Hysan Development Company Limited (14) Earnings Call Transcript & Summary

Good afternoon. Thank you all for coming to Hysan Development's 2025 Annual 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; our CFO, Mr. Andy Choi. We will start with the management presentation, and we will follow that to take questions. Now I will invite Irene to start first. Irene, please.

Thank you. Welcome. May the year of the horse bring everyone good health, happiness, big prosperity and of course, happiness to your family. Welcome to the analyst briefing on Hysan's 2025 Annual Results. Hyson's journey is rooted in a legacy that spans more than 1 century. From our founding in the early 20th century, you can see the map to our present day transformation of the Lee Gardens precinct, we have continuously evolved to meet the needs of a dynamically changing city. As we adapt to generational shifts and societal changes, we continue to focus on creating a sustainable community, generating long-term value for our stakeholders and the city. Hyson delivered solid results that outperformed the market in 2025. Turnover and underlying profit grew by 1.6% and 28.3% year-on-year, respectively. Turnover for our retail, office and residential portfolio all registered positive growth. Recurring underlying profit was down by 1.9%, reflecting increased interest cost and loan drawdowns related to asset enhancement projects. From vision to results, our journey of transformation continued to bear fruit. The renovated and expanded flagship Maisons of Chanel, Louis Vuitton and Tiffany have opened. And of course, previous year, we opened Dior and Hermes. Now we have 10 flagship Maisons of luxury brands spanning our Lee Gardens hub. This has led to double-digit year-on-year growth in tenant sales for the second half of 2025. At the same time, our office occupancy rate was up by 4% during the year. Lee Gardens Precinct will be fully connected in the second half of this year, including a second street level, which I'll talk a little bit more about, shopping experience brought on by the elevated walkway system. Just imagine having one street and another street above. The soon to be completed Lee Garden Eight will expand our Lee Gardens Leasable portfolio by about 30%, boosting the precinct's daily captive traffic by 20%. From our strategic pillars, Lee Gardens Shanghai achieved a strong ramp-up with office and retail committed occupancy at over 80% and 70%, respectively. With occupancy at 85%, our Greater Bay Area flex office, IWG has been delivering good profits. For our HKD 8 billion capital recycling program to be achieved by 2030, we have collected HKD 2.1 billion. In other words, 26% of our target. And additional HKD 1.6 billion sales proceeds has been contracted. So you have to add the 2 together. Sales of Villa Lucca maintained solid momentum. Based on our century-old curation and community business model, Lee Gardens is one of its kind, allowing us to achieve such solid results. The unique essence of Lee Gardens is the coexistence of luxury and trendsetting elements as well as authentic culture and original experiences that meet the needs of both the older and the younger generation. Traffic at Lee Gardens area saw an 11% year-on-year increase. Tenant sales grew by 8% year-on-year with double-digit growth in the second half of last year, demonstrating our strength to outperform the market. We have now entered my favorite words, the harvest phase of our ongoing transformation journey. The unveiling of the new Lee Gardens marked a significant milestone in this journey with more than 10 newly renovated and expanded flagship maison for luxury brands, all opened for new in-store experiences. Our strategy for Lee Gardens rejuvenation was proven to be timely as financial contributions have been materializing. These are very good pictures. Now this is an interesting and more overall picture. Lee Gardens has been endorsed by luxury brands. With the opening of more than 10 flagship maisons, as mentioned, the Lee Gardens precinct has further solidified its reputation as the city's home of luxury. Now individual brands, Hermes. Hermes celebrated its grand opening with an outdoor party, in fact, a sculpture, held exclusively for Lee Garden VIPs, offering a spectacular evening with performances by artists from Paris. Dior. Dior created an exquisite luxury art space by presenting a first in Hong Kong Tellure Bar Sculpture display at Lee Garden One Atrium, apparently never been done before. Cartier's grand opening was even better. It was absolutely unforgettable with this festive light show, fireworks, spectacular fireworks