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

Good afternoon, ladies and gentlemen. Welcome to the Sun Hung Kai Properties Financial year 2024/'25 Interim Results Analyst Briefing. So today's briefing will have 2 parts. The first is the presentation by our Corporate Planning Manager, Investor Relations, Miriam Leung, on the results and performance of our different businesses. And it will be followed by a question-and-answer session. So now I would like to invite Miriam to give the presentation. So Miriam, please.

Thank you, Connie. Good afternoon, ladies and gentlemen. Thank you all for coming, and welcome to Sun Hung Kai Properties FY 2025 Interim Result Analyst Briefing. As usual, I will present an overview of the results and the performance of our businesses, followed by a Q&A section with our senior management. Let's start with the group's financial review. Please note that all figures are in Hong Kong dollars unless stated otherwise. For the 6 months ended 31st December 2024, the group's underlying profit amounted to about $10.5 billion, which increased by 17.5% year-on-year. The increase was primarily attributable to higher property development profit from Hong Kong, partly offset by a reduction of contribution from property rental and hotel business, including the net effect of revaluation loss of around $2 billion on the investment properties and fair value gains of around $0.9 billion realized on sale of investment properties. The reported profit was $7.5 billion, a decrease of 17.7% year-on-year. The underlying earnings per share was up 17.5% to $3.61 while reported earnings per share was down 17.7% to $2.60. As for dividend, the Board of Directors has declared an interim dividend of $0.95 per share, the same as last year. Moving on to the product backdown by segment. The group's property development profit increased by 22.8% to around $2.5 billion, mainly due to higher revenue from property development in Hong Kong. On property rental, the group's net rental income decreased by 3.5% to around $9 billion, mainly due to a 3.6% drop in net rental income from Hong Kong portfolio and a 3.9% decrease in net rental income from the Mainland portfolio. As for hotel performance, an operating profit of $377 million was recorded from the group's hotel business, down from $430 million in the same period last year. Profit from other businesses increased by 1% to around $2.6 billion. So altogether, the group's total operating profit for the first half FY 2025 was up 0.8% to $14.5 billion. On our financial position, as at the end of December 2024, the group's net debt was $107.8 billion. The net gearing ratio was 17.8%, down from 18.3% as at the end of June last year. Interest coverage for the period was around 5x compared to 3.8x a year ago. The group will continue with prudent financial management. Ongoing measures of cash flow management include strict control of construction CapEx, being highly selective in land bank replenishment and strengthening recurring income base from property investment portfolio and non-property businesses. We will also strive to achieve high asset turnover for property development business. The group will continue to launch new projects when ready and put unsold residential units and noncore properties on the market where appropriate. As you can see from the graph, the group's net debt already peaked in December 2023. During the period review, net finance costs dropped by 15% year-on-year. We expect the debt level to drop further in the future. The group has been increasing the use of RMB-denominated borrowings to better align its asset and liabilities denominated in RMB. As at the end of December 2024, RMB-denominated debt accounted for 23% of total borrowings. About 48% of the group's total borrowings were either fixed rate debt or RMB floating rate debt. The group's debt maturity profile was also well balanced. With ample and secured facilities on standby and abundant liquidity, the group is one of the best rated developers in Hong Kong, holding an A+ rating with negative outlook from S&P and A1 rating with negative outlook from Moody's. Let's move on to the performance of different segments. As at the end of December 2024, the group's total land bank in Hong Kong was about 56.9 million square feet of attributable GFA, comprising 37.6 million square feet of completed properties and 19.3 million square feet of properties under development. Among the completed properties, retail portfolio accounts for 33% while offices accounted for 29% of the total. For properties under development, about 12.9 million square feet were residential properties under development for sale. During the period under review, the group added 2 sites with a total GFA of about 465,000 square feet to its land bank. The group also added another 2 residential sites totaling 595,000 square feet of GFA after the end of review period. Regarding land resumption, some of our landlords were resumed with a compensation of about $3 billion during the period. The corresponding gains have been recognized in the first half of FY 2025. The group will continue its prudent financial discipline in land bank replenishment. In January this year, the group won the tender for site in Tai Wai with a total GFA of 194,000 square feet, located in a mature community with easy access to public transport and neighborhood facilities. The site will be developed into residential development, providing mainly small and medium-sized units. In February this year, the group also acquired a harborfront site located at Tung Chung New Town Extension. Served by the future MTR Tung Chung East station, the site offers panoramic sea view and design flexibility. It will be developed into a residential project with a total GFA of about 400,000 square feet. Now let's focus on property development business in Hong Kong. For the period, the group recognized that property sale in Hong Kong increased 344% year-on-year to about $16 billion, mainly derived from YOHO WEST Phase 1, the YOHO Hub II, St. Barths and Grand Jeté Phase 2. Development profit increased 88% to over $2.3 billion. During this period, about 0.8 million square feet of residential GFA was completed. Contracted sales not yet recognized amounted to $30.4 billion, of which around $20.2 billion