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

Good morning, everyone. It's great to see so many familiar faces on a Friday morning. A very warm welcome to you all and for those of you who are joining us online. I'm Michael Smith, the Group Chief Executive of Hongkong Land. And with me today is Craig Beattie, our Chief Financial Officer. I remember, I recall this time last year, we're at our 2024 results presentation. Our Strategic Vision 2035 was barely a few months old. And I recall being very, very thankful to the many of you who endorsed Hongkong Land's new direction and gave me and the management team the benefit of the doubt. And that wore heavily on me and on the whole management team. So, over the past year, we've been relentless on our execution and delivering on the initiatives aligned with the core tenets of our new strategy, whether that be capital recycling events, new openings and milestones at our ultra-premium integrated commercial property portfolio or establishing our inaugural private real estate fund. Now let me talk you through some of the details of what I just outlined as well as Craig and I are going through our financial results for 2025. We'll have plenty of time for questions. 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. So here's the structure for today's presentation. Unless otherwise stated, all numbers quoted in U.S. dollar will be in dollars. Let's get started. Turning first to key developments over the past 12 to 18 months. It's been a very, very active period for Hongkong Land. I don't think anybody can accuse us of being in a complacent management team. If you look at the list of initiatives and achievements we've done this year, the last 12 months, it's been pretty formidable. Following the launch of our Strategic Vision 2035, we focus on our most pressing priority. I recall one of these briefings, somebody asked me what is the most three most important objectives, and it was capital recycling, capital recycling, capital recycling. And we've done that both from our build-to-sell portfolios where we have ceased incremental investment and selectively recycling from our prime investment properties book. In April, we announced the first major transaction with the sale of parts of One Exchange Square to the Hong Kong Stock Exchange for $810 million, validating the NAV of the Central portfolio. In August, we completed a landmark leasing deal at Westbund Central with Adidas committing to over 32,000 square meters in a whole building of 18 floors as their Greater China headquarters, one of the largest leasing deals in Shanghai for many years. As we exit from the build-to-sell segment, we also restructured our China operations to streamline governance and centralize decision-making. We expect annual cost savings to reach around $50 million by 2028 with this initiative. In September, we achieved an orderly exit from our build-to-sell operations in Singapore and Malaysia through the disposal of MCL land for over $650 million, again, at NAV at book value. Also in September, we opened our 50% owned JLC Mall in the heart of the Nanjing CBD at its grand opening. In December, we announced the initial phase of the Tomorrow's CENTRAL transformation including the opening of new flagship stores from leading global luxury brands. And finally, in early '26, we completed the launch of our inaugural private real estate fund, SCPREF. This involved the disposal of our 1/3 stake in MBFC Tower 3, alongside seeding our remaining Singapore portfolio and adding Asia Square Tower 1 to reach an initial AUM of $8.2 billion. For a first fund, it's quite an impressive achievement. All transactions highlighted on this slide were completed at or above NAV. I'm going to repeat that a number of times, but all of these divestments were done at or above NAV, reflecting strong endorsement from buyers and global institutional capital. Turning next to an update on the group's strategic pivot. On portfolio recycling, net proceeds reached $3.6 billion. This represents 90% of the $4 billion minimum target we set ourselves for 2027. So I think we surprised ourselves and the market in terms of the pace that we managed to achieve in our recycling efforts. These disposals crystallized independent valuations and validated the book values of our prime assets. The seeding of our Singapore prime portfolio into SCPREF at NAV further illustrates the endorsement of prime property valuations by institutional third-party capital. And these are incredibly credentialized investors, APG, QIA, endorsing the NAV of our assets. On capital management, consolidated net debt declined by 30% to $3.6 billion. It's since reduced further to around $3 billion following the formation of SCPREF. So we're in single-digit gearing now. We also increased full year dividend by 9% to $0.25 per share, in line with our commitment to progressively increase dividend per share towards $0.44 by 2035. So a $0.02 increase in our dividend. In parallel, we continue to allocate up to 20% of recycled capital to share buybacks with over $340 million invested to date, reducing share capital by approximately 2.5%. On third-party capital, we successfully launched SCPREF, now the largest commercial real estate private fund in Singapore. The fund establishes new recurring fee income streams and again, represents strong validation of Hongkong Land's asset management capabilities by global institutional capital. Across our ultra-premium gateway assets, Hong Kong office committed vacancy tightened to 6%. I recall when it was double digit, with indicators pointing to a recovery in the prime central market. New flagship retail leases are progressively becoming effective, supporting rent and asset value growth, while Westbund Central continues to attract premium tenants as development progresses. We also remain focused on assessing new UPICP opportunities across Asia's gateway cities. Finally, on operational excellence, following the restructuring of our China build-to-sell portfolio, we continue to enhance our operating model and cost discipline to support delivery of our Strategic Vision 2035. On sustainability, we retained our global sector leader position and 5-star GRESB rating. And in line with our fund management ambitions, we have committed to the principles of responsible investment. Briefly going through where we are in terms of our capital recycling efforts, which I'm very proud of. The group has committed to recycling up to $10 billion in its 10-year strategy, but we front-loaded our efforts during the initial phase of execution with an initial target of $4 billion to $6 billion by 2027, by the end of '27, including capital recycled from the establishment of SCPREF last month, which was $1.3 billion. So that's $1.3 billion of capital was taken out of the formation of that fund. We've now reached 90% of our minimum 2027 target. For reference, the aggregate capital recycled from our build-to-sell segment amounted to $1.4 billion, while net proceeds from prime properties book amounted to $2.2 billion. These are net proceeds. So this is after any gearing attached to the assets. In line with our previous guidance, at least 80% of capital recycled is allocated towards growth investments, growing our earnings with up to 20% allocated to buybacks. Turning now to an introduction of SCPREF. I think some of you were at the briefing last month. But just to reiterate, it's an initial AUM of SGD 8.2 billion, approximately USD 6.4 billion. Again, from a -- for the first inaugural maiden fund of the group, starting with a fund of that size is quite an achievement. The fund has a committed equity of SGD 4.1 billion or USD 3.2 billion with over SGD 1.8 billion of third-party capital. Again, in our first fund to start with $8.2 billion of assets and $1.8 billion of third-party capital is an achievement, and it endorses the value of the assets contributed to the fund. The seed portfolio has an attributable net leasable area of 2.6 million square feet or 4.6 million square feet on a 100% basis. This is effectively bigger than our Hong Kong Central portfolio. Committed occupancy is 96% and has a healthy weighted average lease expiry of 3.2 years. As you see on this slide, we have ambitions to grow the AUM of this fund to over $15 billion within five years. For those of you who know me, my ambition is to do that a lot quicker than that and beyond. With a targeted IRR of about 8%, we have amongst the lowest cost of capital in the market to execute our growth plans, and we