and performances with the Hyson Avenue closed, can you believe closing an entire road for them? Chanel. Chanel's expansion and reopening offered one-on-one boutique tours and tailored experiences for VIPs. I recommend to all of you, you must go because you will end up buying things. Tiffany. Tiffany just opened in December. So their flagship maison was opened in -- at the end of December with -- you see upstairs, it's still not open with this Tiffany Blue Box Cafe, 1 of 5 in the world, we have them committed to that. Nothing further Hong Kong, Macau or China to be open in -- they promised beginning of April. So that will be quite an experience. Louis Vuitton launched thematic displays and a pop-up bar. If you have not been, you must. It's Bar Leone, the #1 ranked bar in the world in 2025. It's still downstairs, not for long, and they opened that bar, paying tribute to our Lee Gardens Hotel. I think you're all too young to remember that. Yum Sing Bar. They pay trip with the traditional old drinks from Yum Sing Bar and theme and look. And in store, they have created 2 VIP rooms, one to reflect Yum Sing Bar for the men and for the ladies, VIP room with the theme of Lee Theater. So this is a very, very wonderful paying tribute to Lee Gardens. As for the retail experience, we showcased the unique character of Hong Kong's culture alongside global trends. Our campaigns engage and resonate with different generations. Our full range office offerings, which combine traditional office space with flexible co-working solutions offer both stability and agility, ensuring we remain responsive to the changing needs of businesses and tenants. I think all of you know we have a joint venture with IWG in the Greater Bay Area, including Hong Kong. Designed as a model for the next-generation business community in partnership with world-renowned architectural firm, Foster & Partners, Lee Garden Eight sets new benchmarks for building quality, sustainability and connectivity and, of course, class and style. Amongst these are its advanced green features, a 60,000, can you imagine 60,000 square foot lifestyle park and dedicated spaces for the performing arts and cultural experiences, we will have a black box theater. More than 600 parking spaces at Lee Garden Eight, all equipped with EV chargers. This will further reinforce Lee Gardens as a commercial destination and even extend its appeal to travelers from the Greater Bay Area, particularly now with the southbound traffic. Lee Gardens 8 is equipped with the most advanced green building technologies in Hong Kong. It has been recognized by a number of prestigious international awards and most of the highest green building accreditations, setting a new benchmark for sustainable development. I think some of you have seen snippets of this, but it's difficult to imagine, isn't it? Without looking at the video. And soon, in August, September, it will be unveiled. And we have a marvelous show suite, which talks about our history and about this and the connectivity. So I'm sure all your banks, all of you, would like to move here, won't you? That's a best community. So the integrated pedestrian walkway system scheduled to be completed in tandem with Lee Garden Eight will seamlessly connect the Lee Gardens Precinct to the Causeway Bay MTR station, making the neighborhood pedestrian-friendly in all weather conditions. So it's very, very much the walkable community. The elevated walkway will add a second street level. You can see the elevated walk some of it, which connects and extends the retail space to customers and commuters, which creates a vibrant human-centric walkable neighborhood that integrates everything, work, leisure, community, 3 generations. It just integrates life, and you feel you're amongst it all. Next is our strategic pillars. We -- our strategic pillars have contributed to both business and geographic diversification. At Lee Gardens Shanghai, we created a high-quality tenant mix of reputable financial institutions, multinational corporations and retailers, supported by a lifestyle high street podium that creates a rich business social scene. Lee Garden Shanghai is an extension of our Lee Gardens brand into China. We were encouraged by the performance of our flex office business in our joint venture with the world's leading flex operator, IWG, which continued to grow across the GWA. Along with the growth momentum of New Frontier Group, our health care investment, we are making steady progress scaling up our business across regions and sectors. Ricky, now I'll pass the floor to you so you can share more about Hysan's business operations in 2025.

