Earnings Transcript for SUHJY - Q4 Fiscal Year 2021

Hong-ning Sum: Good afternoon, ladies and gentlemen. Welcome to Sun Hung Kai Properties FY 2021 End Results Analyst Briefing. As usual, I'll give you an overview of the end result and the performance of business segments of the group, followed by a Q&A section with our senior management. First of all, I will go through the financial highlights. Please note that all figures are in Hong Kong dollars, unless stated otherwise. For the year ended 30 June 2021, the group’s underlying profits amounted to HKD 29.9 billion, representing an increase of around 2% year on year. The increase in profit is mainly driven by higher contribution from property developments and rental income from the Mainland and non-property businesses, partially offset by the lower development profits and rental income from Hong Kong and operational loss in hotel segment. The reported profit increased by 13% year on year to around HKD 26.7 billion. After taking into account the revaluation loss of investment properties of HKD 3.1 billion, which was mainly due to lower open market brands of Hong Kong retail portfolio. Similarly, the underlying earnings per share was up 2% to HKD 10.31 and reported earnings per share rose to HKD 9.21. On dividend, the Board of Directors has recommended a final dividend of HKD 3.70 per share. Together with the interim dividend of HKD 1.25 per share, the total dividend for the full year will be HKD 4.95 per share, the same as last year. This slide show that our dividend payout over the past few years. And let's talk about the profit breakdown by segment. Benefiting from the significant increased contribution from the Mainland department projects, the gross property department profits grew by 14% year on year to around HKD 21 billion. Driven by the revenue recognition from Shanghai Arch Phase 2B, property development profit from the Mainland surged over to 115%. On the other hand, decline in development profit from Hong Kong was due to lower residential completion as compared to last year. On rental business, the group's net rental income increased by 3% to around HKD 19 billion. The increase was mainly attributed to robust rental growth in the mainland portfolio, partly offset by the decline in net rental income of Hong Kong's rental portfolio. Net rental income from Mainland rental portfolio jumped by 39% year on year in Hong Kong dollar terms, or 31% in RMB terms. In Hong Kong, net rental income dropped by 6%. The group’s hotel business in Hong Kong continue to be severely affected by the pandemic, due to the absence of tourists, resulting in an operating loss of HKD 511 million. Profit from other businesses increased by 9%, largely due to the growth of data centre operations and improved operational efficiency of telecommunication businesses. The total operating profit grew more than 8% to over HKD 44 billion for the year under review. For financial position, the group balance sheet remained solid. The net gearing ratio as at 30 June was at a healthy level of 16%. Interest coverage was around 13.8 times and net book value per share rose to around HKD 205. Under our prudent financial management, we maintain sound financial position. The group also maintains A1 and A+ credit ratings from Moody's and S&P respectively, followed with a stable outlook. We shall continue to stick to the prudent financial management discipline. Now let's move to our property business in Hong Kong. As at the end of June 2021, the group total bank in Hong Kong stood at around 57.9 million square feet of attributable GFA. It includes completed properties of around 34 million square feet and 23.9 million square feet of properties under development. Shopping malls together with offices accounted for the majority of completed properties at around 68% of the total. For properties under development, the majority is for residential use representing to 74% of the total. During the year under review, the group's acquire five sites adding about 2.6 million square feet attributable GFA to our Hong Kong land bank, of which 50% from farmland land conversion and 44% from public tender. We will continue to increase our land bank through multiple channels, including farmland conversion. The five sites we bought during the year include the Kwu Tung Project in Fanling, which is located adjacent to the planned MTL Kwu Tung station and close to the planned at Hong Kong-Shenzhen Innovation and Technology Park in the Lok Ma Chau Loop. The residential town retail project as a total GFA of over 1.1 million square feet, of which 88% are for residential units and the remaining would be developed into a shopping centre. Moving on to the property development business in Hong Kong. For a year under review, the group's recognized HKD34.9 billion property sales in Hong Kong down around 5% and the development profits decreased by 11% to HKD14.6 billion, primarily due to less completions of residential development during the year, while development projects remain satisfactory. As at the end of June 2021, about HKD25.7 billion of contracted sales were yet to be recognized. In terms of completion, we completed a total attributable GFA of 2.1 million square feet, of which 1.7 million square feets were residential projects. For the next five -- for the next three financial years, we expect an average annual completions of around 3.4 million square feet, of which around 2.6 million square feet are residential developments. Apart from these new completions, we have around 0.7 million square feet of completed properties, which have been sold and will be booked in the coming years. During the year, we achieved contracted sales of HKD23.2 billion in Hong Kong. The lower contracted sales with achieved during the year was mainly due to slower than expected progress in obtaining pre-sales content for two large scale residential developments. Regency, we have launched Wetland Season Phase 1, and already sold over 900 units in the last three weeks. And since July this year, we have already achieved contracted sales of HKD9.2 billion. As shown in this map, we plan to launch a new project in FY 2022, spanning across different regions that are sitting and covering residential developments from malls to luxury, as well as an industrial project. The first one is Wetland Season Bay Phase 1 and 2 with over 1,600 units of which 900 units have been sold. In addition to new launches, we will continue to sell inventories. Now