Edited Transcript of 0016.HK earnings conference call or presentation 8-Sep-22 10:59am GMT

Full Year 2022 Sun Hung Kai Properties Ltd Earnings Presentation Wan Chai Sep 9, 2022 (Thomson StreetEvents) -- Edited Transcript of Sun Hung Kai Properties Ltd earnings conference call or presentation Thursday, September 8, 2022 at 10:59:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Hong-ning Sum Sun Hung Kai Properties Limited - General Manager of Corporate Planning * Kai-Wang Kwok Sun Hung Kai Properties Limited - Executive Director * Raymond Kwok Ping-luen * Ting Lui Sun Hung Kai Properties Limited - Deputy MD & Executive Director * Victor Lui Ting ================================================================================ Conference Call Participants ================================================================================ * Cusson Leung JPMorgan Chase & Co, Research Division - Head of Hong Kong Equity Research, Regional Conglomerates & Properties * Hoi Chuen Yeung Citigroup Inc. Exchange Research - Research Analyst * Karl Choi BofA Securities, Research Division - Director * Mark Leung UBS Investment Bank, Research Division - Associate Analyst * Raymond Liu HSBC, Research Division - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Hong-ning Sum, Sun Hung Kai Properties Limited - General Manager of Corporate Planning [1] -------------------------------------------------------------------------------- Good afternoon, ladies and gentlemen. Welcome to Sun Hung Kai Properties analyst briefing for FY 2022 end year results. As usual, I will give you an overview of the results and the performance of major business segments in this section. Then we will have a Q&A session with our senior management. Let me start off the presentation with financial highlights of the results. Please note that all figures are in Hong Kong dollars, unless stated otherwise. For the year ended 30th June 2022, the group's underlying profit amounted to $28.7 billion, down 4% year-on-year. The decrease in underlying profit is primarily due to the reduction of property development profit from the mainland. The reported profit decreased by 4% to $25.6 billion after taking into account the revaluation loss of investment properties of $2.9 billion. The underlying earnings per share and reported earnings per share were $9.91 and $8.82, respectively. On dividend, the Board of Directors has recommended a final dividend of $3.70 per share. Together with the interim dividend of $1.25 per share, the total dividend for the full year will be $4.95 per share the same as last year. Our dividend payout over the past few years is shown on this slide. For the profit breakdown by segment. The gross property development profits declined 25% year-on-year to $15.8 billion. The decline is mainly due to the lower development profit from mainland. On the other hand, property development profits from Hong Kong recorded a mild increase of 2% year-on-year to $14.8 billion. The group's rental business was affected by the latest wave of pandemic outbreak in Hong Kong and on the mainland. Nevertheless, the group's total net rental income amounted to $19.3 billion, up 1% year-on-year. Net rental income of the mainland portfolio was up 8% year-on-year in Hong Kong dollars terms, or 5% in RMB terms, offset by a 3% decline in net rental income from Hong Kong portfolio. The group's hotel business in Hong Kong continued to be affected by the lingering pandemic and lack of tourists, resulting in $429 million operating loss during the year. However, the loss was narrowed as compared to that in last year. Profit from other business was down 4% year-on-year, largely due to the impact of government subsidies received in previous financial year. The total operating profit was down 12% year-on-year to $39 billion. During the year, the group continued to maintain strong financial position. The net gearing ratio as of June 2022 was 17.4%, while interest coverage ratio during the period was 12.8x. Net book value per share rose to around $207. With a strong financial position, the group maintains A1 and A+ credit ratings from Moody's and S&P, respectively, both with stable outlook. As always, we shall continue to adhere to our prudent financial management discipline with ample liquidity, diversified funding sources and well-balanced debt maturity profile. Now let me talk about our property business. I'll start with the land bank in Hong Kong. As at the end of June 2022, the group's total land bank in Hong Kong stood at 57.1 million square feet of attributable GFA, comprising 34.7 million square feet of completed properties and 22.4 million square feet of properties under development. Shopping malls, together with office account for 65% of the completed properties. Residential projects for sale account for the majority of the properties under development, representing 73% of the total. During the year, the group had a combined GFA of about 1.1 million square feet to its land bank through 2 lease modifications. The group completed the lease modification for the large-scale residential project in Shap Sz Heung, increasing the project's total GFA by around 1 million square feet to about 5.8 million square feet. The project was initially converted from farmland with a total GFA of about 4.8 million square feet. It will be developed through a sizable green cross-generation living community with comprehensive facilities. In March 2022, a site near Fairview Park in Yuen Long was converted from farmland with the premium paid. We're now seeking further approval for revision of the development parameters. Moving on to the property development business in Hong Kong. For the year under review, the group recognized $32.9 billion property sales in Hong Kong, down around 6%. Development profit increased by 2% to $14.8 billion due to higher sales of high-margin residential units. Major contribution include Wetland Seasons Park Phase 2 and 3, Wetland Seasons Bay Phase 1 and 2 as well as Regency Bay and Regency Bay II. As at the end of June 2022, about $20.5 billion of contracted sales were yet to be recognized. This table shows the group's upcoming completions in the next 3 financial year. We expect to complete about 3.2 million square feet of attributable GFA on average in each financial year, of which 2.4 million square feet would be residential