Swire Properties Limited (1972) Earnings Call Transcript & Summary

Hope you all enjoyed the video. May I now invite Tim and Fanny to walk us through the presentation. Tim, please.

Great. Thank you very much. Good afternoon, everyone. Thank you for joining us here today. A very welcome to -- a very warm welcome to Swire Properties 2024 Interim Results Briefing. As usual, I'll take you through the results highlights, our strategy and key developments as well as the portfolio updates. And Fanny will cover the financial highlights, ESG and the latest updates on our digital transformation journey. And then I'll close with some brief comments on the outlook for the remainder of the year. So our performance in the first half was steady despite the increasing headwinds. We reported an underlying profit of HKD 3.9 billion, down 1% relative to the first half in 2023. This mainly reflects higher net finance charges and lower office rental income in Hong Kong, which is offset by higher disposal gains from the sale of residential car parks in Taikoo Shing. The recurring underlying profit was down 8%, which mainly reflects lower office rental from Hong Kong, and that's partly due to the loss of revenue arising from the disposal of the 9 floors in One Island East last year. The strong balance sheet and healthy gearing ratio, the business is on a solid financial footing and we're well placed to achieve our long-term growth targets, thanks to an active capital recycling strategy, diverse development pipeline and value-accretive asset reinforcement opportunities combined with portfolio upgrade opportunities in Hong Kong and across Chinese Mainland. We remain committed to delivering sustainable growth in dividends and to paying out approximately 50% of our underlying profit and ordinary dividends over time. And our goal is to deliver mid-single-digit annual growth in dividends. The Board has approved a first interim dividend of $0.34 per share, representing an increase of 3% year-on-year. And I'm pleased to announce, the company has also announced a share buyback program of up to HKD 1.5 billion until May in 2025 to enhance shareholder returns. Fanny will talk a bit more about that in a minute. So in terms of our development pipeline, there were several key milestones achieved in the first half of this year. In February, we received the occupation permit for Six Pacific Place, the latest addition to our flagship mixed-use development in Admiralty. And in June, we acquired 50% of the retail portion of a mixed-use development along the Pearl River in Guangzhou. In August, we acquired an additional 15% equity interest in INDIGO Phase Two in Beijing, together with our new strategic partner, China Life. And last week, we successfully bid via public auction for a building called 387 Tianhe Road, which will be an extension of Taikoo Hui, a luxury mall in Guangzhou. In terms of divestments, we've now completed the latest program to divest of our car parking spaces in Taikoo Shing. I think this chart you'll all be familiar with from recent -- from previous briefings. It's a summary of our $100 billion investment plan to drive our long-term growth. The slide includes a breakdown of the allocation of capital by project and across our 3 key markets. I'd say we've continued to make good progress since the year-end with approximately 65% now committed. In fact, with the additional equity interest in INDIGO Phase Two, that's now slightly higher, 67%. And this -- the increase since the year-end is primarily as a result of 2 new investments in Guangzhou. At the bottom of the chart, we've also added a box to summarize our strategic priorities in each market. In terms of upcoming projects, we're focused on maintaining a balanced portfolio with a strong and diverse pipeline across all core markets. And the chart illustrates the project completion schedule for new projects over the next 5 years. Notably, in addition to the continuation of our retail-led strategy in the Chinese Mainland, we do have a strong pipeline of residential projects -- residential trading projects, in all markets, including Shanghai. The next 2 slides I'll briefly introduce the 2 new projects I mentioned in Guangzhou. Firstly, together with our partner, Pearl River Enterprises Group, we've invested in the retail portion of a mixed-use development in Bai'etan located at the center of the Guangzhou-Foshan metropolis circle. It's called the Julong Wan project and it's located in a prime front line location along the Pearl River and will be developed as our next Taikoo Li-style retail mall, and the project will open in phases starting from late 2025. The second acquisition is 387 Tianhe Road, which is immediately adjacent and connected to our flagship luxury mall in Taikoo Hui in Guangzhou. The building, as I mentioned, was acquired at auction, and this will provide a valuable expansion space to meet pent-up demand from the brands. The fit-out and conversion will start before the end of this year and is due to open in early 2026. Okay. So moving on to our investment portfolio, Hong Kong office. So the recovery of the office market in Hong Kong has been slower than expected in the wake of the pandemic due to oversupply and weak demand. Nevertheless, our portfolio has achieved an overall occupancy of 93%. And thanks to our commitment to place-making and our ESG credentials, we've consistently outperformed relevant submarkets. Occupancy at Pacific Place is slightly reduced at 97% while in Taikoo Place occupancy at