let's move on to the performance of our Hong Kong rental portfolio. The group’s diversified rental portfolio Hong Kong continue to provide sizeable recurring income with an overall average occupancy of about 91%. Overall gross rental income amended to HKD18 billion, down 5% year-over-year. The decline was largely due to the retail portfolio, while rents and occupancy of the office portfolio remains relatively resilient throughout the year. During pandemic continue to rates on the Group's retail portfolio, leading to negative rental reversions, the gross rental income decreased by 8% to HKD9.1 billion. The gross rental income of the group's office portfolios likely declined by 1% to HKD6.6 billion. As the pandemic has been subdued in Hong Kong, the tenant sales of gross retail portfolio have bottomed out in late 2020 and continue to see positive growth in recent months. Our regional malls continue to perform better than those tourist focused ones. Our seasoned leasing teams have managed to optimize the tenant mix by bringing in new retailers, such as trendy lifestyle brands and special restaurants and introduce a wide range of measures to drive footfall. We see overall occupancy of the group's retail portfolio has improved in the recent months. To safeguard the interests of its stakeholders and to support its retail tenants amidst the pandemic, the group has been allocating resources to the continuous facility upgrades as an enhancement works and introductions of innovative technologies. Apart from installing contactless facility, and upgrading air ventilation systems, we have incorporate green and wellness concepts to add various recreational facilities at selected malls. We have also leveraged our list of subsidiary smartphones 5G network, along with other advanced technologies such as Internet of Things to raise the hygiene standard and operational efficiency of our shopping malls. We’ll make good use of offline and online platforms to launch comprehensive marketing campaigns. Our loyalty program deployed by SHKP and the SHKP malls apps has boost his popularity, but membership more than 1.2 million in two years. The group has continued to upgrade the apps functions and strengthen the rewards platform. After the retail portfolio, let's move on to talk about the performance of our office portfolio in Hong Kong. During the year and review overall occupancy of the group’s office portfolio remained at a relatively stable level of about 92%. Hong Kong IFC offices were virtually fully let while ICC recorded stable performance, the Millennium City plus office cluster maintain a reasonable occupancy, despite keen competition in Kowloon East. For our joint venture developments at 98 How Ming Street in Kowloon East, the construction is scheduled for completions in 2023. The project is designed to attain Platinum ratings under LEED and WELL. According to the latest approve the planning, the High Speed Rail West Kowloon Terminus development will feature a brand new concept with lots more open space for public use. The total GFA, the project is about 3.2 million square feet, including a 600,000 square feet shopping mall, which targets to obtain Platinum ratings for these project from LEED, BEAM Plus and WELL. This concludes my discussions on the property business in Hong Kong. Now let me turn to our property business on the Mainland. As at the end of June 2021, the group had a total land bank of around 75.3 million square feet of attributable GFA on the Mainland. Completed properties amounted to 16.3 million square feet, of which 46% were shopping centers and 39% were office. Among the 59 million square feet of property under developments about 47% will be developed into high-end residents for sale. In April, the group won the bid for a large-scale mixed-use project adjacent to the Guangzhou, South Railway Station, consisting of residential service apartments, office, a shopping mall and hotel space. Guangzhou, South Railway Station is the busiest high-speed railway station in a country with excellent connectivity, and this addition will further strengthen the group's strategic presence in the Greater Bay Area. The developments with a total GFA of 9.3 million square feet is set to become an integrated station-city transport hub. The project will adopt classical and advanced strategies for leasing and sell arrangement with a maximum of 57% of the GFA for sale and the remaining portion for rental and long-term investment purpose. Next, let's turn to property development business on the Mainland. During the year, the group recognized around HKD 11.1 billion property sales on the Mainland, up 155% year-on-year, mainly driven by the revenue recognition from Shanghai Arch Phase 2B, development profits from 215% to around HKD 6.4 billion. As at the end of June 2021, around HKD 4.6 billion contracted sales were yet to be recognized. During the year, we achieved RMB 4.9 billion attributable contracted sales on the Mainland exceeding the full year sales targets. The table here shows a breakdown of individual projects. The table in this slide shows the major new launch on the Mainland in the next nine months including residential units of Suzhou ICC and Jianghehui Project in Hangzhou. Turning to the performance of our Mainland rental portfolio. During the year, the group gross rental income from Mainland rental portfolio increased by 25% year-on-year to RMB 5.2 billion or 33% in Hong Kong dollar terms. The growth was mainly driven by the strong performance of our shopping malls and benefiting from the domestic spending boom in luxury goods. The gross rental income of gross retail portfolio grew 47% year-on-year to HKD 3.9 billion. Gross rental income of office portfolio increased by 13% to around HKD 1.9 billion. The gross rental income from the Mainland accounted for 25% of the group's total gross rental income during the year, comparing to 19% for FY 2020. Supported by the robust domestic consumption, the gross retail portfolio on the Mainland recorded impressive growth in tenant sales, exceeding the pre-COVID level. An integrated loyalty program for SHKP i club was introduced in Shanghai to strengthen the synergy of the Group’s mall in the city and to offer shoppers with a more convenient cross more consumption experience. On the office front, the group's Shanghai IFC maintaining high occupancy and keen competitions. These premium office developments remained a preferred choice for leading corporations. Shanghai