1H 2023 Half-Year Results Presentation

Good morning, everyone. Thank you for joining us in person to review Hong Kong Land's results for the first half of 2023. We are also very pleased to welcome those of you participating online. I'm Robert Wong, the Chief Executive of Hong Kong Land, and with me is Craig Bilti, our Chief Financial Officer. Following our presentation, there will be opportunities for questions. For those of you watching via the webcast, please send us your questions through the website and we will include them in the Q&A sessions. Today, I will take you through some key updates and half-year results highlights for investment properties and development properties before turning over to Craig to cover financial highlights.

I will then conclude with an update on the Group Sustainability and other corporate initiatives as well as our outlooks, followed by Q&A. Before I move into the half-year results in detail, let me first provide a brief update on our key business segments, along with observations in each of our key markets. In Hong Kong, headwinds in global financial markets have dampened office demand, especially from the financial services sector. The well-documented office supply surplus, predominantly in decentralized areas has resulted in an increase in vacancy across the city. The group's central portfolio vacancies continue to outperform the office market both across Hong Kong and within the

central district. This is driven by continuous flight to quality, demand from occupiers attracted to the portfolio central location, premium offerings and tenant services, as well as strong sustainability credentials. On luxury retail, trading conditions have improved significantly since the reopening of the border and the return of visitors, with tenant sales and food for approaching pre-COVID levels. Moving on to the Chinese mainland, despite the introduction of policy support measures, sentiment for the residential market was weighted down by the weak economic outlook in China and remained cautious in the first half of the year. The group's focus on premium residential products in selected top tier cities, as well as our

strong reputation for quality resulted in a better sales performance than the general market. Turning to retail, there was a strong recovery in tenant sales and food fall in the first half of 2023 at both WF Central in Beijing and one central Macau. In Singapore, office leasing momentum in the first half of 2023 continued to benefit from healthy occupier demand, although market sentiment has turned cautious as a result of softer demand from technology and financial services sector. Office rent continued to rise due to positive net options and a tight supply. On the residential side, buyer sentiment remains satisfactory despite recent cooling

measures targeted at tempering demand from foreign investors. Presales at the group's recently launched Tambazu Grant project were well received by the market. Turning to an overview of the 2023 half-year results, despite challenging trading conditions in a number of our key markets, I am pleased to say that the group produced a solid performance overall in the first half of the year. The group's underlying profit in the first half of 2023 was USD 422 million in line with the same period last year. The total profit contribution from the group's investment properties business increased on the back of a much-engroved performance from our luxury retail portfolio, which was partly offset by lower contributions

from the development properties business due to less-planted residential sales completions. Underline earnings per share was US$0.19 per share, a slight increase compared to the same period in 2022 as a result of the buyback and cancellations of 5% of Hong Kong land shares since the share buyback was launched in September 2021. The overall loss per share was US$15.5 after the impact of non-trading items. The loss attributable to shareholders was US$333 million after accounting for a net re-evaluation loss of US$755 million on the the group's investment properties portfolio, nearly all of which related to the Hong Kong

office portfolio. The net asset value per share at 30th June 2023 was US$14.51. The board has declared an interim dividend of US$0.06 per share unchanged from the prior year. The group's balance sheet remains strong. Now let's turn to some of the progress we have made in the first half of 2023. In April, the group commenced sales of Tampusu Grant, a residential development in the Khaton region in Singapore. The project was well received In the market, heaven sold 53% of the units on the launch weekend.

During the period, the group increased its investments into existing projects, acquiring a 15% interest in Yew City, a mixed-use project in Nanjing from Country Garden, and acquiring a 50% interest in Dreamland, a mixed-use project in Wuhan from Zhao. Both projects were acquired at a discount valuation, which resulted in one-off gains recognised in the results for the first half of 2023, amounting to US$72 million. The group also secured two new investments in Indonesia through its joint venture with Astra. New New Investments in the first half of 2023 was US$100 million. For reference, the group invested US$1 billion for the full year of 2022. The group's intent is to maintain a

disciplined approach when assessing new investment opportunities to navigate the current uncertain market conditions. In the first half of 2023, the group continued to progress on its sustainability goals, including the disclosure of scope-free emissions for the first time in our Sustainability Performance Report 2022, the development of bespoke tools to measure the carbon emissions impact from our projects and 3. The soft launch of a more comprehensive sustainability partnership program without tenants in Hong Kong. I will provide further details on all these items later on the presentation. Diving further into the commercial component of our development activities, I would like to take these opportunities to speak more