projects for sale. Apart from these new completions, around 550,000 square feet of sold completed properties will be booked in the coming years. With an impact of fifth wave of pandemic outbreak, we managed to achieve contracted sales of $29.6 billion in Hong Kong. Since July 2022, we have already recorded point of sales of over $10.5 billion, mainly from Novo Land Phase 1A and 1B in Tuen Mun. We planned to launch 5 new residential projects in the next 10 months, amounting to 1.6 million square feet with over 2,800 units. We also continue to sell some winning units of newly launched projects such as the YOHO Phase 1, St Michel Phase 1 and 2 and Prince Central, as well as unsold completed units. Now let's move on to the performance of our Hong Kong rental portfolio. The group's diversified rental portfolio in Hong Kong continued to generate sizable recurring rental income despite the negative impact from the Omicron outbreak in the first quarter in 2022. Overall gross rental income during the year amounted to $17.6 billion, down around 3% year-on-year. The overall average occupancy stayed at a relatively stable level of around 92%. The magnitude of retail gross rental income decline has narrowed to 3% as compared to the decrease of 8% in last financial year. The gross rental income of office portfolio decreased by 4% to $6.3 billion, mainly due to the negative rental reversion. The group's retail portfolio has been on a recovery trajectory since April this year amid the gradual relaxations of social discipline measures. Tenant sales have seen a rebound since the second quarter this year, outperforming the markets. Overall footfall has resumed to the pre-fifth wave level. Leasing inquiries for the group's mall have been increasing with more existing tenants looking for lease renewals with longer lease terms. And during the year, the retail portfolio achieved a healthy overall average occupancies of about 95%. The group has proactively launched initiatives to better meet shoppers’ changing needs and their appetite. The trade-and-tenant mix was reshuffled, bringing new retailers such as popular restaurants, young fashion brands. Recently, we introduced a renowned Japanese pharmacy chain and popular skin care brands to our shopping malls. The group continued to enliven both indoor and outdoor spaces at its malls with fun elements and smart technology to bring further delight to shoppers. Seized business opportunities, particularly those arising from a new round of Consumption Voucher Scheme. The group has worked closely with tenants and business partners to roll out extensive promotional and marketing campaigns to boost footfall and tenant sales. We also leverage our online platform and loyalty program for our malls, the recent launch of new function allows The Pont members to convert bonus points into The Point dollar, which can be used directly as cash for purchase at over 2,000 merchants in the group's 25 major malls. Despite challenging market conditions, the group's office portfolio was able to record and overall average occupancy is about 92%. As a deferred choice and (inaudible) address of renowned corporations, Hong Kong IFC and (inaudible) was almost fully [lapsed] during the year. International and mainland financial institutions took up new space as IFC for business expansion or upgrade, where our existing major tenants renew their leases. Hong Kong ICC record a reasonable occupancy and both to IFC and ICC recently a team, Leadership in Energy and Environmental Design, i.e., LEED Platinum certifications, showing the group's strong commitment to ESG. In the near term, the 2 grade A office towers of the joint venture development at 98 How Ming Street in Kowloon East will be completed in late this year. Pre-leasing has begun with major quality tenants already committed at satisfactory rental levels. It's 500,000 square foot retail probably positioned as a one-stop modern lifestyle mall is scheduled for opening in 2024. The whole project is targeted to obtain Platinum ratings for LEED, BEAM Plus and WELL. Superstructure work of the mega landmark project atop the High Speed Rail West Kowloon Terminus has commenced it. This project enjoys excellent transport connectivity to different districts in Hong Kong, a major mainland city through various railway lines. Designed to attain Platinum ratings for LEED, BEAM Plus and WELL, the integrated development, feature green and wellness element, including an outdoor viewing deck, a part of the 1.5-kilometer-long West Kowloon Parkway and other amenities, spreading over some 100,000 square feet of open space. The landmark projects together with adjacent ICC complex and West Kowloon Cultural District, will form a superlative business hub for the GBA. The group is expanding its presence in the planned Northern Metropolis with new attention. The YOMO extension comprising 107,000 square feet of retail space next to MTR Yuen Long Station is scheduled for opening by the first quarter of 2024. Close to MTR Tin Shui Wai Station, the mixed-use project in [total way]. We have also a shopping mall of close to 500,000 square feet of GFA and quality office space of about 360,000 square feet to fulfill the needs of the people in the district. Complemented by a large residential project, the 132,000 square foot retail space adjacent to the committed MTR Kwu Tung Station is expected to meet the demand from the growing population in the district. This concludes my discussion on the property business in Hong Kong. I will now discuss our Property business on mainland. As of the end of June 2022, the group had a total land bank of 70.6 million square feet of attributable GFA on the mainland. About 53 million square feet were properties under development and around 17.6 million square feet were completed properties. During the year, the group recognized $2.5 billion property sales on the mainland, down 77% year-on-year due to sales volume and handover of residential units, significantly lower than that of the previous year. Hence, development profit was down 84% year-on-year to around $1 billion. As of the end of June 2022, about $6.1 billion contracted sales were yet to be recognized. For the year, the group's contracted sales were affected by general market conditions on the mainland and amounted to RMB 3.3 billion. The table here shows the breakdown