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

Good morning, everyone. A warm welcome to you all, and thank you for joining us either in Hong Kong live or online. I'm Michael Smith, the Chief Executive of Hongkong Land; and with me is Craig Beattie, our Chief Financial Officer. Since the last time we met back in March, we've continued building momentum and delivering on our initiatives, which underpin the initial phases of our new strategy. I'm incredibly humbled by the continued support from many of you who have strongly endorsed not only Hongkong Land's new direction, but the progress and announcements that we have made to date. Some of you may recall that I highlighted the key areas of focus for Hongkong Land with priorities 1, 2 and 3 relating to capital recycling. While we're incredibly pleased with the announcement in April of our landmark transaction with the Hong Kong Stock Exchange, work continues on a number of other initiatives, very important initiatives to recycle capital, which we are confident of delivering in the months ahead. Now let me talk you through some of the details of what I just outlined as well as go through our interim financial results for 2025. 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 will include them in the Q&A session. Here's the structure for today's presentation. Unless otherwise stated, all numbers quoted will be in U.S. dollars. So let's begin. Turning first to an update on the overall strategic pivot of the business on which we continue to build strong execution momentum. On portfolio recycling, we have reached $1.3 billion. In less than 12 months since the launch of our new strategy, we have already achieved 33% of our 2027 target. This includes the transaction with the Hong Kong Stock Exchange, which crystallizes independent valuations and the central portfolio's NAV, further underlying both its attractiveness and its scarcity. As I mentioned earlier, this remains a key focus for the management team with more announcements expected as other initiatives progress. On capital management, consolidated debt is down $200 million. The interim dividend is maintained, although our very strong intention, our conviction is to deliver annual mid-single-digit growth in the EPS remains unchanged. Finally, we have fulfilled our commitment to allocate up to 20% of net proceeds from capital recycling into share buybacks. The $200 million program announced in April is actively underway. On third-party capital capabilities, Michelle Ling, who's sitting here, who joined us as our CIO earlier this year, has been busy building out our capabilities on portfolio recycling, new investments and partnering with third-party capital providers. With the team now largely in place, they have been actively elevating Hongkong Land's profile amongst private market investors. One of the core pillars of Hongkong Land's strategy is a focus on ultra-premium integrated commercial properties or UP ICPs. The $1 billion Tomorrow's CENTRAL transformation continues to gain momentum with some exciting new openings scheduled before the end of this year. To position the Central portfolio and wider district for the future, we are looking to take a stewardship role in further elevating the core Central district for both tenants and the wider community. In Shanghai, West Bund Central is also seeing strong momentum, attracting well-known international tenants such as adidas. I will provide more details on all of this later in the presentation. Since the launch of our Strategic Vision 2035, we have spoken at length about no longer investing in the build-to-sell segment. In order to enhance decision-making and accelerate the recycling of capital, we have initiated an organizational restructuring of our build-to-sell business in China. Finally, at the core of our 2035 vision is a focus on total shareholder return or TSR. In the past, Hongkong Land management teams had minimum shareholdings in the business. With the introduction of a new remuneration framework, which includes the group's first long-term incentive plan which we announced back in March, there is now significantly improved alignment with shareholders. As at the end of June, members of the Board and the senior management team collectively hold over 1% of the group's total free float. The ability to recycle capital is fundamental to the long-term execution of our strategy. We've made significant progress towards our target of recycling at least $4 billion by the end of '27, achieving 33% of that target so far. The most notable transaction is the strata title sale of One Exchange Square, part of One Exchange Square to the Hong Kong Stock Exchange. This not only secures their permanent iconic home at One Exchange Square, but also ensures their long-term presence in our Central ecosystem. Net proceeds from the transaction amounted to HKD 5.9 billion, which is in line with the latest valuations prepared by independent valuers. The remaining net proceeds recycled were from build-to-sell portfolios, including $0.4 billion from the Chinese Mainland and $0.1 billion from assets in Singapore and South Asia. One of the most critical success factors for Hongkong Land is living up to the vision, the ideal that experience is central. Effective execution of our strategy over the long term requires constant innovation and reinvestment in our portfolio anchors. I wanted to show you briefly some highlights on work being done to enhance our Central portfolio ecosystem. Firstly, on Tomorrow's CENTRAL, since kicking off from the second half of last year, the transformation