about the positioning of our retail portfolio on the Chinese Mainland. Inoperated by the launch of WF Central Beijing in 2019, the Central brand is Hong Kong Land's leading premium luxury retail series on the Chinese Mainland. The group expects to launch four additional central branded luxury retail properties from 2024 to 2027 in Nanjing, Chongqing, Suzhou and Shanghai, with an estimated attributable net-latable area of approximately 163,000 square metres. In April 2021, the group opened a seven-level shopping mall under the lifestyle retail brands The Ring in Chongqing. This property is the first in a series of moles under development using the RING brand.

The group expects to launch six additional moles under this brand from 2024 to 2028, with an estimated attributable net-lettable area of approximately 197,000 square metres. Upon completion in 2028, the group's total attributable retail net-latable area under the two brands will be three times greater than the current levels. These assets will provide the group with a strong source of growth in recurring income stream. Depending on their performance and market conditions after rents stabilize, the group will consider whether to continue operating these assets for long-term capital appreciations or to dispose of them and recycle capital invested.

Turning now to an update on the Westbun, construction is largely progressing on schedule, with completion expected in phases starting from 2023 through 2027. The first phase to be completed is the residential component, both for lease and for sale. The residential properties for sale component will be launched later this year. The buildings are now undergoing interior feet-out work with completion expected by the end of 2023. The second phase, which is expected to be completed in stages between 2024 and 2026, consist of low and mid-rise offices, luxury and lifestyle retail. Currently, the basement and superstructure works are in progress. The final phase will consist of the office and luxury retail for lease, as well as luxury hotel and service apartments, which are expected

to be operated by global luxury hotel brand. Currently, the piling and excavation work is in progress, completion is expected in stages from 2026 to 2027. In addition to the commercial and residential components, we have focus on the Westburn also includes a significant amount of public and green space for public use. Located on Block C is an art exhibition hall called orbit, which will aim to become one of the world's leading exhibition spaces for fashion, art and other cultural events. In addition, a seed museum will aim to educate visitors and help them reflect on the importance of biodiversity, as well as promote more sustainable lifestyles. There will also be a planetarium to provide immersive astronomical experiences.

The high-rise office towers for lease will include a private terrace with an outdoor meeting space. Throughout the development, there will be abundance of green space for proper use.

I shall now turn to investment properties.

Turning first to our Hong Kong office portfolio. Performance from the office portfolio remains stable. Rental reversions were negative in the first half of 2023. with an average average office rent decreasing to $107 per square foot from $111 in the second half of 2022. Physical vacancy at the end of June 2023 increased to 6.9% from 4.9% at the end of 2022. On a committed basis, taking into account existing lease commitments, vacancy was 6.2% at the end of June 2023, compared with 4.7% at the end of 2022.

By comparison, vacancy based on existing lease commitments across the Hong Kong Central Grade A office market was 9.4%, and increased from 8.8% at the end of 2022 and the highest it has been since 2004. The weighted average least expiry at the end of June 2023 was 3.7 years compared with four years at the end of 2022. The portfolio's top 30 tenants who occupied close to half of our total office net feasible area in Hong Kong, had a weighted average lease expiry of five on six years. At the end of June 2023, only 12% of our Hong Kong office portfolio is subject to expiration or rent revisions during the second half of the year.

Including concluded renewals and rent review subsequent to June, this has decreased to 8% of our portfolio with approximately 3% relating to exploration and the remainder to rent reversion. Next, I'd like to dive further into the 04 Central Vacancy and Supply Dynamics to bring some context to our numbers. Since 2017, Hong Kong Central Fostolia Vacancy has outperformed the broader Central Market with the gap widening since 2021. This is in part due to the group's active lease management in recent years, as well as the group's continued link to response to the changing preferences of our tenants and customers. The group has continued to introduce new concepts to its portfolio of best-in-class services

and offerings, including continuing our efforts to deliver on sustainability initiatives to to meet increasing stakeholders' expectations. Prime examples of expressing tenants' changing preferences included the launch of Centricity FEX in 2021, a 25,000 square feet premium flexible office solution designed to meet tenants' increasing needs for more agile, wellness-focused and digitally-enabled workspace in core central as well as the refreshing of F and B concepts on offer over the past two years.

