The Hongkong and Shanghai Hotels, Limited (45) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to The Hong Kong and Shanghai Hotels 2021 Annual Results Presentation Audio Webcast. Thank you for joining us. The result announcements were posted on the stock exchange website earlier this afternoon. Our presentation will begin by our senior management team, followed by the Q&A session. The slides will be displayed alongside the live audio throughout the presentation. You are invited to submit your questions at any time during the presentation by using the Q&A box on your screen. This will be read out during the Q&A session. Today, we are pleased to welcome the following speakers: Mr. Clement Kwok, Chief Executive Officer; Mr. Joseph Chong, Regional Vice President, Asia, The Peninsula Hotels and Managing Director, The Peninsula Hong Kong; Mr. Martyn Sawyer, Group Director of Properties. We would now like to invite our CEO, Mr. Clement Kwok, to begin the presentation.

Thanks, Aiden. Good afternoon, and welcome, everybody. Of course, me, you have met many times before, I've attended many analyst conferences with you, as has Martyn Sawyer. But I'm delighted to introduce Joseph Chong. Joe has been a very long-term Peninsula person and carries now large responsibilities for us, overseeing all of the Asian hotels as well as being in charge of The Peninsula Hong Kong. So Joe is here today as our senior hotelier. You might have noticed our COO, Peter Borer, is not here today. He's traveling. So Joe is representing him. And our CFO, Chris Ip, is also traveling, and I'm representing him. So I'm standing in and doing the finance section as well. So if we may start with the key messages. Clearly, all of you know that 2021, we were still nowhere near coming out of the woods in terms of the impact of COVID. Particularly, if you look at our home market of Hong Kong, then serious social distancing measures remained in place throughout the year. And in China, also, the social distancing measures were very strict there as well. I would say that our tourist arrivals in Hong Kong now have been affected for 2 years very badly by COVID. But even then the year before COVID, we had the social unrest, which affected our business as well. So it was a tough year, and we had to once again work very hard. However, we did see some recovery in some places in the U.S. where the COVID restrictions had been reduced to a large extent. We saw actually a stronger-than-expected recovery in our U.S. hotels. And in the Chinese Mainland, where domestic travel within China was allowed, we saw good recovery there as well. So if you take all of that into account, in the circumstances, we're quite satisfied to report a positive group EBITDA of HKD 394 million versus an EBITDA loss of HKD 61 million last year. So that was quite a large turnaround. In terms of our -- and maybe one thing I would mention straight away is that if you look at our group operating results, taking into account interest and capital expenditure, our regular capital expenditure on our existing assets, we were cash positive. And we'll show that again later. I think the number is about HKD 50 million or HKD 60 million, but I think that was quite a creditable result given the circumstances that we face to be cash positive in our operations. We continue to enhance our liquidity. We have reached more facilities. We have more than HKD 6 billion of liquidity available. So there's no question that even if we have some cash burn that we have plenty of funding cover. However, given the overall environment and the results, our Board felt it was prudent not to declare a final dividend. Now you'll all be aware that one of the reasons for preserving our cash is because we have significant commitments for our new hotel development projects. Now these new hotel development projects are extremely important for the future of our company with London and Istanbul, both being fabulous hotels that are being built in what we believe to be very strategic locations. We'll report more on those later, but those projects had been affected by COVID disruptions and also some other challenges as well. And I think you're all aware that given the situation in Myanmar, we have continued to temporarily stop work on The Peninsula Yangon, and that's been for the past year. Just a quick slide coming up to mention that I think many of you will have seen the announcement that our major shareholder, the Kadoorie family, they increased their shareholding by buying the shares of a minority shareholder, Solis Capital. And they've now increased their shareholding from 60% to around 72%. And that, of course, is a good reflection of the support that we get from this very strong and very long-term-looking major shareholder. So if we go on to a summary of our financial results, we're starting with this slide, which is a snapshot of all the things that we see in relation to our finances. And we've headlined this, resilience amidst uncertainty, which I think is quite a good balance and based on what I've been saying to you. So on the top line, you can see the summary. Revenue up 28%, EBITDA up 7x, 7x that's 700%. Our profit attributable to shareholders has improved by 94% and the net operating