continues to gain momentum. Our initial phase of work is expected to begin bearing fruit with a number of exciting openings scheduled to take place over the next 6 to 8 months. Many of our long-standing tenants and concepts have embraced Tomorrow's CENTRAL and put in significant investments in their presence at the LANDMARK. To highlight a few examples, we have three flagships all with new interiors, including Buccellati, which is already opened, as well as Patek Philippe and [indiscernible], which will open in the next few months. The fully renovated China Tang reopened in recent months also, and a 14,000 square foot fully renovated Robuchon will reopen later this summer. In addition, there'll be a number of new to LANDMARK concepts. Many of you may have seen the announcement in May on the unveiling of a new concept by award-winning French chef, Daniel Boulud. This will be Terrace Boulud's inaugural presence in Asia and will open on the 25th floor of LANDMARK PRINCE'S, featuring expansive rooftop terrace with unmatched views of the Hong Kong Skyline and the Harbour. We're also very excited to have two other firsts, including Schiaparelli, which will have its first store in Asia at the LANDMARK; and Joseph Duclos, which will have its first store in Hong Kong at the LANDMARK. Finally, many of you would have seen holdings at LANDMARK yourselves. We are also eagerly anticipating the opening of both the Prada and Saint-Laurent Maisons before the end of this year. I'm expecting these openings to be spectacular and really something quite unique for the city. Separately, we'll be working closely with the Hong Kong Stock Exchange to deliver asset enhancement initiatives at our Exchange Square complex. By delivering a permanent home that the Hong Kong Ex can be proud of, we will further strengthen Central's interconnected financial ecosystem and Central's importance to the city and the region. In addition to the group's assets, we are also exploring ways to strengthen the Central District for the future. Our ambition is to transform the core Central area into a hub comparable to the best of what New York, London and Tokyo has to offer. The three core components of our work will include urban space improvement. This includes master planning urban spaces in Core Central to improve connectivity, create experiential moments and enhance public space engagement, as well as improving streetscapes via placemaking and placekeeping initiatives. Activations and programming focused on year-round activation of the district through arts and culture, heritage and other activities. And finally, community engagement and partnerships, leveraging public and private sector partnerships and continued investments by Hongkong Land and other stakeholders in Central as well as engagement and partnership with NGOs. Turning to an update on West Bund Central. Following the successful launch of Phase 1 last year, in particular, the residential units that were sold at record prices. And with debut of West Bund Central Residences, the team has been hard at work, pushing ahead on the second phase of the project. Phase 2 of West Bund Central Residences will open in the second half of 2025 with approximately 176 units expected to be available immediately, which we will manage, followed by an additional 600-plus units to open in phases starting in 2026. Given the success of the service residences, the Central Residences in Phase 1, which are currently near 100% occupancy, I think 96%, 97% occupancy, we are confident that the new units will also be well received by the market. The office component, which has a GFA of 78,000 square meters is being progressively handed over to tenants. In light of the well-documented challenges of the Shanghai office market, this is a remarkable result and demonstrates the unique positioning of the West Bund Central development. We are excited to have welcomed [Rosino], an affiliate of the Sinopharm Group, who have now already taken over a full tower of -- as their China headquarters. We will soon be welcoming Lululemon, who have also taken up another full tower as their China headquarters. And I'm very, very happy to announce here that we have secured adidas, who will be relocating their Greater China headquarters to West Bund Central. Excluding business parks, the adidas leasing transaction was the largest new grade office leasing transaction in Shanghai since 2023. Moving on to the retail component of Phase 2. It will comprise 27,000 square meters GFA of retail space with contemporary fashion and lifestyle positioning. Pre-leasing is on track with opening expected in mid-'26. On the personnel front, we're incredibly happy to have Stuart Grant now on board as the Chief Executive of this 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 at Blackstone, and most recently in a partnership with Brookfield in the U.K. Stuart has vast experience on how to build unique ecosystems. He really knows what good is and he understands the importance of partnership. After having moved his family to Shanghai, he has already hit the ground running, reshaping teams and responsibilities as well as working closely with our partners. We are extremely excited about this project, and I urge any of you who have not seen it in person yet, definitely let us know when you're going to Shanghai next because we really want to show you. Now for those of you who still haven't made it up there, we have a short clip, which will give you some idea on how the project is progressing and how it's taking shape with a strong team behind it. [Presentation]