On stability front, our entire central portfolio is certified to our highest possible green building standards of beam plus platinum across all seven aspects under the existing building schemes including strong energy and water efficiency, waste reduction, indoor air quality, and sustainable property management practices. Based on data from JLL in 2022, there was 5 million square feet of new stock in Hong Kong, the highest level since 2008. However, none of it was in Central. From now until 2027, an estimated 10.2 million square feet of new office space is expected in Hong Kong, of which 1.1 million will be in Central. Which means that by 2027, total office space in Central is expected to reach 25.1 million,

representing a very manageable 4.6% increase from the existing stock as at 2022. Turning to the landmark, which continues to remain the preeminent luxury shopping and fine dining destination in Hong Kong. Following several challenging years for the retail market in Hong Kong, landmark delivered and improved performance during the first half of 2023, an increase in tenant sales and the facing of temporary rent relief led to an increase in average retail rent to $204 per square foot in the first half of 2023 compared to 168 and 181 in the first and the second halves of 2022 respectively.

For comparison purposes, if we exclude the impact of rent relief average net rent in the first half of 2023 were 7% higher than the same period last year. In terms of occupancy, the landmark remains effectively fully occupied. Tenant sales has increased by an estimated 72% year-on-year, largely on par with sales from pre-COVID levels. Turning now to our Singapore office portfolio. Average gross rents across our Singapore portfolio in the first half of 2023 was 10.9 Singapore dollars per square foot per month, and increased from 10.6 Singapore dollars in 2022. Positive rental reversions were achieved during the year. Physical vacancy across the portfolio was 2.1% compared with 7.5% at the end of

2022. On a committed basis, vacancy was 1% compared with 2.2% at the end of 2022.

As at the end of June 2023, only 3% of our portfolio was subject to expiration or rental revisions in the second half of 2023. Turning to other parts of Asia, in Beijing, first four antenna cells experienced a strong recovery in the first half of 2023, tenant sales at WF Central were up 57% against the same period last year in the first half of 2023. WF Central welcomed 22 new tendencies, including new duplexes for Gucci, Burberry and Platter, as well as an expanded presence for Valentino on the second floor of the mall. At the end of the first half of 2023, the property was 83% less. In Macau, food for and tenant sales in the first half of 2023 benefited from the return of visitors from Hong Kong and the Chinese

mainland with tenant sales increasing 58% compared to the same period in 2022. Moving on to development properties. On the Chinese mainland, the group development properties This pipeline includes 35 projects spread across seven cities with total attributable developable area amounting to 8.2 million square metres of these. Construction of approximately 68% had been completed at the end of June 2023. Chongqing remains our largest market and accounts for 60% of our Chinese mainland business by attributable developable area. We currently have 14 projects in Chongqing with an attributable development area of 4.9 million square meters. By exposure in US dollars, which comprises committed development courses, less pre-sales

proceeds contractually secured, Chongqing is also our largest market on the Chinese mainland and accounts for 30%, followed by Shanghai, Nanjing and Wuhan, which accounts for 23%, 20% and 15% respectively. The property market appears to be stabilising following the government's increase, effort to support developers and further relaxations of very stringent cooling measures that were previously in place. However, market recovery is still quite slow and the challenging economic outlook continues to wait on the residential market. During the first half of the year, the group share of development properties revenue recognised on the Chinese mainland, including its subsidiaries and share of joint venture, was US$563 million. This represented

a 23% decrease from the same period last year due to the timing of completions. In terms of sales performance, the group share of contracted sales increased by 78% year-on-year to US$745 million. A result of the group's focus on premium residential product launches in selected top-tier cities. Sales launches in Chongqing, Chengdu and Wuhan, including units at Natural, Jue, or Regionland, Landmark Riverside and Ria City were generally well received and outperformed the overall market. At the end of June 2023, the group share of sold but unrecognized contract sales in its developments on the Chinese mainland was US$2.3 billion with 47% expected to be recognised

in the next six months. The group recorded a gross margin of 21% in the first half of 2023 down from the 27% recorded in 2022. Turning now to Singapore, where the groups have four development projects with a total attributable development area amounting to approximately 110,000 square meters. As of June 2023, all four projects have been launched for sale. Hong Kong Land's first launch of the year, Tambusu Grand, achieved strong first-day sales of 53% in April, signaling strong demand for well-located projects in the rest of the central region. Revenue recognized in Singapore was US$225 million compared with US$174 million in the