cash flow has turned around from the negative situation to the plus 69% that I've mentioned. If you look at the 5 columns, the first is headed recovery. And there, we saw a 42% year-on-year growth in hotel revenue. The majority of that growth coming from the U.S. and Greater China. And generally, we saw improvements in F&B across our hotels with an increase of more than 50%. The second column relates to our property rental portfolio. And there, we continue to see stable recurring income, although, of course, that business has been affected as well, especially in Hong Kong. Generally, we remain resilient and particularly our hotel shopping arcade have held up quite well. But at the Repulse Bay, we have suffered some decline, albeit at the Repulse Bay Complex, we still enjoy an occupancy of over 80%. The third column is projects, where, as mentioned, we have the Peak Tram project with the expansion of the Peak Tram, and we'll talk more about that. That will be opening later this year. And then the hotel projects in London and Istanbul, we'll talk a little bit more about, but that is certainly investing for the future. The liquidity we've mentioned that we have plenty of facilities in place, and our average interest rate remains favorable at 1.5%. And in terms of outlook, of course, you don't need me to tell you that the biggest variant on our business is the impact of COVID and what those results in travel restrictions and so on will be. And at the same time, we're seeking to manage our project cost overruns as well as we can. If we turn to the hotel slide. First of all, if you look at the upper left diagram, that is a breakdown of the increase in hotel revenues. And you can see that blue segment rooms increased as did the green segment, F&B and overall, as mentioned, 42% increase. That's despite bottom left-hand slide, several of the hotels were actually closed for extended periods as you can see in this slide. So we've had to suffer through a very difficult time with those closures. But in some cases, after the closures were over, we saw some good recoveries as well. Overall, our hotel consolidated EBITDA increased by HKD 510 million year-on-year. So that's a pretty good increase given the challenging environment that we continue to face. The next slide on rental income from our commercial properties. As mentioned, of course, you would expect this to be more stable than the hotel results. But nevertheless, these have come under pressure as well. If you look at the bars, you can see that green segment, which is commercial and arcade, that relates to the hotel shopping arcades. Now that has generally held up pretty well, but that reflects not only the market, but also -- well, that reflects the pressure from the market, but offset to some extent by enhancements that we've made in the Arcade, which have increased the attractiveness of our offering. And then if you look at the blue segment, the residential, you can see that's come down somewhat, although we're doing, I think, quite well to hold the occupancy at above 80% at the Repulse Bay. I think people, of course, are aware that the situation in Hong Kong at the moment is that you will not be seeing international arrivals into that rental market. And pretty much all of the business we're seeing will be local movements of people moving from one place to another. Clubs and Services, we do see revenue growth there, 47%. And the main drivers of that were the merchandising business, and we'll talk more about that later. Of course, that includes our famous mooncakes. And also from Quail Lodge, where our motoring event, the Quail motorsports gathering, has become world-renowned and that offers us a good revenue opportunity as well. We'll mention the Peak Tram, Martyn, but I would say that basically, all of our Peak Tram revenue is currently nonexistent. There are no tourists coming to Hong Kong at the moment, and most of that business is tourist driven. Our revenue is more than 90% down on what would be a normal year before the Hong Kong protest started. So if you compare it to 2018, we're more than 90% down. So that's bad. But on the other hand, it does show that we have a lot of potential for revenue growth there, especially when we have the expanded trams when things return to normal. So if you take all of that into account, we've already mentioned the turnaround in EBITDA, and you can see that in our financial results. We have identified here a separate line of preopening and project expenses because this is to support the new hotel projects that we're undertaking. Of course, we're having to send people there for the project, for training, for standards, for making sure that the quality of the hotel is being built as expected and also building up our preopening team ready for the future operations. So we've separately identified that for people's information, but those expenses are being charged as part of our EBITDA. And you can then see there the HKD 394 million number that I mentioned before, you then have depreciation and net financing charges. Now you will then see further down below that there are 2 big swing items. One is the increase in fair value of the investment properties. There's largely a revaluation of the Repulse