Getting back now to the presentation. Further to the opening of The Ring in Chengdu last year, the group continues to deliver on its lifestyle retail pipeline in China. In April, our 50% owned retail mall in Nanjing, JLC, had a successful soft opening. The 44,000 square meter project is located in the heart of Shinjuku Central Business District and has an affordable luxury positioning. The mall has attracted a very strong footfall and is well received by our tenants to date. The grand opening is scheduled for September this year, where we expect occupancy to be around 90% to 95%. The group has four more lifestyle-focused retail projects, which will complete over the next 12 to 18 months. As the trading performance of these assets stabilize, the group will look for opportunities to recycle capital from this portfolio. As the group executes its stated strategy of exiting the build-to-sell segment, we have proactively initiated an organizational restructuring of our build-to-sell business in China. The goal is to streamline internal governance structures, structures to accelerate inventory turnover, centralized decision-making for greater efficiency and faster execution, and ensure the retention of expertise so that we can build quality as projects are divested. The initial cost savings is expected to be circa $16 million for 2025, while annual savings is expected to reach circa $50 million by 2028. I'll now pass over to Craig, who will walk through our interim results and financials.

Thanks, Michael, and pleasure to be here. Good morning. So I'll now take you through our financial performance in the first half of this year, and all numbers referred to in the presentation are in U.S. dollars unless otherwise indicated. So let me expand on a few of the numbers on this slide before covering the rest in more detail in subsequent slides. Excluding the impact of provisions in the Chinese Mainland build-to-sell business, underlying profit was $320 million, 11% increase year-on-year, primarily due to higher contributions from the build-to-sell projects in Singapore. Underlying EPS was $14.56, up 12% year-on-year, which further benefited from share buybacks. At 30th of June, the valuation of the group's Hong Kong office portfolio was $17.7 billion, stable compared to the end of last year. And this is the first time that the Hong Kong office valuations have stabilized since prime office rents began to decline in 2019. Operating profits from Prime Properties Investments decreased by $57 million year-on-year due to negative rent reversions in Hong Kong office as well as the temporary impacts from the ongoing renovations at the LANDMARK. Operating profits from the build-to-sell segment, excluding one-off provisions, increased by $95 million year-on-year, primarily due to more contributions from Singapore projects and to a lesser extent, more planned completions on the Chinese Mainland. Net financing charges were lower by $11 million year-on-year, primarily due to lower net debt. And this was offset by higher taxes in Singapore due to the higher profit contributions that I mentioned there. Turning to rental income, which was down 6% year-on-year, mainly due to an 8% decline in contributions from Hong Kong office. Our Hong Kong and Singapore portfolios continued to outperform the market, benefiting from a flight to quality. Rental income in Hong Kong retail, as I mentioned, was temporarily impacted by the ongoing renovations in LANDMARK, but this was partially offset by positive rent reversions as well as resilient tenant sales from our robust VIC customer base. In Singapore, there was stable growth in our portfolio, supported by low vacancies as well as positive rent reversions. Rental income from our Chinese Mainland portfolio increased by $15 million, driven by a combination of new mall openings as well as higher rental income from the existing malls in Chongqing and Beijing. And the performance from the hospitality and other segments were down mainly due to the temporary closure of Landmark Mandarin Oriental as part of our Tomorrow's CENTRAL renovations. Turning now to the operating profit from the group's build-to-sell business. And please note, this slide includes the group share of joint ventures and associates. Profits in Singapore were higher primarily due to the completion and handover of Copen Grand, a large project which was fully sold. Profits from the Chinese Mainland, excluding inventory provisions, increased year-over-year due to the timing of project completions. And despite government stimulus measures, Chinese Mainland market sentiment remains subdued and sales momentum across the group's projects remain well below historical levels. Contributions in our other markets were stable. In the first half of 2025, $23 million of noncash provisions were taken in respect of residential projects in Wuhan, where sales prices were reduced. And this compares to $323 million of provisions in the same period last year after an extensive review of all our China inventory that we undertook last year. Net asset value per share at 30th of June was $13.62, up by $0.05 compared to the end of 