ICC has high completed occupancy offices in the first two phases of ITC in Shanghai were virtually fully let. In Shanghai, the remaining phase of the group's mega ITC project is currently under construction. It’s 220-meter tall premium office tower is scheduled for completion in mid-2022. The pre-leasing of the grade A office tower has received encouraging response. Constructions of the remaining parts, including a 370 meter skyscraper and a 2.5 million square feet of mega mall is progressing smoothly. Both the office towers are decided to obtain LEED Platinum certificate. In Nanjing, all these are Nanjing One IFC has achieved a committed occupancy of about 80%, while the leasing of Nanjing Two IFC, which was completed in the second half of 2020 is proceeding satisfactorily. The luxury Nanjing IFC Mall is scheduled for opening in phases from 2022 and have received encouraging pre-leasing responses. We are making good progress to expand our Mainland property investment portfolio. Over the next three financial years, the group is expected to complete around 10 million square feet of properties for investment purpose, in terms of attributable GFA, including the remaining phase of ITC in Shanghai. The group's Mainland property investment portfolio will increase to about 25 million square feet by end of FY 2024, and we could expand to over 28 million square feet by end of FY 2026. Now we'll discuss the hotel business performance. During the year under review, the group's hotel portfolio in Hong Kong continues to record operating loss due to the lack of tourists, despite some signs of improvement since the beginning of 2021. To alleviate the negative impacts, we have introduced different initiatives, such as creative staycation programs. On the Mainland, the Ritz-Carlton Shanghai, Pudong, saw a recovery from the pandemic during the year. For Andaz Nanjing, we plan to open it from 2022 Next, I would like to share with you about our ESG initiatives. The group has worked hard to achieve considerable progress on the ESG front. This slide showcase some of the key initiatives including the development of Wetland Seasons Park, an environmental friendly residential projects. The launch of SmartWorks, a 5G enabled site management system to enhance safety of construction workers. A major transitional housing project, United Court and green building certification for our existing major rental properties. On the environmental fronts, the group has established targets to reduce electricity consumption, greenhouse gas emission, water usage, and construction waste to help combat climate change. We also aim to attain the LEED certification for all new investment properties. In particular, the group has target to obtain LEED Gold or Platinum ratings for its core commercial projects under development. During year, the groups dedicated work on ESG has been well-recognized by external parties, including ESG rating agencies. For instance, we are a member of Hang Seng Corporate Sustainability Index Series with Triple A rating. We have received an MSCI ESG rating of Single A during the year. That covers our business update. Let we talk about the market and business prospects. In Hong Kong, economic recovery is likely to continue amid Mainland’s healthy economic developments and improved global prospects, while the relaxation of the cross-border travel restriction, remains the prerequisite for a full recovery of different sectors. For the primary residential markets, solid end-user demand and low interest rate environment will underpin the markets, particularly for mass market segments. Luxury segments will perform better upon lifting the cross-border travel restriction. For retail sector, retail sales have largely bottomed out and are improving. On Grade-A office markets, improving sentiments amid the ongoing global economic recovery is underway. The mainland economy will continue to perform well, underpinned by the dual circulation strategy and well-contained to pandemic. For primary residential markets, solid end-user demand continues. Land and home prices are likely to remain stable. For the retail sector, domestic consumption growth will continue to support tenant sales. On Grade-A office, market momentum remains positive with increasing inquiries. Turning to our business prospects. In Hong Kong, we believe the performance of the group's rental portfolio and hotel business will be constrained by cross-border travel restriction in the short run. We will continue to leverage a wider application of SHKP Malls App and promotional campaigns to bring more shoppers to our malls. On property deployment fronts, capitalizing on our ample salable resources, we will launch development projects for sale once ready. On the mainland, bolstered by healthy domestic consumption, the group's mainland retail rental portfolio is expected to perform well. In the medium to long term, we will continue to strengthen our core business by acquiring land selectively, both in Hong Kong and major cities on the mainland, which will speed up the conversion of farmland into buildable sites in Hong Kong. Moreover, the group we will continue to build large scale integrated projects in Hong Kong and major city on the mainland. The combined GFA of new additions to the group's property investment portfolio in Hong Kong and on the mainland is expected to exceed 16 million square feet the next five years. Finally, I would like to wrap up my presentation with a message extracted from the chairman's statement as follows. The group is confident in its future business developments and prospects. With this extensive knowledge and experience accumulated during the ups and downs of about half a century, the group will weather the upcoming uncertainties well. Its forward-looking and experienced management team, together with a solid financial position with sizeable recurring income, will be able to turn future adversity into opportunities. As a caring and socially responsible company, the group will continue to contribute to building a better world through its commitment to ESG, in particular issues on climate change and green building. The group's pursuance of excellence, which has been strongly embedded in this vision and mission, will unable it to advance the best interests of its customers, employees, shareholders and business partners and the community as a whole. This concludes my presentation. I look forward to meeting you all in person next time. Thank you.

