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

Good afternoon, ladies and gentlemen. Welcome to Sun Hung Kai Properties FY 2022 Interim Results Analyst Briefing. As in the past, I'll give you an overview of the results and the performance of the business segments, followed by a Q&A section with our senior management. To begin with, I'll go through the financial highlights. Please note that all figures are in Hong Kong dollars unless stated otherwise. For the 6 months ended 31st December 2021, the group's underlying profits amounted to $14.8 billion, representing a decrease of 15% year-on-year. The decrease in underlying profit is mainly due to lower property development profit as we have relatively lower sales completions of residential projects in both Hong Kong and on Mainland when comparing to the same period last year. On the other hand, the reported profit increased by around 12% year-on-year to roughly $15.2 billion after taking into account of the revaluation gain of $872 million, which was mainly driven by the group Mainland portfolio. The underlying earnings per share was down 15% to $5.11, where our reported earnings per share rose 12% to $5.24. On dividend, the Board of Directors has declared an interim dividend of $1.25 per share, the same as last year. This slide shows the track record of our dividend per share since FY 2014. Let's talk about the profit breakdown by segment. The group's property development profit dropped by 38% to around $7.7 billion. As mentioned, it was due to lower sales completions of residential projects in Hong Kong and on the Mainland. On rental business, the group's net rental income increased by 2% to around $9.7 billion. The increase was mainly attributed to robust rental growth.of Mainland portfolio, which was more than enough to offset the decline in rental income from Hong Kong portfolio. Net rental income from Mainland portfolio increased by 20% year-on-year in Hong Kong dollar terms or 14% in RMB terms. On the other hand, net rental income in Hong Kong declined 3% year-on-year. With the absence of inbound tourists, the group's hotel business in Hong Kong continued to be negatively affected, resulting in operating loss of $162 million. However, the loss has narrowed comparing with last corresponding period. Profit from other business decreased by 8% and mainly due to the absence of government subsidies in this reporting period. For the period under review, the total operating profit was down 19% to about $19.5 billion. For financial position, the group maintained strong balance sheet with a healthy level of net gearing ratio of 17.5% and interest coverage of 13x. Net book value per share rose to around $207. With a strong financial position, the group continue to attain A1 and A+ credit ratings from Moody's and S&P, respectively. Both with stable outlook, which will continue to stick to the prudent financial management discipline. For the performance of business segment, let's start with the property business in Hong Kong. As at the end of December 2021, the group's total land bank in Hong Kong amounted to 57.8 million square feet of attributable GFA, which includes 34.2 million square feet of completed properties and 23.6 million square feet of properties under development. For the completed properties, shopping malls accounted for 35% of the total, while offices accounted for 30%. Among properties under development, the majority is for residential use, representing to 74% of the total. During the period under review, the group completed lease modification procedures to increase about 1 million square feet of GFA for the large-scale residential project at Shap Sz Heung. This project initially was converted from farmland with a total GFA of 4.8 million square feet in FY 2018. After the lease modification, the total GFA has increased to 5.8 million square feet. The project is expected to become the most sizable new residential community in the next decade featuring green and wellness concepts. And we will continue to increase our land bank through multiple sources including farmland conversion. So moving on to the property development business in Hong Kong. For the period under review, the group recognized around $17 billion property sales in Hong Kong, down around 27.5%, and the development profit decreased by 33% by -- to $7 billion, primarily due to relatively less completions of residential developments during the period, while development margins remained satisfactory. As at the end of December 2021, about $28.6 billion of contracted sales were yet to be recognized. During the period, we achieved contracted sales of $20.6 billion in Hong Kong, mainly from land Season Bay Phase 1 and 2, which are linked to the Hong Kong Wetland Park. On July up to the mid of February, we have achieved contracted sales of $22.7 billion. And so in this map, we plan to launch 6 new projects in the rest of the year, spending across different regions in the city and including 2 large-scale residential developments, namely the Siu Hong project Phase 1 and the Pak Shek Kok project. The 6 new project will be over 4,300 residential units with a total attributable GFA of around 2.3 million square feet. In addition to new launches, we shall continue to sell inventories and other remaining units of previously launched projects. Now let's move on to the performance of our Hong Kong rental portfolio. The group's diversified rental portfolio in Hong Kong continued to maintain healthy occupancy with overall average occupancy of about 91% and deliver gross rental income of $8.9 billion, which was down 3% year-on-year. During the period under review, the performance of the group's retail portfolio continued to improve with increasing leasing activities, while social distancing measures were further relaxed. As a result, the decline in retail rental income narrowed to 4% versus 13% decrease in the corresponding period last year. For office portfolio, the gross rental income dropped by 4% to $3.2 billion. During the period under review, the group's local focused malls saw their footfall resume almost to pre-pandemic levels, while the performance of the tourist focused mall remain under pressure due to lack of tourists. Overall occupancy of the portfolio has remained steady. Given the recent Omicron outbreak and a much more stringent social distancing measures, the near-term operating environment for the group's shopping mall business has become increasingly tough. We have been proactively maintaining frequent communication