Bay. And the percentage revaluation is in line with market. And you can also see that we've made a provision for the impairment loss of Peninsula Yangon. Now making an impairment provision doesn't mean we're giving up on the project. It is temporarily suspended, but we put a lot of effort into this project. It's about 70% built, and we put a material investment into it already. So therefore, we'll continue to watch the circumstances to see what can be done, whether the project can be resumed and how we can still obtain value from the investment that we have made. So if you add all of that together, you have the loss attributable to shareholders of HKD 120 million, of course, a lot better than the year before. And the underlying loss, which is taking out the revaluation gain and the impairment loss of Yangon, that's minus HKD 255 million. I think one of the things to mention is we have controlled our cost pretty well. Despite our revenue increasing 28%, our total operating cost for the group only increased by 10%. The next page, I think it's fairly easy to understand. We start by looking at our operational cash flows. And you can see after some adjustments for working capital and inclusive of the capital expenditure on our existing assets and interest, as I mentioned, the operating cash inflow was HKD 69 million. Actually, in my introduction, I didn't have the number in front of me. I said it was HKD 50 million or HKD 60 million, and is actually HKD 69 million. And as compared to that, it was a large negative number a year ago. If you look further below that, then you can see where we're spending the money, capital expenditure on new projects. By far, the largest part of that is London, and there's some Istanbul there as well, and then the Peak Tram project, you can see the expenses there as well. So essentially, all of our cash outflow is for future investment in our new projects. The next one, capital structure and balance sheet. Of course, our gearing has gone up as compared to what we have seen for many years where we were very lowly geared. Our net debt is now HKD 12.9 billion as compared to shareholders' equity of HKD 36.7 billion. We're watching the interest covers very carefully as well. And as mentioned earlier, we've got plenty of financing cover. On the left-hand side of this chart, if you look at the credit metrics, our average gross interest rate was 1.5%. Our net debt to total assets was 23%, and our fixed to floating interest rate ratio was 59%. If you look on the right-hand side, we have been active in the financial markets. We've arranged HKD 1.6 billion of financing. We've done some green loans and we have added -- sorry, HKD 1.6 billion of refinancing and HKD 2 billion of additional new facilities. So our financial position has plenty of buffer to it. I think comfortable is not the right word to use because the market has been so unfavorable. And in terms of our operating results, of course, we wish they were a lot better. But given the circumstances, I believe that our financing cover is very comfortable. So with that, I will hand over to Joe to talk about hotels and then Martyn to talk about properties.

Okay. Thank you very much, Clement. In our home city of Hong Kong, the hospitality market continued to be negatively affected by the stringent travel restrictions, border closure and social distancing measures, which have been in place for the last 2 years. To drive business, we developed a number of innovative station packages to offer unique experiences for local residents. We also collaborated with various luxury brands, including Aston Martin, Louis Vuitton, Chanel, in the lobby to encourage guests to visit. On the other hand, food and beverage revenue also improved compared to last year but continue to be restricted by social distancing measures imposed by the Hong Kong government, which led to restricted dining hours and cancellation of many large functions and events. Overall, the hotel posted a 52% increase in RevPAR driven by occupancy pickup and supported by food and beverage, more stable commercial and office leasing revenues and the overall revenue was up by 21%. The Peninsula Office Tower was 97% occupied in 2021, and the immediate outlook is stable. The Peninsula Arcade was 84% occupied and we are very delighted that Channel, one of our luxury anchor tenants, expanded the space. In addition to that, The Peninsula Arcade renovation was completed in 2021, created a high-end lifestyle retail area focused on the domestic market, which includes an Italian gourmet deli, a sushi bar, a men's grooming salon and a high-end audio equipment store. The new and expanded Peninsula Boutique and Cafe was opened in May 2021 and has received substantial positive media coverage. Moving across the border to China, The Peninsula Shanghai reported pleasing results during 2021. Despite an uncertain situation at the start of the year with occasional minor COVID-19 outbreaks, business levels rebounded rapidly. The hotel remains the market leader in average room rates and RevPAR in the year and occupancy and revenue improved significantly. Demand was robust for the large-scale events, weddings, banquets and group business, which helped drive catering revenue from Q2 