of the contribution from individual projects. And since 1st July 2022, the contracted sales of about RMB 1.5 billion has achieved it. The table in this slide shows the major upcoming launches on the mainland in the next 10 months, including brand new phases of Oriental Bund in Foshan and Hangzhou IFC as well as the initial launch of residential portion of Guangzhou South Station ICC. Turning to the performance of our mainland rental portfolio. And during the year, the group's mainland rental portfolio generated gross rental income of around $6.6 billion, up 7% year-on-year in Hong Kong dollar terms or 4% in RMB terms, accounting for 27% of the group's total gross rental income. The group's gross rental income on the mainland shows healthy growth in the first half of the financial year, but the performance in the second half was significantly impacted by the pandemic. For the retail portfolio, the gross rental income grew around 10% year-on-year to $4.3 billion. The gross rental income of office portfolio increased by 3% to close to $2 billion. The group's retail portfolio achieved robust rental performance in the first half of this financial year, which was negative effect by the stringent containment measures introduced in the second half of the financial year, particularly in Shanghai. With a gradual recovery of business operations in Shanghai since early June, footfall at the group's malls have improved, while tenant sales, especially luxury items shown a rebound. Occupancy of the group's premium shopping mall in other top-tier cities, such as Beijing APM, Parc Central and IGC in Guangzhou sustained high levels despite intermittent outbreaks of the pandemic. On the office front, the occupancy of the group's grade A offices in Shanghai remained healthy during the year. Both Shanghai IFC and Shanghai ICC continues to have strong appeal to quality tenants, thanks to their premium building quality, LEED Platinum certifications and professional property management services. The group has proactively assisted tenants to restore their operations. Daily necessities and service support were provided to tenants who need to carry out essential business operations with strict anti-pandemic measures for their employees. The group's portfolio for property investments on the mainland will further expand with the gradual completion of integrated projects under developments in major cities. The remaining phase of ITC in Shanghai, we have 6.7 million square feet of GFA, includes 2 grade A office towers, a 2.5 million square foot of mega mall and Shanghai ITC Hotel. The construction work has already resumed, the 220-meter tower office tower was completed in July this year and has been handed over to tenant. Another Grade A office tower, the 370-meter tall skyscraper and a mega mall are expected to be completed by 2024. As part of the Nanjing IFC complexes, the 1 million square foot Nanjing IFC Mall will house top notch international luxury brands and popular restaurants. That mall is scheduled for opening in phases from early 2023 onwards. More than 10 million square feet of attributable GFA are expected to be completed between FY 2023 and FY 2025, serving as a growth driver for the group's rental income. That's all for the group's Mainland rental business. Now I will go through the hotel business performance. During the year, both occupancy and room rates of the group's hotel business in Hong Kong improved following the management team's efforts to refine the business model to fulfill new demands, such as extended-stay customers and quarantine requirements for inbound travelers. The Go Royal by SHKP loyalty program was launched in April this year, covering the 5 Royal brand hotels and there are 20 restaurants to draw additional customers and encourage spending on the mainland. The performance of Ritz-Carlton Shanghai, Pudong was significantly affected by the latest wave of pandemic outbreak. And due to the lingering disruption from the pandemic, the Andaz Nanjing at Nanjing IFC and Four Seasons Hotel Suzhou have been rescheduled open in phases in 2023. Moving on to the ESG. The group's ESG strategy aim to create substantial value to different stakeholders. During the fifth wave of pandemic outbreak, the group went all out to support the home of governments to fight against it. For example, we provided land site to the government to build community isolation facilities. In June this year, the group initiated transitional housing, United Court was officially opened providing 1,800 units to long awaiting (inaudible) of private housing. SHKP has been incorporating ESG elements into our operations. The group is committed to attaining LEED Gold or Platinum ratings for all its new core commercial projects while we are actively upgrading the existing properties to meet more stringent environmental standard. On residential front, we're trying to strive a good balance between development and environmental conservation. For example, several measures were introduced when we are developing Wetland Seasons Park and Bay to protect the environment in the neighborhood and allow residents to live in harmony with their life. To help combat climate change and support Hong Kong to achieve carbon neutrality by 2050, the group has been installing solar panels for solar energy generation at different types of properties managed or owned by the group in the city. The group has also taken in to do the sustainable financing and signed to sustainability-linked loans during the year. And that's covered the group's business updates. I'll now talk about the markets and business prospects. In Hong Kong, the mass primary residential market is likely to be relatively active backed by solid end-user demand, while demand for the high-end segment will be constrained by travel restriction with the mainland. Leasing momentum of retail market is likely to see a gradual pickup. However, worsened global economic outlook will continue to weigh on demand for office space. In key city on the mainland, the recently eased policy to help revive buyers' confidence and support reasonable housing demand. Government initiatives to boost local spending are likely to support domestic consumption. On the other hand, demand for office space is likely to be constrained by various external headwinds. Turning to our business prospects. In the