Hysan Development Company Limited (0014.HK) Earnings Call Transcript & Summary

Good afternoon. Thank you all for coming to Hysan Development's 2026 Interim Results Announcement Analyst Briefing Session. Let me introduce our panel for this afternoon. Our Chairman, Ms. Irene Lee; our Executive Director and COO, Mr. Ricky Lui; and our CFO, Mr. Andy Choi. We will start with the presentation from Irene, Ricky and Andy, and we will open the floor to take questions. Now I will invite Irene to start first. Irene, please.

Thank you. Welcome to the analyst briefing on Hysan's 2026 Interim Results. Hysan delivered solid results in the first half of the year. Turnover was broadly stable under a dynamic market with structural changes. Recurring underlying profit was up by 1.7% year-on-year, driven by disciplined cost control measures and reduced finance costs following capital recycling and debt reduction. Underlying profit grew by 7.4%, contributed by the realized gain on the sale of residential units in 2 blocks within Bamboo Grove. Turnover for our retail, office and residential portfolio all registered positive growth. If we normalize Bamboo Grove unit sales, our turnover increased by 2.3% on a like-for-like basis, while residential revenue recorded an increase of 34%. Let me turn to the Lee Gardens rejuvenation, the vision we set out and what it has delivered. Back in 2022, the market was going through structural changes. We chose to invest in our core portfolio and embarked on a Lee Gardens area-wide rejuvenation during COVID. Since 2023, investments in our community through URBANPARK and URBANHOOD have given the already trendy and youth-centric Hysan Place new energy and lifted traffic across the entire Lee Gardens area. New and expanded flagship Maisons have made Lee Gardens a home of luxury, and we have captured strong luxury sales growth since 2024. And there is more to come. By the end of this year, a transformative second street level will redefine how you move through Lee Gardens, bringing seamless convenience to our community. The results speak for themselves. This is a very, very good diagram. We should look at that carefully. Since the first half of 2023, retail revenue is up 15% and prime rent per square foot is up by 22%. As of June this year, both tenant sales and prime rent have made a full recovery to pre-COVID levels. This is what we targeted. We began with a clear vision. We moved into inception, then transformation and this year, connection. As our vision unfolds and comes to life, we will continue to unlock more value as Lee Gardens evolves. We will and must stay dynamic, energetic and maintain momentum. We must anticipate and stay ahead of what our customers want. Built on our century-long approach to thoughtful curation and our community business model, Lee Gardens is one of a kind, and this unique positioning has enabled us to deliver solid results. In the first half of 2026, our retail portfolio recorded 17% growth in tenant sales and 8% growth in foot traffic, leading retail sales recovery in Hong Kong -- in the Hong Kong retail market. Behind these numbers is a deeper shift. Consumers are responding to retail environments that feel relevant, authentic and culturally alive. What makes Lee Gardens distinctive is its rare combination of luxury and trendsetting elements together with authentic culture and original experiences. This allows us to connect with different generations, meeting the evolving needs and aspirations of both our long-standing customers and a younger audience. Our positioning as the home of luxury continue to gain depth, supported by phased completion of the renovated and expanded flagship Maisons. These renovations represent a reflection of the confidence that leading global brands have in the long-term appeal of Lee Gardens. We will show you a video now, and I'll talk with -- as it evolves. Along Hysan Avenue and Yun Ping Road, luxury flagship Maisons have made Lee Gardens the home of luxury. Next are our pedestrian foot bridges and further ahead, the nearly completed covered walkway from Lee Gardens to Hysan Place and to the MTR. And at our trendsetter Hysan Place, we have installed a mega screen at one of the busiest and most visible frontages, street frontages. What you are seeing is the large-scale harvest phase of Lee Gardens' rejuvenation. It's a whole precinct working as one. Our approach is asset enhancement plus content curation. We curate experiences that people cannot find anywhere else. We also bring in unique experiences with unique appeal. Just 2 examples, there are many, many. For instance, the Louis Vuitton and the 2025 world #1 bar, Bar Leone have revived the glory of our Yum Sing bar from the Lee Gardens Hotel. Tiffany's iconic Blue Box cafe has been so well received by customers. These are some of the special features that bring people back. Retail today is increasingly about memories, purpose and meaning. Customers are drawn to places that are engaging and resonate with their aspirations, tell stories they can relate to and want to be part of and create moments worth sharing. We continue to showcase the unique character of Hong Kong's art and culture through our street campaigns to engage and resonate with different generations. Hong Kong's office market remained competitive during the period as companies continue to be cautious when evaluating their space requirements. I'm sure you're experiencing that in your offices. Our full range office portfolio, combining traditional office space with flexible co-working solutions provides both stability and agility, positioning us as a compelling office destination for the new economy. Lee Garden Eight marks a key component of the rejuvenated Lee Gardens as a vibrant melting pot of work, play and life. Due to open in the fourth quarter of this year, Lee Garden Eight will expand our Lee Gardens leasable portfolio by approximately 30% with quality tenants secured for both retail and office segments. Lee Garden Eight is equipped with advanced green building technologies. It has been recognized by a number of prestigious industry awards and top-tier green building accreditations, setting a new benchmark for sustainable development. You've seen this before, but you will see it in real life soon. This is the integrated pedestrian walkway system scheduled for completion by the end of this year. It will connect the Lee Gardens precinct to the Causeway Bay MTR station. This will make the neighborhood more accessible and pedestrian-friendly in all weather conditions. The elevated walkway will create a second street level, connecting and extending our retail space for customers and commuters. It will help shape Lee Gardens into an even more human-centric and walkable neighborhood. The foot bridge connecting Lee Gardens Three and Lee Gardens Five has been completed. I recommend you try it. The rest are expected to come into operation by the end of the year. Our strategic pillars contribute to both business and geographic diversification. Lee Gardens Shanghai is an extension of the Lee Gardens brand into the Mainland. It brings together high-quality office tenants, retail offerings and lifestyle elements to create a rich business and social scene. Our flex office business venture in partnership with the world's leading flex operator, IWG, continues to grow steadily with 54 centers across the Greater Bay Area. Our health care investment through New Frontier Group supports our exposure to a sector aligned with long-term demographic and wellness trends. These strategic pillars are broadening our growth base while maintaining disciplined capital allocation. Let me close on what matters most to you, the value we created and how we created it. Over the past 3 years, Hysan has delivered a total shareholder return of 28.7%. That compares with 13.4% for the sector over the same period. This is a testament to our differentiated strategy, our proven execution and our financial prudence. The extensive rejuvenation of Lee Gardens along Hysan Avenue and Yun Ping Road was timely and strategic, which successfully captured the strong luxury sales growth since 2024. We also took action when the luxury residential market picked up in 2025 and launched unit sales at Bamboo Grove. That decision generated a net asset value uplift of HKD 3.7 billion. That is 44% above prelaunch book value. It validated the real worth of our prime residential portfolio. We have recycled HKD 4.5 billion since 2025, 50% -- 56% of our 2030 target. This disciplined capital recycling program supports meaningful deleveraging and a stronger balance sheet, ensuring we keep a sustainable capital structure through future market cycles. I'll now pass the floor to Ricky, who will share more about Hysan's business operations in the first half.