onwards. The hotel also successfully attracted a younger demographic through the innovative social media campaigns, and the Arcade was 94% occupied. Moving further north to the capital city. The Peninsula Beijing had a stable year with satisfactory increase in revenue and room rates, although the hotel reported a slight drop in occupancy. International tourist arrivals remain restricted during 2021 and domestic market remains our focus, with some high-level diplomatic business. Food and beverage performed well, and we were delighted to receive a Michelin star for our French dining restaurant Jing. The hotel's rooftop bar, Yun Summer Lounge, reopened in summer 2021 and performed well to increasing popularity of open-air dining experiences. The Peninsula Arcade was 93% occupied. And in addition to some anchor tenants expanding their retail space, we opened a new luxury lifestyle living space in a basement in late summer 2021, occupying approximately 3,000 square meters. Moving across the waters to Japan. The Peninsula Tokyo was negatively impacted by state of emergency restrictions for Tokyo, which were in place for the majority of the year. In June, the Japanese government announced that spectators would be banned from the Tokyo Olympics, which was disappointing for anticipated tourist arrivals in Japan and significant international Olympic group business. All dining outlets remained open during the year but were negatively affected by government restrictions on dining hours and alcohol, but we are pleased to welcome several new tenants to the Peninsula Arcade in 2021 with increased rental contribution. Heading south to warmer locations, The Peninsula Bangkok started the year reasonably well. Unfortunately, with the rapid increase in COVID cases in Thailand, the hotel was closed from April until reopening in November 2021. Following the success of Phuket sandbox model, at the end of October, the test and go arrangement for tourists was announced. We experienced a strong November and December with improved revenue and rate, and we hope to welcome more international guests this year in 2022. The Peninsula Manila experienced a very challenging year due to stringent government restrictions, which remain in effect until May 2021. The hotel operated with minimal services and was unable to welcome guests to the majority of F&B outlets or the spa due to the restrictions. From July, quarantine packages in Ayala Tower attracted high-end business travelers and diplomatic guests who are required to undergo 7 to 10 days of quarantine upon returning to the Philippines. The Makati tower, however, continued to be available for local staycation guests. Moving across to the U.S., The Peninsula New York reopened in June 2021 after a prolonged temporary closure from March 2020. The hotel received substantial positive media coverage about its reopening, and business has been satisfactory in the second half driven by diplomatic group's transient, entertainment and group business. Large deployment events and New York Fashion Week returned to the city in the second half following cancellations during the pandemic. Stringent vaccination requirements across the city had a positive impact for food and beverage outlets, particularly for catering. Overall, Complex revenue almost doubled in 2021. Whilst, in Chicago had a very positive year overall with strong increases in both revenue, occupancy and average rate. Travel restrictions were fully lifted by the summer, and the City of Chicago rebounded strongly with a few large-scale concerts, corporate groups and smaller conventions and art exhibitions being held in the city, driving hotel occupancy. With strong demand for suites and group business, we achieved some of the highest rates in the history of the hotel, coinciding with its 20th anniversary in 2021 with special anniversary packages and special menus. The full year revenue increased substantially by 170%. Moving to the West Coast. The Peninsula Beverly Hills experienced a very positive 2021 overall with significant revenue increase year-on-year despite a slow start due to the shelter in place restrictions for the first few months. The majority of our business was domestic, although we were pleased to welcome international guests in the second half as travel restrictions eased, particularly from the Middle East market. The Hollywood awards season was held virtually this year, which affected our business, but we are pleased that business levels exceeded expectations in the second half and continue to improve with the easing of local restrictions and increased vaccinations. Full year revenue increased by 134%. Moving across to Europe. The Peninsula Paris reopened on 1st March 2021 for business and has gradually expanded the services with the relaxation of government restrictions. Alfresco dining venues as at La Terrasse Kleber and L'Oiseau Blanc have been particularly popular with Parisians keen to celebrate events which had been postponed during the pandemic. International guests began to return to Paris from June onwards, mainly from the Middle East and the U.S., which helped drive suite business. I shall now hand over to Martyn to discuss our commercial properties and Clubs and Services division.

