick questions. The first question also aligned with the shareholders' return. Like the first thing we always see that is like increase in DPS. But also, there's another question that you mentioned earlier about the shareholders' return, which is about like the buyback program because you mentioned that in the 3 years' time, there will be asset disposal of like around USD 4 billion to USD 6 billion. So what should investors anticipate in terms of the timing for the buyback program? And what's the amount of the buyback that we should be anticipating in the next like 6 to 12 months? Can you provide some color here? This is the first question. And the second question is actually about the Westbund project. So like is this amazing that...

Should we answer that one first? Otherwise, we'll forget it. So Craig, why don't you and then I'll jump in.

Yes. And I think you've heard the stats properly, $4 billion to $6 billion by the end of 2027. I mean I think as we said at the announcement of our strategy refresh last year, we've been working on capital recycling even before we announced that we were planning to do that. I mean, these things take a bit of time. We continue to wind down our build-to-sell business. And as we said, USD 300 million net cash came back to the group. And just to be clear what that is, that's effectively sale proceeds, less cost of sales, less any joint venture or bank funding, less tax we pay. So the $300 million really is net-net cash that we have at the group, and that's why our net debt fell at the end of last year. I think in terms of targets for the year, we're quite mindful not to be sort of giving out sort of big statements about this. But I think, as Michael said, it's 1, 2, 3 top priority for the group. We are working on a number of things, and we are hopeful that we can make some positive announcements about this to the market soon. I think just to come back on the buyback piece there, there's no change in our guidance that we gave at the end of last year. which is that up to 20% of any capital recycling will be allocated to buybacks, subject to market conditions and share price. And I think that continues to hold. We still believe that at our price today that this is still an attractive investment option for us as a leadership team and the Board support that, too. So I think in terms of the pace of the buyback, really, you'll need to see us accelerate our capital recycling and then the buyback will flow through in bigger numbers thereafter.

Just a comment. The LTIP is quite a game changer for us as well. We all are very motivated to grow the share price. We've committed to finance through sort of guidelines. So we're not going to -- we're always going to be investment grade. That's our focus. We're not going to do a big equity raising. But closing that gap of $13.57 to where we're currently trading, buybacks are obviously a very neat way of doing that. So we're very focused on ensuring that we, like you, want to grow the share price, get rewarded for that and the buyback is a great mechanism to achieve that. So it's very much top of mind. But as Craig said, we don't want to give you -- I think we were quite bold in saying $4 billion to $6 billion by 2027. I mean that in itself is something unusual for the Hong Kong market. So saying that is sort of the commitment that we're holding to. But giving anything more granular than that, we just sort of risk, as these transactions move and evolve we don't want to commit to a smaller time frame.

So the second question is about the Westbund because like the management has appointed a new C on this single particular project. This is like quite new, maybe for my mind as well. So the question is like, is there any bigger like blueprint or thinking on this appointment? And how should we think of the Hongkong Land Mainland China business? Is it still going to have like new entities here? How this is going to make a bigger road map for growing this fund management business over there? So this is the second question. And last question is just very simple. It's about Hong Kong luxury retail. So like as many people have been like quite cautious about the Hong Kong luxury retail, you have been doing a very great job in terms of like delivering resilient retail spending here. Can you share with us like year-to-date, how -- is there any changes in terms of momentum for like high-end retail sales in Hong Kong? That's the last question.

Why don't I touch on Stuart Grant's appointment. We've been searching for a leader of that project for quite a while because it's just so important. We paid USD 4.3 billion for that land in 2020. We've committed to an $8 billion or $9 billion CapEx program with our partners. I mean it is not just the Hongkong Land, but the broader Jardines Group, a significant project. So it deserves the attention of somebody like Stuart. And the fact that he was at Blackstone as a partner for 20 years, and he's managed such a massive portfolio across Asia, the fact that he's been with the Brookfield partnership for the last 5 years, which has done very, very well, and he's willing to sort of leave London and relocate to Shanghai is a real testament to the seriousness that we place on that project and also the seriousness that he does. He's moving his 2 young children from London to Shanghai, et cetera. So in terms of the dynamics of the group, I think that's all it is. It's really a reflection of what we're doing here in Tomorrow's CENTRAL is sort of under our noses, right? We're all in Exchange Square and we can see it. But in Shanghai, it's a little bit more distant. I'm spending 1 week a month in Shanghai. Craig is up there a lot more, the whole senior management team. So it's not as though the rest of our projects are any less important, everything is important, but that is really a true flagship, which underpins who we want to be in the future, and we just have to get it right.