Thank you, Irene. Let me share with you Hysan's business review for the first half of 2026. Our group turnover was broadly stable year-on-year. Turnover of our Hong Kong retail portfolio was up by 1.2% to HKD 861 million. Occupancy increased to 96%. Expanded luxury flagship and curated tenant mix continue to enhance rental income. Overall rental reversion rate on renewal, rent review and new letting remain positive. Office turnover and occupancy remained stable under a competitive market. Negative rental reversions continue, but is showing early signs of improvement. Hong Kong residential market has strengthened, which drives stronger leasing and sales momentum. Strong residential sales also support our capital recycling. Our residential leasing portfolio turnover was HKD 100 million. Occupancy increased to 90%. Lee Garden Shanghai's ramp-up continued to increase our office revenue. Retail. The tenant sales of our Hong Kong retail portfolio increased by 17% during the first half. Occupancy increased to 96%. In addition to the improvement in base rent, turnover rent increased by 8% year-on-year. This reflects the strong sales momentum of our tenants and shows that Lee Gardens continues to attract quality footfall and consumer spending. Sales across all retail trade categories record growth with particularly strong performance in watches and jewelry. As shown in the chart at the bottom right, Hysan's retail portfolio revenue has continued to grow over the past 2 years, consistently outperforming the Hong Kong retail market. These have demonstrated our strong customer base, which is well positioned to attract high-quality local customer and overseas tourists. We have been receiving long-term support from our loyal customers. Member spending at Lee Gardens was up by 25%. Number of Club Avenue members increased by 23%, while number of single transactions over HKD 100,000 saw a 33% increase. During the period, Club Avenue continued to strengthen collaboration with tenants to create exclusive experiences that appeal to high net worth members. High membership program serve as our engagement and sales engine. It helps identify members with strong potential and encourage them to join Club Avenue. By bringing the 2 programs together, we are further advancing our dual engine CRM strategy with data-driven analytics to drive overall sales performance. We launched more than 120 promotional campaigns in the first half to engage the community. We collaborated with more than 50 strategic partners in a series of high-profile pop-ups and immersive experiences to deepen customer engagement. We completed the facility enhancement work at Hysan Place and introduced a new mega screen at one of the busy streets. This helped raise market visibility and business for our campaign and pop-ups. Many overseas brands recognize Hysan Place positioning as a trendsetter and have chosen it as the location for their first store in Hong Kong. At what we have mentioned, Hong Kong office market remained competitive during the first half with an ongoing flight to quality trend. Our Hong Kong office portfolio was proven resilient with its prime locations and curated tenant mix. Tenants retention exceeds 70%. Occupancy was defended at 93% under challenging market conditions. Lee Gardens offer a compelling option for companies seeking a workplace that supports brand presence and talent attraction. The wealth management sector continue to occupy the largest shares of almost 21% of our floor area. Co-work sectors and professional and consulting sector occupy the second and third largest shares. We initiated a $8 billion capital recycling program last year through strategic sales of noncore assets over a 5-year period. They are aligned with our disciplined capital allocation strategy and strengthen our financial position to deliver sustainable shareholder return. The target assets comprise of 2 blocks within Bamboo Grove and the build-to-sell units from VILLA LUCA and One Victoria Cove residential projects. Taking advantage of improving market sentiment in the residential sector, we have made good progress towards this target and are ahead of schedule. We have collected HKD 4.5 billion in the first half of this year, representing 56% of our HKD 8 billion target. It helps strengthen our balance sheet and drive deleveraging. A further HKD 0.6 billion in sales proceeds have been contracted and is expected to complete by end of this year. I now pass the floor to Andy, who will share more about Hysan financial performance. Andy?