have some of the most credentialized real estate in the world supporting us. There's no redemption for the first five years. We have their commitment to deploy more capital. We have a queue form of new investors who would like to also join us. It's really -- and we have a market where the supply-demand fundamentals for office in Singapore are very, very strong. So we really have -- and we also have the fortuitousness of a number of assets coming to the market. which haven't been marketed for many, many years. So the combination of all of that really provides a recipe for us to be able to grow this fund and grow the fund management fees, which are really, really important to us. Next, I wanted to show you briefly some highlights on work being done to enhance our Central portfolio. All of you in the room would have seen all of the work that's been going on over the last couple of years since we announced, including some very early indications on returns on investment. Firstly, on Tomorrow's CENTRAL, during this period of partial closures, Landmark continues to be underpinned by our loyal bespoke members who increased their year-on-year spending by 8%. We have had a number of very exciting openings, including Schiaparelli, which has opened its first store in Asia at the Landmark and is doing incredibly well. But I'd like to take a minute to talk about the remaining four other new stores on this slide, Prada, Saint Laurent, Patek Philippe and Miu Miu, all of which opened in December last year to catch the festive season. The early returns on these four tenants alone have been very, very strong. Their new stores versus their last stores, they're up 70% since December 2024. And again, despite over 30% of area remaining closed for renovations, Landmark had a spectacularly positive holiday season with November and December absolute tenant sales up 13% year-on-year. In some respects, I think it's a trickle up. People have made money through the stock market. The capital markets have been very strong. People now feel confident to go out and spend. November and December were amongst our strongest performance we've ever had in the Landmark. These are early indications, but strong initial performance of these new stores validates Landmark's strategy of focusing on the ultra-high net worth segment as well as working with brands to create large flagships, real experience where experience is central. Turning to our placemaking efforts in Central, which form part -- again, which forms part of Hongkong Land's strategy of living up to the ideal that experience is Central, another one of the slogan besides UPICP, Strategic Vision 2035, Experience is Central. Winter Wonderland in Central marked Hongkong Land's first flagship outdoor winter placemaking activation delivered in partnership with the Hong Kong Tourism Board. The event was a step-up from the comparable 2024 events, attracting significantly more visits and social media mentions. For those of you who attended, it was incredibly busy, and we plan to do it even bigger and better this year. Tenant feedback was highly positive, noting that the activation supported stronger retail momentum during the festive period. Moving on to an update on Westbund Central, where the team is hard at work delivering on Phase 2 of this project. Westbund Central Residences, so this is a service apartment brand that Hongkong Land manages, again, another fee revenue for us, continues to be well received with Phase 1 being 96% occupied and Phase 2, which only opened in the fourth quarter of last year, is now 55% occupied. The office component marked a number of milestones with both Lululemon and Sinopharm having moved in. Adidas' new Greater China headquarters is currently being fitted out with completion expected by mid-'26. Post completion of this group of offices, we expect the number of office workers commuting to the development to exceed 2,000 just from this group. Finally, the 27,000 square meters retail component with a contemporary fashion and lifestyle positioning is well on track with pre-leasing commitments of over 75%. So the offering will have about 70 designer and lifestyle brands. Adidas and Lululemon her office tenants will also have flagship stores. Tenant fit-outs are in progress with initial openings in May of this year and full opening by the third quarter. And we're not stopping there. So the group continues to make progress in executing on its pipeline of projects in the Chinese Mainland. We don't want to be in every city. We want to be in the best cities where we think we have the most impact, one of those being Suzhou. Suzhou Central will have around 67,000 square meters of retail space overlooking Jinji Lake. The retail component will be anchored by the largest global luxury brands, many of those that you see in our central portfolio. a vast majority of whom have already committed to the project. So pre-leasing now exceeds 50%, even though we're more than 12 months away from opening. The project will also feature a very, very lovely 140 key Mandarin Oriental Hotel that will also open in April 27 and sits right on the lake where the sunsets over, it's going to be brilliant and highly recommend you visiting when we open. In line with the group's Strategic Vision 2035, we continue to refine our approach to enhance operating models and to manage costs. Obviously, as we are divesting assets and recycling capital, earnings does suffer. So trying to ensure that we have an operating model that gives us an opportunity to manage our cost base is very important. The group has initiated a streamlining of its operations by implementing a portfolio-led operating model with an aim of delivering platform-ready operating and financial performance. This includes three key organizational changes. Firstly, instituting a portfolio-based leadership to enhance accountability. So people who are basically own and are accountable for a cluster of assets. Secondly, refining corporate functions and operational centers of excellence to drive standards, consistency and disciplined growth. And thirdly, ensuring a refreshed management committee, which provides the appropriate centralized oversight. So this sort of organizational enhancement really is an outcome of what we announced back in October. It's a steady progression when we've seen what Stuart Grant has done in Westbund, what Pei Teng has done with our fund, it just became obvious that we need to have sort of centralized focused attention on clusters of assets. The objective for this change is to ensure end-to-end accountability for returns, improve capital allocation and risk discipline, enable faster and more consistent execution at scale and deliver platform-ready asset performance. Turning over to a brief introduction of the refreshed leadership team. The management committee will be chaired by myself with the portfolio leaders reporting directly to me. These portfolio leaders include Alvin Kong, who's already part of our management team. He had a long career at Swire Properties before joining us. He will now take on the responsibility for leading our China integrated properties portfolio, so our Ring series, our properties in Suzhou, Chongqing, Beijing in the Central Series, but also he will be in charge of recycling capital from our build-to-sell assets. Next is Graeme Torre, who some of you may know. He has rejoined Hongkong Land when I first met him back in the '90s, he was at Hongkong Land. He now brings with him three decades of leadership experience in real estate and investment management across Asia Pacific, including most recently leading APG Asset Management's Asia Pacific business. So he will be accountable and responsible for the whole Hong Kong Central portfolio. Next up is Pei Teng, who had joined us prior to the formation of SCPREF. She is the Chief Executive of that fund and will continue to manage and grow the AUM of what is already the largest commercial private real estate fund in Singapore. And finally, as I mentioned, Stuart Grant, who stepped down from our Board, relocated his family from the U.K. to Shanghai, and he will continue to lead the execution of Westbund Central. He's really galvanized that team and our relationships with our partners as it's one of the largest mixed-use commercial projects under development in the region. So therefore, requires somebody of his statute and experience to have direct accountability and oversight of that project. I'll now pass over to Craig to walk through our 2025 results.

