Sun Hung Kai Properties Limited (16) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to Sun Hung Kai Properties FY 2021 Annual Results Analyst Briefing. As usual, I'll give you an overview of the annual results and the performance of business segments of the group, followed by a Q&A section with our senior management. First of all, I will go through the financial highlights. Please look at all figures are in Hong Kong dollars, unless stated otherwise. For the year ended 30 June 2021, the group's underlying profit amounted to HKD 29.9 billion, representing an increase of around 2% year-on-year. The increase in profit is mainly driven by higher contribution from property developments and rental income from the Mainland and non-property businesses, partially offset by the lower development profits and rental income from Hong Kong and operational loss in hotel segment. The reported profit increased by 13% year-on-year to around HKD 26.7 billion after taking into account the revaluation loss of investment properties of HKD 3.1 billion, which was mainly due to lower open market brands of Hong Kong retail portfolio. Similarly, -- the underlying earnings per share was up 2% to HKD 10.31 and reported earnings per share rose to HKD 9.21. On dividend, the Board Head of Directors has recommended a final dividend of HKD 3.70 per share. Together with the interim dividend of HKD 1.25 per share, the total dividend for the full year will be HKD 4.95 per share, the same as last year. This line shows that our dividend payout over the past few years, and let's talk about the profit breakdown by segment. Benefiting from the significant increase contribution from the Mainland development projects, the gross property development profits grew by 14% year-on-year to around HKD 21 billion. Driven by the revenue recognition from Shanghai Arch Phase IIb property development profit from the Mainland search over 215%. On the other hand, decline in development profit from Hong Kong was due to lower residential completion as compared to last year. On rental business, the group's net rental income increased by 3% to around HKD 19 billion. The increase was mainly attributable to robust rental growth in the mainland portfolio partly offset by the decline in net rental income of Hong Kong's rental portfolio. Net rental income from Mainland rental portfolio jumped by 39% year-on-year in Hong Kong dollar terms or 31% in RMB terms. In Hong Kong, net rental income dropped by 6%. The group's hotel business in Hong Kong continued to be severely affected by the pandemic due to the absence of tourists, resulting in an operating loss of HKD 511 million. Profit from other businesses increased by 9%, largely due to the growth of data center operations and improve the operational efficiency of telecommunication businesses. The total operating profit grew more than 8% to over HKD 44 billion for the year under review. For financial position, the group balance sheet remains solid. The net gearing ratio as at 30 June was at a healthy level of 16%. Interest cap rate was around 13.8x and net book value per share rose to around HKD 205. Under our prudent financial management, we maintained sound financial position. The group also maintains A1 and A+ credit ratings from Moody's and S&P, respectively, both with a stable outlook. We shall continue to stick to the prudent financial management discipline. Now let's move to our property business in Hong Kong. As at the end of June 2021, the group's total bank in Hong Kong stood at around 57.9 million square feet of attributable GFA. It includes completed properties of around 34 million square feet and 23.9 million square feet of properties under development. Shopping malls, together with offices accounted for the majority of completed properties at around 60% of the total. For properties under development, the majority is for residential use representing to 74% of the total. During the year-end review, the group's acquire 5 sites, adding about 2.6 million square feet attributable GFA to our Hong Kong land bank of which 50% from farmland conversion and 44% from public tender. We will continue to increase our land bank through multiple channels, including farmland conversion. The 5 sites we bought during the year include the Kwu Tung project in Fanling, which is adjacent to the planned MTR Kwu Tung station and close to the plant at Hong Kong, Shenzhen Innovation and Technology Park in the Lok Ma Chau Loop. The residential come retail project has a total GFA of over 1.1 million square feet, of which 88% are for residential units and the remaining will be developed into a shopping center. Moving on to the property development business in Hong Kong. For the year under review, the group recognized HKD 34.9 billion property sales in Hong Kong, down around 5%, and the development profit