Thank you, Joseph. Good afternoon, everyone. We'll start with Repulse Bay. The Repulse Bay Complex, as Clement has already mentioned, experienced significantly weaker property climate compared to the previous year. Our residential revenue and occupancy declined due to the very challenging situation in Hong Kong and the lack of international arrivals and increasing departures affecting the luxury residential market. The Hong Kong government social distancing measures continue to affect all our F&B outlets. And while catering revenue improved compared to the previous year, it still remains weak due to the restrictions on large functions and events. We are undertaking a strategic review of the shopping Arcade in order to offer a refreshed experience to our customers. The shopping Arcade was almost fully occupied for the year. Up to The Peak, The Peak Tower experienced an extremely challenging year, significantly impacted by the lack of foreign visitors to Hong Kong and the ongoing upgrade project. Revenue and occupancy declined as we had to offer significant rental concessions due to the very difficult situation our tenants are facing. We have implemented a number of sales and marketing strategies to try and drive local business. St. John's building was 96% occupied in 2021 and revenue remained relatively stable. The landmark in Ho Chi Minh City, our office revenue and occupancy remained very stable despite the intense competition in the city. Residential revenue and occupancy declined due to the closed borders and very stringent restrictions and social distancing in Vietnam. The property next to our hotel in Paris, the 21 Avenue Kleber, its revenue increased by about 2% as the entire office space and both of the retail spaces remain fully leased. In our Clubs and Services division, the overall revenue of the Peak Tram decreased by 34% due to the significant reduction in tourist arrivals in Hong Kong and the second suspension. As Clement has said, this is still significantly below pre-COVID levels and approximately 90% below 2018 revenue. The upgrade project was negatively impacted by unforeseen ground conditions and the global pandemic, which has affected the planning of the works, the supply chain and the manufacturing of the new tram cars and equipment. The total cost of the project is HKD 799 million, which has increased due to these unforeseen ground conditions and pandemic-related delays. The good news is that we removed the covers from the new peak trams on the 5th of March to undertake extensive testing and commissioning. And so far, the reaction has been very, very positive. We expect to launch the sixth generation Peak Tram by the middle of 2022. I will now hand back to Joseph.

Thank you very much, Martyn. Revenues at The Peninsula Merchandising substantially increased by 53% due to strong online sales and robust corporate wholesale and travel retail business in the Chinese Mainland. Our Mooncake business has been a great success in 2021 and achieved the highest sales ever, thanks to the strong wholesale and corporate sales in Hong Kong and Mainland China as well as stronger online and retail sales. As mentioned earlier, we opened a new Peninsula Boutique and Cafe in the basement of the Peninsula Arcade this year with positive media coverage. The business will also undergo expansion in several key markets, including the Chinese Mainland. Coming back to the U.S. The Quail Lodge & Golf Club reported a strong year with revenue increasing by 127% year-on-year with significant increase in average rates and RevPAR compared to pre-COVID 2019 levels. Golf membership was strong with 81 new membership signed. This was a pleasing result in light of the shelter in place restrictions in California that lasted for several months. Unfortunately, we had to cancel Quail motorcycle gathering, but we were delighted to resume the Quail motorsports gathering in August 2021, which brought substantial sponsorship revenue. The Quail signature event held in August in Carmel, California is a world-renowned motoring event. This signature event is considered one of the world's leading concours event for classic motoring aficionados and brought significant sponsorship revenue. It also won The World's Best Concours Award for 2021 by Octane Magazine. Now I shall hand over to Clement to speak about our development projects and the company outlook. Thank you.