is expected to be recognized in the second half of this financial year. Hong Kong's residential market saw solid activity, driven by lower mortgage interest rates and relaxation of mortgage rules in the second half of last year. During the period under review, we achieved about $24.8 billion of contracted sales in Hong Kong. The major contributors are listed in the table here. This map shows our new projects to be launched. There will be a diverse mix of projects to cater to homebuyer with different preferences. We will launch YOHO WEST PARKSIDE in Tin Shui Wai very soon. In the next 10 months, other projects to be launched will include the Sai Sha project near Ma On Shan, namely SIERRA SEA; the new faces of Cullinan Sky and Cullinan Harbour in Kai Tak; the residential project in Kwu Tung; and the Phase 3a of NOVO LAND in Tuen Mun. Furthermore, we will continue to put up for sale the unsold completed residential units and some noncore properties. Now we move on to our Hong Kong rental portfolio. During the review period, the group's rental portfolio in Hong Kong recorded a slight decrease of 1.4% in gross rental income year-on-year to about $8.8 billion. Overall average occupancy remained stable at around 91%. Rental performance of the retail portfolio was resilient, but challenges for office rental remain. The group has adopted a proactive approach to strengthen the competitive edge of our malls. This includes ongoing asset and service enhancement and refining tenant and trade mix to bring novelty to customers. Such efforts helped the group achieve a stable occupancy of around 93%. To enhance shoppers' experience, the group attracts Mainland and overseas brands to open their debut stores in our malls across popular districts. Besides regularly refining the mall tenant mix and store layouts to enrich their offerings, the group continued to upgrade and its property with enhanced service quality. For example, pet and family-friendly areas are introduced in our malls with additional green and interactive elements. The Point, our integrated loyalty program enhances shoppers' experience to attract tourists and local customers. Spending by members remained resilient during the period. The Point's mobile app was upgraded with a new interface for easy access to tenant promotions and the latest information based on members' spending and preferences. Our new VIP program has recently been launched to reward premium members with exclusive privileges, including booking for EV charging. Moving on to our office rental performance. Despite challenges, the group's quality office portfolio achieved an average occupancy of about 90%. Our portfolio remained competitive under the flight-to-quality trend. It differentiates itself with high green building centers and professional property management. We will continue to upgrade our major existing buildings to enhance quality and green standards. In the next 2 to 3 years, the group's recurring income base will further -- will be further expanded as new investment property come on stream. They will include the Mall Beneath The Millennity in Kwun Tong, the High Speed Rail Terminus Development and Artist Square project in West Kowloon and a commercial complex in Mong Kok. The High Speed Rail West Kowloon Terminus Development offers plenty of greenery and human-centric designs and has recently been named the world's best real estate development in Euromoney's Real Estate awards. Its office portion called the International Gateway Center, IGC, is targeted for turnover starting from early 2026. The mall beneath IGC will introduce high-end retail and dining options. This project, together with the Artist Square Towers project, also under construction, will create strong synergy with the well-established ICC cluster. Turning to our property business on the Mainland. As of the end of December 2024, the group's total land bank on the Mainland was 66.4 million square feet of attributable GFA, comprising about 21.2 million square feet of completed properties and 45.2 million square feet of properties under development. Among the completed properties, 43% of them were shopping centers and 38% were premium office. On our property development business on the Mainland. During the period, the group recognized property sales on the mainland decreased by 61% year-on-year to about $617 million, mainly due to lower sales volume of residential units. Development profit was also lower at about $181 million with satisfactory development margin. As at the end of December 2024, unrecognized contracted sales amount to RMB 12.5 billion. About RMB 7.8 billion will be recognized in the second half of this financial year. During the period, the group achieved a contracted sale of over RMB 660 million on the Mainland. Following the end of review period, the group launched the first batch of the second phase of Lake Genève in Suzhou in January this year with encouraging sales response. In the next 10 months, 4 projects with a total attributable GFA of about 930,000 square feet will be launched. You may refer to the table here for details. As for our Mainland rental portfolio, during the period, the group's gross rental income from the Mainland rental portfolio decreased by 1.6% year-on-year to about $3.1 billion or down 1.7% in RMB terms. The mild decrease was mainly due to a decline in turnover rent of its retail portfolio. A vast majority of projects in our Mainland property investment portfolio are premium integrated projects located in core business hubs in first tier and leading second-tier cities. Tenants enjoy great accessibility to public transportation and complementary amenities within the same complexes. An example would be IFC in Shanghai. Our office portfolio is known for its premium building quality and high green building standards. Occupancy of landmark office building in Shanghai remains satisfactory. As for our retail portfolio, it demonstrated resilience through unique positioning and having adopted a proactive approach in enhancing its attractiveness. Major malls maintain high occupancy despite keen competition in the markets. Replicating the success of Shanghai IFC Mall, Nanjing IFC Mall held its grand opening in July last year and has become a popular shopping destination in Hexi CBD ever since, achieving