decreased by 11% to HKD 14.6 billion primarily due to less completions of residential development during the year, while development projects remain satisfactory. As of the end of June 2021, about HKD 25.7 billion of contracted sales were yet to be recognized. In terms of completion, we completed a total attributable GFA of 2.1 million square feet, of which 1.7 million square feet were residential projects. For the next -- for the next 3 financial years, we expect an average annual completions of around 3.4 million square feet, of which around 2.6 million square feet of residential development. Up on this new completion, we have around 0.7 million square feet of completed properties, which have been sold and will be booked in the coming years. During the year, we achieved continued sales of HKD 23.2 billion in Hong Kong. The lower contract sales achieved during the year was mainly due to slower-than-expected progress in obtaining [indiscernible] consent for 2 large-scale residential developments. Recently, we have launched Wetland Seasons Bay Phase 1 and already sold over 900 units in the last 3 weeks. And since July this year, we have already achieved contracted sales of HKD 9.2 billion. As shown in this map, we plan to launch new projects in FY 2022 spreading across different regions in the city and covering residential developments from mass to luxury as well as an industrial project. The first 1 is Wetland season Phase I and II with over 1,600 units, of which 900 units have been sold. In addition to new launches, we will continue to sell inventories. Now let's move on to the performance of our Hong Kong rental portfolio. The gross rectified rental portfolio in Hong Kong continue to provide sizable recurring income with an overall average occupancy of about 91%. Overall gross rental income amounted to HKD 18 billion, down 5% year-on-year. The decline was largely due to the retail -- retail portfolio while rents and occupancy of the office portfolio remains relatively resilient throughout the year. The lingering pandemic continue to rate on the group's retail portfolio leading to negative rental reversions. The gross rental income decreased by 8% to HKD 9.1 billion. The gross rental income of the group's office portfolio slightly declined by 1% to HKD 6.6 billion. As the pandemic has been subdued in Hong Kong, the tenant sales of the group's retail portfolio have bottomed out in late 2020 and continue to see positive growth in recent months. Our regional malls continue to perform better than those tourist-focused ones. Our seasoned leasing teams have managed to optimize the tenant mix by bringing new retailers such as trendy lifestyle brands and special restaurants and introduced a wide range of measures to drive footfall. We see overall occupancy of the group's retail portfolio have improved in the recent months. The safeguard the interest of these stakeholders and to support its retail tenants amid the pandemic, the group has been allocating resources to the continuous facility upgrades asset enhancement works and introductions of innovative technologies. Apart from installing contactless facility and upgrading air ventilation systems, we have incorporate green and wellness concepts to add various recreational facilities at selected malls. We have also leveraged our listed subsidiary smartphones 5G network along with other advanced technologies such as Internet of Things to raise the hygiene standards and operational efficiency of our shopping malls. We'll make good use of offline and online platforms to launch comprehensive marketing campaigns, our loyalty program, the Points by SHKP under the SHKP Malls App has posted its popularity with membership more than 1.2 million in 2 years. The group has continued to upgrade the apps functions and strengthen the rewards platform. After the retail portfolio, let's move on to talk about the performance of our office portfolio in Hong Kong. During the year-end review, overall occupancy of the group's office portfolio remained at a relatively stable level of about 92%. Hong Kong IFC offices were virtually fully let, while ICC recorded stable performance. The Millennium City office cluster maintained a reasonable occupancy despite keen competition in Kowloon East. For a joint venture development at 98 How Ming Street in Kowloon East, the construction is scheduled for completions in 2023. The project is designed to attain platinum ratings under lead and well. According to the latest approved planning, the high-speed well-recorded development will feature a brand-new concept with a lot more open space for public use. The total GFA of the project is about 3.2 million square feet, including a 600,000 square feet shopping mall, with targets to obtain platinum ratings for this project from LEED, BEAM PLUS and WELL. This concludes my