One Island East and One Taikoo Place has increased to 94%. Occupancy across the other Taikoo Place towers has also increased to 92%. And occupancy as our newest completed Grade-A office, Two Taikoo Place, has now increased to 67% and this is encouraging given the subdued market conditions. Negative rental reversions reflect the prevailing environment. But disregarding the revenue loss from the disposal of 9 floors at One Island East, the attributable gross rental income was down 4%. The attributable valuation of the office portfolio declined by 1%. On the retail front, despite the macroeconomic uncertainties, the retail portfolio in Hong Kong has been almost fully let over the last 6 months. Occupancy at Pacific Place has increased from 96% to 100% and Cityplaza and Citygate Outlets have remained fully leased at 100%. First half year-on-year retail sales growth was down across the 3 malls reflecting weaker market sentiment and changing consumer behavior, combined with ongoing tenant upgrading activity at Pacific Place. Attributable gross rental income was down 3% year-on-year and the attributable valuation for the overall Retail portfolio was flat. The latest phase in the transformation of Taikoo Place into a global business district has been completed with the reopening of the elevated walkway system connecting all the Grade-A office towers. And 2 new green spaces, Taikoo Garden and Taikoo Square, have also been open to promote urban biodiversity together with new alfresco dining concepts and a paddle tennis court, which has been very positively received by the office community and by local residents. The highlighted areas mark our future office expansion opportunities. However, reflecting market conditions, we will be pacing the development of new stock to match anticipated future demand. Overall, we remain optimistic about the future -- the long-term future at Taikoo Place as a global business district in Hong Kong and within the Greater Bay Area. So in the Chinese Mainland portfolio, over the past decade, we've seen a sustained growth of our portfolio, which now contributes 41% of our attributable gross rental income. And over the long term, we anticipate a balanced contribution between our Chinese Mainland and our Hong Kong portfolios. So with 6 new projects underway in the Chinese Mainland, our 6 existing malls are also well positioned to increase market share. As you can see from this slide, we are working on significant asset reinforcement and trade mix upgrading opportunities at each one of our malls in the Chinese Mainland. So in the Chinese Mainland, retail sales growth has normalized, having achieved record high growth in the first half of 2023. This is due to several factors, including the high baseline set during the post-pandemic spending boom, an increase in outbound travel and renovation and reconfiguration-related disruptions for tenant mix enhancements at our malls in Shanghai, Beijing and Chengdu, which have negatively impacted opening rates. While overall sales in our malls declined by 7%, footfall has remained steady, and sales remained significantly higher than pre-pandemic levels in 2019. Attributable gross rental income was up 5% in renminbi terms, while occupancy rates remained high across the portfolio. The attributable valuation increased by 1%. On the office front and the Chinese Mainland, our portfolio was stable in the 3 core markets in Guangzhou, Shanghai and in Beijing. So looking ahead at our pipeline in the Chinese Mainland. We're expanding our retail footprint, as you're aware, GFA almost doubling over the next 5 years, thanks to asset reinforcement opportunities for our existing malls and the strong pipeline of new projects in prime locations in Tier 1 cities and emerging Tier 1 cities. Further afield in Miami, our mall has performed well year-to-date. Retail sales are up 4% year-on-year and occupancy is at 100%, reflecting improvements to the retail trade mix at Brickell City Centre. On the residential front, turning to the resi portfolio. We're building, as I mentioned, a balanced portfolio, increasingly diverse pipeline across key markets in Hong Kong, Southeast Asia and the Chinese Mainland with phased completions over the next 5 years and beyond. At the year-end briefing, I mentioned we've been encouraged by the presales performance at our New Bund project in Pudong. Presales have now reached 96% by units or 88% by salable area with a slight improvement in pricing in the second batch. And we recently announced the naming of the Yangjing Riverside project in Pudong as Lujiazui Taikoo Yuan. We plan to launch the presales in the fourth quarter of this year, subject to the relevant government approvals. Prospects in Southeast Asia remained positive, and we continued to explore opportunities in the 4 selected markets in Jakarta, Bangkok, Singapore and in Ho Chi Minh. Okay. So on the hotel front, I think the recovery in Hong Kong has certainly been slower than expected and disappointing first half, but the performance of our hotels in the Chinese Mainland has been steady. In addition to the hotel Collective's existing plans for new hotels in Tokyo, Shenzhen and in Xi’'an, Swire Hotels has launched an ambitious rebranding campaign for EAST premium lifestyle brand, and are in discussions with several developers to expand the network under hotel management agreements across the region. So at this point, I'll hand over to Fanny to take us through the financial highlights and the latest updates on ESG and digital.