I trust you're a subscriber to Octane Magazine. Okay. On the Peninsula London project, let me start by reminding you, although I think all of you are aware that we're 100% lease holder with Grosvenor being the free holder. And we arrived at the decision in 2016 after we restructured the previous lease hold arrangements. I would also remind you of the location, which is superb, is at the gateway of Belgravia on that big Hyde Park Corner roundabout with the Wellington Arch in the middle of it and from the hotel, you see views of Green Park and with Piccadilly on the other side of the roundabout and Buckingham Palace. So it is indeed a superb location. What we decided to do this year in our annual report was to give more of an overview of what has happened in the project since we signed it in 2013. And here, I will recount to you that summary, which we're putting in the annual report as well. So we signed the agreement in 2013. And of course, the project has since encountered many challenges and changes. The process of design and obtaining local authorities approvals took several years, following which actual construction of the project commenced in 2017. In 2018, an opportunity was taken to enhance the design and increase the usable area of the hotel by adding 2 additional basements, which had the effect of creating additional revenue-generating spaces such as the junior ballroom, additional F&B outlet and other functional spaces. However, the project has been materially affected in 2020 and 2021 by delays caused by COVID, which resulted in labor shortages and site closures, but we've also had significant design and project coordination issues arising in key areas of the hotels. Throughout these challenges, the HSH projects team has worked closely with the London Development Manager, the construction management company, the consultants and the trade contractors to address and resolve problems as quickly and effectively as possible. This has truly been a huge effort, which I've been very involved in myself with many of my colleagues being sent to London and staying in London despite the COVID restrictions in Hong Kong. But despite these efforts and the engagement of our many teams, the project has suffered additional time delays causing significant cost overruns. Now the cost consequences of this further delay are still being assessed. There are many assessments that we have to make, negotiations with trade contractors, and there's still a lot to be done. But we expect that we'll have to be an upward adjustment in the indicated total project budget of GBP 800 million. But I would point out that, that budget includes both the hotel and the residential apartments and we'll be recovering a very significant part of that spend from the sale of the residential apartments. And up until now, the prices at which we've transacted the sales of the residential apartments have been in line with our expectations. It's a continuous challenge, but at the time of writing, we do expect that we will be able to complete the project and have the soft opening of the hotel in the first half of next year. Going over to Istanbul. Again, maybe just a reminder that this is a 50-50 joint venture with our partner, which is Dogus and Bilgili, BLG, the company they've formed is called the Galataport Holding Company. This is a 50-50 joint venture. And there, our partner, the other side of the joint venture will not only contribute their share of the capital, but they have actually offered that they will build the showing core of the hotel on the fixed price contract. The good news is that the hotel sits on what is called the wider Galataport project. This is an amazing development on the shores of the Bosporus. It's in a very good location, overlooking the old town and being on the shores of Bosporus and the waterfront of the Galataport project is something like 2 kilometers wide. So this is so important for Istanbul and for the area that we're in. And I'm delighted that they've actually opened it. So other than the hotel, the other parts of the project have been opened, and there are substantial numbers of visitors going to Galataport, already on a weekly basis. And so far, it's already creating a lot of buzz, and many people are now regarding this as a very -- it's just one of the places that everybody goes to in Istanbul. For our project, the hotel portion, COVID, of course, has caused some delay. But we continue towards the progress of the completion of the project and almost all of the rooms are now ready for handing over for fit out. We're currently targeting that the project will be completed towards the end of 2022 with a soft opening in the first half of 2023. We faced many challenges again, supply chain issues, COVID, construction issues. And of course, there's also been the devaluation of the lira. However, the project cost, which is denominated in euros, remains within budget. Myanmar, I don't think I need to say too much. As I mentioned earlier, we are making an impairment provision, but we continue to monitor the project closely to see what will be the most appropriate action as we go forward. And in the meantime, you will see that impairment provision coming through our accounts. Just a quick word on sustainability. I think people will be aware that we have placed a great emphasis on our corporate responsibility and sustainability. We've had various visions which have been largely delivered. The last one being Vision 2020. So we've updated now to -- well, for Vision 2020, we achieved over 91% of