discussions on the property business in Hong Kong. Now let me turn to our property business on the Mainland. As at the end of June 2021, the group had a total land bank of around 75.3 million square feet of attributable GFA on the Mainland. Completed properties amounted to 16.3 million square feet, of which 26% were shopping centers and 39% were office. Among the 59 million square feet of property under development, about 47% will be developed into high-end residents for sale. In April, the group won the bid for a large-scale mixed-use project adjacent to the Guangzhou South Railway Station consisting of residential service apartments, office, shopping mall and hotel space. Guangzhou South Railway station is the busiest high-speed rail station in the country with excellent connectivity. And this addition will further strengthen the group's strategic presence in the Greater Bay Area. The developments with a total traffic of 9.3 million square feet is set to become an integrated station city transport hub. The project will adopt flexible and balanced strategies for leasing and sale arrangement with a maximum amount of 57% of the GFA for sale and the remaining portion for rental and long-term investment purpose. Next, let's turn to property development business on the Mainland. During the year, the group recognized around HKD 11.1 billion property sales on the Mainland, up 155% year-on-year, mainly driven by the revenue recognition from Shanghai Arch Phase IIb. Development profit jumped 215% to around HKD 6.4 billion. As at the end of June 2021, around HKD 4.6 billion contributed sales were yet to be recognized. During the year, we achieved RMB 4.9 billion, attributable to sales on the Mainland, exceeding the full year sales target. The table here shows the breakdown of individual projects. The table in this slide shows the major new launch on the Mainland in the next 9 months, including residential units of Suzhou ICC and Jianghehui Project in Hangzhou. Turning to the performance of our Mainland rental portfolio. During the year, the group's gross rental income from Mainland rental portfolio increased by 25% year-on-year to RMB 5.2 billion or 33% in Hong Kong dollar terms. The growth was mainly driven by the strong performance of our shopping malls, and benefiting from the domestic spending boom in luxury goods. The gross rental income of the group's retail portfolio grew 47% year-on-year to HKD 3.9 billion. Gross rental income of office portfolio increased by 13% to around HKD 1.9 billion. The gross rental income from the Mainland accounted for 25% of the group's total gross rental income during the year comparing to 19% for FY 2020. Supported by the robust domestic consumption, the group's retail portfolio on the Mainland recorded impressive growth in tenant sales, exceeding the pre-COVID level. An integrated loyalty program called Strategy KPI Club was introduced in Shanghai to strengthen the synergy of the cross more in the city and to offer shoppers with a more convenient cross more consumption experience. On the office front, the group Shanghai IFC maintain high occupancy amid keen competition. These premium office developments remained a before choice for leading corporations. Shanghai ICC has highly competed occupancy, offices in the first 2 phases of ITC in Shanghai were virtually fully let. In Shanghai, the remaining phase of the group's mega ITC project is currently under construction. It's 220-meter tall premium office trial is scheduled for completion in mid-2022. And -- the preleasing of the Grade A office trial has received encouraging response constructions of the remaining parts, including a 337-meter sky scraper and a 2.5 million square feet of mega mall is progressing smoothly. Both the office towers are decided to obtain need new platinum certificate. In Nanjing, office at Nanjing IFC has achieved a committed occupancy of about 80%, while the leasing of Nanjing two IFC, which was completed in the second half of 2020 is proceeding satisfactorily. The luxury Nanjing IFC Mall is scheduled for opening in phases from 2022 and have received encouraging pre-leasing responses. We are making good progress to expand our mainland property investment portfolio. Over the next 3 financial years, the group is expected to complete around 10 million square feet of properties for investment purposes in terms of attributable GFA, including the remaining phase of ITC in Shanghai. The group's Mainland property investment portfolio will increase to about to 25 million square feet by end of FY 2024, and we further expand to over 28 million square feet by end of FY 2026. Now I'll discuss the hotel business performance. During the year under review, the group's hotel portfolio in Hong Kong continue to record operating loss due to the lack of tourists despite some size of improvement