Thank you, Tim. In the first half of 2024, our company has demonstrated resilience amidst challenging market conditions. Underlying profit saw a slight decrease of 1% to $3.857 billion, primarily due to increased net finance charges and a reduction in the office rental income, which was partly mitigated by the increase in profit from the sale of car parking spaces in Hong Kong. Our recurring underlying profit from property investment decreased reflecting lower office rental income from Hong Kong, which was partly due to the loss of revenue arising from the disposal of 9 floors of One Island East in 2023. Property trading incurred a small loss because of the sales and marketing expenses for several new residential trading projects. Our investment properties portfolio has shown a mixed performance in the first half of 2024. Total attributable gross rental income, GRI, reported a 3% decrease compared to the first half of 2023 at HKD 7.484 billion. GRI for Hong Kong office decreased by 7%. Excluding the impact of the loss of rental income arising from the disposal of 9 floors of One Island East, the reduction in GRI was 4%. It remained resilient due to the high sustainability standards of our office portfolio. GRI for Hong Kong retail decreased by 3%, affected by the outbound travel and the change of tourist spending behavior. GRI for Chinese Mainland retail increased by 5% in RMB terms as a result of the improvement to tenant mix and contributions from additional interest in Taikoo Li Chengdu, partly offset by lower turnover rent. Our Chinese Mainland office portfolio had steady performance with 4% increase in GRI in RMB terms. We are pleased to announce that the first interim dividend for 2024 is $0.34 per share, a 3% increase from the first interim of 2023. This increment is a testament to our solid track record in dividend growth. And in addition, Tim also mentioned about the Board has approved a share buyback program of up to $1.5 billion, which will run through to the conclusion of the next AGM to be held in May 2025. The valuation of our investment properties as of June 2024 stand at $280.228 billion, remaining flat compared to December 2023. A few key highlights here. There were net fair value losses of $842 million, primarily from office investment properties in Hong Kong, partly offset by fair value gains from investment properties in the Chinese Mainland and the U.S.A. There was no change in the capitalization rate for our core retail and office properties in Hong Kong, but there was a reduction of 25 basis points in the capitalization rate for certain retail investment properties in the Chinese Mainland. Net additions mainly reflected CapEx for Six Pacific Place and Taikoo Li Xi’'an. Our net debt as of June 2024 has increased slightly to $37.796 billion with a gearing ratio of 13.3%. This increase is within our healthy balance sheet parameters and supports our strategic investment plans. Our financial ratios remained robust, ensuring a strong foundation for future growth. We will continue with our capital recycling strategy to dispose noncore assets. So far, $51 billion has been generated to substantially fund our capital commitment under the $100 billion investment plan. Total committed undrawn facility and cash were maintained high at $18 billion. We have sufficient liquidity headroom to support our operational and investment requirement. We continued to increase our RMB funding proportion. And at the end of June 2024, 1/3 of our credit facilities were in RMB, providing effective hedging to our investment in the Chinese Mainland and lower funding cost. Credit rating remained unchanged at A2 under Moody's and A under Fitch. Green financing ratio increased to more than 60%, above our 2025 target of 50%. As we continue to invest in our future, our capital commitments as of June 2024 amount to $28.854 billion. These commitments are strategically spread over the coming years with a focus on key developments in Hong Kong and the Chinese Mainland. So let's move on to sustainability for which we have continued to make significant progress in this year. In July, we were included in the S&P Sustainability Yearbook (China) and the only real estate management and development company to make the top 1% S&P Global ESG Score China for the second consecutive year. And in June, we began to join the United Nations Global Compact and commit to its principles in the areas of human rights, labor, environment and anticorruption. We are also delighted to share that Taikoo Place is the first and the only community to obtain the LEED Communities certification Gold rating in Hong Kong. Additionally, Two Taikoo Place also received the ULI Asia Pacific Awards for Excellency. These recognitions are a testament to our strong commitment to integrate sustainability into every aspect of our operation from design to construction and property management. In our Chinese Mainland portfolio, Taikoo Hui, Guangzhou Tower 2, occupied by HSBC, is the first mixed-use office building project in the Chinese Mainland to receive both the LEED Zero Carbon and LEED Zero Energy certification. On environment, currently, 64% of our Chinese Mainland portfolio is already 100% powered by offsite renewable electricity, full power purchase agreements, achieving net zero carbon in its annual electricity consumption for both tenants and landlord operations. Building on the success of the innovative application of PEDF at Taikoo Li Sanlitun, we have expanded the pilot in other portfolios, such as Taikoo Hui, Guangzhou, Pacific Place and Citygate in Hong Kong. The technology is estimated to bring about 10% carbon emission reduction compared to conventional power distribution system. We also continued to roll out and pilot innovative no-carbon technologies. For example, we introduced air-source heat pumps in Taikoo Li Sanlitun and install shallow- and deep-pile ground-source heat pump in Taikoo Li Xi'an, expect to fulfill 60% of the heating requirement during winter period. GPP has now achieved 50% sign-up from our Hong Kong and Chinese Mainland office tenants. Over the past year, our GPP tenants have delivered significant results in terms of energy and waste reduction. Some key highlights include a collective reduction in energy use intensity by 3.8%, over 200 tonnes of collected waste was diverted from landfills through reuse and recycling. The Annual GPP Forum was held recently to recognize outstanding tenants and sharing of best practices. The event attracted over 170 business executives from more than 60 tenants companies, industrial petitioners and partners. We also further enhanced our smart waste solutions at Taikoo Place and Pacific Place to improve circulation, including a newly launched smart reusable food box Program as an extension of the reusable cup. The Green Kitchen initiative continued to progress well, with over 110 F&B tenants participating across Hong Kong and the Chinese Mainland. As one of the 40 TNFD Taskforce members and an early adopter, Swire Properties has partnered with TNFD to officially launch its framework in Hong Kong. The launch event brought together over 150 participants to encourage corporates and financial institutions to assess, disclose and manage their native related risks and opportunities. With the launch of the Taikoo Square and Taikoo Garden in June, green open spaces now take up 70,000 square feet in size equivalent to 30% of the area in Taikoo Place and included a meticulous collection of over 260 native and exotic plant species to enhance the overall eco-nautical value of the area. Moving on to digital. For the first half of 2024, we have focused our digital investment in launching new solutions to empower our employees to improve and optimize processes as well as to enable data-informed decision making. I'd like to share with you a free initiative today. The first one is the rollout of our PMP mobile app, which provides a seamless solution to our portfolio teams in Hong Kong and the Chinese Mainland to assess management platform anytime, anywhere, introducing instant accurate data access and interactive capabilities. The second is the launch of the Retail 360, which is a mobile-responsive BI platform that consolidates all key metrics of our Hong Kong retail portfolio. The third one is the launch of the SiteWalk, which is a patrol management system that enables our Chinese Mainland malls to manage front-line personnel and operation more efficiently. More to come in the digital, and we will keep informing the investors there. With that, I pass it back to Tim on the outlook.