Thanks, Irene. Let me share with you more about Hysan business review for 2025. Our group turnover grew by 1.6% year-on-year, supported by solid performance across core business segments. Turnover of our Hong Kong retail portfolio was up by 1.5% to HKD 1.7 billion. Occupancy rate increased to 95%. Rental reversion rate on renewal, rent review and new lettings was predominantly positive. For our Hong Kong office portfolio, turnover declined by 2.3% to HKD 1.44 billion. Average rental reversion rate on renewal rent review and new letting remained negative. Despite market headwinds, occupancy rate increased to 94% with over 85% retention rate. Our full range office offering, combining traditional office space with flexible co-working solutions provide choices and create balanced tenant mix. Hong Kong luxury residential leasing market showed steady growth in 2025. Our residential leasing portfolio saw a 5% increase in turnover to HKD 229 million. Occupancy rate increased to 87%. Average rental reversion was positive for renewal, rent review and new lettings. The Lee Garden Shanghai continued to benefit from strong occupancy ramp-up and diversified tenant mix, delivering a new stream of recurring earnings for our group. We talked about the rejuvenation and the pedestrian link system. Significant purpose were made, and we expect all will be done by -- in the second half of this year. About retail, tenant sales of our Hong Kong retail portfolio increased by 8% in 2025. Occupancy increased to 95%. We have been meeting the evolving expectation of customer by elevating our retail portfolio with expanded flagship maison our luxury brands to offer more distinctive customer experience. And continue our iteration to bring unique vibes and offering to the area. We achieved better sales across all trades with particularly strong growth in watches and jewelries. The turnover of our Hong Kong retail portfolio consistently outperformed Hong Kong retail market sales with our attractive marketing initiatives and effective loyalty programs. We sustained our retail revenue growth throughout the 2020 to 2025. Come to about our loyalty members. We have been receiving long-term support from our loyal members. Member spending at Lee Garden increased by 23%. The number of single transactions over 100,000 saw a 22% increase. The average annual spending of our top TM members surpassed HKD 1.4 million per member. We achieved a significant breakthrough in our engagement strategy with valued customers by forming strategic partnerships with banks and wealth management firms and attract potential high spender by targeting premier banking clients and prequalifying them for our Club Avenue tiers. As a result of this member acquisition program, we converted over 1,500 individuals into our Club Avenue, expanding our high potential member base and showcasing the effectiveness of our outreach model. One of the major achievements during 2025 was our introduction of over 15 new brands to the Lee Garden Precinct, which complements our existing portfolio and cater to a wider range of customer preferences. With an even greater variety of well-renowned brands and innovative lifestyle concepts, the Lee Garden Precinct has further strengthened its destination appeal for locals and visitors. This year, we hold more than 180 events to engage the community, also collaborated with more than 100 strategic partners in a series of high-profile pop-ups and immersive marketing campaigns, offering novel and compelling attraction to customers. We keep introducing new fine dining restaurant and trended F&B concept to the area. Now we have over 110 F&B outlets in Lee Garden areas, broadening the culinary options available to our visitors. In the latest phase of revitalization, Hysan Place introduced new retail and F&B offering along with exciting pop-ups and events that appeal to the younger generation and global audience. This curated approach to our tenant mix and experiential engagement continue to drive robust growth in footfall and tenant sales, reinforcing Hysan Place reputation as a trendsetting destination in Hong Kong. For our office portfolio, tenant retention exceeded 85%. Occupancy increased to 94%, supported by our ongoing effort to diversify tenant mix by leveraging our unique positioning and offering. Leasing activity in the market was driven by continuous shift in preference towards prime location and well-equipped office building in Lee Gardens. At the same time, we offer flexible rental package that our support early renewal and highlighted our enhanced offering of fully furnished office space for immediate use and sustainable amenities to attract and retain quality tenants. Coming to the capital recycling. As a prudent financial discipline, we have initiated an $8 billion capital recycling program over a 5 year period. Riding on the improving sentiment in luxury residential market, the strategic divestment of noncore assets will allow us to unlock value from mature residential assets, optimize our capital structure through deleveraging and provide capital for strategic needs. 74% of the tour blocks of Bamboo Grove and 63% of Villa Lucca unit have been contracted. Preparation for the presale of Top 12.1 residential project is underway. We have collected HKD 2.1 billion or 36% of our capital recycling target and additional HKD 1.6 billion has been contracted. We will prioritize deleveraging and be deploying capital towards strategic priorities. Now I pass it to Andy, who will share with you more about Hysan financial performance.