since the beginning of 2021. To alleviate the negative impacts, we have introduced different initiatives such as creative -- programs. On the Mainland, the Ritz-Carlton Shanghai in Pudong show a recovery from the pandemic during the year. For Andaz Nanjing, we plan to open it from 2022. Next, I would like to share with you about our ESG initiatives. The group has to -- to achieve considerable progress on the ESG front. This line showcase some of the key initiatives, including the development of Wetland Season Park and environmental friendly residential project the launch of SmartWorks, a 5G-enabled site management system to enhance safety of construction workers, a major transitional housing project in and green building certification for our existing major rental properties. On the environmental front, the group has established targets to reduce electricity consumption, greenhouse gas emissions, water usage and construction waste to have compact climate change. We also aim to attain the need certification for all new investment properties. In particular, the group has a target to obtain need goal or -- ratings for its core commercial projects under development. During the year, the group dedicatedly work on ESG has been well recognized by external parties, including ESG rating agencies. For instance, we are a member of The Hang Seng Corporate Sustainability Index Series with AAA rating. We have received an MSGI ESG rating of single A during the year. And that covers our business update. Let me talk about the market and business prospects. In Hong Kong, economic recovery is likely to continue amid Mainland's healthy economic development and improved the global prospects. While the realization of the cross-border travel restriction remains a prerequisite for a full recovery of different sectors. For the primary residential market, solid end user demand and low interest rate environment will underpin the market, particularly for mass market segments. Luxury segments will perform better upon lifting the cross-broader travel restriction. For retail sector, retail sales have largely bottomed out and are improving. On grade A office market, improving sentiments amid the ongoing global economic recovery is underway. The Mainland economy will continue to perform well, underpinned by the dual circulation strategy and well-contained pandemic. For primary residential markets, solid end-user demand continues land and home prices are likely to remain stable. For the retail sector, domestic consumption growth will continue to support tenant sales. On grade A office market momentum remains positive with increasing inquiries. Turning to our business prospects. In Hong Kong, we believe the performance of the group's rental portfolio and hotel business will be constrained by the cross-border travel restriction in the short run. We will continue to leverage a other application of SHKP Malls app and promotional campaigns to bring more shoppers to our malls. On property development front, capitalizing on our ample sale resources, we will launch development projects for sale once ready. On the Mainland, bolstered by healthy domestic consumption the group's mainland retail rental portfolio is expected to perform well. In the medium to long term, we will continue to strengthen our core business by acquiring land selectively, both in Hong Kong and major cities on the Mainland, which will speed up the conversion of farmland into buildable sites in Hong Kong, moreover, the group will continue to build large-scale integrated projects in Hong Kong and major city on the Mainland. The combined GFA of new additions to the group's property investment portfolio in Hong Kong and on the Mainland is expected to exceed 16 million square feet in the next 5 years. Finally, I would like to wrap up my presentation with a message extracted from the Chairman's statement as follows: -- The group is confident in its future business development and prospects. With this extensive -- and experience accumulated during the ups and downs of about half a century, the group will weather the upcoming uncertainties will as forward-looking and experienced management team, together with a solid financial position with sizable recurring income, we'll be able to turn future atrocity into opportunities. As a caring and socially responsible company, the group will continue to contribute to building a better world through its commitment to ESG, in particular, issues on climate change and green building. The group's pursuance of excellence, which has been strongly embedded in its vision and mission will enable you to advance the best interest of its customers, employees, shareholders and business partners and the community as a whole. This concludes my presentation. I look forward to meeting you all in person next time. Thank you.