with tenants and implementing timely and appropriate measures to sustain their businesses. To enhance shopper's experience, the group has elevated the hygiene standards of the group's properties to ensure a safe and healthy environment for its customers, tenants and employees to shop and work in. For example, we introduced 5G Smart Restrooms solutions to our shopping malls to help shoppers shorten queueing time and maintain the cleanness of restrooms. We also rolled out a number of initiatives to enhance customers' experience in our malls, including optimized tenant mix according to the latest market trends and carry out enhancement work to upgrade open space. Additionally, capitalizing its online and off-line platforms, the group has continued to team up with business partners and strengthened collaborations between its business arms. The Point by SHKP, a loyalty program for the group's mall with 1.8 million members has constantly introduced new initiatives to deliver a fresh shopping experience. The newly launched Point Dollar under the loyalty program as a new payment means allows its members to earn points with spending at our malls and business arms, convert them into Point Dollar and span it at over 1,200 participating retailers. After the retail portfolio, let's turn to the performance of our office portfolio. During the period under review, Hong Kong IFC office were virtually fully large, while occupancy of Hong Kong ICC remain satisfactory. The Millennium City office customer managed to maintain a healthy occupancy amid keen competitions in Kowloon East. On major new additions in the pipeline, the joint venture development at 98 How Ming Street, Kowloon East is scheduled for completion in 2023. The project is designed to obtain Platinum ratings under LEED and WELL. The pre-leasing of the twin Grade-A office towers is progressing well. The retail podium of 500,000 square feet scheduled for open in 2024 will become a one-shop modern lifestyle mall. And this retail podium, together with APM, will form a shopping hub of a nearly 1.1 million square feet for the area. The large scale projects are towards the High Speed Rail, West Kowloon Terminus will have a total GFA of 3.2 million square feet, comprising about 2.6 million square feet of premium Grade-A office and some 600,000 square feet of retail space, designed to obtain Platinum ratings from LEED, WELL and BEAM Plus certifications. The commercial land bank will come with green and wellness wireless elements including open green space of some 100,000 square feet and part of the 1.5 kilometers long West Kowloon Parkway, linking old and new communities. We've extensive transport station network connecting to other parts of Hong Kong and Mainland cities. The development will create synergy with the group's ICC and 2 5-star hotels nearby, and is expected to be a major business hub in Greater Bay area. The basement work of this project is underway. The group also has new commercial projects under development in Norton Metropolis. The additions include the extensions of YOHO Mall and Yuen Long Station. The retail space of over 130,000 square feet in Kwu Tung and office-cum-retail project adjacent to the MTR Tin Shui Wai Station. All this will contribute to the development of Northern Metropolis as a promising area to live, work and shop. And this concludes my discussions on the property business in Hong Kong. Now let me move on to our property business on the Mainland. As at the end of December 2021, a the group's total land bank on the Mainland amounted to 71.1 million square feet of attributable GFA, of which around 17.5 million square feet was completed properties and about 53.6 million square feet was properties under development. Next, let's move on to the property development business on the Mainland. During the period, the group recognized around $1.5 billion property sales on the Mainland, down 58% year-on-year, mainly due to lower residential sales completions. Development profit dropped 67% to $622 million with satisfactory development margins. As at the end of December 2021, around $5.9 billion contracted sales were yet to be recognized. And during the year, we achieved RMB 2 billion attributable contracted sales on the Mainland. And the table here shows the breakdown of individual projects. The table in this slide shows the major new launches on the Mainland in the next 10 months, including Shanghai Arch Phase III, Park Royale Phase 3A in Guangzhou, residential units of both Hangzhou IFC and Guangzhou South Railway Station project. Moving on to the performance of our Mainland rental portfolio. And during the period under review, the group's gross rental income from Mainland rental portfolio increased by 18% to $3.4 billion or 12% in RMB terms, accounting for 27% of the group's total gross rental income. The growth was mainly driven by the continuous strong performance of our shopping malls and the gross rental income of our retail portfolio grew 23% year-on-year to $2.2 billion. Gross rental income of office portfolio increased by 7% to around $992 million for the same period. The gross premium malls in Shanghai delivered solid performance with high occupancy during the period. In particular, the Shanghai IFC Mall in Pudong continued to record healthy growth in tenant sales from high base. The performance of the group's shopping malls in other major cities remains satisfactory despite the impact of the pandemic in some districts. For the group's office portfolio, the Grade-A office portfolio in Shanghai recorded high occupancy and mid keen competitions. Both Shanghai IFC and Shanghai ICC have attained LEED Platinum certifications. Nanjing One IFC registered its completed occupancy of about 85%, while occupancy of Nanjing Two IFC continued to ramp up despite a challenging leasing environment and pandemic-related disruptions. In Shanghai, constructions of the remaining phase of mega ITC is progressing as planned. Its 220-meter office tower is scheduled for completions in mid-2022 and received enthusiastic precommitments. The other portions of the phase, including a 370-meter office tower, a mega Mall of about 2.5 million square feet and the Andaz Shanghai ITC hotels will be completed in phases from 2023 onwards. Both the office towers are designed to obtain LEED Platinum certification. In Nanjing -- the Nanjing IFC Mall will feature an assortment of top retail brands and popular restaurants and is scheduled to open in phases from mid-2022 onwards. We continue to expand our Mainland