high occupancy. The mall houses duplex luxury flagships and new concept stores of renowned retailers. A remarkable 30% of shops in the 1 million square feet mall are debut stores in Nanjing. The mall complements Andaz Nanjing Hexi Hotel and the Grade-A office towers within the complex. This year, the expected full completion of Three ITC, the final phase of ITC in Shanghai, will mark another milestone of the group's business on the Mainland. The Tower A office, which has been completed, achieved a committed occupancy of over 70%. The remaining portion of Three ITC include the flagship mall, ITC Maison; an office skyscraper, Tower B; and a hotel, Andaz Shanghai ITC. The mall will bring an innovative retail formats and creative concepts, featuring an extensive variety of shops, including high-end retailers and renowned restaurants. Let's turn to our hotel business. During the period, the group's hotel portfolio in Hong Kong maintained high occupancy. Operating profit of the hotel segment dropped 12% year-on-year to $377 million, down from $430 million in the same period last year. The decline was due to increased operating costs and additional costs incurred from new hotels that commenced operations on the Mainland. As for new hotel, Andaz Shanghai ITC, part of the integrated project Three ITC, is set to open with over 250 hotel rooms by end of this year. Moving on to the ESG initiatives. The group continues to make significant strides towards its 10-year environmental targets and has already achieved its goal of reducing greenhouse gas emissions for key commercial buildings by 25% ahead of schedule. Building on this progress, our new target has been set to reduce such emissions by 35% by 2029 and '30. Another highlight is to join hands with joint venture partners in developing Hong Kong first privately fund solar farm on the landfill in Tseung Kwan O. The project will be completed in 2025 with an annual capacity of generating 1.2 million kilowatt hours of green electricity. To encourage the switch to electric vehicles, the group also doubled the number of superfast EV chargers in its malls. The group is dedicated to enhancing community well-being. In alignment with initiatives to foster a mega event economy, the group organized events to revitalize the tourism and retail sectors. Highlights include a 2-month celebration marking the 40th anniversary of New Town Plaza in Sha Tin and various outdoor events near the group's mall. In January this year, the group celebrated the grand opening of GO PARK Sai Sha, a landmark spanning 1.3 million square feet. Showcasing both popular and emerging spots, the landmark also house entertainment, dining and recreational facilities. For more information about our latest ESG performance, you may refer to the appendix of this PowerPoint or our website. Moving forward, I will discuss the market and business prospects. In Hong Kong, economic growth is expected to be relatively slow due to a multitude of variables affecting the global environment. Lower expectations for U.S. rate cuts will continue to weigh on business sentiment and activity. However, end-user demand for housing will remain solid, supported by reduced mortgage rates and a continued inflow of tenants and students. For key cities on the Mainland, with boosting internal demand being a top priority, further and stronger stimulus policies are expected to help drive domestic consumption. A benign mortgage environment and housing support measures will help restore buyers' confidence, favoring the recovery of the property market over the medium term. On our business prospects, the group will continue to adhere to sound and prudent financial management practices. It will exercise proactive cash flow management with the following aspects. The group will abide by strong cost discipline on CapEx and other costs without compromising quality and services. By adopting an active management approach, it will strengthen recurring income from property investment portfolio and non-property businesses. It will continue the timely sale of new projects, unsold residential units and selective noncore properties. We have a sizable portfolio of rental properties under development, both in Hong Kong and on the Mainland. The group aims to achieve long-term growth in recurring income. On property investment, the group will sharpen the competitive edge of its portfolio by adopting a proactive leasing approach, which includes carrying out asset enhancement initiatives and maintaining close relationship with tenants and customers. The completion of new developments will create a new source of recurring income for the group in the next 2 to 3 years. Hong Kong projects will include the shopping mall underneath The Millennity in Kwun Tong, Cullinan Sky Mall next to MTR Kai Tak station and the High Speed Rail West Kowloon Terminus Development. In Shanghai, Three ITC will be fully completed this year. On property development, the group will leverage its strong reputation for delivering high-quality properties to achieve high asset turnover. It will continue to launch new residential projects and put up unsold completed residential project and some noncore properties on the market for sale. Finally, to conclude my presentation, I would like to share with you this passage from the Chairman's statement. Over the past half century, the group's long-standing strengths, including a strong commitment to quality and excellence, customer-centric philosophy, trusted relationships with stakeholders and flexibility in moving with the times, have helped the group established an excellent reputation in the market. With this solid financial position, sizable rental income base, strong leadership and execution teams and time-tested strategies, the group has laid a robust foundation that enables it to navigate effectively through the evolving changes in the property market and the global economy, consolidating its market leadership. With full confidence in long-term prospects of the Mainland and Hong Kong, the group, upholding its belief in building homes with heart, will continue to support the city's advancement by creating iconic landmarks and sustainable community that prioritize the quality of life for all residents. This is the end of my presentation. Thank you.