Operator: Ladies and gentlemen, welcome back for joining our Q&A session. Now, let me introduce the panel to you. From your left, Mr. Hong-ning Sum, whom you've just met, Mr. Christopher Kwok, Executive Director, Mr. Eric Tung, Executive Director, Mr. Victor Lui, Deputy Managing Director. The center is Mr. Raymond Kwok, Chairman and Managing Director; Mr. Mike Wong, Deputy Managing Director; Mr. Adam Kwok, Executive Director; Mr. Eric Tung, Executive Director; and Mr. Frederick Li, Group Chief Accountant. Before we start, may I invite our Chairman and Managing Director, Mr. Raymond Kwok, to share with us some key messages. Mr. Kwok, please.

Raymond Kwok: Thank you, ladies and gentlemen. During the year under review, some of the group’s businesses continued to be affected by the COVID-19 pandemic and cross-border travel restrictions, but the overall results remained stable. And we recorded an underlying earnings growth of around 2%. With the strong support of the country, Hong Kong now has a stable – stable social and business environment. Together with the easing of the pandemic, a robust mainland economy and sustained recovery of Hong Kong’s economy, the group will have a promising future ahead. Sun Hung Kai Properties is confident about the future of Hong Kong. The National 14th Five-Year Plan clearly supports Hong Kong in enhancing its status as an international financial, transportation and trade centre, and developing into an international innovation and technology hub. Under One Country Two Systems, Hong Kong is well positioned to seize the opportunities in the Greater Bay Area and integrate into the dual-circulation development paradigm of the country. Our group continues to invest in Hong Kong and major mainland cities. During the year, we have increased our land bank in Hong Kong through different channels, including proactively converting agricultural land into buildable sites. We also worked to expedite the construction of various quality residential projects to help alleviate the housing shortage in Hong Kong. Earlier this year, the group acquired sites adjacent to the Guangzhou South Station, which is the busiest high-speed railway station in the country. The project will be developed into another landmark transit-oriented development creating synergy with the group's other projects along the high speed rail, including the one atop the West Kowloon Terminus in Hong Kong. The group promotes and adopts the latest technologies in different businesses to enhance the quality of its products, boost operating efficiency and provide a better experience to customers, tenants and residents. In addition to building our 5G digital infrastructure, the group has launched the city’s first 5G Lab at the Sky100 Hong Kong Observation Deck at ICC, the 5G Lab will raise public understanding of the 5G technology and its applications in enhancing business operation and quality of life. The group also works hard to fulfill its environmental, social and governance commitments. Its residential projects will be developed into cross-generational communities with a wide range of facilities to meet different age groups, needs for living, work, shopping and recreation. Our Wetland Seasons Park, which is adjacent to the Hong Kong Wetland Park, for example, has fully demonstrated the group’s success in striking a balance between development and environmental conservation. The group makes every effort to integrate the concepts of green building and wellness into its office buildings and retail premises, offering unique work and shopping experience in tune with the new era. Moreover, a group has leased out a parcel of land at a nominal rent for building United Court, a major transitional housing project in. This project supports the Hong Kong government's effort, to provide suitable temporary housing for underprivileged families, who are waiting for the public housing to be available. Construction work for the United Court has already started. Upon it's scheduled completion in 2022 it will house 1,800 grassroots families. The Group is confident that with different sectors joining forces to fight the pandemic, Hong Kong will eventually fully recover from the Coronavirus crisis with a wealth of knowledge and experience, strong financial position, as well as a well recognized premium brand, certain key properties will capitalize on present and future opportunities and help Hong Kong integrate into the development of the country, enhancing the value for shareholders and other stakeholders alike. Thank you.

Operator: Thank you, Mr. Clark. We will now open the floor for questions. [Operator Instructions]. Our first question is from Ken Yeung with Citigroup.

Ken Yeung: Hi, friends and management. Thanks. It's Ken from Citi. I have three questions. One is on property sales, second on Hong Kong office and thirdly on the China TOD land bank. So may I come one by one the first is on yourself. Given that you have missed your FY 2021 target on delays in pre-sale content, should we expect a higher contractor sales targets for FY 2022 and FY 2023 on the backup of resources. And also it seems to me that some luxury project like Victoria Harbour, Central Peakhas not been launched or not launching as aggressive as planned. Are we waiting for the border reopening before launching these. This is the first question and second question on Hong Kong office is what kind of rent reversion have you achieved on for your renewal or relaxing recently? And how is your reversion outlook for this year? Are you concerned on the supply search for the calendar year 2022. And lastly, on the China TOD side. Just be focusing on buying major TOD projects or pop on major train or metro station? How do we see the investment opportunity this year and also for the Kwu Tung Station project can show for your excesses, these are margins on the development side of the DP side and the initial view or cost of the IP side? Thank you.