property investment portfolio. By end of FY 2024, we expect the size of our Mainland property investment portfolio will increased from current 15 million square feet to over 26 million square feet. Major completions include Nanjing IFC Mall and Shanghai ITC remaining phase. The portfolio size will be further expanded to over 29 million square feet by end of FY 2026. Well, that's all for the Mainland rental business. Now I will discuss the hotel business performance. During the period, the performance of the group's hotels in Hong Kong improved amid a well-contained local pandemic situation, particularly the Royal brand hotels. The near-term operating environment is likely to be very challenging. I mean, Omicron outbreak. On top of measures to raise operational efficiency in this challenging environment, the hotel management team continued to strengthen its marketing and sales channels to boost business. The Go Royal by SHKP loyalty program, which covers the group's 5 Royal brand hotels and 20 restaurants will be launched to drive customer spending through a bonus points program. On the Mainland, the overall performance of the group's hotels during the period were affected by the intermittent pandemic. The next item we'd like to discuss is our efforts on ESG. On ESG front, we have been working on different initiatives, and this slide show you a quick overview of some key areas we are working on. In view of recent rapid wave for pandemic outbreak, the group has several key initiatives in place to support the Hong Kong government to contain the virus as well as protect our stakeholders and the community. As shown in the table, the group has land for free, 2 piece of land with a combined site area of 1.2 million square feet to the government for building community, isolation and treatment facilities. A,nd will provide additional places at its office and mobile premises as a venue for community vaccination for the general public. We also plan to offer about 1,000 hotel rooms as community isolations facility. The group's another major ESG initiative is to proactively promote environmental protection and care for the underprivileged and elderly through Ma Wan Park. Since opening, Noah’s Ark Hong Kong has collaborated with 1,400 charity groups to organize 10,000-plus life education and public welfare activities for more than 680,000 people. This concludes the ESG section for information on our environmental targets and the recent ESG performance, you may refer to appendix of this presentation. Now let me talk about the market and business prospects. In Hong Kong, the near-term operating environment will be inevitably affected by the recent Omicron outbreak and more stringent social distancing measures. The activities in primary residential markets are likely to be slow in the short term, in particular, high-end segment. However, the relatively low interest rates and solid end-user demand, coupled with the newly announced relaxation of mortgage financing will support the market for small and medium size units. For retail sector, domestic consumption will be negatively affected in the short term. Near-term pressures on new leases and renewals will remain. However, the new round of consumption voucher announced yesterday will help boost domestic consumption later. On Grade-A office market, weakening economic outlook may weigh on demand and rents in the short term. On the Mainland, the dual circulation strategy and various supportive macro initiatives will continue to support a reasonable economic role. For primary residential market, the latest loosening in mortgage financing will support reasonable housing demand. For the retail sector, domestic consumption growth is likely to remain healthy in a positive operating environment. A lack of international travels will benefit the luxury markets with more brands willing to expand. On Grade-A office, market momentum remains positive amid continuous economic growth, particularly quality office buildings at prime location with professional management services are likely to outperform. Turning to our business prospects. In the short term, the recent outbreak of Omicron is expected to bring additional challenge to the group's operations in Hong Kong. We have introduced extra preventive measures to raise the hygiene standards of our residential and commercial properties. With the latest round of consumption vouchers, we shall partner with tenants to launch promotional activities when the pandemic is contained. For property sales, leverage on its ample salable resources, the group will continue to launch development projects for sales once ready. However, schedule of new launches may be affected by the pandemic situation. On the Mainland, under the well-contained COVID-19 infections operating environment, the group's Mainland retail rental portfolio is expected to perform well. In the medium to long term, the group is confident about the prospects of the Mainland and Hong Kong, and we will continue to invest in the country. We will continue to acquire land selectively in Hong Kong and major cities on the Mainland, when opportunities arise, while strictly observe the prudent financial discipline. The group will keep expanding its portfolio and strengthening its recurring income stream by developing new landmark projects. And several integrated projects will be fully completed in about 5 to 6 years' time, including the mega ITC in Shanghai and Hangzhou IFC in Hangzhou. Finally, I would like to wrap up my presentation with a message extracted from the Chairman's statement as follows. "During the past half century, the Group has weathered through good and bad times alongside the people of Hong Kong. The Group firmly believes that Hong Kong will continue with its success as the Pearl of Orient under One Country, Two Systems, given its well-established Common Law system, world-class business standards and practices, comprehensive infrastructure and hardworking and perseverant people. The Group reached an important milestone in 2022 as the year marks the 50th anniversary of its public listing in Hong Kong. As always, the Group will adhere to its commitment to Hong Kong, while upholding its philosophy of Building Homes with Heart. With its premium brand, customer-centric culture, seasoned management team and strong financial position, the Group will continue its journey to success and scale new highs in the coming decades." This concludes my presentation. I look forward to meeting you all in person next time. Thank you.