So thank you for joining us for the question-and-answer session. So let me first introduce the panel members. Starting from your left, Mr. KW Lo, Member of the Executive Committee; Ms. Maureen Fung, Executive Director; Mr. Allen Chung, Executive Director; Mr. Christopher Kwok, Executive Director; Mr. Victor Lui, Deputy Managing Director; 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. So may I now invite our Chairman and Managing Director, Mr. Raymond Kwok, to share the key messages of today's results announcement. Mr. Kwok, please?

Good afternoon, ladies and gentlemen. Thank you for attending today's briefing. During the period under review, the group kept up its efforts in delivering premium quality development projects and services despite global economic uncertainties. Backed by our solid financial position, sizable recurring income, seasoned management, strong and experienced execution teams and time-tested strategies, the group was able to navigate the ever-changing environment and delivered satisfactory business performance. In Hong Kong, the group's contracted sales amounted to HKD 24.8 billion during the period. Major contributors include Cullinan Sky Phase 1 in Kai Tak, Victoria Harbour Phase 2b in North Point, YOHO Hub II in Yuen Long and NOVO LAND Phase 3b in Tuen Mun. We also offered units from completed properties such as St. Michel in Sha Tin and Dynasty Court in Mid-levels Central. All of them received positive market response. Over the next 10 months, the group plans to launch various new projects in Hong Kong. These are YOHO WEST PARKSIDE in Tin Shui Wai, the second phase of Cullinan Harbour and the second phase of Cullinan Sky in Kai tak, the first phase of the Sai Sha development, now named SIERRA SEA, NOVO LAND Phase 3a in Tuen Mun, and the first phase of the residential project next to MTR Kwu Tung station, which is now under construction. Among the upcoming projects, the Sai Sha project has been planned for over 30 years to be developed in phases. This project is scheduled for completion over a number of years. On top of strengthening transportation connections and infrastructure, the group has made use of family and pet-friendly concepts to create a vibrant community that caters to the lifestyles of different generations. Residents can enjoy the beautiful nature and access the adjacent GO PARK Sai Sha. GO PARK is a landmark sports and commercial complex covering some 1.3 million square feet. With its grand opening held last month, the complex offers a wide range of experiences from popular and emerging sports to entertainment to dining and to recreation. We hope it would become Hong Kong's pet garden where families can spend their quality time together. Moving on to property investment in Hong Kong. The group's portfolio continued to provide a stable and sizable recurring income. Overall occupancy remained satisfactory. In the coming years, the group's recurring income base will be further strengthened as more investment properties come on stream. These are 2 shopping malls will open in phases starting later this year. One of them is the Mall beneath The Millennity in Kwun Tong and the other one is Cullinan Sky Mall, which is connected and adjoining to the MTR Kai Tak station. In addition, the Grade-A offices atop the High Speed Rail West Kowloon Terminus, which was named IGC, International Gateway Center, will be handed over to tenants starting early 2026. The group also carried out ongoing enhancements of assets and services to increase the competitiveness of its property investment portfolio. We continue to leverage The Point, which is the integrated loyalty program for Sun Hung Kai malls to enhance shoppers' experience and attract tourists and local customers. The Point recently launched a VIP program to offer exclusive privileges to our premium members such as EV charging booking. For a quick update on property development on the Mainland after the review period, the group launched the first phase of the -- the first batch of the second phase of Lake Genève in Suzhou last month. The sales response was very encouraging. In the coming 10 months, the group plans to launch new batches of joint venture developments such as Lake Genève in Suzhou, Hangzhou IFC and Oriental Bund in Foshan. For property investment on the Mainland, the group's gross rental income registered a slight decrease during the period, mainly due to decline in turnover rent of its retail portfolio. As for projects under development, construction of Three ITC in Shanghai will be fully completed in the second half of this year. This includes a flagship mall ITC Maison, an office skyscraper Tower B and a premium hotel Andaz Shanghai ITC. The completion of this project will mark a milestone for the group's Mainland business. The group also makes use of innovative technologies to enhance building and service quality and also upgrades its existing buildings to meet high green building standards. Such efforts are well recognized by international certifications and rating agencies and put the group's properties in a good position as the flight-to-quality trend continues. Looking forward, with the unwavering support of the central government, the group believes Hong Kong will continue to leverage the unique advantages of One country, two systems to embrace changes, seize opportunities and attract more high-caliber talent to Hong Kong. With full confidence in the long-term prospects of the Mainland and of Hong Kong and upholding its belief in building homes with heart, the group will adhere to prudent financial management practices, maintain a low gearing ratio and leverage also its diversified investment properties to maintain a stable and sizable recurring income. While exercising strict cost discipline, the group will continue to develop iconic innovative projects in sustainable communities that enhance the quality of life for residents, contributing to the strengthening of Hong Kong's status as international financial trade and transportation center. So thank you. Thank you very much.