our goals, and we've now launched Vision 2030, which is focused on 3 key issues. One is on diminishing natural resources, such as energy, food and water. The second is climate change. And the third is growing sociopolitical instabilities and inequalities. Our Vision 2030 seeks to address these interlinked issues by focusing on 3 stakeholder pillars. The first is enhancing our guest experience. The second is empowering our people. And the third is enriching our communities, and that further distills into 10 key commitments, which are set out in our vision. So we believe Vision 2030 harnesses our previous achievements and lessons to build a strong foundation, which will enable our business to remain resilient in our commitment to enhance guest experience, empower people and to enrich our communities going forward into the future. Finally, a word on outlook. Not surprisingly, things are still extremely uncertain. Not only do we have COVID, we've now had the Russia, Ukraine war breakout. The U.S.-China tensions remain. And other things that have affected our investments have been -- have included Brexit, the financial market instability in Turkey. And accompanying COVID, we've seen a number of supply chain disruptions and labor shortage. So it is very difficult to predict when international travel can resume. But what I can say is that when the restrictions are eased, as we've seen, particularly in the U.S., the recovery can be very strong. I would point out that the labor markets have become very, very tight around the world with COVID, that generally is a shortage of labor, working in the hospitality industry and very high pressure on wages to go up. Our retail Arcade is an important part of our business. We're holding that pretty well despite the environment. Our leasing renewals are still fine, and we are encouraged by the -- as I've said earlier, the changes we've made to the Arcade in Hong Kong and Beijing, which have brought in significant new lifestyle options. We're focusing a lot of our resources in the 2 new hotel projects in London and Istanbul, which we believe will greatly enhance our brand presence. And that's why, as I've mentioned earlier, we have sent a lot of our colleagues and people to go and work on these projects to make sure that they'll be delivered to the quality that we're looking for. Again, the Peak Tram upgrade, a fantastic project, fantastic product. I only wish that we will see. Well, a, I think that when we open this, this will be a big attraction for locals as well. So once they can move around the city again, I think it will be attractive. But also when visitors can come, it will be very positive for us. And as I mentioned, we have a strong balance sheet and ample liquidity. So I think that hopefully is a pretty sort of balanced look at our problems and our achievements, the challenges, but some successes as well. And Aiden, are you going to now moderate the questions.

Thank you, Clement. We do have a few questions coming through. A few questions around Hong Kong and China. Can we give some description situation about Hong Kong and China, given the recent outbreak, especially hotel business in China performance and our expectation, if any, on Hong Kong border reopening?

Well, I think if the question is being asked from somebody overseas, then what I would say is that Hong Kong continues to maintain what is called a dynamic 0 COVID policy, which is basically the opposite of the Western living with it, and the idea is to try and get to 0. Now getting to 0 is quite difficult. Because once you have outbreaks, then you have to track down all the transmission chains and try and isolate people and close them down. But the Hong Kong government has been trying to do that. And so far, it's been very difficult for them. We've seen that they do not have the capacity to test so many people, isolate so many people. And I would say at the moment that we're seeing the restrictions which are intended to try and get to 0 COVID. So those restrictions are in place, but we're not seeing 0 COVID at the moment. So it's impossible for us to predict what those restrictions will be and how this will play out. All I can say is that I think we've shown over the years that we are capable and we work very hard to do the best we can, given whatever circumstances we have. In Hong Kong, for example -- and Joseph is the expert on this -- for a long, long time, we had a lot of local staycation business, even though there was no international travel. Unfortunately, at the moment, we're not even getting that because the restrictions are such that even staycations are not attractive. When your restaurant is closed for dinner, your pool is closed and your spa is closed and you have the social distancing rules in place, even local staycations, we're not seeing those. China, similarly, people will be aware, is also pursuing a 0 COVID policy, which they have successfully had on to for a long time as at Hong Kong. But recently, there have been some outbreaks, and they are clamping down on some cities, including Shanghai and Shenzhen because of those outbreaks. Again, how exactly that's going to play out? We don't know. Will that stem the cases or not, we'll have to wait and see. But as I said, we now have got an experience of dealing with those lockdown situations the best we can. Obviously, our business would be a lot better if there was free flowing international travel. But it is for the government to decide what is the appropriate balance between the health side and reopening business.