Okay. Thanks, Fanny. So this slide really is just a summary of what we've been presenting today, and I'll try and sort of cover the outlook as well. So I mean, the first half of 2024 presented several challenges due to the ongoing uncertainties and the geopolitical tensions affecting the global economy. However, despite increasing headwinds, our first half performance has demonstrated the resilience of the business and we believe we're well placed to meet future challenges, thanks to the strength of our balance sheet, the quality of our properties and the diversity of our growth pipeline. We remain committed to our long-term strategy of continuous investment in key markets to deliver sustainable dividend growth for our shareholders. Despite the subdued market conditions, our Hong Kong office portfolio has outperformed the market and maintained high occupancy rates, thanks to the quality and variety of our products, our successful place-making efforts and industry-leading ESG performance. And while we anticipate the market will remain subdued as corporate tenants continue to exercise caution given the uncertain economic landscape, we do expect a gradual recovery for premium office stock in the medium term when the IPO pipeline returns and as the Chinese Mainland economy recovers. Thanks to the differentiated positioning, our 3 malls in Hong Kong have demonstrated resilience despite weaker sentiment and changes in travel and consumer behavior due to regional currency and related factors. But we are continuing to upgrade our trade mix, investing in customer-focused campaigns, loyalty programs and premium lounges to improve the overall experience for local shoppers and for tourists alike. On the residential front, market sentiment in Hong Kong has improved following the relaxation of cooling measures. However, due to the ongoing economic uncertainties and high interest rate environment, the market does remain soft and confidence will take time to return. But looking ahead, we expect demand to be resilient supported by anticipated interest rate adjustments later this year. In the Chinese Mainland, we anticipate a period of stabilization, what we refer to as normalization of the retail market, in the near term. We anticipate steady growth for our retail portfolios in the Chinese Mainland. Given the high vacancy rates, however, we expect the office sector to remain more subdued. There's currently no change to our approach to expanding our interest in Southeast Asia on an opportunistic basis. So as travel activity continues to recover, we anticipate the outlook for our hotel business will improve, but our focus will be on developing new opportunities for both brands under our third-party management strategy. So in summary, we have a balanced and diversified portfolio with strong fundamentals supported by active asset management and transformative place-making strategy. We continue to make steady progress with 65% of our HKD 100 billion investment plan now committed to building a strong pipeline to meet our goal to deliver sustainable annual dividend growth. Thank you very much.