2024, driven primarily by stabilizing valuations in the Hong Kong office portfolio as well as the ongoing share buyback program. And as we mentioned, it's worth noting that this is the first time since 2018 that net asset value per share for Hongkong Land has increased. There were positive contributions from the resilient recurring underlying earnings. And as I mentioned earlier, the share buyback program is underway with slightly over half of the announced USD 200 million having been invested as of the end of June. Net exchange translation difference is mainly related to assets on the Chinese Mainland and Singapore, which had a higher value due to the strengthening of the renminbi and Singapore dollar. Let's turn now to an update on dividends and share buyback. And as Michael mentioned, the group has declared an interim dividend of $0.06 per share, unchanged from the first half of last year, and we remain committed to delivering mid-single-digit annual growth in dividends per share, which will result in the doubling of our dividend by 2035 to $0.44 per share. In April this year, we announced a $200 million share buyback program, which aligns with our capital management principles of allocating up to 20% of net proceeds from recycled capital back into investing into our shares. And as you've seen, the buyback programs continued during our blackout period. And as of the end of July, about 2/3 of the program has been invested. Turning now to treasury matters. The maturity profile of the group's debt is shown on the left-hand side of the slide, and the debt maturities are staggered over a number of years and are well diversified between both banks and debt capital markets. The group is in a really strong financial position with respect to any further refinancing plans on its maturities in the second half of this year. The average tenor of our drawn debt at the end of December -- June was healthy at 5.9 years and average interest cost decreased to 3.4%, down from 3.6% at the end of 2024, driven by lower average interest costs on renminbi borrowings and to a certain extent in Hong Kong dollar. 70% of average gross debt was at fixed rates. At the end of June, the group had available liquidity of $3.1 billion. And our credit ratings with S&P and Moody's remain unchanged and strong at A and A3, respectively. Let's jump now to an update on our leasing and operational performance in our key portfolios, starting with Hong Kong office. Average net rents were HKD 95 per square foot per month due to negative rental reversions in the period, but our vacancies have improved. Vacancy on a committed basis was 6.9% compared to 7.1% at the end of last year, and this compares to market vacancy of 11.8% for Hong Kong Central Grade A office in the midyear, which demonstrates our continued outperformance relative to the central market. Our overall weighted average lease expiry stood at 3.6 years, whilst the average lease expiry for our top 30 tenants, which makes up about half of our lettable space in Central was at 5.1 years. As of the end of June, 6% of the office portfolio is subject to expiration in the second half of this year, but our team has been proactive in managing discussions with tenants and including concluded renewals to date, this has decreased to 1% of our portfolio with the vast majority of tenants opting to remain within the portfolio. Moving on now to luxury retail in Hong Kong. Average retail rents continued to show growth, increasing by 7% and 2% compared to the first and second half of last year, respectively. This was driven by positive base rent reversions, reflecting the strength and attractiveness of the LANDMARK. Occupancy, excluding the areas currently closed for renovations, remained high at 97%. And our weighted average lease expiry at the end of June was 3.3 years, jumping significantly from 1.8 years at the end of last year, which is reflective of the long-term commitments that we've secured as part of Tomorrow's CENTRAL, and these lease deals are now starting to come into operation. Overall, tenant sales were down by about 10% compared to the first half of last year, but this was an excellent result considering the large amount of floor area that's temporarily out of action. And most importantly, the LANDMARK's targeted segment of ultra net -- high net worth individuals saw good growth year-on-year, which Michael will elaborate on shortly. Turning now to our Singapore office portfolio, which has performed very well, driven by flight-to-quality demand and a tight supply of new office space in the CBD. Rents continue to grow. Average gross rent across our Singapore portfolio in the first half was SGD 11.4 per square foot per month, a 3% increase from the second half of last year due to positive rent reversions. And the portfolio remains effectively fully let with committed occupancy of over 98%. Our overall and top 10 tenants on a weighted average lease expiry basis both stood at 3.6 years. And at the end of June, 5% of the portfolio is subject to expiration in the second half of this year. I'll now pass back to Michael, who will provide you with an update on our key markets.