Ladies and gentlemen, welcome for joining our Q&A session. Now let me introduce the panel to you. From your left, Mr. Brian Sum whom you've just met; Mr. Christopher Kwok, Executive Director; Mr. Allen Fung, Executive Director; Mr. Victor Lui, Deputy Managing Director; the center is Mr. Raymond Kwok, Chairman and Managing Director; Mr. Mike Wong, Deputy Managing Director. Mr. Adam Kwok, Executive Director; Mr. Eric Tung, Executive Director; and Mr. Frederick LI, Group Chief Accountant. Before we start, may I invite our Chairman and Managing Director, Mr. Raymond Kwok to share with us some key messages. Mr. Kwok, please.

Thank you. Ladies and gentlemen, during the year under review, some of the group's businesses continued to be affected by the COVID-19 pandemic and cross-border travel restrictions, but the overall results remained stable, and we recorded an underlying earnings growth of around 2%. With the strong support of the country, Hong Kong now has a stable social and business environment. Together with the easing of the pandemic, a robust mainland economy and sustained the recovery of Hong Kong's economy. The group will have promising future ahead. Sun Hung Kai Properties is confident about the future of Hong Kong. The National 14 5-year plan clearly supports Hong Kong in enhancing its status as an international financial transportation and trade center and developing into international innovation and technology hub. Under 1 country, 2 systems, Hong Kong is well positioned to seize the opportunities in the Greater Bay Area, integrate into the dual circulation development paradigm of the country. Our group continues to invest in Hong Kong in major mainland cities. During the year, we have increased our land bank in Hong Kong through different channels. Including proactively converting agricultural lending to build both sites. We also work to expedite the construction of various quality residential projects to help alleviate the housing shortage in Hong Kong. Early this year, the group acquired sites adjacent to the Guangzhou South Station, which is the busiest high-speed railway station in the country. The project will be developed into another landmark transit-oriented development, creating synergy with the group's other projects along the high-speed rail, including the 1 top West Kowloon Terminus in Hong Kong. The group promotes and adopts the latest technologies in different businesses to enhance the quality of its products, boost operating efficiency and provide a better experience to customers, tenants and residents. In addition to building our 5G digital infrastructure, the group has launched the city's first 5G lab and the Sky 100 Hong Kong observation deck at ICC. The 5G lab will raise public understanding of 5G technology, and its applications in enhancing business operations and quality of life. The group also works hard to fulfill its environmental, social and governance commitments. Is residential projects will be developed into cross-generational communities, with a wide range of facilities to meet different age groups needs for living, work, shopping and recreation. Our Wetland Seasons park, which is adjacent to the Hong Kong Wetland Park, for example, has fully demonstrated the group's success in striking a balance between development and environmental conservation. The group makes every effort to integrate the concepts of green building and wellness into its office buildings and retail premises, offering unique work and shopping experience in tune with a new era. Moreover, the group has leased out a parcel of land at a nominal rent for building United Court, a major transitional housing project in. This project supports the Hong Kong government's effort to provide suitable temporary housing for underprivileged families who are waiting for the public housing to be available. Construction work for United Court has already started upon a scheduled completion in 2022. It will house 1,800 grassroots families. The group is confident that with different sectors joining forces to fight the pandemic. Hong Kong will eventually fully recover from the coronavirus crisis. With the wealth of knowledge and experience strong financial position as well as a well-recognized premium brand. Sun Hung Kai properties will capitalize on present and future opportunities and help Hong Kong integrate into the development of the country, enhancing the value for shareholders and other stakeholders alike. Thank you.