Thanks, Michael. Good morning, everyone. Before we dive into numbers, I want to spend a little bit of time to set the scene by highlighting some changes that we've made in the way that we report, which we believe better aligns with the priorities we've outlined in our strategic Vision 2035, specifically the decision to wind down the build-to-sell segment -- and so by making these changes, our aim is to provide a clearer understanding of the group's underlying performance related to its principal operations. So there are two changes that we've made. First, assets are immediately available-for-sale. For example, residential inventory within the build-to-sell portfolio have been reclassified into nontrading items. And secondly, recurring income-generating assets that were previously held within the build-to-sell portfolio, which historically we had referred to as medium-term lease assets. And these are primarily retail malls in China under The Ring brand name. We've reallocated those assets into our prime properties investment segment. And these assets were historically carried at their development capitalized cost. And they were fair valued by independent valuers at the end of the year. And similar to our prime Properties investment portfolio going forward, they will be mark-to-market every 6 months. So, basically, by making this change, the group's underlying earnings now solely focus on prime property commercial income and fund management fees as we build that stream in the coming years. And so as I said, the reason we've made this change is to provide all of you with a clearer understanding of our underlying performance. And we've also restated the 2024 numbers to give you a clearer ability to compare year-on-year performance. If you want any more detail on this change, I refer you to Note 1 of the financial statements that was released last night. So let's get into the results for the year overall. All monetary amounts are in U.S. dollars unless otherwise stated. So profit to shareholders was $1.2 billion, a significant turnaround compared to a loss of $1.4 billion in the prior year. And this movement was primarily driven by an increase in the independent valuations of our portfolio, including an increase in the valuation of the Hong Kong Central portfolio, which is actually the first time we've had an increase in the value of the portfolio since 2019 when rents began to fall in Hong Kong. The group's underlying profit on the new basis was $458 million, down 8% from the prior year, primarily due to lower rental contributions in Hong Kong. And adjusted free cash flow amounted to $810 million in the year or just over $0.37 per share, and I will elaborate further on this metric in a subsequent slide. But what this tells us is despite lower profits from the build-to-sell segment as we wind it down over time, the cash contributions that we are benefiting from as we recycle capital continues to be quite significant. Assets under management post formation of the Singapore fund, SCPREF, reached $50 billion, and the net asset value per share stood at $14.30 at the end of 2025, up 5% compared to the end of 2024. Net debt declined significantly by $1.5 billion to $3.6 billion. And in fact, as Michael mentioned, it's fallen further in the early part of this year down to $3 billion as we had significant cash inflows from capital recycling initiatives throughout last year. And in recognition of the strong cash generation, the Board has declared a final dividend of $0.19 per share, bringing the full year dividend per share to $0.25, a $0.02 increase compared to 2024. Operating profits from prime properties investments decreased by $81 million year-on-year, primarily due to negative rent reversions for Hong Kong office as well as temporary impacts from the retail renovation at Landmark. Contributions from Singapore were higher due to positive rent reversions, and there were lower contributions from other regions, primarily due to ongoing renovations at our mall in Macau as well as temporary preopening costs in China as we start to open a number of new projects there in the coming years. Net financing charges were lower by $33 million year-on-year, primarily due to lower average borrowing rate and taxes were lower due to lower profits. In line with the group's Strategic Vision 2035, the return of capital from the build-to-sell segment continues to be a big priority for us. And whilst, as I said, profit contributions from this segment will naturally reduce as we're no longer investing in the segment, there's cash that we are taking back as we sell inventory. And of course, the benefit of that, you will see through the reduction in our net debt line. So, as a result, we're very focused on the adjusted free cash flow metric, which does include maintenance CapEx on our prime properties portfolio, primarily in Hong Kong as well as the cash we get back from the build-to-sell segment winding down. And in total, that was $810 million in 2025. This metric does not include major capital recycling initiatives. So the things that we did last year, the sale of some floors from One Exchange Square to the Stock Exchange, the sale of MCL Land and the sale of MBFC Tower 3, the cash proceeds from that are not in this metric. The purpose of this metric is to give you a clearer understanding of our operating flows. In 2025, the net revaluation gain was $890 million, primarily driven by an increase in market rents for the landmark retail. So, as Tomorrow's CENTRAL continues on its renovation and the positive reversions that we're seeing from the portfolio, there was a good uplift in the independent valuation of that particular asset, plus there was benefits in both Singapore and Westbund, where the rental outlook in both markets improved compared to the prior year. Other non-trading items in the year included $247 million of revaluation gain from the reclassification of our medium-term lease assets, The Ring assets I mentioned, from build-to-sell to prime properties. As I said, these assets had previously been held at their capitalized cost in the past. Losses from the build-to-sell business were a net $245 million, which included a noncash provision of $371 million on Chinese Mainland assets. And as we continue to prioritize the recycling of capital and the wind down of inventory, we are looking at the sales price of our assets in a very difficult market, and we took the decision to mark down on a selective basis, some of the sales prices on our assets to really benefit sales. Net asset value per share at 31st December was $14.30, up $0.73 or 5% compared to the end of 2024, driven by the valuation gains in our portfolio, as I mentioned. And there was also positive contributions from the business, which was partially offset by the noncash provisions in China, as I mentioned. And the group invested