Thanks, Craig. For those of you who watched CNBC this morning, you would have seen Craig calling the bottom of the office market. I'll add a little bit to that. So sentiment has noticeably improved since our last update in March, with clear signs of stabilization in core Central driven by net positive absorption and a narrowing decline in spot rents. What we really see is a flight-to-quality trend, which leads to a fragmentation of the office market. That has definitely continued in the city. We are seeing divergent fortunes between different segments of Grade A stock with rents for trophy or ultra-premium assets such as ours being the net beneficiaries. This coincides with the easing of the supply overhang over the past several years as vacancies at the super prime buildings in particularly have declined over the past year. Our Central Office portfolio is also closely linked to the capital markets as many tenants or prospective ones are asset managers, accountants, lawyers and consultants, sort of professional capital markets type people. So IPO activity has shown a notable rebound, as everyone has seen in the press, with net proceeds raised in the first half of this year, already surpassing the total funds raised for the entirety of 2024. The latest projections indicate net proceeds are likely to reach $25 billion with a number of listing applications in the pipeline exceeding 200. So that ecosystem of professional services within our portfolio really enjoys this type of capital markets activity. As IPO proceeds and trading volumes have historically been positively correlated with net absorption of Grade A office space in Central, we expect trading conditions to turn more favorable for our Central portfolio. On the retail side, while the broader luxury retail market has softened in the first half of this year, we continue to see the strength of LANDMARK from the ultra-high net worth segment. And this is a segment that is very, very resilient, doesn't care as much about political uncertainties or geopolitics or what's going on, they really have enough capital to continue spending. So comparing year-on-year spend with these top-tier customers, our top 70 customers at LANDMARK increased their spend by 8% compared to first half '24. Similarly, the spend from the top 100 customers increased by 7%. And even across our top 1,000 customers, the spend at LANDMARK continued to be resilient, up 2% compared to the same period last year. And these are really quite remarkable results in light of the well-documented challenges for luxury retail due to lower average spend by visitors to the city. LANDMARK continues to maintain strength in high-value transactions with sales of single transactions over HKD 100,000, up 4% year-on-year. People come to the LANDMARK to make that really important watch or jewelry purchase. Another data point worth mentioning is on LANDMARK transactions. The combined value of the top 10 single transactions at LANDMARK reached HKD 213 million, up 81% compared to the first half of the year. So as people -- as that end of the scale becomes more confident, maybe they're involved in capital markets or IPOs, the propensity to spend and spend in large volumes tends to be drawn into the LANDMARK. Moving into Singapore office, where we see generally favorable demand-supply dynamics over the next several years, which is likely to result in a steady growth in gross rents. New office supply in the CBD will only amount to 2 million square feet from '26 through to '29, which is less than 6% of the total existing stock. Furthermore, the Urban Renewal Authority released its Draft Master Plan 2025, detailing upcoming the city's development priorities. The plan suggests that upcoming new supply of CBD office will remain very limited even beyond 2029. So the supply-demand dynamics in the premium quality office market of Singapore is very, very strong. Turning to the Shanghai office market, which is not so good. But as most of you are aware, the market continues to be oversupplied with demand being subdued due to a cautious short-term economic outlook. Vacancy for Grade A offices across the city was just around 25% as at the end of June, while the vacancy in the West Bund submarket was slightly lower at about 23.5%. Despite the challenging backdrop, the West Bund Central project has outperformed with 100% of the offices that we've launched being committed due to its high quality and unique riverfront positioning. Leasing transactions at West Bund Central made up 1/4 of all transactions in the West Bund submarket by four areas since 2024. And for people like adidas and Lululemon who have relocated and made that location in their China headquarters, it's just a great endorsement of the future of that property. Similar to other commercial hubs globally and our own experience across Asia gateway cities, we expect a continued flight to quality and a bifurcation of Grade A office markets in Shanghai to widen over time, similar to Hong Kong. You can see in the two graphs on the right-hand side that premium integrated properties in Shanghai have outperformed stand-alone assets, both in locations nearby as well as across the broader market. As West Bund Central matures into an ultra-premium integrated commercial ecosystem over time, we also expect sustained outperformance in rents relative to both the overall market and stand-alone buildings within the same area. Turning now to outlook for the remainder of the year. Let me take a moment to go through our thoughts across key markets. Firstly, for Hong Kong office. We genuinely expect further stabilization for core, core Central with demand focused on well-managed, interconnected, high-quality buildings such as ours. The recovery in Hong Kong's equity markets, the IPO pipeline and recent office deals signal stabilization for Hongkong Land's ultra-premium offering. Even though this will take some time to result in neutral reversions, we expect negative reversions to narrow in the second half of the year. Another trend likely to continue holding is the bifurcation between ultra-premium and average Grade A office stock as the most active occupiers are largely central focused and they really prioritize on quality of building and connectivity of the ecosystem. For the LANDMARK, the initial phase of Tomorrow's CENTRAL will begin bearing fruit with a slew of openings towards the end of this year. The short-term priority continues to be to ensure that the LANDMARK has the right mix of offerings to serve customers and office tenants during this transformation. As you saw in previous slides, the ultra-high net worth community has remained resilient, and we expect this to continue into the remainder of this year. In Singapore, we expect positive reversions to continue on the back of limited supply in the CBD and a largely stable economic outlook. For China, we do remain cautious on the short-term trading outlook. Our focus on West Bund, monetization from the build-to-sell segment and active management of our lifestyle retail pipeline remain unchanged as we continue to navigate challenging market conditions. So now let me close by circling back to our strategy and priorities for the remainder of the year. On portfolio recycling, we are maintaining strong momentum. It's a pity you can never time things perfectly, but we're working on a number of really exciting initiatives that we'll love to share with you over the coming months. On capital management, our approach remains consistent. 80% of recycled net proceeds will be used to reduce net debt and build capacity for new opportunities with the remaining 20% of proceeds allocated to share buybacks. In line with the announcement of our existing $200 million buyback program, future buybacks will continue to be funded by capital recycling. And therefore, further upsizing of the buyback will be subject to the successful execution of the capital recycling initiatives that we have in hand. With regards to dividends, we have held the interim dividend stable, but our intention and a strong conviction is to deliver mid-single-digit percentage point growth in full year DPS, and that remains unchanged. On third-party capital, Michelle and her team are making excellent headway with further establishing Hongkong Land's presence in the private markets and reengaging with like-minded capital partners. For our ultra-premium gateway assets, the work does not stop. From Tomorrow's CENTRAL in Hong Kong to West Bund Central in Shanghai, we're focused on delivering best-in-class execution across our marquee projects. I also mentioned earlier our intent to play a leadership role in shaping the future of Hong Kong Central. Those placemaking and placekeeping efforts will start to become more visible to you and to the community in the months ahead. And lastly, with a strong investment management team now firmly in place, we are also actively assessing new gateway development opportunities in places like Tokyo and Seoul and Sydney and thinking about when we're going to set up teams and actively looking at opportunities to redeploy the capital that we will be recycling from the initiatives that we have in hand. We've built really, really solid momentum, have many more exciting milestones on the horizon, which we all really look forward to sharing with you. So we thank you for your support, and we're happy to take any questions that you may now have.