Another question coming through on top of Hong Kong and China. We noticed that U.S., Europe hotel margins in 2021 were even better compared to 2019. Do you expect margins to further improve in 2022 alongside with revenue?

There's a 2-pronged answer to this. The margins have improved because during the worst of COVID, we did a lot of cost cutting. We reduced staff numbers and we were then able to really cut costs very materially. And so when we saw an improvement in revenue, then those margins improved. Of course, our objective is to try and maintain those higher margins. But in some cases, that is not realistic because people are working so hard. People are doing jobs that were outside their normal jobs. People are filling in for each other and so on, in order to address the environment that we were seeing, and that is not necessarily sustainable in the longer term. And also as has been mentioned with the pressure we're seeing on the labor markets, we do have to make sure that we hire people on terms that they will stay with us and we don't lose so many people. However, as I mentioned, we have learned some lessons on cost savings and improving our margins. So it's both. It's some improvement, but some areas where we'll have no choice but to allow some inflation to come in.

We have time for one more question. The Hong Kong IP was quite weak in 2021, especially for Repulse Bay. Why are we still reevaluating a positive gain in 2021, can you explain that?

Sure. Well, firstly, we view all of our properties as being long-term properties. So I don't necessarily think that the value of a long-term asset fluctuates that much on a short-term basis because people should be looking at what the long-term value of that asset is. The revaluation of Repulse Bay is in line with other similar properties, residential properties in Hong Kong, you'll find that other companies are revaluing as well, which is a reflection of the way that the market has moved. And in fact, the yield has come down a little bit on that. But what I would say is that if you look at the per square foot valuations of our Repulse Bay properties 101 and 109 as compared to the prices that one has seen in terms of market transactions on a buy-and-sell basis, those valuations are not demanding at all. I think they remain quite conservative. So it's a balance of market movement. What is the real value of that asset on a tradable price basis and taking into account the yield of the rentals as well. But overall, it is a long-term look at value. If there are other questions, I'm happy to take a couple more. Yes. Maybe 2 more or 2 or 3 more. I'm fine.

We have one more question coming through. As per Yangon, the book value now is HKD 125 million. Can we expect this impairment on this project limited to this amount?

The valuation was done by an external valuer. And I believe that the basis of that valuation was looking at the possibility that 1 day the hotel may be reopened, that the hotel will be finished and what sort of earnings can it make. Now of course, it's very difficult to predict what those future revenues are going to be, but the value has attempted to do that. The end result of the valuation by coincidence is that it's not very different from the land value that was put into the project where we started. And so therefore, I would be pretty confident that whatever happens, the land is still worth what the land value had been. In essence, that valuation doesn't take into account all this wonderful stuff that we've built on the project, which is 70% finished and that must have value. It is well designed. It is well built. I think, hopefully, we'll have a situation 1 day where this project will be finished and people come to enjoy what would be a fabulous product and something that would be certainly of, I hope, 1 day, much greater value than just the original land price. If there are no more questions, that's fine. Aiden, up to you.

Thank you, Clement. If there are any further questions, please write to our Investor Relations mailbox. Our slide will be made available for download on our website today. This now concludes our 2021 annual results presentation. Thank you for joining us.