[Operator Instructions] Our first question is from Ken Yeung with Citi Group.

It's Ken from Citi. I have 3 questions. One is on subsea sales, second on Hong Kong office and thirdly, on the China TOD land bank. So may I come 1 by one. First is on your sales. Given that you have -- you have missed your FY '21 target on delays in presale concern. Should we expect a higher contracted sales target for FY '22 and FY '23 on the stack up of resources. And also, it seems to me that some luxury project like Victoria Harbour Central big has not been launched or not launching as aggressive as planned. Are we waiting for the border reopening before launching this. So this is the first question. And second question on Hong Kong office is what kind of brand to reversion have you achieved on for your renewal or relaxing recently? And how is your reversion outlook for this year? Are you concerned on the supply search for the calendar year 2022? And lastly, on the China TOD side, you have been focusing on buying major TOD projects on major train on metro station. How do we see the investment opportunity this year? And also for the Guangzhou South Station project, can you share with us your expected these margins on the development side on the DP side and the initial yield on cost on the IP side?

Yes. On the first question on property sales. Last year, we have been some delay on the sales concern issuance under the pandemic, but we are very confident to catch up later as you can see recently that we have an overwhelming sales and balance season pay. And in next month, we are going to launch another sizable project, the YOHO Yuen Long, at the top of the Yuen Long Station. Actually, in last year, our projects like Wetland Seasons Park and Regency Bay were all well received. Over the next 10 months, we have quite a number of projects to be marketed, namely YOHO in next month and also the completed the Prince Central in Prince Central World, also Phase II of Victoria Harbour. And also in last month of the year, that will be Phase 2 of Sheung Shui. And in first quarter of obviously that would be our another size project, the Siu Hong project in Tuen Mun together with our project in Texaco, and lastly, also our JV project in Belcher's Street in Hong Kong Island. So you can see that we have quite a number of projects to be launched in the coming 10 months that would deliver a sizable revenue of HKD 45 billion in this financial year. And in mid and long term, with our ample marketing resources and also high level of projects under development, we are very confident that we can achieve an average annual sales of HKD 40 billion in Hong Kong. As for the luxury project, I think we all know that the luxury market is a bit subdued in the past 2 years, especially in 2019 and 2020 under the pandemic and also the social events. But we have seen luxury buyers are gradually coming back starting from this year and improving political stability. Of course, the future order we opening would also boost the market sentiment as properties in the luxury in traditional luxury locations are still very limited. And earlier this year, we have seen 2 government tender size in the peak. We are being sold at transaction price at high end of market expectations so that we can see that confidence on this sector is still very strong. For our luxury project like Victoria Harbour, we are going to market Phase II upon its completion. And also later this month, we are going to launch Phase II of Central Peak that comprise of townhouses. They are in high-quality finishes together with innovative design for sure, these town houses would be the highlight of luxury market in the coming months. On the office side, we have been very successful to retain our tenants in the past few months. We have actually confirmed over 70% of our mix expiry in the next 12 months and when are stabilizing especially for our 2 flagship development, IFC and also ICC for IFC, it is -- continue to be a sort of the address for most of the leading financial institutions and actually, recently, we have leased 2 and half floors to [indiscernible] financial institution on favorable terms. And for ICC, I think, is going to enhance a lot in its future connectivity and vibrancy due to the high speed [indiscernible] -- and also the future West Kowloon Belcher area. And actually, ICC is doing a premium rent for the whole Kowloon area. So all in all, I think the offices in CBD and also [indiscernible] will continue to outperform other submarkets, especially for development like IFC and ICC that we have majority of tenants in the finance sector and also [indiscernible] PLC, corporation together with MNC for other submarkets like the decentralized office in Kowloon East, I think the leasing activity may be place up deals in the short term. But our buildings are a lot of factor as most of our tenants are belonging to [indiscernible] corporations in different sectors and with longer leasing term.