This is Karl Chan from JPMorgan. We have been a very happy tenant of Hongkong Land. So two questions from me. The first one is obviously still on the Hong Kong office market. So just now you mentioned that we might be closer to the bottoming of the Hong Kong office market, right? So just curious, going into 2026, what would be our base case expectation for the rental reversion? Do we expect it will already turn stable in 2026? And can I also check a bit on your thoughts on the upcoming supply in Central, because some large investment bank is moving to [indiscernible] and then Site 3 and also the Henderson and CKC2, they are all massive supply in the pipeline. So how do you see the competition and the impact on our portfolio in the LANDMARK? So that's my first question. And the second question is obviously capital recycling. Can you share a bit more on the latest progress on capital recycling? What kind of assets that we might be considering to sell? And then would we consider selling any assets below book valuation? Because obviously, the Exchange Square deal was very good, right? It was sold at book valuation, right? But if opportunities arise, would we consider selling at below book valuation? So that's my two questions.

Three questions.

Yes, great question. Do you want to start with the first one?

Yes. I think in terms of rents, so obviously, we've been talking today about the stabilization of prime office rents in Hong Kong. I think this is really a good news story. Second quarter Central rents were broadly flat. I think we've seen increasing capital market activity, the stock exchange deal, the Jane Street lease deal, which is a huge deal in any market. So I think all these sort of positive momentums, the stable valuations in our portfolio, I think, really talk to the quality of the portfolio, but also potentially the market starting to stabilize. In terms of what that means for our rental income, there's obviously a lag effect between our portfolio average rents and spot rents. And so whilst the -- hopefully, the sort of spot market is starting to stabilize, there will still be a period of negative rental reversions for Hongkong Land, which, as Michael mentioned, we expect to start to narrow in the second half of this year. And I still expect there to be some negative rental reversions in '26. But really towards the end of that year, we should start to see the market hopefully bottom out from that point on. And I think maybe on the supply, and I'll let Michael do the capital recycling. On the supply point, we don't feel that there's a lot of supply in Central. I mean the new buildings that you've referenced have been in the market for a number of years now. The largest tower is 85% committed. The sort of GPO site project, 70% pre-committed already. So actually, the sort of best stock, and there really is limited amount of stock when I talk about the best stock, including Hongkong Land's portfolio, but there's no additional supply beyond that. So really now what you're seeing is the sort of good quality buildings that are available, they're basically being taken up. And so less available supply, increasing capital markets activity, really supply-demand dynamics, hopefully, might start to turn in our favor. So let's see. Capital recycling?