Ladies and gentlemen, welcome back for joining our Q&A session. Now let me introduce the panel to you. From your left, Mr. Brian Sum, who you've just met. Mr. Christopher Kwok, Executive Director, who is joining us online. Sitting next to Brian is Mr. Allen Fung, Executive Director; Mr. Victor Lui, Deputy Managing Director. At 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 -- with that, I would like to invite our Chairman and Managing Director, Mr. Raymond Kwok, to share with us some key messages. Mr. Kwok, please.

Yes, good. Good afternoon, welcome and best wishes to you all for good health. During the period under review, the group's overall business in Hong Kong continued to be affected by the COVID-19 pandemic. Yet its shopping mall and hotel business improved when the pandemic eased in the second half of 2021. The group's Mainland business was stable and its rental portfolio, particularly the shopping mall business recorded satisfactory performance. The group continued to put up for sale its residential projects once they were ready. However, the pandemic and social distancing measures inevitably brought uncertainties to the issuance of government approvals for presales as well as the timing of sales launches. The group is pressing ahead with the development of our landmark projects, both in Hong Kong and on the Mainland. The basement work of the large-scale development are topped the High Speed Rail West Kowloon Terminus is underway. Guangzhou International Commerce Center, a project in the core area adjacent to the Guangzhou South Railway station held its ground breaking ceremony during the period. In Hangzhou construction work of our integrated development, which has just been named as Hangzhou IFC recorded good progress. The 220-meter tall office tower ITC in Shanghai is scheduled for completion in the first half of this year. These projects are set to boost the group's recurring income over the long term. During the period, overall occupancy of the group's retail portfolio remained stable. In view of the worsening pandemic situation, the management team further raised the hygiene standards of the group's properties, stepping up cleaning and disinfection to ensure a safe environment for our customers, tenants and employees. In response to changing market trends and operating environment, the group's leasing teams will keep in close contact with shopping mall tenants to provide them with timely and appropriate support. The group will also leverage the new round of consumption vouchers announced yesterday by the Financial Secretary, and roll out programs to boost spending and increased tenant sales. A number of initiatives will also be introduced to increase the competitiveness of the group's shopping malls. These include optimizing tenant mix, adding green features, making the best use of indoor and outdoor open spaces and adopting flexible marketing strategies. While developing its business, the group proactively supports the national goal of achieving carbon neutrality and continuously enhances its ESG performances. On top of obtaining prestigious green certificates for some of its major completed developments, the group aims to get LEED certificates of Gold or above ratings for all its major new buildings for investment purposes. With Hong Kong's worsening Omicron outbreak recently, President XI has expressed concern over the situation and given important instructions. The group is grateful for the sincere care of the central government, and we go out to support the Hong Kong government to fight against the pandemic. As you may have read in the news, the group has announced a very significant series of initiatives. More importantly, we have planned for 3, 2 pieces of land with a combined site total site area of 1.4 million square feet for building isolation and treatment facilities to help to meet -- to help meet acute shortage of such facilities for newly infected COVID patients. To help drive vaccination, especially among the elderly and children, we have allocated 3 venues for community vaccination centers, all located at office and shopping mall premises easily accessible by MTR, including the APM in Kwun Tong and Landmark North in Shanghai and YOHO Mall in Yuen Long. This year marks the 25th anniversary of the establishment of the Hong Kong SAR as well as the group's 50th anniversary of public listing in Hong Kong. With full confidence in the future of the Mainland and Hong Kong, the group firmly believes that Hong Kong continue to prosper under One Country, Two Systems. Hong Kong has reached the historical turning point of transitioning from stability to prosperity. Under the National 14th Five-Year Plan, Hong Kong will further integrate into the national development and will strengthen the status as international hub of finance, asset management, wealth management, transportation and trade. It is also set to be developed into international center for innovation and technology. 2022, however, will be challenging for a number of reasons, which include the drastic surge of coronavirus cases, more stringent social distancing measures, recent growing geopolitical tensions in certain regions and major Central Bank's quantitative tapering amid rising inflation. Yet the relief measures and economic stimulus initiatives introduced in the budget announced yesterday by the Financial Secretary will give added impetus to a city's economic recovery. During the past 50 years, the group has weathered good and bad times together with the people of Hong Kong. The group will continue to adhere to its commitment to Hong Kong, fulfilled its corporate social responsibility and uphold its philosophy of building homes with heart. With a premium brand of quality buildings and services, a customer-centric culture, seasoned and proven management team, strong financial position and continuous pursuit of innovation and excellence, the group is well positioned to take advantage of the opportunities that will surely arise after the pandemic. The group together with Hong Kong, continue our journey of success and scale new heights. Thank you very much.