just under USD 280 million in share buybacks during the year, resulting in an accretive impact to NAV. And net exchange translation differences mainly relate to assets on the Chinese Mainland and Singapore, which had a higher value due to strengthening of the renminbi and Singapore dollar. As we report -- our reporting currencies, U.S. dollars, obviously, we translate foreign assets into U.S. dollars, and these currencies strengthened throughout the year. Let's turn to an update on dividends and share buyback. And as I mentioned, we've declared a higher dividend, up 12% from the prior year. Full year dividend now $0.25. And the growth in dividends is in line with our long-term target to double dividends per share by 2035. Our objective is to go from $0.22 to $0.44. So obviously, at $0.25, we still got ambition to grow that a lot further. And as I mentioned, strong cash flows from both prime properties investment and the unwinding of the build-to-sell segment provide support for the dividend through our strategic transformation. Over the longer term, we remain committed to paying a dividend payout ratio in the region of 80% of underlying earnings per share. In the next few years, as we wind down the build-to-sell segment and ramp up our business, particularly in China as new projects complete and Hong Kong starts to come back, we're anticipating some good growth in earnings looking forward. On the buyback, as you're aware, we announced three separate tranches to the buyback program as we recycle capital. And as Michael mentioned, up to 20% of recycled capital is being allocated to buyback. So a total of $650 million has been announced, of which $340 million has been invested as we sit here today. And total capital returned to shareholders, which includes the buyback plus the dividend paid, amounted to over $780 million in 2025. The buyback, as we previously guided, of course, remains in place and the pace of that is driven by market conditions as well as new investment opportunities that we see on the horizon. Touching now a little bit on treasury. The maturity profile of the group's debt is shown on the left-hand side of this slide. The debt maturities are staggered over a number of years and are well diversified between both banks and debt capital markets. And the group remains well financed with strong liquidity and no significant financing needs in 2026. The average tenor of our drawn debt at the end of December was healthy at 5.8 years, and the average interest cost further decreased to 3.3%, down from 3.6% at the end of 2024, driven by lower average interest costs primarily in renminbi and 59% of the group's average gross debt was at fixed rates. At the end of December, the group had available liquidity of $3.5 billion compared to $3 billion at the end of 2024, reflecting quite significant additional investment capacity. So as we've guided previously, we've been very focused on recycling capital. And now we feel we have a strong balance sheet with capacity to seek new growth opportunities. And our credit ratings by both S&P and Moody's were unchanged at A and A3, respectively. Let me turn now to an overview of the group's rental income and operational updates on our key segments. Overall, rental income was solid. It was down by only 2%, mainly due to a 7% decline in contributions from Hong Kong office due to negative rent reversions. However, leasing momentum for the portfolio improved in the second half of the year. Income from Hong Kong retail was temporarily impacted by the ongoing renovation works in Landmark, and this was partially offset by positive rent reversions in retail from a number of the new Maisons stores that have opened. These rental declines were partially offset by higher rental income from Singapore and the Chinese Mainland. Turning to a leasing and operational update on our key portfolios. Average net rents were HKD 94 per square foot per month. Vacancy on a committed basis declined to 6% compared to 7.1% at the end of the year, I think a very solid performance. And for reference compared to the market overall, Hong Kong Central Grade A office vacancy at the end of last year was 11%. Our overall WALE, weighted average lease expiry stood at 3.6 years for the portfolio, whilst the WALE for our top 30 tenants who occupy close to half of our space in Central was 4.7 years. And at the end of December, 13% of the portfolio is subject to expiration in 2026. In retail, as we said, a positive performance. Average retail rents increased by 12% to HKD 236 per square foot due to positive rental reversions. Our rental income on a per square foot basis has really recovered from the immediate impacts post-COVID. So I think this is a particular bright spot for Hong Kong Land. And when you think that over 30% of the lettable area was out of -- temporarily out of action for renovation, I think this shows really how strong the mall performance was and the remaining 70% in action was fully let in the period. The WALE at the end of December was 5.4 years, up significantly from 1.8 years. As we were positioning for Tomorrow's CENTRAL renovation, we were letting existing leases wind down. But of course, we've now entered into some very long-term leases with key anchor tenants, which is reflective of their long-term commitment to Landmark, to Hongkong Land and of course, to Hong Kong overall. What they are creating here is some of the world's biggest and best stores. So I think the WALE, you should expect to see the WALE continue to move up in the next couple of years as we continue to enter into other long-term leases with other brands. And I think as Michael mentioned, on the tenant sales performance, there were a couple of key points to note. The ultra-high net worth segment, which is a core part of the customer base at Landmark was incredibly strong last year with our top-tier customer spend increasing 8% compared to 2024, demonstrating the resilience of this customer group. And overall tenant sales of Landmark despite the renovation impacts was only down by 5%, which is a phenomenal impact considering the sort of temporary impact of the renovation overall. Singapore was also a very bright spot. And please note the performances on the slide here were prior to the formation of SCPREF, the fund which was formally created in February of this year. The office portfolio continued to perform very well, driven by a flight to quality demand and no new Grade A office supply in the Marina Bay CBD. Rents continue to show steady growth. Average gross rent across the portfolio last year was SGD 11.5 per square foot, an increase of 4% year-on-year and positive rental reversions were achieved and committed occupancy was up -- was at 97% overall. Positive reversions were actually up 12%, which is quite significant. I'll now hand over to Michael for a market update.