Thanks for the question. I think the first overall question -- the second question related to Guangzhou South Station. I think, first of all, we're very happy to be able to embark on this project at a reasonable land cost. Yes, you noticed that this is a continuation of TOD projects that we've historically been able to execute successfully all over China and Hong Kong. Of the 9.3 million square feet, actually, -- we are not -- we are actually also helping the local city government to drastically improve the existing public transportation network and also the car parking provisions. So I want to emphasize, when we execute this project, we're not only looking at our enhancement of our commercial facilities, but also for the city. And so together, there will be a great synergy, I say this because there will be 12 lines, including if you include the high-speed rail lines, if you include the regional lines and the local MTR lines connected to this project. And on top with the enhancing of the car parking and the buses and the taxies and the -- well, here it's the DDs them together, I think it will be a great synergy we undertake. In terms of math, actually, I want to highlight to you at the end of this year, there will be 11 lines already out of the 12 that connects to the South station. And with all that, we will be able to go to Guangzhou City Center, be it the new program new town or the old [indiscernible] we'll be able to get there in 30 minutes within 30 minutes. And then within 47 minutes, of course, we can connect to our XRL station, and there will be a lot of synergy. Finally, with the completion of the new lines, we can get to the [indiscernible] airport Guangzhou Airport within half an hour or 2. So with this being a GBA center, we believe it will be very suitable for a lot of tenants. May I add also, if you were to pick a point in GBA, that can get to all 11 cities, -- This will be the spot because it can get there within 1 hour through transport from Guangzhou south stations to all the 9 plus 2 cities, you can get them within an hour. With our returns initially, we are looking to sell over around 55% -- over 55%, around 57% of our GFA will be sold as a balanced approach. In fact, as soon as end of next year, we'll start selling the first phase by residential. We'll only be keeping around 45% of the GFA for our long-term purpose mainly as the mall, the office and a bit of a hotel. For the parts that were remaining, around 45%, we're expecting initial EBITDA yield. I'm talking about net EBITDA yield of around 4% to 6% on cost. For the sales portion, we are expecting healthy reasonable mid-teens margin, and that includes not only the residential, some of the service apartments and also a sizable portion of offices. And these offices will be and easy to sell 30,000, 40,000, 50,000 square meter blocks ready for GBA centers.

Our next question is from Karl Choi with Bank of America.

Great. I also have 3 questions. First 1 is on Hong Kong resi. Second 1 is on Hong Kong retail. And then the third 1 is on dividend gearing. For Hong Kong resi, I think given the rise in home prices year-to-date, I think quite a few investors are concerned about potentially rising risk for cooling measures. Just wondering sort of what's management's views on that? And also related to that, what would be some guys sales strategy going forward. Would you focus more on margin but you also -- looks like you also want to catch up on some of you contract sales from last year, would you focus on volume? Second question is on Hong Kong retail sales. I understand that they have bottomed up. Can you give a little bit more color on what kind of rental reversion you're seeing whether spot rents have stabilized and also what kind of occupancy cost you see? And then lastly, in terms of gearing and dividend, gearing level is still very healthy at 16%, but versus your 20% sort of target doesn't necessarily leave a ton or for further that acquisition, but I think there's still a lot of opportunities out there. So just wondering whether you intend to stick to that gearing target? And also what's sort of the dividend outlook in terms of payout and also absolute dividend?

Yes, the central market is now entirely end user market. And in the past 2 weeks, when we are selling the balance season, we have found that over 5% of purchase belonging to first-time buyers and upgraders. And some people are talking about the vacancy rate in Hong Kong. Actually, the vacancy rate for Hong Kong for the potential market is not high at all and even quite low for completed units in the hands of developers. Everybody knows that developers are watching to launch their new projects once they got their sales concerns. So I don't see any necessarily to impose further measuring policy on the market. For our sales strategy, we are always sticking to the prevailing market condition and launch our new project a reasonable market price. And as you can see from our past experience, we can always strike a balance between volume and margin. And normally, we are -- for oxide project, which may longer time to absorb. But for mass project, we are aiming for a quick and high asset turnover. As you can see, in the past 2 weeks, we have disposed 900 units in Wetland Season Bay. And as I said, in the coming 10 months, we have quite a number of projects to be launched, and we are expecting a high volume of sales in this financial year.

Yes, -- In terms of the Hong Kong retail market, I think it's -- for our portfolio, I think the retail sales at our shopping malls have bottomed out. And since beginning of this calendar year, we have started to outperform the Hong Kong market. So for our regional malls, which focus more on domestic consumption have continued to perform better than those located in tourist districts? And second half of this financial year, we've recorded lower occupancy costs. And also, we've been able to keep vacancy within 10%. Recently, the government's e-consumption voucher scheme that was launched in August has had a very good positive impact on the retail sales at our shopping malls and we continue to offer extra promotion schemes on top of that, making use of our own consumption vouchers and also our loyalty program, the point. That being said, the full recovery of retail sales is still subject to the timing of the border opening. For our border malls, we continue to record a negative rental reversion during the year. And so -- For the short term, we will rely more on short-term lease extensions as an option for ourselves to contain -- to keep our tenants and also to be able to keep -- give us the flexibility so that we can rebound from once the border opens. But yes, the key is still opening the border so that we can reach levels of sales that we achieved in 2019, yes.