first half of 2022. In terms of sales performance, contractor sales in the first half of 2023 was at US$487 million an 80% increase from US$270 million in June 2022. This was primarily driven by the launch of the Tambasoo Grant, which achieved strong first-day sales of 53% in April. As at the end of June 2023, but unrecognized contract sales in Singapore was US$849 million, with 17% scheduled to be recognised in the second half of 2023 under the percentage of completion method. The government has introduced cooling measures to protect domestic home bias and to promote a healthy development of the residential property market. This concludes

the review of our investments and development properties' portfolios. I will now pass over to Craig to take you through the financial results. Thank you Robert and good morning everybody. I will now take you through our financial performance in the first half of 2023. All numbers referred to in this presentation are in US dollars unless otherwise indicated. Despite the market headwinds the group has produced a satisfactory profit performance in the first half. Underlying profit was 422 million in line with the same period last year. Investment properties, operating profits increased by a net 17 million year over year. This was primarily due to better performances from the group's luxury retail malls in Hong Kong, Beijing and Macau. Operating profits from development properties decreased by a net 43 million

year over year primarily due to fewer sales completions on the Chinese mainland. There was a net decrease of 23 million in expense items mainly driven by lower tax charges due to a smaller share of profits coming from the Chinese mainland, as well as a net decrease in net financing charges due to higher interest income from deposits. The impact of rising interest rates in the first half was modest, as the group has a significant portion of fixed-cost debt. Overall, the operating profits split between investment properties and development properties remained similar to the first half of 2022 at approximately 70% and 30%. Turning to rental income by region, the combined rental income from our office and retail portfolio in Hong Kong increased by 1% compared with the same period in 2022. Improved performance from the landmark retail mall

was partly offset by negative rent reversions within the central office portfolio. Rental income from our Singapore portfolio increased by 8%, benefiting from healthy demand and supply dynamics, with positive rental reversions across the portfolio. On the Chinese mainland, rental income increased 10% in 2023, compared to the same period in 2022, due to increased contributions from WF Central, which enjoyed a recovery in tenant sales and fruit fall. Contributions from our hotel properties in Hong Kong, Beijing and Macau improve significantly as visitors returned in the first half of 2023. Turn into the operating profit of the group's development properties by region. Please note this slide includes the group share of joint ventures and associates. Profits in the Chinese mainland are recognised when projects complete construction and are

handed over to buyers. This means that construction progress and the number of projects in the pipeline will cause fluctuations in profitability across reporting periods. Profits in the period reduced by 16% year over year, reflecting a fewer number of completions. Profits in Singapore are recognised on a percentage of construction completion basis. Profits in the first half of 2023 were broadly unchanged in comparison to the same period last year. There were lower contributions in Indonesia due to reduction in planned sales completions and in other South Asian countries operating profits decreased with 2022 profits benefiting from a large residential project in Vietnam. Turning now to an update on our capital management. In line with previous guidance we endeavoured to maintain a steady or increasing dividend as earnings grow. The group expects the dividend

to be maintained in a down year if we consider this to be caused by temporary factors with the resulting increase in payout ratio. Dividends for the first half of 2023 have been maintained at 6 cents per share. In the first half of this year, there were no new land acquisitions as a group adopted a cautious approach towards new investments. The group increased its equity share in two existing projects on the Chinese mainland for a total investment cost of $153 million. As advised previously, we expect capital deployed this year to be below the average investment in the past six years. And in the first half of this year, as you can see, the group invested $0.1 billion compared to an annual average of $2.4 billion in the past six years. On the shared buyback, the total amount invested in the program since it was announced in September 2021 is just shy of 600 million, and there's about 400 million remaining headroom until

the end of this year. Let me provide you with an update on our balance sheet. Net asset value at 30 June 2023 was 32.1 billion, down 4% compared to the end of 2022. This was primarily driven by valuation reductions of Hong Kong office assets, which reduced by some $730 million following a 2% decrease in rents and 5 basis points cap rate expansion. Exchange translation differences of $409 million mainly related to assets on the Chinese mainland which had a lower value in US dollars due to a weakening of the renminbi. Final dividends for 2022 of $0.16 per share were paid to shareholders in the first half of this year. The maturity profile of the group's debt is shown on the left-hand side of the slide. The debt maturities are staggered over a number of years and are well diversified between

both banks and debt capital markets. The group has approximately 580 million bonds due to mature within the next six months. 400 million of this has been refinanced with a new ten-year bond issued on the 14th of July. The average tenor of our drawn debt at half year was 5.7 years, although this has increased to 5.9 years with the new bond issuance included. Average interest cost was 3.7% up from 3.3% at the end of 2022. The impact of increased market interest rates was mitigated by having 54% of total gross debt at fixed rates. At the end of the first half of this year, the group had available liquidity of 3.3 billion compared to 3.1 billion at the end of last year. And our credit ratings by S&P and Moody's remain unchanged at A and A3 respectively.