A – Raymond Kwok: Yes on the on the first question on property sales, last year we have been some delay on the sales concern east under the pandemic. But we were confident to catch up later as you can see recently that we have an overwhelming sales on Wetland Seasons Bay and next month we are going to launch another sizable projects that we all have Yuen Long atop the Yuen Long Station. Actually in last year our projects like Wetland Seasons Park and Regency Bay they are all well received. Over the next 10 months we have a fair number of projects to be marketed. Namely the YOHO hub next month and also the completed Prince Central in Prince Edward road also Phase 2 of Victoria Harbour, and also in last month of the year there will be a Phase 2 of St Michel, our luxury project in Sha Tin. And in first quarter of next year that would be our another sizable project the Siu Hong project in Tuen Mun together with our project in Sai Kung [ph]. And last year or so our JV project in Belle District [ph] in Hong Kong Island. So you can see that we have quite a number of projects to be launched in the coming 10 months that would prefer a sizable revenue of HKD 45 billion in this financial year. And in medium, long-term, with our ample marketing resources and also high level of projects under development, we are very confident that we can achieve an average annual sales of HKD 40 billion in Hong Kong. As for the luxury project, I think we all know that the luxury market is a bit subdued in the past two years, especially in 2019 and 2020 under the pandemic and also the social events. But we have seen luxury buyers are gradually coming back starting from this year, and improving political stability. Of course, the future project we’re opening will also boost the market sentiment as properties in the luxury, in traditional luxury location as a very limited. And earlier this year we have seen two carbon tender sizing in the pit well being sold at cut their price at high end of market expectations, so that we can see that competence on this sector is still very strong. For our luxury project like Victoria Harbour, we are going to mark at Phase 2 upon its completion and also later this month we are going to launch Phase 2 of Central Peak that comprise of townhouses they are in high quality finishes together with innovative design for sure these town houses. They are in high quality units together with innovative design for sure these town houses would be the highlight of luxury market in the coming months. On the office side, we have been very successful to retain our tenants in the past few months. We have actually confirmed over 70% of our lease expiring in the next 12 months, and when stabilizing, especially for our two flagship development like IFC and ICC. For IFC, it is continue to be a sort of the address for most of the leading financial institutions and actually recently we have these our two and half floors to belong to PLC financial institution on favorable terms. And for ICC, I think it's going to enhance a lot in his future productivity and vibrancy due to the high speed rail line and also the future West Kowloon cultural area, and actually ICC is doing a premium rent for the whole Kowloon area. So all-in-all, I think the offices in CBD and also Chancheng will continue to outperform other sub-market, especially for development. IFC and ICC that we have majority of tenants in the finance sector and also with along PLC cooperation together with MNC. for other sub-market, like this centralized office in Kowloon East I think the leasing activity maybe twice appeals in the short-term. But our buildings are a lot affected as most of our tenants are belonging to [indiscernible] in different sectors and with longer leasing term. Thank you.

Raymond Kwok: Thanks for the question. I think, first overall question -- the second question relating to the Guangzhou South Station. I think, first of all, we're very happy to be able to embark on this project at a reasonable end cost. Yes, you notice that this is a continuation of TOD projects that we've historically been able to execute successfully all over China and Hong Kong. Of the 9.3 million square feet, actually, we are not -- we are actually also helping the local city government to drastically improve the existing public transportation network and also the car parking provisions. So I want to emphasize, when we execute this project, we're not only looking at our enhancement or our commercial facilities, but also for the city and so together, there'll be great synergy. I say this because there will be 12 lines, including, if you include the high-speed rail lines, if you include the regional lines and the local MTR lines connected to this project. And on top with the enhancing of the car parking and the buses, and the taxis and the TDs done together, I think it will be a great synergy we undertake. In terms of map, actually, I want to highlight to you at the end of this year, there'll be 11 lines maybe out of the 12 that connects to the south station. And with all that, we will be able to go to Guangzhou City Centre, be it the new probably town or the old Liwan town, we will be able to get there in 30 minutes within 30 minutes. And then within 47 minutes, of course, we can connect to our XRL station and there'll be a lot of synergy. And finally, with the completion of the new lines, we can get to the Baiyun Airport, Guangzhou airport within half an hour to. So with this being GBA center, we believe it will be very visible for a lot of tenants. May I add also, if you were to pick a point in GBA that can get to all 11 cities, this will be the spot, because it can get there within one hour through transport from Guangzhou South Station to all the nine plus two cities, you can get that within an hour. With our returns initially, we are looking to sell over around 55% over 55%, around 57% of our GFA will be sold as a balanced approach. In fact, as soon as at end of next year, we'll start selling the first phase of our residential. We'll only be keeping around 45% of the GFA for our long-term purpose, mainly as the mall, the office and a bit of a hotel. For the parts that were remaining the -- around 45%, we are expecting initial EBITDA yield, I'm talking about net EBITDA yield of around 46% on cost. For the sales portion, we are expecting healthy reasonable mid-teens margin and that includes not only the residential, some of the surplus apartments and also a sizable portion of offices. And these offices will be an easy to sell 30,000, 40,000, 50,000 square meter blocks ready for GPA centers. Thank you.