Yes. So Karl, on capital recycling, as I mentioned, it's really challenging to time things perfectly, right? So I think last time we met in March and then we came out in April and announced the Hong Kong Stock Exchange transaction. So if we could synchronize great, we'd love to have done that today, but we can't. But we really are very, very focused on this on, with Michelle's team and all of us are our first, second and third thing because we know that unless we recycle capital, we can't reinvest and do things that we want to do in our ultra-premium greater commercial properties. So it's very difficult to talk about any specific projects. We would love to be back here in not years, but months to be able to share with you some of these activities. In terms of pricing, I feel personally that we set our -- when we get our assets independently valued every 6 months, that's the price of the assets. And the Hong Kong Stock Exchange recognized that and paid the full price for our assets or the valuation for our assets. Our NAV is the value of our assets. So I'm not an advocate of selling those prime type of investment property assets at anything less than what the independent valuer says. So transactions of that nature, that's the value, and that's what we focus on. I think in China with our residential, we need to be more thoughtful around as we divest some of those residential projects, particularly in some tough markets like Wuhan. And some of our medium-term lease assets in China, some of the office stock, some that are in challenging markets, to recycle the capital, maybe there, there may be some instances where we may have to think about a discount to book value. But most of that is carried at historic cost, most of that stuff. So it's not like it's an independent valuation being marked down. But some of that is particularly some of the office stock in second-tier markets, it's quite challenging. So if we have a legitimate opportunity to sell, and we've had a couple of cases recently, which have been quite encouraging of some of our office being sold to either individual floors or whole buildings to mainly SOEs, which is great because that hasn't happened for a while, then we'll have to be very realistic about what their price expectations are versus ours. But for our investment portfolio, the valuation is the valuation. So I would be very anti anything less than that.

This is Cindy from Citi. So three questions from me. The first one is also on capital recycling. So apart from direct disposals, will you consider other Chinese capital recycling, for example, listing, taking CREIT market in Mainland China or some other more, say, diversified Chinese to accelerate capital recycling? This is the first question. The second question is actually on your buyback plan. So you mentioned further upside would depend on capital recycle, but would it only depending on like very sizable deals such as Exchange Square? Or would the regular progressive windup of your build-to-sell business sufficient to fund another, say, less sizable buyback? And also in terms of considerations for buyback, would share price affect your decision-making? The third question is on your new investment management team, which set up in the first half. So just trying to understand a bit more on the setup of this team. Let's say it's led by Michelle and reporting directly to you. So what are the KPIs for that team? Is it based in Singapore or like regionally diversified? And with the team focusing, let's say, short-term wise, more on capital recycling? Or I think you also mentioned looking for new investment opportunities. So how to balance those two?

I'm trying to remember. The first question was around sort of portfolio recycling into structures. Yes. I've had a history, Michelle has had a history. A lot of our team members have had a history in the capital markets, and we've always got our eyes wide open. Our China portfolio is still being stabilized. Now our property in Chongqing, Chongqing Ring is now in its third or fourth year is doing incredibly well. That is now on a yield on cost basis where I think we could use that as a seed asset for a China REIT. But there are other assets that have just been completed that still need to stabilize, probably will take some years before the rental reversions, the first leasing cycle come through. And with our activation and our sort of care, we can bring the yields up to make it a more compelling proposition. So definitely not ignoring that opportunity, but I think our portfolio still needs a little bit of time. And possibly, the CREIT market also needs a little bit of maybe work in terms of making it. I know CapitaLand are venturing into that market. So it will be great to see how they progress and what lessons we could learn from that. On the last question -- you want the second one -- the last question on Michelle and the team, the KPIs, I think initially, it's all about capital recycling. So the team that Michelle has assembled across Singapore, Hong Kong and China. So it's not a Singapore business, although she spends most of her time here in Singapore and Shanghai and everywhere else in between. The team itself is across because our assets are across, and we're looking at every possible opportunity to recycle capital in a meaningful way. So that is the most short-term KPI. But beyond that, the creation of a real asset management, fund management business is a big priority of ours. And I know some of our peers have said that they were going to do things and haven't. And we're very, very focused on doing it really well and really, really well when we come back to you and say this is our first initiative that you will go, okay, this really makes a lot of sense. This is great. So that's what we're aiming for as well. So it's capital recycling, creating fund management opportunities. And probably the third leg then is how will we recycle into -- more into Singapore possibly, Seoul, Tokyo, Sydney, the new market opportunities that may present themselves. So those are probably the three buckets of KPIs. I can't remember the second question.