Thank you, Ricky. Just a quick recap on the financial KPIs. As of 30th June, our shareholders' fund was HKD 65.3 billion. NAV per share was HKD 63.6 and we maintained our interim dividend at HKD 0.27. And for the -- as Ricky mentioned earlier, the capital recycling program is progressing very well. So -- and that provides a very good means of deleveraging. And you can see that our net debt ratio has improved by 1.5 percentage point compared to the year-end. And now we stood at 30.9% for the gearing ratio. And also, as you can see in the chart, one of the major debt maturity we will have is the refinancing of Lee Garden Lake project loan, which amount to around HKD 10 billion and is still in the first half of 2027. And since the commercial property market has seen some improvement in the first half, and I would say the funding environment improved quite a lot recently. So we have been in talks with the bank to refinance this loan, and there's very good progress in the recent negotiation. So we are confident that we will complete the refinancing early in the first -- in the second half of 2026. And apart from that, the group continued to maintain ample liquidity. Adding together the undrawn committed facility and the cash we have on hand, we have HKD 14.5 billion available facility and cash to basically meet all the financial needs in the coming 3 years. And we also have a very active dialogue with the credit rating agency. So far, the credit rating has been stable and the rating agency has issued stable outlook. And we also saw some improvement in terms of effective interest rate. It has been down 20 bps in the past half year. So I think that's -- that help us to save finance costs by 16% year-on-year. So the group will continue to maintain a prudent financial management and to create sustainable return for the shareholder. And that concludes my update.

I will conclude by saying that the market is expected to remain dynamic with changing consumer behavior in the second half of 2026. Our management team continues to demonstrate disciplined approach through effective and efficient execution as well as prudent time and cost control. With Lee Garden's rejuvenation nearly finished, we are at full realization. And with Lee Garden Eight approaching completion, we are looking ahead to the next phase of growth with confidence and focus. We will remain agile, disciplined and purpose-driven to shape the future of Lee Gardens and contribute to Hong Kong's ongoing development as a global city. Thank you.

[Operator Instructions] DBS Percy, please.