short term, we have seen signs of bottoming in Hong Kong retail market. Of course, further improvement is subject to local social distancing measures and the timing of border reopening. Recurring income of the group will be further underpinned by the new additions, including the office cum retail with JV project at 98 How Ming Street in Kowloon East. The group has ample saleable resources to support the property sales with expected satisfactory margin. We will continue to launch development projects for sales once ready. On the mainland, the operating environment of the property investment business is likely to improve aggressively. The group's property investment portfolio will be further strengthened with new additions, such as 220-meter-tall office tower at Shanghai ITC and Nanjing IFC Mall. Given we have full confidence in the future of the country, we will continue to invest in Hong Kong and major mainland cities. Meanwhile, we will continue to adhere to strict financial discipline, as always, in particular, at the time of an uncertain global market outlook and interest rate hike cycles. The group will move to a new level through the development of new landmark integrated projects, both in Hong Kong and on the mainland, such as landmark projects atop the High Speed Rail West Kowloon Terminus and our Shanghai ITC. Finally, I would like to wrap up my presentation with a message extracted from the Chairman's statement as follows: The year 2022 is not only the 25th Anniversary of HKSAR's establishment, but also the 50th anniversary of the group's public listing in Hong Kong. Having the strong support of the motherland and seeing Hong Kong as its home, the group has adhered a strong belief in building homes with hard and make contribution to the city development of the country during the last half century. In the times ahead, the group, as in the past, will continue to stride ahead, rain or shine, in solidarity with various sectors of the community. The group also firmly believes that with its distinctive status and advantages, Hong Kong, as the Pearl of the Orient, will become a more charming international city than ever before. This concludes my presentation. Thank you. -------------------------------------------------------------------------------- Unidentified Company Representative, [2] -------------------------------------------------------------------------------- Ladies and gentlemen, welcome back for joining our Q&A session. Now let me introduce the panel to you. From your left, Mr. Brian Sum, whom you've just met. Mr. Christopher Kwok, Executive Director. Mr. Allen Fung, Executive Director; Mr. Victor Lui, Deputy Managing Director. At the center is Mr. Raymond Kwok, Chairman and Managing Director; Mr. Mike Wong, Deputy Managing Director; Mr. Adam Kwok, Executive Director; Mr. Eric Tung, Executive Director; and Mr. Frederick Li, Group's Chief Accountant. Before -- with that, I would like to invite our Chairman and Managing Director, Mr. Raymond Kwok to share with us some key messages. Mr. Kwok, please. -------------------------------------------------------------------------------- Raymond Kwok Ping-luen, [3] -------------------------------------------------------------------------------- Good afternoon. During the year under review, the group's business in Hong Kong and on the mainland, continued to be affected by a fluctuating pandemic situation. Nevertheless, we have dealt with difficulties and challenges with proactive actions and effective strategies. The operating environment for the group will still face various headwinds such as rising interest rates, increased geopolitical risks and cross-border travel restrictions. To tackle the challenges, we will speed up the sales of our projects to increase cash inflow. Since July 2022, we have achieved contracted sales of over HKD 12 billion. Besides, the group has sizable recurring rental income with $24.8 billion recorded in the year under review. We always adhere to prudent financial management discipline, with low gearing and ample liquidity. Listed in Hong Kong 5 decades ago, the group has gone through many ups and downs and accumulated a wealth of knowledge and experience. In the face of growing headwinds, our management team will remain humble, work harder and stay alert to market fluctuations and changes. We are confident that we will overcome the challenges. As always, we will put up projects for sale once they are ready. Besides, a number of properties for investment purposes will be completed in the next 2 years, including joint venture development in How Ming Street Kowloon East, the office towers in Shanghai ITC's remaining phase and Nanjing IFC Mall. These projects will further strengthen the group's cash flow over time. We have commenced the superstructure work of our landmark High Speed Rail West Kowloon Terminus development during the year. The project will feature a 1.5-kilometer parkway to connect all districts with a new [water front] in West Kowloon, bringing all the new communities together. This project, together with the adjacent Hong Kong ICC and the West Kowloon Cultural District, we formed a major business retail, cultural and transport hub for the Greater Bay Area. They were also synergized with the group's other projects along the High Speed Railway, including Guangzhou South Station ICC. To help build a better Hong Kong, the group strives to develop its large-scale with essential projects and integrated complexes into comfortable green and sustainable communities for cross-generational living, work and enjoyment. We are committed to obtaining LEED Gold or platinum rating for core commercial projects under development and upgrading existing properties to meet more stringent environmental requirements. Recently, both Hong Kong ICC and 2 IFC have attained LEED Platinum certifications. When Hong Kong was hard hit by the fifth wave of pandemic early this year, we went all out to support the Hong Kong government to fight against this pandemic. For example, we provided land for building community isolation facilities and build out 5G network coverage for many such facilities. The group initiated transitional housing project, United Court, with 1,800 units came into operation in June this year as the largest of its kind in the showcase of transitional housing. This year marks the 25th anniversary of Hong Kong's return to the motherland and the 50th anniversary of the group's public listing in Hong Kong. The group is confident about the future of Hong Kong and the mainland. As in the past, with our strong financial position, well-trusted brand, time-tested business strategy and seasoned management team, the group will continue to develop premium projects in Hong Kong and major mainland cities. Having the support of the mainland and seeing Hong Kong is our home, we'll continue to adhere to our strong belief in building homes with heart and contribute to economic development of Hong Kong and mainland. Thank you. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Unidentified Company Representative, [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question is from Ken Yeung with Citi. -------------------------------------------------------------------------------- Hoi Chuen Yeung, Citigroup Inc. Exchange Research - Research Analyst [2] -------------------------------------------------------------------------------- It's Ken from Citi. I have questions mainly on the property sales. So given Victor and Raymond is here, I would like to check with you, your latest view on Hong Kong residential outlook as we announced -- you've just mentioned that we have a lot of negative factors like interest rate hikes and border still kept closing. How long or how deep is this correction is Sun Hung Kai can expect it will be? And that will be a follow-up on my second part, which is on your sales strategy given that Novo Land is very successful. The pricing strategy is very attractive. Should we be on the upcoming launch, likely to be launched more attractive pricing in order to do sales? And lastly, can you update us your FY '23 Hong Kong and China contracted sales target, respectively? -------------------------------------------------------------------------------- Victor Lui Ting, [3] -------------------------------------------------------------------------------- Yes. In the past 2 months, the gradual relaxation of the quarantine period for foreign countries is leading to a better economic prospect. And we can see that new projects were received. In last month, we have launched our Novo Land project in Tuen Mun. Within a month, we have sold over 1,500 units, fetching a total sales of [$5] billion, proving that basic demand is still very strong, especially on small- to medium-sized units. We're expecting that the market will continue to be quite active in the coming months. And on possible border reopening with some mainland cities in next year, we're expecting the market will also activate in the high-end sector as well. The interest rate hike is within market expectation. And when you're looking at the mortgage history in Hong Kong, over the years, for most of the time, homebuyers are enjoying a low interest rate on their mortgage payment and furthermore, we know that most of the banks are really keen to gain their market share in their mortgage business. On our sales strategy, we are always taking to the periodic market condition. We will try to strike a balance between volume and margin. And for mass project like Wetland project and also Novo Land project, we are aiming for a quicker asset turnover. And as for the luxury project, we saw usually dispose the units at our pace. For the Novo Land project, I think we have a correct pricing to achieve such an overwhelming sales. As you know, this is a huge project of over 4,500 units. Now we have established a solid pricing for the whole project and also the remaining 3,000 units to be launched. And below our costs here, we shall obtain a reasonable and satisfactory profit margin for this project. And for this financial year, we have a sales target of $35 billion. This is quite a conservative projection as Brian had just presented our revenues is mainly based on the mass project. And actually, we are predicting the market very actively. In next year, we may sell more units in the luxury project as well. -------------------------------------------------------------------------------- Unidentified Company Representative, [4] -------------------------------------------------------------------------------- The sales target in mainland, you will realize that we've -- last year, we've achieved close to HKD 4 billion, around RMB 3.3 billion. But this year, because we have more projects to come and that you will notice a lot of those projects actually are in still good 1- and 2-tier cities where the fundamental demand is still strong, we will aim to get $5 billion. And in fact -- HKD 5 billion. In fact, if you look at from July 1 onwards to now, we have originally achieved $1.8 billion, mostly from sales in Hangzhou and then on top, as we speak right now, this week, we have -- we are selling Jovo Town in Chengdu and in fact, it's already oversubscribed and the process, as a city finishes lockdown, will be completed. So we expect with the Jovo Town sales, we will achieve more than 50% already of our $5 billion target. -------------------------------------------------------------------------------- Unidentified Company Representative, [5] -------------------------------------------------------------------------------- Next question comes from Mark Leung with UBS. -------------------------------------------------------------------------------- Mark Leung, UBS Investment Bank, Research Division - Associate Analyst [6] -------------------------------------------------------------------------------- Yes, sure. I got about a few questions. I think number 1 is about on the dividend policy. So I think our dividend payout ratio in this fiscal year is actually up to 49.9%, it is the -- I think it is on the upbound range of previous dividend policy guidance. So I think going forward, what it will be our dividend policy looks like? I think that's the first question. And second question is also about Hong Kong development properties. So I saw our upcoming launches, we don't put any kind of project into our sales top line in next year. So I just wanted to check when do you think that would be the best timing for launching the Kai Tak project? And what is the expected margin generated from this project? And my last question is, if the mainland border reopen, how should we gauge the home buying demand from the mainland