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

Yes. This is Ken from Citi. I have 2 group questions. One is on Hong Kong residential. One is on Hong Kong office. So on Hong Kong residential, given that there's a lot of moving factors like interest rate hike, Omicron outbreak, slowdown in Chinese economy, how is management's view on the residential price and demand outlook for this year? And how is your view -- given that the sales has been slowing down recently, how is your view on your sales target, $45 billion. And will you be changing some of the sales strategy in view of slower sales. And lastly, on the residential part is what will be the expected margin on your project going forward? And this is on the residential. And the second part on the office is what is the actual achieved the reversion rate in the first half this year? And what will be the outlook? And can you talk about the breakdown -- the leasing performance breakdown by district? And with regard to some of the news saying MNC moving out their regional headquarters out Hong Kong, are you seeing similar trends in your office portfolio? And what is your expectation on the office market outlook?

There are a lot of questions, but -- so I'll leave Victor to answer it.

Yes. First on the residential market. In fact, both the first and secondhand market have been very robust in last year. The secondary transaction was a record high since 1997. And for the primary sales, all our projects, all our new projects, including Wetland Seasons Bay 1 and 2, Regency Bay, Kennedy 38 and recently YOHO Hub, they are already well received. And of course, the recent outbreak of Omicron will affect some of the new launches in the first quarter or maybe even in the second quarter. But with the recent increasing vaccine coverage that we are hoping that there will be a possible further reopening and economic recovery. So I think the residential sales will be active again in the second half of this year. Although interest rate -- the U.S. interest rate may rise, but with ample liquidity in Hong Kong, I think the low mortgage rate will continue to prevail and most investors should continue to enjoy a positive deal carry for most of the properties. As we are still in the course of recovery, I think for the whole year, the prices would record a mild increase for the whole year. In the upcoming months, we shall have a number of projects to be launched, namely those completed projects like Wetland Seasons Bay Phase 3, Phase 2 Victoria Harbour and Prince Central in Ho Man Tin followed by St Michel Phase II in Sha Tin and also 2 mega projects, 1 in Pak Shek Kok and the other Siu Hong project in Tuen Mun. Together with those projects we have sold in the previous months, I think that can deliver a sizable liquidity of $40 billion for us. However, due to the recent outbreak of Omicron and away from home measures of the government departments, I think some of the sales concern may slip a little bit but we are confident that we can make up -- we can catch up again in the next quarter. As for the sales margin, I think you are aware that we can always market our projects by sticking to the prevailing market condition. Generally, we are seeking for a quicker asset turnover for mass project like Wetland Seasons Bay and Wetland Seasons Park and even the upcoming -- Sun Hung project. For luxury projects, which are generally harder to replace like Victoria Harbour, we shall offload our units by our pace. For the project I mentioned, I think -- that we have marketed in the previous month, I think they can deliver a good return for us. And with our ample marketing resources, we are confident that the upcoming projects can also provide good margin for us in the next few years. On the office market, I think we're all aware that economic slowdown caused by the pandemic have weakened leasing demand in the past 2 years. Some of the MNC are holding a wait-and-see approach on their view as they're planning. But those occupiers in the financial services, especially those we've accessed the IPO business including some of the Mainland companies. They are not affected and still in very good business. For 1 and 2 IFC, they are still the most sought-after address for a lot of international banks and leading financial institutions, and wealth management sector is also to be benefited by the GBA Connect scheme. These companies are all preferring to stay in central. Together with the recent trend of decentralization we have seen more activities