This is Percy from DBS. I've got 3 questions maybe. First of all, is on the retail portfolio. Congratulations on the good tenant sales. But as we are moving towards the second half of this year that we are seeing a higher comparison base, what is your outlook in terms of the tenant sales growth for second half? And what are you seeing on the ground in the recent months? And also on the occupancy cost ratio, what are we seeing at the level right now? Secondly is on the office portfolio. Just wondering, could you share some more color on the latest leasing demand, particularly from the wealth management as well as insurance firm as we have seen news regarding the Chinese government implementing tax on related products. And you mentioned that reversions are improving. Is it -- does it mean that reversion are turning less negative? And do you have a guidance for the second half of this year? And thirdly will be on the Lee Garden Eight. I'm sure everyone of us are very excited about the project. We also heard that [ Set ] Bank committed a few floors at the project already. So just wondering what's your target tenant type as well as is there any pre-commitment rate that management could share with us?

So many questions. The test is whether we remember them. On the retail looking forward, the next half, we remain quietly confident. I mean it's very, very volatile. And I have always said it's quite fragile. So the key is whether you have done a good job in curating what you have and whether the destination is attractive. It is really positioning, positioning, positioning, right, in terms of location and in terms of what you have and how you run your malls, how you have activities. It's pretty incredible 150 events in half a year we have done. So [Foreign Language] it has to be very exciting. Every day, we have to think about something new, be it community, be it high end, middle end, trendy end. So it's a very dynamic thing. So we're really good at what we do. And we are very, very purpose-driven and very thoughtful about it. So I think we just have to keep doing better and keep doing what we do more and better. So that's on the retail. On office, it continues to be challenging. I think we're seeing good bottoming out would be a good word, particularly for Central, right? But Central doesn't have a lot of new stuff. So once the new stuff is filled, then it will have some lead-on effects. I mean some of our peers have already said they're looking forward to some positive reversions. We hope so, too. But I think the market remains tight because everyone is focused on cost. Everyone wants to see how much less space they can rent. But what we have great confidence is what we offer is premier. And because we have the flex offering. This is exactly what we thought about many years ago, 7, 8, 9 years ago. We thought people want flexibility. People may not want to commit to 10 floors, right? They commit to 8.5 and they can flex in and out. I think -- so we feel very confident that, that is a very good combination in the office portfolio. No one has that. No one has the size of flex. And of course, we have a JV with the world's biggest and the best IWG. So we feel very confident how we can manage the fluidity within portfolios. Having said that, the rents are under pressure. So if our peers continue to flash their rents, then the pressure is on. Maybe that's not a very political thing to say. But I think we really have to look at what the value is. It's about value. It's about what you can offer and people have to appreciate that. So on office. Now on Lee Garden Eight, as you know, we don't disclose on any of our properties. We don't disclose individual tenants nor do we talk about -- until the asset is more mature, then we can say 93% of our core portfolio is occupied. We will talk about that. Lee Garden Eight is absolutely in the midst of the launch of our pre-leasing. By year-end, October is when we have -- we achieved OP. That's also towards the end, maybe November is when all the bridges are done. You will see it. I think people really is seeing is believing. I only walked the Lee Garden Six to Lee Garden Eight bridge a few days ago, very hot. But I can tell you, it is very short, very approachable, very spectacular. And when the bridges are fully connected, which is not that far away, less than half a year, walking from Lee Garden Eight which sounds far away, doesn't it, all the way to Hyson Place MTR is 5 minutes for your age group and maybe 7 for me. And that is if I don't stop and do anything, right? But we have -- and we're very excited to talk about the second street level. Who talks about that? Who even thinks about that? I do because street level, we all know, right? And street level, we all know command exceptional rents. How do you replicate that? I think we have. Because we own the buildings, it comes in and out of our own buildings. We can thoughtfully find what is good at this end of Lee Garden Three, what is good at that part of Lee Garden Five and make the whole journey with all the retail F&B lineup as though you are walking on another street, but air conditioned and you can see the sky too. So I think that is another value creator. So I hope I have answered most of your questions. It really you can feel the color is nothing is easy, right? So you just have to think about what the market needs, think about what changes, what structural changes have happened and you just can't stop. You just have to keep going, keep yourself dynamic, keep making the changes. So no one is allowed to have a rest. You've asked all the questions you see.

So we have a question from the online platform. It is [ Hui Yan ] from Bloomberg. She hopes the management to share the plan given their upcoming 2027 debt maturity.

Andy?