I will now hand back to Robert who will close with some comments on our sustainability achievements in the first half of this year, a few of our ongoing corporate initiatives and the outlook for the rest of this year. Thank you, Craig. Moving on to sustainability, I would like to highlight a few of the group's key achievements over the past year. The group continued to make progress on this sustainability journey over the past six months. As part of the group's work towards improving and simplifying its ESG disclosures, two separate reports were issued. The first specifically focused on the group's sustainability Framework 2030, its Decompanization Pathway to 2030, and Climate Risk-related Disclosure in line with TCFD requirements.

The second report focuses on providing details on initiatives undertaken and sustainability performance data across the region for 2022. On decarbonisation, the group has made progress towards its SBT-aligned scope 1 and 2 reduction targets of 46.2% by 2030 by achieving a GXG reduction of 20% in 2022 relative to the 2019 baseline. The group is committed to continue undertaking asset enhancement and other energy efficiency initiatives as it progresses towards its 2030 targets. For scope-free emissions, the group also made progress with the inaugural disclosure of emissions in its Sustainability Performance Report 2022 to facilitate more accurate and

timely reporting of embodied or construction-related carbon emissions throughout its supply chain, the group developed bespoke tools to cover a number of key markets outside Hong Kong and Singapore where industry-recognized tools have yet to emerge. The group is now working on implementing these tools into its development cycle in order to identify opportunities to work with contractors to reduce and body carbon emissions from its development project. On the tenants' collaboration front, the group is building on this successful pilot green feet out and operation recognition scheme by soft launching a more comprehensive Tenant Systemility Partnership Program at the central portfolio. The program aims to deepen our collaborations with tenants on our shared sustainability journey,

to improve not only finding ways to improve our environmental performance, but also combining our efforts in delivering voluntary and other CSR initiatives to the local community. More details will be announced in the coming months. The group is also proud to have received a number of accolades for its property management excellence and putting sustainability into practice over the past few months. Awarded by the International Facility Management Association, Hong Kong Land Property Management Limited received the Certificate of Excellence in IFMA Asia-Pacific Awards of Excellence 2022 and 2023 in environmental stewardship. In addition, Exchange Square, Hong Kong won the the Excellence Building Award 2023, Year of Excellence Building Award for Existing Buildings,

which was awarded by the Hong Kong Institution of Engineers. These awards are testament to the high standards of the group's operational excellence. Moving on to a few of our corporate initiatives. Next, I would like to take a few moments to provide a brief update on the group digitalization efforts. The bespoke loyalty program aimed at landmarks luxury clients utilize data analytics and visualization platforms to identify high value retail customers and launch targets marketing campaigns. The team engages our customers via a myriad of methods such as brand collaborations events, program engagements, and technical offerings. The active engagement from our customers

Their increased spending and willingness to join our program illustrate the meaningful outcomes of our effort.

On the SSI, we continue to source, test and deploy PropTech and other solutions to the benefit of both tenants and customer experience, as well as progress towards the group's sustainability objectives. This year, the Protect Acceleration Program focuses on solutions that prioritize sustainability. Some of the award-winning solutions, which are being piloted and potentially implemented across the groups include an AI-based robotic system for building exterior maintenance, the replacement of concrete with plastic balls to reduce concrete use in new builds, digitalization efforts on the group's operation continue at pace. Recent achievements include the deployment of an enhanced property management platform for over 2,200 users that include tenants, vendors, and Hong Kong land staff to improve

communications and interactions with new features such as centralized contract database, improved project payments tracking mechanism and other enhancements that optimize operational processes.