Thank you, Mr. Kwok. So now I'll open the floor for questions. [Operator Instructions] So I'll have that gentleman in the fourth row. Thank you.

This is Griffin Chan from Citi Property team. So I have 5 questions. The first 3 on the Hong Kong. So on the Hong Kong residential market, what are the group expectations for the Hong Kong residential home price, given we have higher for longer interest rates as well as a high level of supply and inventory? So are you concerned about the distressed player in the market will continue to put pricing pressure into the residential market? So this is the first question. Second one is on the contract sales. So will you revise up your Hong Kong property contract sales for these financial years? And what are the upcoming new launch in the second half financial year of 2025? And what is the pricing strategies for the upcoming? So how would you balance between the asset turnover as well as on the profit margin? The third one will be on the residential margin. So what is the profit margin outlook for the property development business in Hong Kong in the coming years? Do you see any impairment required for certain projects? And what will be the margin after the impairment? So last 2 will be on China. So basically on the China residential demand. So how do you feel the housing prospect for the residential market in China? So with a lot of supportive policy and measures, what is the impact to our residential project in China? The last one will be on the sales target. So is the group confident to achieve the sales target of $4 billion in the financial year of 2025? What are the sales resources available and what are the major new launch?

Yes, I answer the question on the Hong Kong market. And although the U.S. interest rate remain unchanged recently, I think the trend of lower mortgage rate will continue in this year. And in this month, we know that there's a leading bank also offering a fixed rate mortgage around 3%. And this is also pointing to reducing borrowing costs in the residential market later this year. And backed by the influx of tenants and students, we have seen the rental market has been very robust after the Chinese New Year. And I think this will also induce more vendors and investors entering into the market. On the luxury side, the sentiment also improved due to the strong momentum of the stock market recently. I think there will be more transactions in this quarter and the next quarter. I think most of the developers are having their pricing strategy according to their financial position. Recently, we have seen some players are launching their projects at a slightly discounted price. But we are happy to see that all the projects are well received and having a speedy sales. I think this is also beneficial to the sentiment, too. On our pricing strategy, you may know that we are always striking a balance between volume and margin. And normally for our mass project, we are aiming for a quicker turnover. And for the luxury project, which are normally difficult to replace, we are going to dispose the units at our pace. But having said that, we have sold quite a large number of units in Dynasty Court, our investment property and also Victoria Harbour. I think there will be more eye-catching transactions when we market our 2 Kai Tak projects later this year. In the next 10 months, we shall have a number of projects to be launched, namely the YOHO WEST PARKSIDE followed by our 2 Kai Tak projects, Cullinan Sky, Cullinan Harbour. And also in the second quarter, that would be our Sai Sha project, which is named SIERRA SEA. And in the second half of this year, that would be Phase 3a of NOVO LAND. And finally, and also our Kwu Tung project next to the MTR station at the end of the year. So again, you can see we have sufficient market resources on hand in this year. We have also made a small impairment for our project, Cullinan Sky. But actually, we have more premium units to be sold in the second phase, and we are confident that we can achieve a high unit price that may enable us to write back some profit later this year. We must admit that due to the market condition, our profit margin has been quite affected for our mass project, but we are happy to see that we have disposed a large number of Dynasty Court and also Victoria Harbour, which can produce handsome profit for us.