Thank you, Tim and Fanny, for the detailed presentation. We'll now open the floor to questions. [Operator Instructions] Gentleman in the front?

This is Karl Chan from JPMorgan. So from my side, I have 2 questions. The first question is obviously about the buyback program, which is definitely a pleasant surprise to investors. So just wondering if you can share a bit more on the background of this buyback program as in what is the motive and how are we going to finance it? And for the $1.5 billion scale, is it going to expand -- is it possible expand in the future? So that's my first question on the buyback program. And the second question is about the Chinese Mainland retail because recently, I think, people get more bearish on the retail sales in Mainland China, especially the luxury retail sales. So a lot of luxury retail brands are also commenting that the tenant sales -- or the retail sales in Mainland China is weakening. So what is our thought on this? And in terms of the competitive landscape, recently, we saw more shopping malls offering aggressive rebates, right? So say, for example, in Chengdu, we see SKP offering rebates aggressively. We also see similar things in Wuhan. And then for some of our competitors, they are actually following this trend. So what are we going to do in Mainland China to compete with these other luxury shopping malls? And finally, in terms of the rental reversion in Mainland China, do you think that we can -- it can still stay positive in the next 6 to 12 months?

Thanks, Karl. Fanny, do you want to take the share buyback? And then I'll have a go at the second one.

Okay. All right. Karl, thank you for your question. Well, first of all, what is our motive? I think we spoke about in the past that share buyback has constantly been evaluated in our review of capital allocation. Considering the current level of discount to net asset value that our share is now trading and also in consideration of the fact that a very substantial part of our critical investment, over $100 billion plan has been completed -- or secured. Tim mentioned about of the $100 billion, 65% is secured. And we still have a very strong balance sheet. With a balance sheet and gearing of 13.3%, we believe that this is to the best interest of the company and to the best interest of the shareholder that we set aside some fund of our capital to enhance the shareholders' return by doing the share buyback and the share buyback is on top of our progressive dividend. So I think that's the reason for doing this. And it also demonstrates the company's confidence into our long-term prospect and also confidence in our financial strength. Whether the fund is coming from, I think $1.5 billion is a level which we take into consideration our capability of funding. With our 13.3% gearing, I think this particular level you can calculate at your own, it's not going to have a material impact to our gearing ratio. And also the third part of your question is, will this particular program be extended? The program -- now the Board approved that we run through to the conclusion of the next Annual General Meeting in May 2025. I think this is still early to say whether we are going to extend or not. But for the time being, this program, we're still subject to the grant of the waiver by the Hong Kong Stock Exchange, which will enable the stock exchange -- which will enable the share buyback program to be conducted even through the restricted period. Restricted period, meaning the blackout period before the announcement of our 2024 financial results and also any period where the company possesses undisclosed inside information. So I hope you understand all these then.