Maybe just to add a little bit about Stuart as well because it's a huge project, 18 million square feet. I think it's probably the largest in Asia Pacific, actually probably globally outside Middle East. But I think the appointment of a Chief Executive is it's not just to get it built. It's to get it built, of course. It's also to get it leased, but most importantly, it's to make sure that the whole ecosystem works effectively because that's what Hongkong Land is known for. So the reason why we're really excited about Stuart is not just his asset management capabilities, but if you know him as an individual, he's hugely passionate about placemaking, marketing, branding. So I think it's the whole piece that we really want to try and elevate Westbund overall. And then maybe just rounding out on the retail side of things. I think year-to-date, the market -- broader market continues to be quite challenging. I think our sales in LANDMARK in the first couple of months of the year are down about 10% or 11% on the prior period. So sort of broadly sort of similar run rate that we saw last year continuing. But again, the underlying strength of our VIC continues to be quite phenomenal. I mean we had an individual customer a couple of weeks ago who's spent over HKD 100 million on a few items. So I think that's really our strategy. It's to have best-in-class not just in Hong Kong, but globally, but to really appeal to the sort of very, very top end of the market overall.

And I think sort of the brands acknowledge that. They wouldn't be spending their capital on the fit-out, which is quite significant in some cases, unless they truly believe that LANDMARK is the center of ultra-high net worth. So it sort of creates that whole ecosystem. So we have to make sure that the sort of $100 million-plus shoppers come to Hong Kong, not Japan, and then come to LANDMARK and nowhere else. Karl?

Karl Choi from Bank of America. A couple of questions. First, I want to go back to the LTIP program for a second. Can you give us some sense about the scale? How many shares ultimately maximum can be issued, the scope, how many management members are actually covered? And you mentioned 20 companies in the peer group. Who are they or the geographic locations? Is it just Hong Kong Mainland or more APAC in general? And second question is going back to capital recycling again. You mentioned you will pursue a pragmatic approach. I think a questions that investors have kept -- sort of been asking about is in a higher for longer interest rate environment. How are we going to balance -- how do you find the balance between raising liquidity, selling to raise -- having a large disposal relatively shortly, but probably we have to at a discount to book value and what kind of discount is acceptable? Just wanted to get your thoughts on that. And I guess I'll just sneak in a third question. Any update on the platform business in terms of starting conversations with potential third-party capital?

Okay. Maybe I'll start on the LTIP. Look, we're not -- all I can say is that it's very rare in Hong Kong, very rare in Asia, I think, particularly with the private sort of companies. So we're not -- I don't think we are disclosing the amounts, but I can tell you that it's a significant part of our total compensation. There was some detail in the slide. It's over a 3- to 5-year vesting. It involves all of the executive directors and the key sort of leaders of our business across the region, people who we want to make sure are the future leaders of our business. It's very much tied, as you know, 85% to both absolute and relative TSR. So I think being sort of a banker for many years, it's got a lot of elements, which should really align our sort of focus and the shareholder return. So -- but in terms of the actual elements, I don't think we are -- there's no sort of disclosure around that or requirement.

Yes. But I think the...

It will come out...

The point that was made earlier around it being tied to performance is obviously we're completely aligned. So if we don't perform, we don't get paid. And I think in terms of meaningful contribution or percentage of our total compensation, it's quite significant. So it's not just a token LTIP in terms of a small percentage.

Just on your third. So in terms of the platforms, Michelle has been on board now for 3, 2 and a bit months, building out that team, building out the capability, going to PERE conferences, doing sorts of things that we hadn't done before to try and reacquaint ourselves with a lot of the LPs. It's a very discerning LP or partner that we want. It's not sort of the 20% type return type opportunistic type LPs. We're looking for quite a nuanced group of capital that really understands what we're doing. But the focus is now recycling. So to your second point, recycle, recycle, recycle is really where the focus is and then laying all the infrastructure and the groundwork that when opportunities present themselves that we have the right group of LPs to come alongside us. On the recycling front, it's -- I think the discount point, we get our assets independently valued every 6 months. So Jones Lang has been valuing our investment properties for many, many years. In my mind, that's the sale price. We go out and tell the world every 6 months what our NAV is. We shouldn't be discounting beyond that. So when we have got our build-to-sell product in -- we've marked, we've taken provisions on some of our properties to make sure that we can clear. All of the rest of our build-to-sell product has healthy margins in place. So there's no need to discount below sort of a cost basis. Some of our commercial assets in China, particularly in some of the more secondary cities, the office markets in particular, that may be an asset class that if we really want to recycle capital, there may be a necessity for discount. But we've got a lot of other different parts of our business that we can look at as well in different ways and lots of smart people around the table to think about ensuring that we don't have to discount our assets. That's not a -- we're not sort of on fire. We're degearing. We can keep degearing our balance sheet, keep saving 3.6% interest every time we degear. So there's not -- it's not an absolute -- we have to sell for the sake of selling. It's got to be part of the whole strategy. And selling at NAV and buying back at a significant discount that we currently trade at is a very good use of our capital.

Michael, Craig, this is Cindy from Citi. So 3 questions from me. First, maybe addressed to Michael. So obviously, 2024 was a significant year with a lot of changes. And you mentioned your continued priority on capital recycling in 2025. So I'm just wondering what are the new things or new milestones that we could expect for 2025? And in terms of your focus on capital recycling, how does that translate into say, your work allocation, your time allocation in between asset class, in between cities, et cetera? So this is the first question. The second question is again on the $4 billion to $6 billion of capital recycling. Should we expect that mostly on the DPs with little portion related to IP given the -- well, obviously, you mentioned you're not on fire for sale, right? So -- and is there any scope that we can expect, say, more determined pace up in DP capital recycling, say, in 2025? And the third question is actually on tenant retention in Hong Kong for both office and retail. So for office, obviously, there's new supplies and there are some tenants moving. So how are your key initiative in retaining those tenants? And do you think, say, rent negative reversion is sufficient to retain some of the tenants? And similarly, for retail, let's say, as you mentioned, there will be up to 40% of area being impacted by the renovation. So would it affect some of the retail brands decision in whether to stay with your mall or temporarily move to somewhere else, et cetera. So hoping to have more color on that.