Thank you, Ricky. So first of all, I think we will go through a few key numbers for shareholders' returns and values. Shareholders' fund was HKD 65.5 billion as of the end of 2025, down 0.8% from last year. And NAV per share was HKD 63.7, down 0.9% from the previous year. This basically reflects the change in recurring underlying profit and also the change in fair value of investment property during the year. And for dividend, we have kept our full year dividend at HKD 1.08. Okay. Next is on our financial and capital management. The company continued to uphold prudent financial management while maximizing our capital productivity. As you can see, the first key metric is our net gearing ratio. As of the end of 2025, our net gearing ratio was 32.4% improved by 0.5 percentage points from the interim period end, reflecting the results of our capital recycling program. And for effective interest rate, it was 3.7% average for 2025, improved from 4.3% of the previous year, thanks to the decline in HIBOR. And we also maintained a healthy mix of fixed rate debt and floating rate debt. Our fixed rate debt comprised of 54% of our total debt as of the end of 2025. And our average debt maturity was 2.8 years at the moment. And I think as you noticed from the debt maturity profile, a majority of it will be in 2027. We don't have any significant debt in 2026 maturing. For 2027, that's mainly attributable to the project financing of Lee Gardens Eight. And we are in talk with our friends in banks. And I think so far, we have received very positive response from the banks, and we are confident that such project financing will be refinanced into an operational. And the company also maintained strong liquidity and cash position. We have an undrawn committed facility and cash totaled HKD 14.3 billion as of the end of the year. And that's adequate to cover Hysan's debt maturing over the next 2 years. And also sustainable finance, we have set out a very clear target for it. We are going to maintain 40% or above green that in our profile. And so far, we continue to improve this ratio. And as of the end of 2025, it stands at 44%. So that's the update on the finance side. I will pass the time back to Irene.

So I'll conclude. Looking ahead, 2026 will continue to face challenges. We are, however, battle proven and ready. We are confident in our ability to navigate changes and seize opportunities and that our shared expertise and spirit will carry us forward. Our rich heritage and commitment to bringing unique experience, innovation and sustainability to the community will position us well for continued growth. As always, we adhere to our prudent financial management. While carrying out our capital recycling program, 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.

Thank you, management. It is the Q&A session now. [Operator Instructions]. Yes, the gentleman on the first row from UBS.

This is Ben from UBS. So I actually have two questions here. The first one is on the capital recycling program. So given a good contracted sell-through on Bamboo Grove so far, do you plan to add more blocks from Bamboo Grove for disposal? That's my first question. And the second one is on LG8. Can you give us some updates on the pre-leasing at LG8? And are you seeing more inquiries? Or is there better sentiment in the office market? And if there is more inquiries, mainly which sector are these inquiries from?

I'll start. On Bamboo Grove, it has gone very well and a lot more quickly than we had assumed. So we would like to finish Bamboo Grove Block 74 and 82 first. And hopefully, we'll see that done by middle of this year. Now as far as the other blocks are concerned, we will continue to look at the situation. If the market warrants it and if we see that it does provide the purpose and the needs for us, we will consider. And we are ready to -- legally, it is ready. For Lee Garden Eight, we still have 2 and a bit quarters, so about 7 months, 8 months before completion. So we are in discussion, very, very active discussion. The market continues to be difficult. However, we feel very, very confident. And we -- in terms of our pipeline, it is good, it's strong. So we will give you more news when the time comes. There is still time.

So [ Ben Choi ] from the first row from BoA.