Moving on to CSR, since 2020, the Home Fund, the community building initiative of Hong Kong land, has committed more than 100 million Hong Kong dollars in various projects that target social inclusion, outward mobility of youth, and alleviating housing-related social issues. Some of the key highlights in the first half of 2023 include, as part of the Home Funds collaboration with Ronald McDonald House Charities Hong Kong, participated in the alternate schooling scheme which provided learning support for 200 children suffering from critical illnesses. collaborated with the Hong Kong Christian Action to provide prevention and remedial programs to hidden youth. So far, the project had helped 154 young people in just nine months. In terms of project to help alleviate

housing related social issues, Home Fund is partnering with the social enterprise, Light B, to provide transitional housing and career coaching to 50 young people. Home Fund's collaboration with the Jockey Club Design Institute for Social Inocations of PolyU in 2021, which included the creation of economically designed furniture to 2,000 children living in subdivided units. It's coming to an end. All of the furniture will be distributed to these children in need by the end of this year. Aside from the whole fund, Hong Kong Land's Here to Help volunteer team contributed over 3,600 hours of volunteer hours in the first six months of 2023, participating in over 100 programs and touching the lives of over 8,000 people. I will now conclude with our outlook

for the remainder of the year. Overall, market conditions are expected to remain uncertain for the rest of 2023, impacted by global economic headwinds and a high interest rate environment. Leasing performance for the office portfolio is expected to remain resilient despite challenging market conditions in Hong Kong. Global economic headwinds are likely to continue to wait on the office leasing demand, although we expect the central portfolio to continue benefiting from a flight to quality. Rental reversions are expected to be moderately negative for the remainder of the year. As a result of our active lease management, the majority of the area subject to exploration in the remainder of the 2023 have already been accounted for.

In Singapore, the office portfolio is expected to remain stable despite softening market conditions. Positive reversions is expected for the remainder of the year as the market continues to be underpinned by limited supply pipeline. On the retail front, performance at the landmark is expected to improve further in the second half as visitor arrivals in Hong Kong continue to recover. In Beijing and Macau, the positive momentum in the first half of 2023 is expected to continue to benefit performance at WF Central and 1 Central Macau. In development properties, an improvement in contribution from the Chinese mainland in the second half of 2023 is anticipated due to a high number of planned project completions. The outlook on the broader Chinese residential market, however, remains uncertain as a weak

economic outlook continues to wait on market sentiment. The group's focus on premium residential products in selected top tier cities put it in a strong position relative to the wider market. In Singapore, residential market sentiment is expected to remain healthy due to a limited supply in the market despite the introduction of cooling measures and a softening economic outlook. Underline profits for the full year 2023 is expected to be stable compared to a prior year underpinned by resilient earnings from investment properties with upside depending on the timing of planned sales completions in development properties. In terms of capital allocation going forward, the group intends to maintain its previously stated approach of prioritising investment in new assets to drive long-term growth and

shareholder value, whilst deferring to the payment of steady and over time increasing dividends. The group is confident in its chosen key markets and will continue to execute on its strategy of investing in and growing its investment properties portfolio primarily in core location in key gateway cities, while taking an opportunistic approach to replenishing land bank to develop properties for sale to enhance shareholders' return. Investment in existing assets through buybacks will continue to be considered as an opportunistic basis and will be weighted against the group's other priorities including funding new acquisitions, paying steady and over time growing dividends as well as maintaining a strong balance sheet. Over the past two years, we have seen an increase in stakeholder expectations on

the group's performance on sustainability and delivery of CSR initiatives. The group is committed to maintaining momentum on delivering sustainability and CSR initiatives by deepening our engagement with tenants and other stakeholders. Overall, we expect uncertain market conditions persist over the short term. However, the group of relentless focus on delivering world class services to tenants, strong reputation with home buyers and customers continue to position it well in navigating these uncertain markets. Now I'm happy to take any questions from the floor or online. Okay, right okay. Maybe ladies first. Yeah. Yeah. I'd say no. Thank you. Sarah Cooper from Bank of America. Thanks for the presentation. I have two questions. First of all, I'm just curious how you're thinking about the attractiveness as your stock

price at the moment relative to the gearing levels, the developments that you need to continue on with and then overall that versus other opportunities in the market, clearly thinking about the buyback. And then the second question is, obviously Hong Kong is in a very different position from an office point of view than many other markets around the world, but we are seeing a huge focus on amenity and a shift in attractiveness or an improvement in the situation for the buildings with the right amenity. How are you, are there any new thoughts around improving some of the existing Hong Kong central portfolio given that some of the assets are a little older at the moment relative to the new supply. Yeah I think the first question effectively relates to share buyback maybe Craig would you like to take this question and I'll come on to the second questions later. Morning Sarah thank you for the question. I think on the buyback maybe if I just