Operator: Our next question is from Karl Choi with Bank of America.

Karl Choi: Great. Thanks. Thanks for taking my questions. I also have three questions. First one is on Hong Kong resi, second one is on Hong Kong retail and then the third one is on dividend theory. For Hong Kong resi, I think given the rise in home prices year-to-date, I think there are quite a few investors are concerned about potentially rising risk for quality measures, just wondering what's management teams on that? And also related to that, what would be Sun Hung Kai’s sales strategy going forward? Would you focus more on margin or -- but you also -- looks like you also want to catch up on some of the contract sales from last year, in which you focus more on volume. Second question is on Hong Kong retail sales. Understanding that they have bottomed out, can you give a little bit more color on, what kind of rental reversion you’re seeing, where those spot rents have stabilized? And also what kind of occupancy costs are you seeing? And then lastly, in terms of gearing and dividend, gearing level is still very healthy at 16%. But versus your 20% sort of target, doesn't necessarily leave a ton of room for further that acquisition. But I think there's still a lot of opportunities out there. So, just wondering, whether you intend to stick to that gearing target and also what was sort of the dividend outlook in terms of payout and also absolute dividend. Thank you.

Raymond Kwok: Yes. The central market is now entirely an end user market. And in the past two weeks when we are selling the balances and we have found that over 95% of purchases are belonging to first time buyer and upgraders. And some people are talking about the vacancy rate in Hong Kong. Actually the vacancy rate in Hong Kong for -- to the central market is not high at all. And even high low in -- for computer units in the hands of developers. Everybody knows that, developers are working to launch value projects, once they got their sales consent. So I can see -- necessary to impose further measuring policy on the market. For our sales strategy, we are always sticking to the prevailing market condition and launch our new project at reasonable market price. And as you can see from our past experience, we can always strike a balance between volume and margin. And normally, we are -- for philosophy part, which may lead longer time to absorb. But for mass project, we are aiming for a quick and high assert turnover. As you can see, in the past two weeks, we have disposed aligned units in balances and bay. And as I said, in coming 10 months, we have quite a number of projects to be launched and we are expecting high volume of sales in this financial year. Thank you.

Mike Wong: Yes. In terms of the Hong Kong retail market, I think, it's -- for our portfolio, I think, the retail sales at our shopping malls have bottomed out. And since beginning of this calendar year, we have started outperform the Hong Kong market. So for our regional malls, which focus more on domestic consumption, have continued to perform better than those located in tourist districts, and second half of this financial year, we've recorded lower occupancy costs and also we've been able to keep vacancy within 10%. Recently, the government's Consumption Voucher Scheme was launched in August, has had a very good positive impact on the retail sales at our shopping malls. And we'll continue to offer extra promotion schemes on top of that, making use of our own in-house vouchers and also our loyalty program at the point. That being said, the full recovery of retail sales is still subject to the timing of the border opening. While border malls will continue to record a negative rent reversion during the year. So for the short term, we will rely more on shorter lease extensions as an option for ourselves, to continue -- to keep our tenants and also to be able to give us the flexibility so that we can rebound from once the border opens. But yes, the key is still opening the borders so that we can reach levels of sales that were achieved in 2019?

Mike Wong: On the third question, our dividend policy always is to pay about 40% to 50% of the underlying profits. And also we will try to maintain the dividend per share, even though, one year there may be a fall off earnings per share. And on the gearing side, the fair to capitalization ratio is 16%. And we'll try to maintain the S&P rating of, A-plus. So that would be that criteria, we try to achieve. Yeah. Thank you.

Karl Choi: Thank you.

Operator: Our next question comes from John Mann of UBS.

John Mann: Thank you. This is John from UBS. Thank you for taking my question. I have two questions here. The first one is that, I see that in the PowerPoint slide, at the company plans to speedup or accelerate the conversion of the farmland. Not sure, if management can give us more details, regarding on the conversion of the farmland? This is the first question.

, :

Mike Wong: On the subject of land banking, particularly on farmland conversion, I think we have actually made our submission to government to convert into farmland into build able land is under various stages of conversion, namely planning, and leasing modification accounts for about two-thirds of all farmland reserves. And I'm proud to share with you government has actually put more initiative to split-up the whole process. And we have seen progress in a lot of improvement in recent months. And I would like to share that, apart from those projects, we have announced they will be one important or substantial project will be very close to final or a final stage of conversion. In a pipe, I think that one will be announced within two or three months. And this is the report from I would like to share probably you're aware there were made submissions to government for the land sharing scheme, and this is part of our ESG initiative. And it is in the process. We are waiting for government to approve. And we'll hope, this will help to alleviate the housing shortage. And particularly for this project, we're going to provide 2,600 public housing units, as opposed to about 1,400 private units. The effect on this project implemented it will help to alleviate the shortage of housing.