First of all, happy Chinese New Year. So my first question is the -- our tenant sales during the Chinese New Year or the first 2 months. I know it's still early, but are we seeing an acceleration in terms of growth, say, versus fourth quarter last year? Any color will help. Secondly is on our existing office portfolio, glad to see that the occupancy rate continue to climb. So can you give us more color whether it is expansion demand from your existing tenants or it is a relocation from same district or other districts? And if you can give us a guidance on the rental reversion outlook, how much spot rent will be lower compared to last year, that would be great.

I'll start and then Andy and Ricky can supplement. For the first 2 months of the year, as you know, we are very, very data-driven and our numbers are very real time. So I'm going to adjust their budget already. So that is the good news. So it's very good news. We're seeing very, very strong tenant sales in the first 2 months. We always blend the 2 months because Chinese New Year can fall into either month. So we always put it together. So we can talk more about that. But then in terms of our office portfolio, number one, our retention rate is strong. 85% is pretty damn good. And number two, big demand, I'm not seeing big demand, but we're seeing fresh demand. So how do we get a 4% increase, right? So it's retention and filling up with new tenants. So no, we are pretty pleased. I mean, I'd like it to be 100%, but at 94% and be able to have a 4% increase, that momentum. And I do think that the office is the last to be -- to revive. I mean residential has -- residential rent then sales, retail, and I think office, we really -- I want to say I've seen the bottom. Ricky and Andy?

I think just for -- other than the good sales result. We all know that during the Chinese New Year, people said a lot of Hong Kong people outbound stress from. While we -- even during the very few CNY days, we do see very good traffic here, and we're happy to see more tourists than before during those days. So we find the Lee Gardens area become more attractive visit us, those who really want to know about culture, Hong Kong rather than just shopping. So this is quite encouraging about our curation, trying to attract the right kind of high spender or even tourists to our place.

Actually, that is a very interesting point because we map the graph of these few days of Chinese New Year against the previous Chinese New Year. Given the negative migration, if I may call that, you would have expected a bit of a dip, right? We didn't. We were exactly the same, which tells us 2 things. One is the inbound have chosen to come to us and also the locals, even though they are going out, have chosen to spend and be with us. So that is something that we want to happen and it's very reassuring to see it happen. So we actually mapped and it's absolutely spot on despite the negative delta -- it should have been a negative delta.

And in terms of office demand, just back to your question, I think we are seeing strong demand from wealth management business and also health care. I think that echo what's point. The traffic has been improving quite a lot for the Lee Gardens. And we have seen a lot of Mainland frequent Lee Gardens during the period. And so I think that helped the business for wealth management and health care as well. So we do see a strong demand from those operators.

Those of you with your banks without a wealth office with us, you should. I mean we see tremendous business in the several banks who have the -- apart from HQ wealth office, the other wealth office, which is big is with us. So it's a very, very interesting and popular destination for -- particularly for mainlanders.

And a little kind of observation that I would like to share. At the same time, our occupancy of retail is high. At the same time, retail rent are normal much higher than the office. We still see a lot of our service trade, particular beauty or even hair, spa, blah, blah, blah. They're moving upward to our office from our retail portfolio, and they are doing super good. And that becomes kind of another attraction for those service trade or semi-retail trade to take up the office space as well. I think that's quite unique for Lee Garden as a place that for the office, the catchment, you always said our catchment is small. Why? And we are much more balanced. So from corporate to this kind of service, I think we can cater all of them.

And for the service trade, there is really no need to be at in the middle of your retail mall on the street. I mean for me, the last thing I want to do is a bumpiness someone out facial, right? So going upstairs, enjoying better rent. I mean the office is always cheaper than being in the prime. All you need is 1 or 2 to start the trend and people then realize it's actually a very good solution for them because it's a very private thing. Hair spa, facial, it's private, right, massage. So going upstairs and some of the very high brands are there, enjoy sea view, completely different experience.

Strong sales, strong sales.

Yes. And we can turn over rent.

Yes.