itself? -------------------------------------------------------------------------------- Raymond Kwok Ping-luen, [7] -------------------------------------------------------------------------------- Okay. I'll answer the first question, then Victor will answer the second and the third question. On the dividend payout ratio, we have always tried to maintain the absolute dividend per share. Of course, we appreciate that there's a range of 40% to 50% sale ratio. But in a way, well, plus or minus 5% is still very flexible as long as we can maintain our strong financial position. I think as far as we are concerned, we are very conscientious of continuing to secure good rating from S&P and Moody's. So the answer is the 40% to 50%. I think where we can be flexible plus or minus 5%, yes. But of course, the financial discipline is very important for us. Victor? -------------------------------------------------------------------------------- Victor Lui Ting, [8] -------------------------------------------------------------------------------- Yes. On the Kai Tak project, you heard about the Park Peninsula. We are just 1 of the 9 developers among the consortium as I know the consortium is now trying to enhance the traffic connectivity. Our 2 projects in Kai Tak won't be launched until second half of next year. And our one-way project is actually situated at the best location with -- maybe over the harbor. And whereas the other project, the concourse project, it is directly connected to the MTR Station and also the shopping malls and also we have a super building highs over the retail projects in the (inaudible). We are very confident that this project -- these 2 projects will be well appealing to local buyers and also mainlanders. And for sure, we can also achieve a satisfactory profit. Actually, we are expecting that there will be possible border reopening in next year, and that will activate the high-end sector as well. And I think our 2 projects in Kai Tak will be very appealing to the mainlanders. And for sure, they can also give us a very satisfactory profit margin for our 2 projects in Kai Tak. -------------------------------------------------------------------------------- Unidentified Company Representative, [9] -------------------------------------------------------------------------------- The next one is from Karl Choi with Bank of America. -------------------------------------------------------------------------------- Karl Choi, BofA Securities, Research Division - Director [10] -------------------------------------------------------------------------------- I have a couple of questions. I just want to focus on Hong Kong rental a bit. First on the retail side, can you discuss the amount of rent relief that was given in either the half year or the full year and the occupancy cost in the last year? Any comment on the retail sales trends recently? And then moving on to office, it sounds like the outlook is a bit weak, but can you elaborate a little bit the outlook for rental reversion and also occupancy given some of the upcoming completions in both Central and also outside Central? -------------------------------------------------------------------------------- Raymond Kwok Ping-luen, [11] -------------------------------------------------------------------------------- Are you asking only about the retail side, right? -------------------------------------------------------------------------------- Karl Choi, BofA Securities, Research Division - Director [12] -------------------------------------------------------------------------------- And also on office, the outlook for Hong Kong office rental, given the fact that some big supply is coming, including Central and outside Central? -------------------------------------------------------------------------------- Ting Lui, Sun Hung Kai Properties Limited - Deputy MD & Executive Director [13] -------------------------------------------------------------------------------- For the -- on the retail side, I think, thanks to the latest round of Consumption Vouchers and our extensive promotional campaigns. Traffic at our malls have rebounded to the pre-fifth wave level. And similarly, tenant sales have also exceeded the pre-fifth wave level, and we've also achieved a good year-on-year growth. In terms of rental concessions, during the fifth wave, we offered them on a case-by-case basis, including the shops that were required to close under the Cap. 599F. Nevertheless, the amount of concessions is minimal compared to our total rental income, in line with the increase in the rebound in sales and traffic. The latest occupancy of our malls has also improved from the last financial -- from last financial year. And overall, I think we see signs of bottoming out in the Hong Kong retail market. Obviously further improved, but -- obviously, further improvement will be subject to continued lessening of social distancing measures and the timing of the border opening with the mainland. But we have already seen increased leasing inquiries and also some of our existing tenants have requested for long lease extensions and investments into the shops. -------------------------------------------------------------------------------- Karl Choi, BofA Securities, Research Division - Director [14] -------------------------------------------------------------------------------- On the office side? -------------------------------------------------------------------------------- Victor Lui Ting, [15] -------------------------------------------------------------------------------- And for our office portfolio, we can still achieve a stable rental reversion, if only a mild decline of low single digit. And we have already renewed over 80% of lease expiry this year and also over 60% of those leases expire in next year. And it is true that the increasing supply in the centralized location is creating some challenges and especially for area in Kowloon East. And as know that, most of the tenants are trade-related sector and the business is a bit affected by the macroeconomic uncertainties. And we have seen some of the new buildings -- the landlords of the new buildings are offering more flexible terms on rental negotiation and renewables. But our buildings in our belonging city portfolio is all affected as most of our tenants are belonging to -- belonging sizable tenants. They have a high