Thanks, Craig. Let's look first at the Hong Kong office market. There was strong net positive absorption in 2025 with spot rent seeing mild growth, which has been well articulated by the brokers. Flight to quality has resulted in a divergent market even amongst different segments of Grade A stock in Central with trophy or ultra-premium assets continuing to be net beneficiaries. The well-publicized recovery of IPO activity in Hong Kong is not showing any signs of slowing down with net proceeds raised in January this year alone reaching $3.7 billion. Finally, new supply of office space in Central only makes up 7% of total office space is largely accounted for. Beyond these, there is no new office supply in Central into the launch of Central Yards Phase 2 in 2032. So the supply-demand dynamics, particularly the ultra-premium, very high-quality office, which our portfolio is part of, is very, very, very good. Moving on to luxury retail, where we continue to see strength of the landmark due to steady growth of ultra-high net worth luxury spend in Hong Kong. According to the latest World Ultra Wealth Report, Hong Kong ranked second globally in terms of the number of ultra-high net worth individuals, people that have more than USD 30 million of net assets. behind only New York City. Going forward, we expect to continue seeing steady growth in spend from this segment. You'll see on this slide some key statistics from our bespoke VIC shoppers program. So this is our loyalty program that we've been creating since 2018. Comparing year-on-year spend by our top-tier customers, and some of these statistics are just incredible. But the top 100 local spenders at Landmark in aggregate spent HKD 1.2 billion, a 16% growth compared to 2024. So that's more than USD 1.5 million spent on average for each of these VICs at the Landmark Mall. VIC sales accounted for almost 85% of total sales of the Bespoke program and continues to grow. Digging a bit deeper, you'll see how important these VICs are to our strong performance. The average ticket size, the tenor and the lifetime spend of the VICs are all significantly higher than the rest of the luxury market. A final number I'd like to leave you with just to get a sense of our VIC spending power. The top 10 lifetime customers since the launch of our bespoke program in 2018 have had a cumulative spend of HKD 1.3 billion, the top 10. In terms of consumption trends, the majority of their spend continues to be on watches, high-end jewelry, ready-to-wear fashion and premium leather goods. Moving on to Singapore office, where we see favorable demand-supply dynamics in the Marina Bay CBD over the next several years, which is likely to result in steady growth of gross rents. According to the Urban Renewal Authority's latest draft master plan, there will be very, very limited new office supply in core CBD over the next few years with only around 110,000 square foot of net new supply per year from 2025 to 2029. So this augurs very, very well for our SCPREF fund. On to retail and the Chinese Mainland. The difficult market conditions over the past couple of years have been very well documented. And despite improvements in certain segments, such as the luxury market versus a low base in '24, we expect the market to remain highly competitive in 2026. Having said this, consumers and by extension, our tenants are rewarding well-located and well-managed assets, which are able to deliver innovative and experience-led concepts. For the year ahead, active asset management involving constant tenant mix optimization and the ability to continue delivering on creative and engaging experiences remains critical to driving performance improvements. And we are one of the -- there's a handful of us who are still strong believers in the luxury and the retail market in China and deploying capital. Many of our peers are not. Many of the private companies in China who previously were opening malls in China are no longer opening those malls. So there really is an opportunity for us and others to take advantage of that. Looking at for 2026. Take a moment to go through our thoughts across the key markets. For Hong Kong office, positive net absorption for the prime Central segment is expected to drive return to growth for market rents. And for those of you in the room who know, from the trough of the office market cycle to the peak, rents can move significantly. And particularly in the central district, the very core, there's only a few that we would deem to be if a tenant comes to the Hong Kong Central portfolio, it may go to IFC 1 and 2, it may go to Henderson and it may go to AIA, but it's only a very small group of assets. That group of assets, the vacancy is about 3.5% right now. But I think IFC, we understand is 99%, 100% occupied. So that small group, that small cluster of assets where there's a disproportionate amount of demand from financial institutions, from private equity, from hedge funds and family offices is really going to enjoy the full benefit of that rental uptick. We've seen the positive momentum from the second half of last year continuing into this year. Reversions may remain negative, but we think the magnitude is expected to reduce significantly this year as market rents really come into an upside trend. For the Landmark, the initial phase of Tomorrow's CENTRAL has begun bearing fruit. As new openings for Phase 2 are progressively launched, further positive rental reversions are expected. As you saw on previous slides, ultra-high net worth consumption, which is our focus, has seen solid, solid growth, and we expect this to continue into 2026 and beyond. In Singapore, we expect positive reversions to continue on the back of limited supply in the CBD and a largely stable economic outlook. And for China, we remain cautiously optimistic on the short-term trading outlook. Our focus on active monetization of our build-to-sell assets, execution of Phase 2 of Westbund Central and driving performance of our lifestyle retail pipeline remains unchanged. In terms of our strategic priorities and focus areas for 2026, our ambition remains unchanged. We continue to work on opportunities to monetize build-to-sell assets, as Craig said, bringing that cash back into the noncore assets towards the upper end of our ambition of $6 billion by 2027. On capital management, our approach remains consistent. 