John Mann: Sure. On the retail market in Hong Kong and in China, I think the Hong Kong just as I said B2C I think that it really depends on when the borders open. I will add a little bit more to that. I mean, recently we actually positive that once the boarder is open, I think the Mainland tourists will still come to Hong Kong to shop, right? Because we recently actually done an internal survey, where we found out that people from tension and they vacated the area, like, they remain very interested in coming to Hong Kong for shopping and services when the border reopens, even though they have become more sophisticated and demanding over the years, so they want better retail experiences, better promotions. And so we are, I think you will be well-prepared to capture the upside when the border opens by making use of loyalty programs to engage customers directly and enhance -- and also enhance our onsite amenities, especially outdoor and wellness concepts, which have been in high demand since the COVID outbreak. For China, I think we've seen a very robust growth in both retail sales and rental income in the past year. In fact, I think retail sales is at an all time high at this point. I think, going forward, I think so far this has been shown that the domestic consumption in China has been very strong, supported by the dual secularism strategy. And we believe that it will take more time for international travel to resume normality and so domestic compensation will continue to be very strong. And we continue to see brands especially luxury brands, offering exclusive product ranges and services for the customers on the Mainland. So, we believe that going forward, the strong tenant sales will be sustainable, even though we are talking about a higher base but the prospects are still very great.

Raymond Kwok: John, I’d like to add for the shopping environment in Hong Kong, it's getting better, especially with the financial secretaries, new consumption voucher scheme. In August, we found out that our Point members spend more than they spend in July. So in a sense, the consumption voucher scheme has helped. And also I think people are coming back for dining and for shopping. As you know, when you experience going out to IFC, you can see that more people are dining and walking around in shopping mall, so -- and also the economy is not too bad, where the unemployment rate is only 5.2%. So I think we believe that when the border with the Mainland opens up, I think the sales for our tenants and our malls will improve substantially. Thank you.

Operator: Our next question comes from [indiscernible] with JPMorgan.

Unidentified Analyst: Hi, management, I have three questions. First on China land banking, I think after Guangzhou substation, is that going to be the project that the company will be focusing on over the next few years, or actually they are the attractive land banking opportunities available in China right now, especially given this de-leveraging trend in China for the property companies? Now, second question is, just want to see, if you can give us any update on the progress of the last phase of the ITC in Shanghai? And when should we be expecting the PDs in Cullinan West to process to stop? And the last one is regarding your ESG can you highlight some of the explicit targets that the company has set for itself to achieve as far as ESG is concern? Thank you.

Raymond Kwok: Actually, I think, at the moment now on the Mainland, where we are – we have several major projects ongoing right. One is the Shanghai ITC. The other one is a Hangzhou project. The joint venture with Jianghehui. And the third project would be what Adams have said about the Guangzhou South Railway Station, right. And also Nanjing that's – number four project will be Nanjing. It's about 3 million square feet. So we are busy already with the projects on hand. And, of course, I think for the right opportunity, we'll look at projects. But I think, we'll be looking at selectively at major cities only, and only at the TO – at the Transit Oriented projects. Yeah. So and on your question about ITC Shanghai, I would ask Eric.

Eric Tung: Thanks. For ITC Shanghai for phase one, phase two complete ready and other offices are actually fully left. And up – for the remaining phases, phase three and phase four, the smaller tower of a two which is something like 20 to 28 meters tall will be completed by the middle of next year. And the rent of the producing result is very encouraging. And the shopping mall in the main pathway, which is around 2.5 million square feet will be completed by the end of next year. So despite a slight delay last year, because of the pullback, we'll be able to catch up the progress this year. So basically, it's on schedule.

Raymond Kwok: On the question of ESG, maybe Mike?

Mike Wong: Thank you. Well, something on ESG, I would like to highlight two issues. One is to some – some targets for the reduction of Greenhouse Gas. I think we have – couple of targets –KPI for how projects to meet this year actually initiative on electricity on power consumption, the next 10 years target is to reduce power consumption by 13%, 13%. On the Greenhouse Emission, we target to reduce by 25% in the next 10 years. On the water management, we will reduce the water consumption by 5% over the next 10 years. This is – the general guideline for reduction of energy in water and power consumption. I must mention that the green label for future projects, and we are committed to obtain highest green labels for commercial investment projects, particularly for our High Speed Rail project in West Kowloon, and our premium projects in China as well. And we're target to get the premium lead straight standard up to the curriculum level, this is our commitment.

Raymond Kwok: And also in general, we have highlighted it in our – in my Chairman statement with a title sustainable development. I've highlighted the general direction we are following here. So, maybe when you have time, please look our -- read our Chairman’s statement section on sustainable development. Thank you.

Operator: Thanks. Our next question comes from Raymond Liu with HSBC.