The buyback, I'll take it. So in terms of the buyback, our intention is to upsize that over time as we recycle capital. We can do that in two ways. I think when we announce larger recycling events, then there's probably going to be a large amount of recycling that we would announce to the market. But we've always got the option to go in and buy shares. So to your question around would we continue to buy back shares just as we wind down our build-to-sell business? That's entirely possible. So I think there's two ways. It's not just a big bang announcement. You might see us going in the market from time to time. I think to your second point around share price and of course, we look at the returns that buying back our shares are expected to generate for us over the long term and for investors, and we measure that return against our cost of capital. So there's -- as we contemplate investing in new growth projects, as Michael mentioned, we're always looking at the relative returns from the buyback to what we could generate from investing that capital in new projects and also looking against our cost of capital overall. So if it gets to a point where the share price indicates that buying back the shares is not the best use of capital, then we would stop. But the only thing I would say is our net asset value per share at the end of June was $13.62 and the share price is $6.40. So I think we've got a little bit to go yet before we get to that point. Hey Karl.

A couple of questions. First, regarding West Bund, definitely very impressive performance in terms of office leasing in a very difficult market. Can you give us more sense about the rents achieved? And also as you are thinking about the project on a more medium-term, longer-term basis, the milestones that we can expect with upcoming completions and how much of a rental income boost the project can provide to you on a more medium-term basis, now that you actually have some firm commitments already and should have a better sense. And second is going back to the comments earlier on the cost for the Chongqing Ring. And also, I think you have the completion of the Chengdu Ring series as well. Can you give us some more color on the returns? And that probably will give us some better sense about how quickly you can exit these more sort of mid-tier kind of malls that you don't necessarily plan to hold on to longer term?

Maybe I'll answer the first one. So in terms of the office market in Shanghai, as we said, it's a very, very tough. It's a very competitive market. There was a lot of oversupply. I think that oversupply is quite bifurcated and quality office that we're building in West Bund and managing -- and putting Stuart Grant there and everything that we're doing is attracting demand and attracting interest. Where adidas and Lululemon are located, it's a real lifestyle type of location for West Bund, I'm not sure if you know, but on a Sunday on a weekend, there's literally thousands of people walking down with pets and roller skates and everything else. So for adidas and Lululemon, that's a great location for them to express their brand and to really get the -- and we're going to get the benefit, too, of them not just being office tenants, but I suspect they're all going to want to open quite large retail properties or retail flagships across the 600 shops that we're going to have across the mall. So there's a real ecosystem benefit in having them there. So I can't go into details about office rents, but it was -- they wanted to be there. And they left a building that they're only there for 7 years to come across to us and quite an expensive cost to them to relocate and everything else. But that to me was a real endorsement and commitment for West Bund and what West Bund will be in the future.

I think in terms of the second question, you're asking about the relative contribution, I think, from West Bund. I mean just to remind everybody, West Bund construction is well underway, as you saw in the video earlier. Phase 1 is open, Phase 2 is just starting to open and will open throughout into '26. But the whole project is not going to be complete until 2028. So in terms of a sort of full district contribution, it's really going to be a few years away from where we are today. In terms of giving you a sense of its weighting size for Hongkong Land, you should probably think about it sort of similar to our Singapore office portfolio contribution. So I mean, as we announced last year in our strategic direction, as we look to grow the business, we've got three prime portfolios that underpin Hongkong Land, Hong Kong Central, which we're in the midst of the renovations. And once that's done, there's going to be over 20% rental growth in the retail alone. And then we'll have to see how the Hong Kong office market performs. Singapore, very strong, and we've seen positive rental reversions. There's no new supply coming through. So I think the near-term outlook for that portfolio is very robust. And then in West Bund, once we get through the next few years, things obviously stabilize and then we'll have a more meaningful contribution. So the objective is to have sort of a balanced portfolio between these three cities and then hopefully more to come overall. But West Bund is in an investment phase. So it's going to take a little bit of time before we have a meaningful profit contribution.