Karl, your second question on Chinese Mainland retail sales. I think -- as I said, our retail sales in the Chinese Mainland for the first half of this year were down 7%, but that's cycling on a record year in the first half of 2023 as we came out of that pandemic period. And you see in the slide we also referred back to 2019 as a pre-pandemic period, our retail sales are 69% ahead of where they were in 2019. So that reflects the repositioning and the trade mix upgrades that we've been working hard on. I think also it's kind of worth noting that the performance in the first half of this year has been during a period when we've been going through a lot of reconfiguration and introducing new stores -- over 120 new stores across our malls in the Chinese Mainland. And to reflect on that, our opening rates in Taikoo Li Sanlitun and in HKRI Taikoo Hui in Shanghai are approximately 70%. And in Chengdu, we've been working on a lot of trade mix upgrading as well. The opening rate is 84%. So we believe there's, again, more headroom as these new stores come -- open up. In terms of what our competitors are doing, I can't really comment on that. I was reading with interest what's happening in Wuhan, I imagine that won't carry on for much longer. I think the brands obviously will have some say in that. But what I would say, I think that we've developed 2 very strong retail brands in the Chinese Mainland, both Taikoo Li and Taikoo Hui are very well established in the cities that we are focused in. And as you can see, we're investing in what we call asset reinforcement. So improving those existing malls, leveraging on the success of those malls to enable the brands to access those same customers. We will continue to focus on experiential retail as well, so not just luxury, but good F&B, events and promotions and lots of other things that attract customers to our malls. And we've certainly seen in the first half of this year, we've seen a growth in -- positive growth in footfall across all our malls in the Chinese Mainland. We're upgrading other services, VIC lounges. We're spending a lot of time and investment on improving our CRMs and the interrelationship between our malls, for example, Taikoo Hui and Pacific Place. As far as rental reversions are concerned, we still believe that we will see positive rental reversions for our retail malls in the Chinese Mainland. And we're working very closely with our brand partners, not only on our existing malls, but also on a brand-led strategy for our new malls in the Chinese Mainland.

Thank you, Tim and Fanny. Turning to the next question, gentleman there, front row. Thank you.

This is Mark Leung from UBS. So first of all, congratulations on the fantastic results. And I have, first of all, I suppose a follow up question is on the Mainland retail. So because when I read on your slides, you mentioned actually our Taikoo Hui Sanlitun (sic) [ Taikoo Li Sanlitun ] Beijing and Chengdu Taikoo Li, existing project has successfully expanding luxury content. Could you let us know what kind of actual brands has [indiscernible] into which malls? I think that will give confidence on investors on our future pipeline as well. And also on maybe Sanya and Xi'an, do -- would you describe we have also successfully secured luxury tenants into these 2 malls? And final one, I think it's on the dividend side. It's really a pleasure to see we continue to commit a single-digit EPS growth despite the challenging environment. But we understand we got 2 dividend policy in here. Number one is about 50% of the long-term underlying profit payout ratio. And secondly is on the target to deliver a mid-single-digit EPS growth. So from time to time, how do you evaluate these two EPS policy when it's somehow the fundamental trend is diverse?

Okay. Fanny, do you want to cover the second question first, yes?

Okay. I think on dividend -- Mark, first of all, thank you for your question. Our dividend policy is to pay approximately 50% of our underlying profit over time. But if you look back to our dividend payout history, we on and off will pay more than 50%. So this 50% is approximately 50% guideline that the Board approved. And the reason why we want to set a target of mid-single-digit dividend growth is the fact that with the $100 billion plan, we are confident that the long-term future profitability growth will be driven by these earnings from the new projects, completion of the new project pipeline and also Tim mentioned about existing projects also were undergoing some trade mix upgrade as well. So with all these -- and in addition, previously, I also mentioned about the trading property portfolios, which we're also expanding. We are confident that all these will provide the company with a long-term sustainability growth in the recurring underlying profit. That's why I think we are quite, well, keen to set a target that we can provide investors with a clear visibility where our dividend and our underlying profit will go there. So I think, well, this is not so-called contradicting to two directions. And we are working hard, and the payout ratio can sometimes be higher than 50%.

On the second question, I'll try and cover it briefly. But you mentioned Taikoo Li Sanlitun, HKRI Taikoo Hui and in Chengdu. I think probably the easiest answer to your question is [ on your next ] in Sanlitun go and have a look because the holdings are up. And you can see very clearly which brands are committing to the repositioning of Taikoo Li Sanlitun North. They're very prominent holdings from the LVMH group, you see an LV and Dior, but also we had good support from the other luxury groups as well. Similarly, in HKRI Taikoo Hui, you'll see similar brands -- you can see some of those brands have already taken space in Jing'an, which is immediately adjacent to HKRI mall as we reposition that whole center. And in Chengdu, some of the brands have opened, I think Tiffany and Louis have opened new stores recently, which received a lot of publicity. So you can see the quality of the trade mix upgrade. And then I think equally importantly, for new -- if your question is on new projects, on new malls that we are developing in the Chinese Mainland, as I mentioned, it's a brand-led strategy. So we're working very closely with the brands on our plans for expansion in the two that you mentioned, in Sanya and Xi'an, two very, very special sites for different reasons, but also in Julong Wan. And what I would say is the brands have been working with us on selecting locations, on designs because one of the things that we have the opportunity to do with the Taikoo Li format is actually work with the brands on designing the maisons and the flagship stores that they want to open in the future, which is why we have so much confidence in the positioning of these new projects.