share a little bit with what we're thinking generally about capital allocation With interest rates going up, clearly our expectation on returns across all the portfolio has increased. So the first point to note is that our internal hurdle rate, if you like, for New Deals has naturally gone up. So I mean you've seen in the first half that we've been quite selective with capital that's being deployed. Clearly the buyback at the current level provides I think a very attractive opportunity to create value for shareholders of the long term. We have bought some shares earlier in the year, we haven't bought anything for a few months, but the price has come down by about 20% in the last two months. So I think you know it is sort of 6% dividend yield at current levels or just over 6% clearly it is attractive, but we have to acknowledge at the same time that the cost of funding that buyback has gone up and the cost of borrowing growing currently is about 6%.

So it's broadly neutral based on this point in time. So I think there's a number of factors in play, but I think it's hard not to acknowledge the attractiveness of the buyback at these current levels. Well, on your second question, this is actually quite an important question to Hong Kong land. I don't think that we take these issues very likely. Yes, our buildings average age is longer than, the market would envisage. So actually, I think the last time when we hear question about, okay, your Hong Kong land property is getting old is actually in, I remember in the late 1990s. I heard these questions. And then since then, that Hong Kong land have embarked on a program of refurbishment since 1990s. So the question about the deal with the age of the buildings, It is not today's, how should we deal with it? Actually, we start off from many years ago.

To talk about our commitment to improve the basic hardware first, I turn on to the software later on, because it's a combination of hardware and software. When it comes to providing the right office space for our customers, the hardware in the last five years, we spent an average of 100 million US per year in improving our hardware. That's improved the replacement of the AC systems, improving the replacement of the lift systems. So without that, such an improvements program. How can we keep our surface level at the top standard? And it also goes a long way in terms of satisfying the ESG goal, when we have strong commitments on also energy savings, et cetera, obviously improving the AC system is goes a long way in terms of energy efficiency.

Going forward, I don't think that we slow down that that capex because we recognize that there's a changing demand of our tenants, et cetera. If you look, also look back at the work we have done in the past when the tenants have increasing demand on the E&M facilities, actually, we have done also a lot in improving the E&M. When you talk about 3G, 4G, and 5G, et cetera, we are ahead of the market before the launch of these facilities. We already put in place infrastructure that on the first day, these are available for tenants to use, we are already ready. So we are very forward-looking in terms of making sure the hardware is very relevant. And I don't think the fact that, Okay, our tenants deciding to leave our portfolio is because of the fact that, oh, your property is getting old, so I think I have enough with your properties. No, I'm not aware of the tenants' departures,

cases which are not plentiful anyway, that they are because of the fact that the building facilities is getting old. And in fact, actually, new tenants keep coming in. And then, the recognizing that we are really up to speak with modern standards in terms of the facilities and actually in terms of our ESG credential, we are very, very strong. So that's why I think it's more a perception. When you look at the numbers of the average age of the buildings, people seem to think that we are old. But in fact, when you look at, actually when we have guests regularly coming to visit our portfolio, none of them would have guessed our average age of the buildings that when they tell them the old, you are talking about 40 years plus. How come when I walk along your property, it doesn't seem to be 40 years old plus. So it is the key, it's about how we focus our energy in improving the hardware. I talk about the software, I think again, a number of years ago, we recognized that it's just not about in a competitive environment,

it's not just about to making sure that lobby looks nice, everything, the surface, the lift surface, E and M to make sure everything is in place. It's not just about that. So that's why the quote a few examples how we improving our software, the equations of digital platforms, centricity, digital platform is designed, it's a digital platform that we design to, and you know, they provide service directly to each staff of the tenants. So now each staff of the tenants can request service through the digital platform. So, you know, against the traditional way of dealings, you know, management dealing with a tenants is usually through the main department. So, you know, the one that we know best is the main director or the partner in charge of the administrations of the tenant space. But now we are engaging each staff of the tenants and understanding their needs and so that we can feed back to them. And even the digital platforms now, people don't have to ring up the management

to talk about the complaint of AC. They can just adjust the temperature through the app. We are rotating out all these initiatives now quite a large percentage of our portfolio in Central. So you can check, you know, still many buildings, you still need to ring up, oh, I feel cold, I feel, can you adjust the AC, et cetera. Now, a lot of our, so we are about to complete the DAT initiatives, this is just to give you an example. About the software side, I mentioned in the presentation the centricity flex. So we recognize that people need more flexible space, flexible lease terms, et cetera, and then, and hence we built in the landmark two floors of flexible space, and then they're generally well received, and then the, relatively full as well. So it's also a part of our service, apart from the fact that you come and lease our vacant space,