80% of recycled net proceeds will be earmarked for earnings growth investments. We know we need to grow our earnings, and that's a very, very strong focus of Michelle and myself and Craig and the management team and up to 20% allocated to share buybacks. In line with previous announcements, future buybacks will continue to be funded by capital recycling. As we sell something, we will continue to use that 20% of that on our buyback program. For dividends, I think one -- this is a really important point. We say what we do and we do what we say. And we told the world that we are going to double our dividends by 2035, and this really proves that point. Our intention is to continue to do that, and our absolute intention is to have a dividend of $0.44 by 2035. On third-party capital, there is plenty of work ahead to secure new potential capital partners for SCPREF. Michelle is working incredibly hard at making sure that the queue of new investors who wants to join us is as long as it possibly can be. We also continue to engage with these capital partners, not just in Singapore, but given the strength of our relationships, there may be other opportunities in other gateway cities that we can work with them on. On ultra-premium gateway assets, the focus on existing portfolio anchors is to continue delivering for our tenants and our customers across both Tomorrow's CENTRAL and Westbund Central, absolutely critical that we make sure that the operating performance of those assets is world-class. In terms of growth opportunities, the team is firmly focused on executing our growth ambitions in SCPREF. It's an incredible opportunity for us to grow that vehicle as well as active assessment of new gateway city opportunities. Before we conclude for today, I'd like to spend a few minutes on enhancing shareholder value. When I joined at our focal point on October 24 was TSR was total shareholder return. I think over that period, I think we've had the strongest total shareholder return of any real estate company in Asia Pacific and one of the strongest in the world. And that really looking at this chart, when I joined the discount to NAV was 80%. We were trading at about a $6 billion market cap on $32 billion of net asset value, 0.2x book. by saying what we do and doing what we say and all of the events that have transpired since then, that gap has closed. But it's credit -- I mean that's really our focus by selling assets and NAV to demonstrate that our assets are truly worth what we say they are, by coming -- by doing the recycling, the buyback, the dividend growth, doing everything we can to ensure creating new fee income streams through fund management that we continue to close that gap. And we've still got a long way to go. We're a 40-odd percent discount to NAV. Our NAV has just ticked up, as Craig said. So we've been hard at work for us, but we will continue to focus on closing that NAV gap. Fully cognizant that one of the key reasons this has come to fruition is we followed through on the commitments that we made to you. So despite the strong start we've had, we intend to continue doing what we have said, and we will absolutely do it. I absolutely the whole management team, the reorganized restructure that we've gone through, all focused on closing that gap. Our work is far from complete as we remain firmly focused on narrowing this discount. So there's one thing you remember when you leave, it's narrowing the discount. It's absolute focus. As we continue to reposition the business, our aim is to facilitate investors valuing the group on the sum of the parts basis. I was an investment banker, so I wasn't allowed to speak to research analysts, but not trying to tell you how to do your job. But over time, this would be a great way, I think, as to how potentially the investing community could value Hongkong Land. Firstly, the prime property assets, the aspiration is that they're valued at NAV. And I think we've demonstrated that in Hong Kong. Our NAV has been supported by both the One Exchange Square transaction with the Hong Kong Stock Exchange as well as there's been a number of high-profile transactions, our sister company, Mandarin, selling half of One Causeway Bay, et cetera, all at around that NAV over the past 12 months. For Singapore Central, the establishment of SCPREF with Hong Kong Land portfolio valuations endorsed by some of the most credentialized real estate company investors in the world. APG did a huge amount of work before they invested a significant amount of money in that fund at NAV. So that whole fund should not be valued at any discount. So in all of your models in my mind, whatever discounts you want to apply, it shouldn't be on the Singapore pool. That should be at NAV. For Westbund Central and other assets on the Chinese Mainland and across the region, the current share price indicates that there's next to no value ascribed to them. So if you fully value Singapore, you look at what we've done in Hong Kong, there's no value at all subscribed to our China business. As these assets stabilize and potentially recycle into platforms, we feel that there is significant upside from there. For the build-to-sell book, we continue to execute on a robust recycling plan. absolute focus of attention. We've taken the provisions. We are pricing these assets for sale. We've already demonstrated the ability to generate net proceeds in an efficient and consistent manner. This part of the book should be valued on a DCF basis. You should take a view. We believe that by 2028, the majority of this inventory will be sold to some type of DCF to bring that back. And the final component is recurring fee income earnings. We announced our intention to create a fund management business, and we have created a very big one, and we intend to grow that as quickly as we can and generating a new stream of fund management fees, which is not embedded in our NAV. This is a separate business, right? It's very high-quality, predictable income streams. In the case of SCPREF, it's perpetual and it's growing and there's acquisition fees, there's asset management fees, there's leasing fees, there's performance fees. It's an incredible array of fees that we are going to generate from that fund. Those earnings should be, I think, qualify for a much higher multiple than maybe other earnings given the quality of those -- that income stream. We expect our work to -- we expect that we will scale SCPREF, as I've said, and establish other fee-related income streams in other cities will, in time, grow this business to be a material component of the group's earnings. Overall, we've built very, very solid momentum. And I know I think everyone thinks, well, what's next for Hongkong Land? There's a lot more for Hongkong Land. So please, we're not going to sit by complacently and do nothing. We're all going to be working as hard as we ever have to close that NAV gap to deliver on our promises, but still -- because there is a lot more work ahead, but we're going to do it. So I want to thank you for your support and happy to take any questions from the floor. Thank you. Okay. Please.