Thanks, Tim and Fanny. In the interest of time, we'll take the last two questions. First, gentleman over here.

Karl Choi from Bank of America. A couple of questions. First, I want to go back to the $100 billion investment plan. I think when you made the investment, the macro environment was quite different. Now it appears to be a lot more challenging, and obviously, you've got the buyback program in place as well. There are some investors that are concerned about the big CapEx pipeline coming up. And just wondering whether you -- what will you say to those investors about how much buffer you have built in, in terms of safety if the macro conditions continue to deteriorate or interest rate environment, who knows, may be coming down, but long term could be a bit higher. Would you actually pace any further investments a little bit slower just to again keep the buffer? And second is a -- question is regarding the buyback. We asked the same question to the parent. But I wonder if you had any discussion with the parent regarding any potential distribution in specie for the 82% stake to make sure the free float trading liquidity will stay strong after the buyback?

Okay. Karl, thank you. For the $100 billion plan, I think your question on whether we will change our direction given the more challenging environment, to us, the current environment is cyclical rather than structural. So we have gone through quite a lot of cyclical changes in our history. So we are not too concerned about the current short -- near-term downturn and we are confident in our long-term prospect of the business. That's why we put through the $100 billion plan and also the share buyback. Regarding your question as to whether we built buffer into, on and off in our financial model, in our analysis, we also have a stress test on various things. So we do have that sort of discipline in order to make sure that we do have financial resources to weather the bad weather in case. And your question about the distribution in specie by Swire Pac, I think you can leave that question to Swire Pac's session later on then.

Thank you, Fanny. Last question, lady in the front?

This is Cindy from Citi. I have 2 questions. One -- first question I want to get to the Hong Kong office side. So obviously, the challenges has been ongoing for a while. But do you see that in the medium term, when would be a sustainable level of the spot rent? And when would you see like the office market tend to stabilize and potentially like recover based on what catalyst? The second question, I want to go back to Mainland retail. So we noticed there is a slight cap rate reduction for certain existing Mainland malls. Would you mind sharing with us which subsequent malls are enjoying such a reduction? And this is because of, say, what positive changes or because of your tenant upgrade and if, say, that's because of tenant upgrade, will you consider doing a little bit more renovations in Mainland China to just boost up the valuation sort of, yes.

Okay. I'll take the first question, Fanny the second one on Chinese Mainland retail cap rates. I think Hong Kong office, as you say, this is -- since -- I guess since the reopening of the borders, we've been anticipating or there's been an expectation that there would be new demand in Hong Kong and that has not materialized yet. So I think the combination of factors, obviously increasing confidence in Hong Kong, demand from Mainland occupiers here in Hong Kong, a recovery or a resumption in the sort of IPO pipeline, all those factors obviously would have a positive impact on demand here in Hong Kong. At the moment, we're seeing record high occupancy -- vacancy rates here in Hong Kong, over 15%, and it's going to take some time for that to work through. But as I said earlier, I think what we're seeing is that within our portfolios in Pacific Place, based on the variety of products that we have, based on the ESG credentials and the quality of our products, we're outperforming submarkets in which we operate and we need to continue to demonstrate to tenants why Swire Properties is a landlord -- or preferred landlord for them to commit to. And I think there have been a few examples of that in the first half. We're very pleased to extend the lease -- the 10-year lease with Deloitte. I think that was a very strong commitment -- evidence of their confidence in Swire Properties.

On the cap rate, Cindy, the reduction of 25 basis points are in some retail properties. The reason for the reduction is because of the asset quality improve. You're right, for some assets, because of the trade mix upgrade that we did over the past few years, clearly the rental income -- the open market rent for that particular property increased quite a lot. So that's why the value, we believe that this is a fair reflection of the quality arising from the trade mix upgrade that we have done there.

Thank you, Tim and Fanny. And this concludes today's analyst briefing. Thank you so much for joining us.

Great. Thank you very much.

Thank you.