Raymond Liu: Thank you, management for taking my question. I got two in mind. The first one is about the preferred structure. So if you look at Asia, some companies conduct a [indiscernible] and some companies make a silicon business restructuring to drive higher earnings growth. So you can imagine share that, how do you think the existing business structure of Sun Hung Kai Properties, is an optimal [ph]? It isn't optimals, are you confident that the earnings of the company will improve again later time in between 2015 to 2019? This is the first question. And the second question is about Mainland China Property Development business. So the physical market there is getting more challenging and some local peer have slow down their expansion pace. We will consider to scale up your investments in the residential products there. And can you also share with us that your latest contracted sales target for this fiscal year in Mainland China? Thank you.

Raymond Kwok: On your first question, I think our major business is Property Development, and therefore I think, I was praying this recurrent income and then we have a quite a big pipeline on investment properties focusing in either Tier 1 or top Tier 2 cities on the Mainland. And we are confident that over time, the rental income of these properties under construction, when they complete, our rental will go up. For example, like the West Kowloon -- West Kowloon project, right. And also, as we mentioned before, our Shanghai ITC, our Hangzhou project, our Nanjing project, also Guangzhou South Railway Station. So organically, our rental income will go up over time. And on the development front, we are not slowing down. As Mike Wong said, I think we are keep on increasing -- we're try to increase our residential land bank to agricultural land conversion also participating in land tenders. On your second question, I think our strength really on the Mainland is on the integrated project with our hotel, retail and office. On the residential side, we are not as fast as the Mainland developers. And also our management tend to be very cautious, looking after that we don't break any laws. So therefore, don't expect us to expand too much on our residential competition. But I will say our strength on the Mainland more on the integrated project in the capacities and the best location, especially the project with a lot of our railway lines around our project. Yes, thank you.

Raymond Kwok: I'll just supplement the sales target is coming up for this year will be HKD7 billion Hong. If you look at our historical range, we are mostly from HKD5 billion to HKD10 billion, but I think on as our Chairman says, even this year, most of our projects and the residential we sell or the service apartments we sell are part of integrated projects, be it coming up our Hangzhou, residential sales or our Suzhou ICC resident sales. There are ongoing, you can see that trend from us. So HKD7 billion.

Operator: For interest of time, we will take the last question, which is from Praveen Choudhary with Morgan Stanley.

Praveen Choudhary: Hi, thanks, everyone. My question is related to the company's non-property business, for example, SUNeVision SmartTone. I just wanted to understand what's the future of those non-property businesses? Do you want to spin-off et cetera. The second thing is SUNeVision is doing very well in the data centre, just wanted to understand if management wants to go into a decencies, such as data centre, property management businesses, like some of the other companies like ESR has gone into to capture that high growth segments. Thank you very much.

Raymond Kwok: Actually, basically SmartTone and SUNeVision have already been spun-off as separate listed companies. But we continue to see them as very important companies for the group, for two reasons. One is, we believe that they have equal potential, and we'll get to SUNeVision in a moment. The data centres is a critical sector, as mentioned by the four year, five year plan. And as SUNeVision is actually in a very good position to capture a lot of the growth, because it's already one of the leading, if not the leading data centre operator in Asia. And SmartTone, we also believe that it has a very good potential for the group. And I think we have recently built a world class 5G network, which will bring substantial benefits to consumers and enterprises. So recently, as the Chairman said, we actually built and launched the first 5G lab in Hong Kong. So if you have not been for that, you understand why we believe that is important. And, I think, one final point on this is that we think that these businesses are important not just from a revenue or net income point of view to the Group, but they're important because they are strategic. Some of these businesses are window for the group to build the season technology. And I can proudly say that all major new economy companies; US, China what have you are either customer or partner of SUNeVision SmarTone. This is very important for us to understand how to adopt technology. And we already -- those companies already helping the group to digitize and transform itself. Again, if you go to the 5G lab, you understand what we're doing, and how technology can actually help it. So we think that these companies are very integrated strategically with the group. On the point about data centre property, data centre business and growth. I'll be brief, because I'll leave it to the management of data centre SUNeVision to talk about it. We will not move out any potential growth opportunities because we believe in the sector. We believe in will grow. But at the same time, we also very clearly understand our strengths. Our strengths is that we provide superior quality. We have also superior customer base. And these are the reasons why our customers continue to grow with us. So we will actually follow our customer’s footsteps. And so far, it has been a very successful formula. So whether we will go to property management, it will really will have monitor and see whether that is actually a heavy demand from our customers. But as it stands, many things we are doing are clearly we see major growth.

Praveen Choudhary: Thank you.

Unidentified Company Representative: Thank you very much.

Raymond Kwok: Okay, I like to add that, I think for our Group, of course, I think, we take pride in our hard work and team teamwork. But also in addition, we need innovation to update our business all the time, including the property business. And we believe our SUNeVision SmarTone is a good window for us to understand technology, not just in the West, but also from the Mainland. So therefore, I think, you know, I think, given our asset, our asset based now is important for us to understand more about through technology to understand about the future world. Thank you.

Unidentified Company Representative: Thank you, Mr. Kwok. This is the final question. This concludes our briefing session today. Thank you very much for joining us today. We appreciate your time and we look forward to speaking to you soon.