On the Mainland, Adam, do you want them to repeat the question?

I recorded it. I think in the Mainland property market, I think there's the macro aspect and the micro aspect. I think the micro aspect is you see a polarization now of developers, the SOEs, the China overseas, the [ polys ] and the quality private developers like ourselves, Greentown and a few others have been selling actually quite well in 2024, whereas the smaller private developers in financial troubles are not selling that well and you see year-over-year decline again and again. And so I think we see that polarization. And thankfully, our projects have been selling well by large. And then the second polarization I see is in locations. I think the ones that are really selling well are Tier 1 and Tier 2 cities and also in the prime locations in it, and you see a further polarization in buyers in choosing that. So thankfully, most of our projects like Hangzhou, like Suzhou, like Shanghai, which we're delivering handover in 1 or 2 months' time, have all sold very well. Our Guangzhou or Foshan project is also selling steadily. So I think in terms of the micro aspect, we're benefiting from these polarization trends. Macro aspect, as we all know, Beijing has said, real estate has to stop falling and stabilize [indiscernible]. And we all know when the central governor said that and the local government are really treating this as a KPI and coming out of policies. And you see each city has their own policies towards boosting growth and also even buying back inventory and so on. And so I think January data also, in the official China data, as you see more cities now rising in prices. And so I think overall, that's encouraging on the macro side as well. Finally, on our target, our target is just $4 billion. We've achieved $2.1 billion up to today, including our Lake Genève phase launch. And as you know, we will launch Lake Genève in Suzhou in the next 2 months, the new phase. We expect that to have overwhelming demand. In fact, we're always surprised the bigger the houses are, the more popular and demandable it seems to get. And of course, Hangzhou IFC, our service apartment for sale in the second quarter as well as some projects in Guangzhou and Foshan. So I think we're confident in meeting the remaining $1.5 billion. Thank you.

So could I have the second question? So the gentleman in fourth row.

This is Karl Chan from JPMorgan. So I have 5 questions as well. My first 2 questions about Mainland China retail. So I guess in the past year, the market has been quite worried about the luxury retail in Mainland China. So just curious, in the fourth quarter of last year as well as the first quarter of this year, do we see a slowdown in luxury retail sales in our Mainland China shopping malls? Or do we see some improvement? Or do you expect that the downward trend may continue for the rest of the year? And then speaking on rent reversion, what did we see in the first half of the financial year of 2025? And what's our expectation for the rental reversion in our shopping malls in Mainland China for the rest of 2025? So that's my 2 questions on Mainland China retail. And then my third question is more about risk management because recently, we saw from a lot of news headlines that there are rising concerns on the liquidity of some for the Hong Kong developers. So from your perspective, do you expect any impact on Sun Hung Kai on the accessibility of bank loans or bank's interest rate spread? What would you do to mitigate a potential spillover impact if there is any significant adverse credit events in the sector? So that would be my third question about risk management. And then my fourth question is about dividend because I think we have been adhering to a dividend policy of around 40% to 50% payout based on earnings, right? But then going forward, we understand that there may be lumpy earnings because of the DP booking. So we're just curious if we might ever consider changing the dividend policy. Because some of the peers are now paying dividend based on rental income. So just curious if we might consider changing into that policy in dividend. So that's my fourth question. And my last question is very simple. Do you see any risk of further cap rate expansion on our investment properties?