So I'm Karl Chan from JPMorgan. I have two questions. So the first question is on dividend. Because our understanding is that the guidance on DPS growth will be at roughly around mid-single-digit percentage, right? And for this result, you guys surprised us once again with a 9% hike in the DPS. But then if we look at the payout ratio, right, in terms of adjusted free cash flow, it's like 60-ish percent it's okay. But it's based on underlying earnings, it's actually more than 100%. So how do you arrive at this like 9% growth in dividend? And most importantly, going forward for next year, how should we think about the DPS? Should we also expect a mid-single-digit growth? Or actually, we might be able to also look for a high single-digit growth in dividend? And for the next financial results, should we look at dividend more based on earnings or based on FCF? So that would be my first question on dividend. And for my second question, it's very simple. Just now, Michael, you mentioned that the goal is to narrow the NAV discount, right? So what's your goal? Should we -- do you think that we should actually target a 0% discount in NAV? That's my second question.

Okay. Thank you. Do you want to answer the first one?

Yes. I think on the dividend, Karl, the raising at 9% may seem a bit counterintuitive when our underlying profits came down by 8%, but it's really a reflection of a few things. First of all, the strong capital recycling that we have achieved last year, which is quite impressive. Secondly, the strong operating cash inflows, which includes the benefit of the prime properties investment portfolio, but also as we unwind the build-to-sell segment, there's a lot of cash to come back from that, too. So, from the Board's point of view, we feel that we have done a lot and therefore, rewarding shareholders with a little bit of that, noting that for every extra cent on our dividend has a cash cost of about USD 21 million. So the extra cash cost is $42 million by raising it by $0.02 per share. So a $42 million cash cost against the many billions of U.S. dollars that we've recycled is very manageable overall. I think as we look forward, as I said in my sort of overlay that the intention is to continue to look at our underlying earnings ultimately and for payout ratios. That's the right thing to do. And as a general guide in the medium to long term, about 80% of our underlying earnings will be paid out as a dividend. That's our general philosophy. But obviously, we find ourselves in a bit of an interesting phase because we've invested a lot of capital in commercial assets in China, which are under development. They will complete in the next few years. The rental income will grow. Plus we've got Tomorrow's CENTRAL in Hong Kong, a big investment that's starting to complete and bear fruit. And hopefully, the Hong Kong office market is troughed and will start to rise. So, in increasing the dividend, the Board is also signaling that we have confidence in our earnings growing over time. So I think in the short term, I would look at our free cash flow, adjusted free cash flow per share as a guide. But over the medium to long term, it will revert back to underlying earnings. And the intention is, again, as I said, to ultimately double dividends per share. So you should expect us, absent any unforeseen events to continue to grow the dividend. It may not be 9% every year, but there's an ambition to grow.

I'm not going to give any price targets, but I'm a hard person to satisfy. I will say that there are some of our peers in Australia, Goodman and others who trade at premiums to NAV because their fund management business is factored into their share price. So theoretically, what we've just done with SCPREF, USD 6.3 billion of AUM, a 5% sort of value of that business is a USD 300 million value creation there. It's perpetually open-ended. We are going to grow it. That value should also grow. That should help either bridge the gap or maybe if we do hit NAV, then it goes beyond that. So not a price target, but I think as we try to describe, if our assets were valued at NAV, we're going to redeploy a lot of the balance sheet that we've been recycling. We're going to redeploy that in earnings. That will be incremental earnings growth that will come through. We're going to grow our fund management business, which is an income stream, which is not factored in. So I think all of these elements, in my mind, NAV is probably not enough, but I'm biased.

This is Raymond Liu from HSBC. I got two questions. The first question will come to Michael. Like in the early this morning, there was a press in the field. So Michael mentioned that Hongkong Land might potentially create funds for Hong Kong properties. So can Michael further elaborate and provide us more color on this one? And the second question is about the fund management business. So if you look at capital recycling, which is a Phase 1 of the strategy, is amazing, which you provide a lot of guidance and near-term target, long-term target, how you're going to execute. And so far, we can see actually very good progress. Can management also provide some more guidance on how we can visualize in terms of your fund management business in terms of like AUM fund growth, like how you're going to build it outside like say, for example, like Korea, Australia and Japan and other places as well?

Sorry, I'm missing the second one. What was the first one? Sorry, Hong Kong. Sorry. Okay. So in terms of our intentions, we made it very clear on October 24 that we want to be a real estate fund manager. And we say what we do and we do what we say and we've created our first fund. We've got very, very good institutional LP relationships. APG is one of the world's most credentialized real estate investors. They don't invest in everything. They invested a lot of capital alongside us. Qatar Investment Authority, there's a very large sovereign wealth fund from Southeast Asia has come along. Performing well on that fund, exceeding expectations, exceeding the underwrite will help us work with them further in other jurisdictions. In terms of Hong Kong, when we say we want to be platform ready and with Graham's role, it's not just -- it's not to create a fund, but it's to make sure that it's managed like a fund and that it's platform ready and that there's a spotlight on it. Nobody can sort of hide when there's light on them -- it's going to perform like it was in a fund. Whether we do a fund or not, it's going to be platform ready. So I'm not going to say yes or no as to whether that's the intention, but we will be ready if an opportunity arose, we wouldn't be constrained by the operational structure that was managing it.

Maybe if I help out a little bit on the second question. So I think we were very clear when we announced the strategy that the goal is to grow our AUM to $100 billion. So at the end of the year, we're at USD 50 billion or currently, we're at USD 50 billion. So effectively, we still got a doubling to go, which is quite significant growth. Some of that increase will come from natural valuation increases in our existing portfolio as we anticipate rental growth, but the vast majority of that extra $50 million that we need to find is basically new investment opportunities supported by third-party capital. So given our focus on sort of prime office and retail primarily, we're generally a core, core plus type investor. So in terms of guidance for your -- how you see the sort of fund management business building, I think you're familiar with the sort of fees that core, core plus type strategies generally attract. So you can apply a sort of a percentage to that sort of AUM growth to give you a guide. But I think there could be further upside because, as Michael said, in the existing $50 billion AUM, actually the majority of that is not currently in any fund structure. And so there are opportunities potentially over time as we evolve the portfolio and some of the portfolio matures, particularly in China, you may find that actually we start to earn a fee on the existing AUM as well. So, ultimately, in terms of potential, you can take $100 billion and apply some assumption around the fee income, and that's the kind of what we're trying to ultimately get to.