Okay. I'm not sure I remember all the question. But obviously, capital recycling is the topic of the day, and everyone is very focused on it. So I do have some statistics to just remind you from what we said in October. So there are 2 major categories. There is the build-to-sell segment, which we will exit, comprising over $6 billion, so this is of the whole $10 billion, and just under $4 billion from our prime commercial investment properties. So $6 billion is DP effectively development property, and $4 billion is IP. From the build-to-sell segment, you can further then split that into 3 pools. The China build-to-sell is largely residential in nature. There are some commercial assets, but largely residential. That's just about $2.5 billion of the $6 billion. So as that sells down, $2.5 billion of the $6 billion will come from that source. Noncore, largely retail assets and pipeline in China is a further $3 billion. So these are our ring malls. And if you look at our ring mall in Chongqing now in its third year of operation, it's trading very well. It's trading at a very good yield on cost and at a level that we think we could divest it at, just as an example. So some of these assets, we will have to wait for leasing cycles to ensure that the yield then gets to a level that it's cleared in the marketplace. We -- I personally am quite optimistic that interest rates in China may continue to fall for all sorts of different reasons. That will obviously then make capital allocation to higher-yielding real estate even more attractive. So there's a number of things that are floating around, but that $3 billion, probably the office piece of that is the most challenging. The office and the secondary markets. But the Ring series that we've built, particularly Chongqing and some of the other markets that we're building and completing, we're a lot more confident that over time, they'll be at a level that we can trade out of. And then the third piece is the other build-to-sell assets across the region, again, particularly residential. We have quite a lot of residential in Indonesia, in Singapore and other markets. That's another USD 1 billion. So that's the broad breakdown, $6 billion, $4 billion. The $6 billion is $2.5 billion, $3 billion and $1 billion.

I think on the residential build-to-sell piece, you were asking about pace there. I think we're very focused on recycling out of this segment as quickly as possible, but in a sort of measured way, it's not really sensible to slash pricing nor is it needed to be done that way. Clearly, in China, we've reviewed our portfolio during the course of 2024. We've taken some provisions to mark the pricing down in selected areas. The whole objective of that is to encourage the sales velocities on those projects. As I mentioned earlier, we had a number of really successful projects that completed last year and were fully sold out in China. I think in Singapore, we have an MCL Land business, and that's -- there's an opportunity there to potentially look to accelerate the recycling of capital in that business, and we'll look to give an update on that later in the year, hopefully. But I think we've got a number of initiatives that we're working on across the different buckets that Michael mentioned. So we hope to give more of an update shortly. So tenant retention, I think, is something that Hongkong Land is very focused on and also very proud of. So I mean, I threw out some stats earlier around some of our office tenants in Hong Kong having been with us for a very long time. So I think for us, our strategy in the last few years has been to retain tenants. We've done that through being flexible on rental terms. Our view has been that it's better to have a portfolio that's largely fully let so that we continue to enjoy cash flows. But importantly, it also means that when the market demand comes back, we're well placed to benefit because in Hong Kong, office lease terms are generally fixed for 3 years and then they mark-to-market either through a rent review clause or through an expiry. So all of our leases have that feature. So as rents hopefully trend up over time, then our rents will trend up over time overall. It's not easy, though. I mean I think it's -- I mean, everyone knows the broader market is very difficult. But in core Central Hong Kong, there are really limited options for people to move to. And I think the ecosystem that Hongkong Land has, it's 12 connected buildings, the fact it's adjacent or above some of the best retail in the world, the F&B, the connectivity to the MTR, the airport, these are things that really matter. So the flight to quality trends that we've been talking about were really evident last year because we had a number of tenants move in from what I call fringe central buildings into our portfolio. So not easy, as I said, but I think Hongkong Land has done a pretty good job there. On the retail side, you're right. And as you walk around the LANDMARK, you're starting to see a lot more hoardings come up. And this year is -- will be the year with the biggest impact in terms of percentage of floor area out of operation temporarily. About 38% of total floor area on LANDMARK will be taken back at some point at its peak for renovation. So there is going to be an impact, and we've noted that there will be an impact on earnings this year as a result of that. But in terms of tenants demand to be in the space, it's completely undiminished. 50% of the area is already committed through the long-term leases that the top 10 brands have signed up to as part of their store reimagination. So 50% done. The remaining 50% is all in advanced negotiations. To be honest, our retail footprint in Hong Kong is too small. I mean we are really about 600,000 square feet. We'd love to have more. So I don't worry about my occupancy levels in retail in Hong Kong at all.