Yes. I think I'll take a question on the Mainland luxury retail market. So I think 2024 started off a slow year. Definitely, we see a slowdown. But I think things have started to improve in last quarter, quarter 4 of 2024. In fact, for our Shanghai malls, we just saw that the January numbers have returned to growth from the year before. So that's encouraging. And we -- I think the way we see the market is that riding on similar to what the government -- the Mainland Chinese government has announced on the real estate side of the market. I think they're quite determined to also stimulate domestic consumption to attract more foreign tourists to visit China. And so we're definitely seeing kind of also each city doing more to, for example, using consumption coupons or else kind of being more proactive in introducing brands and getting in touch with us, developers, right, and introducing brands to open shop in the city. So that's, I think, a positive trend that we think will take place for the rest of the year. And on the other hand, for -- in terms of our relationship with brands, I think luxury brands, right now, they're still quite cautious and quite selective in how they expand in the expansion plans. And so they have a tendency to focus on expanding on projects that are doing well. So for example, our Shanghai IFC Mall, which is our flagship in Shanghai, we have strong demand from existing and also new luxury tenants to either expand the existing stores or to open new flagship stores. And so management has already decided to proceed with a plan to convert some of the hotel space into retail area starting this year. And so we believe that, that will give us another uptake in terms of the retail sales in our portfolio. And I think -- going forward, I think we'll continue to build strong ties with the tenants, and we'll also make use of VIP programs in Mainland China to stay competitive. And then for also -- and for rental reversion, we saw a mild positive rental reversion last year despite the headline numbers on sales. And I think we expect that to continue in 2025.

Maureen will add there...

And for us, we have been in Shanghai for over 20 years. We've got a very good support and strategic partnership relationship with all the important partners like the [ Evergreen ] group, all the big group. We talk to the Paris headquarters and make sure that we can adjust all our mix according to the global trend. As you know that all the global luxury retail disrupted. But in China, we are very confident that we have the upper hand to make sure that the sales be happening more. You can see the support in our Nanjing IFC mall just open and it's almost fully and also the sales are picking up very fast. So despite the market, we are seeing many challenges ahead, we do believe that we will work hand-in-hand with them to create good ambience to ensure that the VIC people come to our mall to spend -- to build up the relationship and improve their stickiness. So we are now doing the ITC Maison also and the response is encouraging. So it takes time for us to make sure that our hardware can cater the future of consumption in China and also global business. As many our Chinese people do go overseas, they have some expectation on how -- why they spend locally in China. And also we cope with the government policy to make sure that we are in the right direction before we hand over all apartments to them. So thank you.

On the other 3 questions, on the risk management side, I think we are selling our apartments well in Hong Kong and on the Mainland. And also, we have a very sizable recurring and stable recurring income and our gearing is coming down. It is about 17% to 18% loan to equity. And now we are able to maintain the S&P, the high rating. So therefore, I think we are very comfortable. And in fact, we have a lot of undrawn bank lines. Therefore, we are very comfortable. On your point about dividend policy, I think we have said that the dividend policy would be -- we'll be paying 40% to 50% of the earnings per share. And I think we are going to maintain that policy. In fact, last -- I think 2023, 2024, right, we were almost the first one to cut the dividend, yes. So anyway, I think we're going to maintain the dividend policy for -- to pay 40% to 50% of the earnings per share. On the cap rate expansion, I think it's unlikely now because I think interest rates are gradually coming down. For the U.S., 10-year treasury has now gone down to 4.2%. On the Mainland, the interest rate is very low now. So I think it's unlikely that the cap rate will be further expanding, yes.

So could I have the third question? I'll go to the gentleman in the second row, please.

This is Mark Leung from UBS. I have 3 questions regarding on Hong Kong retail office and gearing. For Hong Kong retail first, could management share about our outlook for 2025? What's the tenant sales year-to-date? What's reversion we achieved, rent to sales ratio and our strategy to drive our tenant sales and rental income? I think that's the first question. And then the second question is regarding on the Hong Kong office. Same as retail, could management share about the outlook, reversion trend as well? And specifically for IGC, besides from UBS, could management share about the latest pre-leasing situation, our tenant mix target and strategy for the IGC leasing? Last but not least is on the gearing side. What's the management outlook for the net gearing and also the funding costs?

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