demand on building quality and also on single ownership. So most of the buildings are in Kowloon East enjoying a high occupancy, the same as our building inventory and cost rebate, they are also enjoying a high occupancy as well. -------------------------------------------------------------------------------- Unidentified Company Representative, [16] -------------------------------------------------------------------------------- Our next question is coming from Cusson Leung with JPMorgan. -------------------------------------------------------------------------------- Cusson Leung, JPMorgan Chase & Co, Research Division - Head of Hong Kong Equity Research, Regional Conglomerates & Properties [17] -------------------------------------------------------------------------------- A couple of questions. One, I think, is more on the Hong Kong land banking side. We have seen like in the presentation and announcement, you have concluded 2 lease modifications. Just wonder, given the government focus on the farmland source as a future there is a -- perhaps you actually noticed the speed up of the whole farmland conversion process? That's number one. And for second, in terms of China land banking, given the reduced competition in the land market, are there any chance the company further step up the exposure in China commercial property land bank? And the third one is regarding the global rising inflationary trend. Have you started to feel that (inaudible) into your construction cost? -------------------------------------------------------------------------------- Unidentified Company Representative, [18] -------------------------------------------------------------------------------- On the Hong Kong land bank, you rightly pointed out that we have 2 cases of modification. But those relatively -- one relatively small plot next to Fairview Park in the [NT]. We actually have a few cases that would account for the next couple of months, say, 6 to 9 months, we're hopefully to conclude -- or we have 4 cases having about more than 2 million square feet GFA closing to the completion -- or closing to the final stage of negotiation. That means we are in the active process of negotiation, the land premium with the government. And as you rightly pointed out, governments are very anxious to increase the housing supply and probably you, look, we're all looking forward to hearing [CEs] address in October, and we hope the pace of increasing land and housing will be executed pretty well. And we hope in the next financial year, we will be able to conclude a few cases, as I mentioned earlier. And on the other hand, we are -- as you see from the public arena, we have been placing for all the other plan applications, mostly in the NT for plan application and then convert our other parts of land into buildable housing sites. On the third one, the inflation in Hong Kong, how does it affect the construction cost? I think it's not just the inflation. I think there are a couple of issues which will affect the construction costs, namely the recent logistic disruption is very much affecting the supply chain. And we will induce construction cost increase. Apart from that, there is still relatively insufficient supply of labor and skill management staff, professional staff will also increase the overall construction costs. All in all, I can see this trend will go on, and there's no sign of going back and how to quantify would depend on the trade and mostly the rate of inflation or the construction cost increase would be more heavily affected by the (inaudible) engineering work more than the building works. So long as the logistic disruption is, I mean, better off because of the border restriction is, I mean, loosening off the trade like, the finishing trade will be less affected. Overall, there will be at least high single-digit figure in construction cost inflation in the coming year, I guess. -------------------------------------------------------------------------------- Unidentified Company Representative, [19] -------------------------------------------------------------------------------- Okay. Regarding mainland, we always get asked this question and every time is always the same answer, is that we'll remain very selective with opportunities. And these opportunities have to fit into our overall strategy of being part of the strategic integrated projects at very prime locations. The opportunities could come from distressed developers and would come from government sales, government -- good government negotiation, but we will remain very selective. And the reason we say that is because you have to look at our pipeline, and we are very much in execution mode now, executing the large land bank we've acquired through the past few years. We've -- in the next 3 fiscal years, we will have -- we will go from 16 million square feet of investment property to 26 million. So we'll have an increase of 10 million, mostly from Chengdu, Nanjing IFC and parts of Shanghai ITC. So to be able to execute it well, build it on time, on cost, deliver and lease it up, is going to be a lot of our main focus. And then after the next 3 fiscal years, we have Hangzhou and Guangzhou, South Station as well. And so while we remain selective, we'll never say no, we will focus more on execution. -------------------------------------------------------------------------------- Unidentified Company Representative, [20] -------------------------------------------------------------------------------- And for -- due to the time constraint, we will invite 2 final questions. Next question is from Raymond Liu with HSBC. -------------------------------------------------------------------------------- Raymond Liu, HSBC, Research Division - Analyst [21] -------------------------------------------------------------------------------- So I've got 2 questions. The first one is about the land sharing pilot scheme. And the second is about the capital management action like buyback campaigns. On the first one, there are growing land applications in the land sharing pilot schemes, like, the government seems to be further supportive and try to increase the housing land supply here. So will farmland or brownfield sites will become the mainstream of a land bank replenishment for the major companies like us in the coming years? This is the first question. And