in the CBD area. For 1 and 2 IFC, the space that expired in this year we have already renewed 60% and 75%, respectively, already. And as for on core locations like Kowloon East, I think you're also aware that owners of some newer buildings are more flexible on rental negotiation. But our buildings in the Millennium City portfolio, a lot affected both on renewable and rental reversion as most of our companies -- most of our tenants are belonging to be long users in different sectors, and they are very demanding on building quality and also appreciate our attentive surface including wellness, health and safety. So -- and also including are our other building in rental and cost rebate, they're all enjoying high occupancy and with a stable rental reversion. In our portfolio, we -- due to the temporary close of border in our portfolio, we do not aware MNC moving out of Hong Kong. And in fact, as you -- as we know, the business have to cope with the government measures on the social distancing. But we all know that this is only a short-term measure, with increasing vaccine coverage and economic recovery that I think the office leasing market will recover in the second half of this year.

Our next question comes from Cusson Leung with JPMorgan.

We have -- I have 3 questions. One is on the recent fifth wave impact to the shopping mall. I think what kind of rental reversion are you seeing? And also, have you start to offer some rental concessions to the tenants yet? And how will you compare the rental concession to the government proposed rental moratorium, i.e., for tenants to delay paying rental to the company? Second question is in terms of land banking in Hong Kong. Have you noticed any acceleration of the farmland land premium negotiation process with the government? And lastly, we also noticed that some of your peers are offering discounted housing to the general public. Would that be something that Sun Hung Kai will be considering?

Christopher, can you answer the first question?

Sure. Yes, if I may do a quick recap. Back in the first half of the financial year of 2022, meaning June to December last year, our malls actually have a -- have had a very good run. We benefited from the consumption vouchers scheme, which allowed our malls to record strong double-digit sales growth, and we were also ahead of the market throughout the period. Our sales have not yet reached back the peak levels in 2018, but some of our malls, including our neighborhood malls were very resilient, and they were very close to sales level in 2019, the pre-COVID levels. With the new fifth wave of the COVID, it's obviously put pressure in the retail market in terms of adding pressure to grow sales and traffic. But we view that with the strong support from the Mainland and the Hong Kong government and also the Hong Kong community who are joining hands to fight the virus, we feel that the pandemic will gradually be put under control. And once that happens, we should see a rebound in the retail sales and traffic. And then there's also -- the government also announced new economic stimulus in its budget, and we feel that the consumption voucher, which is actually twice the amount that was given out last time should give the retail market a big boost once the social distancing measures are more relaxed. Throughout the pandemic, over the past 2 years, the group has introduced a wide range of measures to help businesses and our tenants to drive footfall and sales in the shopping malls. For example, in terms of setting up an online order and pickup platform for our F&B tenants, and also using our Point loyalty program to partner with our tenants for more targeted promotion and discount campaigns. These flexible arrangements have proven to work well. And so in this critical period, we will keep a very close eye on the situation, maintain close contact with our tenants, and we will decide on the most appropriate arrangements to support our tenants. With regards to the rental enforcement moratorium mentioned in the budget, I think it's a separate issue from the rental concession because the moratorium basically says that we cannot force tenants to pay -- force tenants who have outstanding rental liabilities to pay upfront, which we have to let them ease off in this period. So that does not necessarily mean the same thing as rental concession. But of course, we will work closely with our tenants, and we will also study the details of the proposed legislation and follow the law in that regard.