On the third question, our dividend policy always is to pay about 40% to 50% of the underlying profits, and also, we will try to maintain the dividend per share even though 1 year, there may be a fall of earnings per share. And on the gearing side, the debt to capitalization, our ratio is 16%. And we will try to maintain the S&P rating of A plus. So that would be the criteria we try to achieve, yes.

Our next question comes from John Lam of UBS.

This is John from UBS. I have 2 questions here. The first one, you said I see that in the top 1 slide, the company plans to speed up or accelerate the conversion of the [indiscernible] I'm not sure if management can give us more details regarding on the conversion of [indiscernible]. This is the first question. The second question is about the outlook for the office and also shopping mall for both Hong Kong and also Mainland China. I'm not sure if we can share more information in terms of the rental reversion and also about the retail sales outlook for both as well as Wetland?

On the subject of land banking, particularly on farmland conversion, I think we have actually made our submission to government to convert the farmland into buildable land is under various stages of conversion namely planning and lease modification accounts for about 2/3 of our farmland reserve. And I'm glad to share with you Government has actually put more initiative to speed up the whole process and we have seen progress have been a lot of improvement in recent months. And I would like to share that apart from those projects, we have announced there will be 1 important or substantial project. We'll be very close to final or final stage of conversion. And I think that 1 will be announced within 2 or 3 months. And this is the report from -- but I'd like to share, probably you're aware that we have made some mission to govern for the land sharing scheme, and is part of our ESG initiative and we're in the process of waiting for government to approve and we hope this will help to alleviate the housing shortage and particularly for this project we're going to provide 2,600 public housing units as opposed to about 1,400 private units. And with that -- with that project can be implemented, it will help to alleviate the shortage of funding.

Sure. On the retail market in Hong Kong and China, I think for Hong Kong, I've just -- as I said previously, I think it really depends on when the border is open. Maybe I'll add a little bit more to that. I mean, recently, we actually positive that once the borders open, I think the mainland tourists will still come to Hong Kong to shop, right? Because we've recently actually done an internal survey where we found out that people from Shenzhen and the -- area, like they remain very interested in coming to Hong Kong for shopping and services when the border reopens. Even though they have -- They've become more sophisticated and demanding over the years. So they want better retail experiences better promotions. And so we are -- I think we will be well prepared to capture the upside when the border opens by making use of our loyalty programs to engage customers directly and enhance and also enhance our on-site amenities, especially outdoor and wellness concepts, which have been in high demand since the COVID outbreak. For China, I think we've seen a very robust growth in both retail sales and rental income in the past year. In fact, I think retail sales is at an all-time high. At this point. I think going forward, I think so far, it's been shown that the domestic consumption in China has been very strong, supported by the dual circulation strategy. And we believe that it will take more time for international travel to resume normality. And so kind of the domestic consumption will continue to be very strong. And we continue to see brands, especially luxury brands offering exclusive product ranges and services for the customers on the Mainland. So we believe that going forward, the strong tenant sales will be sustainable, even though we are talking about a higher base, but the prospects are still very bright.

John, I'd like to add for the shopping environment in Hong Kong, it's getting better, especially with the financial secretaries, e-consumption voucher scheme. In August, we have found out that our point members spend more than they spent in July. So in sense, the e-consumption voucher scheme has helped -- And also, I think people are coming back for dining and for shopping. As you know, when you experience going out to IFC, you can see that more people are dining and walking around in shopping mall. So -- and also the economy is not too bad, right? The unemployment rate is only 5.2%. So I think we believe that when the border with Mainland opens up, I think the sales for our sales for our tenants at our malls will improve substantially. Thank you.