the second question is, right, if you look at the entire sectors or even across the world, so many companies now announce the share buyback campaign given the attractive valuation of the companies. So will we or the family trust consider to do something similar? -------------------------------------------------------------------------------- Unidentified Company Representative, [22] -------------------------------------------------------------------------------- Okay. On the question on land sharing scheme, right. In fact, there are actually 5 applications received or submitted to government and we are one among the 5. And we understand that government has set up a special team to push ahead these 5 schemes altogether. And I -- on our part, in our case, we have been very actively discussing and negotiating with the team from the government side. And we hear some positive news that they are also very eager to push ahead of these schemes to come to fruition. But whether or not because frankly, I don't know the other 4. But our case is well received, I can describe the situation is -- the proposal has been modified according to the various government departments, and I was told there will be likely the case, they will submit to the government -- they have a special task force and then [traditional approval] and then the final stage come to execution of these cases. But I believe it will be happening in the next couple of months. But whether or not this sort of land sharing scheme will be a main theme for public house -- private housing source of supply, I think we'll wait and see because as we said, as we -- I said earlier on, this new -- this year we will announce this 100 days report. And one of those major issues is to increase land for housing supply. So that I think we're looking forward to hearing the [CEs] report in only about a few weeks' time. -------------------------------------------------------------------------------- Raymond Kwok Ping-luen, [23] -------------------------------------------------------------------------------- On the share buyback side, I think at the moment now, I think we care a lot about our financial credit rating and also there are plenty of opportunities ahead for us to make acquisitions. So the company will not consider buying back shares in the foreseeable future. But at the same time, though, I think the family, the core family will continue to buy shares at the right price because we see the dividend yield is very good. So the family trust side will continue to acquire more shares in the market. -------------------------------------------------------------------------------- Unidentified Company Representative, [24] -------------------------------------------------------------------------------- We will have the last question from [Jeff Mack] with Morgan Stanley. -------------------------------------------------------------------------------- Unidentified Analyst, [25] -------------------------------------------------------------------------------- I have a couple of questions. The question -- the first question is on Hong Kong retail. Just wondering where you change your upcoming leasing strategies given the borders are gradually opening up. And also, can you comment also on the retail reversion outlook for FY '23? And my second question is on Hong Kong residential. There's been some talks about policy loosening. Just wondering if management is expecting any kind of loosening in measures, given that the home price may remain under pressure in the near term. -------------------------------------------------------------------------------- Kai-Wang Kwok, Sun Hung Kai Properties Limited - Executive Director [26] -------------------------------------------------------------------------------- For the retail leasing market. In terms of reversion, as I said, we had a tough fifth wave, but I think we've bottomed -- the market has bottomed out. So while we continue to have short-term lease extensions with certain tenants, we are seeing that reversions have improved, particularly in the past 2 to 3 months. And then in terms of changing our leasing strategy, I think for the border opening, right? We'll plan to -- once we -- we will plan to focus more on tourist-oriented trade mixes, for example, jewelry and watches if the border reopens. But the short-term focus now will still be on the local market where we'll take advantage of the government consumption vouchers and also our own leasing promotions, both online and offline to drive sales and drive traffic to our shopping malls. -------------------------------------------------------------------------------- Victor Lui Ting, [27] -------------------------------------------------------------------------------- Yes. And earlier this year, the relaxation of loan-to-value ratio of about 10 million to 12 million is activating the mass and also to upgrade this market. And helping a lot of young people and also upgrading families to become homebuyers and also to improve the living environment. I think this is good for the stability of our society and we all know that the new administration is also working hard to increase the housing supply. And for further relaxation, I think they will impose appropriate measures at the correct timing. -------------------------------------------------------------------------------- Raymond Kwok Ping-luen, [28] -------------------------------------------------------------------------------- On the retail side, I think we are optimistic because I think we feel that the worst of the COVID pandemics would be quite near the end now. And also, I think for our malls, we benefit from our very successful loyalty point program and also we are doing a lot of renovation of our malls, especially in the outdoor area of our malls. So we are confident that when the market recovers, our market share -- our total market share of the market will improve here. -------------------------------------------------------------------------------- Unidentified Company Representative, [29] -------------------------------------------------------------------------------- Thank you, Mr. Kwok. As this is the final question, the briefing is coming to a close. Ladies and gentlemen, thank you very much for joining us today. We appreciate your time and look forward to speaking to you soon. Thank you.