I can take up the rest of the questions. On the farmland conversion, as you appreciate our notice, before recent outbreak of the fifth wave of Omicron, we can see the overall modification -- land modification process have been sped up because the government has deployed special task force within their departments to process this land conversion process. And you can appreciate for the past financial year of the government, both land sale and modification has boosted up a lot. Very difficult cases has actually been completed during the last year. But for us, it's very good that we have successfully upsold our group's Shap Sze Heung Sai Sha project and increased the GFA by 1 million square feet so that we have completed the land premium payment during our financial year. And currently, we still have a few projects in the very final stage of conversion process. But however, during this time of -- difficult time because of the work from home or the government resources, we can -- hard to tell the exact time line, how soon we can conclude these few cases. On the final question, it's an interesting question actually on the discount housing by private sector. We understand one of our peers have provided a proposal to government to provide some discount housing something like agency like housing society. They have to do a land application at a concessionary land premium. This is a very fundamental policy for the government to make or to give concessionary discounted land premium to enable the whole formula to work. But as this is not an easy task for government to deal with, but we will let the policy makers to deal with this application first. But on our part, we have been helpful to assist to produce housing both in our private market and more affordable housing to the community. Like the land-sharing scheme, we have actually some retail application in Yuen Long. In that particular case, we're going to propose about 4,000 units and out of which is 2,600 numbers are for public housing. On top of that, recently, we have done a project, it's close to completion in the middle of the year is united village in Yuen Long. [indiscernible]. And we -- in that particular case, the transitional thing will produce 1,800 units for the needies in that area. And in fact, Sun Hung way has been actually -- opened up the application process and welcome to take up this particular affordable housing to the needs in the next quarter this year. Thank you.

The next one is from Karl Choi from Bank of America.

I have 3 quick questions. First is, I think China property sales were relatively slow in the first half. Just wondering whether you think you can catch up second half to get to your full year target of $7 billion. Second is there are a lot of distressed developers in China that are trying to sell assets. Just wondering whether you're having any discussions or your interest level? And if so, would you be more interested in develop residential or IP? And then lastly, can you give us an update on the leasing progress of the How Ming Street office project as well as ITC tower in Shanghai that will be completed this year?

Thanks for the question. I think for China, yes, you've noticed, well, our target is $7 billion, and at this point, we're still remaining it. I think you noticed in the China market that recently, these 2 months, there has been a gradual easing in the monetary policy and also in the regulatory policies as well. You see a relaxation in mortgage financing. You see a relaxation in down payment. And you also see that very critically the developers' access to restricted presales fund,there seems to be a standardized and more relaxed route to it. So the way we are looking is we are a little bit back loaded. We have a few major launches that's coming up in China in the next 4 or 5 months in this fiscal year. That includes our Hangzhou residential sales around May and June. That includes our continued sales in Foshan. That includes -- we have already sold Chengdu ICC as well already, our residential towers and also Jovo Town and some sales in Dongguan and Zhongshan. So we are keeping our target and we think this recent relaxation is going to help us achieve that. So on top of it, actually, you'll notice that the monetary environment is gradually easing in credit as well as lowering of standard borrowing rate. As to the -- as to your question on mainland developers and the distressed access -- I think assets. I think we are more interested in the assets in Hong Kong, to be honest. Because if you look at the portfolio assets that's being floated around is mostly not our strength and core competence, I would say, not our -- too much our cup of tea. Of course, there may be some occasional ones. But as you know, as always, we're sticking to a very selective approach where we want focus on integrated landmarks in top tier cities. So of course, if that comes along, we'll look at it. But for now, we're more interested in the distressed assets in Hong Kong. I hope that answers your question.

Yes.