Cindy from Citi. I have three questions. The first question is on your strategic priorities. So you mentioned last year, it's all about capital recycling. This year, what has been added to your new priority list? Is it capital deployment, fund management or what else? Second question is regarding the target return of your new investment. Presumably, as you grow your AUM, what kind of a return profile are you looking at? Is it the, say, the 8% for the SC as a reference? Or what would we be looking at? And the third question is actually back to your central retail, which we think is quite remarkable in terms of your average rent growth and the VIC retail sales. So what anything else you can do in, say, the coming years to further elevate the project? And what kind of the renovation progress and opening schedule for the new flagship this year?

Why don't I answer the first one. In terms of recycle capital, recycle capital, recycle capital, deploy capital. I think that really is quite a focal point. The fact that we managed to create SCPREF by merging with one of the best assets in Singapore that was been owned since 2016 by the Qatar Investment Authority, we didn't deploy any capital to buy that, but that building is now under our control. We now manage it. We lease it. We get fund management fees from it. So the opportunity to scale that vehicle and deploy our own capital alongside our partners is a big priority as well as other gateway cities that we're looking at. And there's been a lot of work in exploring and thinking through Sydney and thinking through Seoul and thinking through Tokyo. But the core business is also really important, ensuring that Tomorrow's CENTRAL is a success that it's rolling out to be and to ensure that Westbund Phase 2 and Phase 3 and Phase 4 are open successfully and well let up, incredibly important. So core business plus growth are probably the two new priorities for me. Craig?

I think the second question was about returns generally. I mean I think we've said publicly that SCPREF sort of target return for investors of about 8% to what you quoted, which is correct. Obviously, for us as both an investor but a fund manager, the return is higher. And so if you look in terms of the fees that we will earn over time from that vehicle, then our returns are more in the 9% to 10% range we project. And of course, SCPREF has growth ambitions. So part of our AUM growth will come from expansion of that fund overall. So I think in terms of opportunities for us to invest, but also improve our return on capital, SCPREF is actually well placed to help with that overall.

I think your last question was on Tomorrow's CENTRAL and how...

Hong Kong Retail.

Craig and I were at the top of Prince's Building last night for Jardine, Matheson function, which is Terrace Boulud. It's incredible. It's really, really amazing. I really would like you all to attend on the 12th but all the seats are booked. Please.

Open next week. Opens next week.

Opens next week on the 12th. I mean I think our timing has been really, really good. In terms of opening up the first phase of our flagships, the experiential openings that we're doing now, Robuchon opening, now Terrace Boulud opening, things seem to be working on a good trajectory in terms of the underlying demand, as we've said, with what our bespoke clients are doing, but just the general activity in Hong Kong, I mean, we can all feel it. You get stuck in traffic jams. It's hard to walk around the corridors. I mean it's just -- it feels as though Hong Kong is really, really back on its feet and really running now, and we're benefiting from that. So I think as we continue to open and deploy the capital and work with our partners as they open up their flagship stores. And as Craig said, some of these stores are the biggest in the world. I mean they're going to be incredible, like nothing anyone has ever seen. And I think that will then add to the attraction of Central and more and more people will come in. We're not just focused on our -- inside of our building. We're really also looking at the public room and what things we can do to ensure that Winter Wonderland and the festive season, how can we make -- absolutely ensure that Central is the heartbeat of Hong Kong.

I mean maybe just to supplement the sort of positive statements that we've made about retail last year is only the beginning because, of course, Tomorrow's CENTRAL is not yet complete. And so the Maisons, it's actually been quite nicely timed. We're generally opening two Maisons a year. So last year, we had two open. We've got another two opening this year, two the year after and two the year after that. And so the whole investment case for that overall project ultimately will see Hongkong Land's rental income, we predict to grow by 20% to 25% off its prior renovation levels. It's quite significant actually. So the value that creates both in earnings, but also the valuation of the portfolio, and you saw the valuation go up at the end of last year. That's really reflecting part of the rental income. And so actually, I anticipate the valuation going up more in the years ahead as that rental income comes through. And I think just on Michael's point around the renovation, what we're doing in the public realm, there's a couple of exciting things hopefully happening later this year, which we can't talk about, but we will tell you when they happen. So there is lot to happen.

We'd see them.

Karl Choi from Bank of America. Three quick questions. First one, further on the retail side. Any color you can give on the Hong Kong Retail tenant sales, how the sales have performed year-to-date?

Sorry, for this year?

For this year, yes. And second is for Central office. Just curious, it might be still early days, but any signs that you've seen some slowdown in decision-making on the part of corporates when they -- when it comes to office leasing? And any concerns that if the Middle East conflicts drag on, that may be a little bit of an issue? And third is for China Retail. Any update on the initial yield on cost for the Nanjing mall that you opened last year or the Suzhou one that you're planning to open? And what was the cap rate in general or the range of cap rates used by the valuers for the assets that have been reclassified from assets for sale to IP?

Maybe the second question, it's way too early for us. And we're a fixed asset business. Our real estate can't be moved. We're not in trading. All our tenants have long-dated leases. Half of our office portfolio is from very large companies that have long-term leases with us. So it's really too early to tell, but our business is quite, I think, immune to any of these political shocks, and it's built for resilience anyway. So I don't know the third. Sorry, the first one, Karl, was -- the third one was about?

China Retail.