feed out by yourself, if you want an uncertain about your requirements, please come. And then we do have plenty of examples that people first join our electricity flag space first and then becomes our tenants. We could have quite a number of scenes, it was opened some two years ago. Then again, we recognize that it remains a very challenging market with new builds coming in. I think by Zongxing, we lose any attentions in making sure that our product is very competitive. All right, okay, yes, please. Thank you, Robin and Greg. San Wang from Jefferies, I have two questions if I may. First is on retail sales, very strong performance in the first half. So could you please also give us a bit of details on the month on month progressions of the sales momentum. So are we seeing any slowdown in June and July, for example. And the second question is on the office vacancy. Office vacancy obviously started to pick up again

in Hong Kong despite the flight to quality trend. So do you think it's just a short term sort of fluctuations or there is anything structural in the weakness? Should we expect office vacancy to pick out from here? Thank you. Okay. Retail sales, I mentioned in the presentation, yes. The first half is quite satisfactory. You have also picked out from statistics in the market that despite that the visitors have not fully returned to Hong Kong, I mean, gradually it's just talking about 60% of the previous peak of the visitor's rival. We already, the sales, tenant sales have already reached the pre-COVID levels. We do not benchmark actually levels of last year or during COVID time. We benchmark, we try to benchmark our retail sales against the 2018. So it's actually returned to that level. So which is encouraging. And yes, I think there will be fluctuations from time to time.

You're right that actually the last, the month of June, actually slowed down a bit in retail sales. And we do not expect these things to keep really one direction. This is really quite cyclical in nature. So it's not entirely surprising, especially you also pick up that general market sentiments have come off in June, which is a well-known fact. I think whether the market sentiment have affected sales to a certain extent, that could be part of the reasons. And hence, the weather, of course, going forward is about predictions. Our sinking on the ground is probably second half, would not be particularly pessimistic about retail sales of a portfolio in Central. We are not solely relying on market sentiments to make it work, because I think we also need to think about how to grab the market share.

So that's why we have a lot of initiatives that we have implemented in order to grab the market shares. These initiatives, just to highlight some examples, We have significantly beefed up our customer service teams. The team size has increased a lot. We have completely renewed our digital platform in analyzing our customer's behavior. So our customer loyalty program, this is completely new. It's actually beginning of last year, we have replaced the system with a completely new digital platforms in registering our bespoke sales results and then also the loyalty program. And that enabled us to understand, to serve our customers better. And then equipped with these full data and also capability, we could now be employing more targeted sales approach.

And then we try to test which we can actually analyze which customers are more keen to shop in one particular brand or multi-brand, and then how often they shop, and what type of products are they shopping. And then with these informations, then we can divide them into different types of categories, and then try to use different marketing means to approach them. Some of them may prefer more the points, rewards. some of them more, you know, the experience base, you know, rewards, et cetera. So we test various means of these, you know, based on the data that we receive. And then we find that it's actually, instead of in the past, in the past, we've installed these analytics, we generally send out mass marketing approaches, everyone will get, you know, the same offer, et cetera, irrespective of their preference, et cetera. So that is our approach in the past. And we don't think this is the right approach.

And now we are even focusing more energy on the top tier of the, well, basically the first 10% or the top 10% of our customers constitute I would say 70% of our sales. So that's also explained that we should spend more effort in analyzing the shopping elites to help the performance. Another approach that we try to grab the market share is we beef up our collaboration with the brands. That is also very important. Instead of just, you do your own marketing yourself, I do my marketing yourself, it's just hope that they all work together. It is hugely inefficient. I think the last 12 months we have, we actually work with the brands, okay, you collaborate with them, with some defense, actually then we bring together a dozen of brands and then creating some events jointly. And actually, for just an example, a dozen of brands get together and provide some,

the programs for our customers in May. The 10, that program lasts for about 10 days and the sales that register in that 10 days represent the highest effort on record of Hong Kong land, in terms of sales by the customers in that 10 days time, 10 or 11 days time. Usually the sales record, in the record sales record happened in Christmas. So Christmas come early to Hong Kong land this year. So again, this illustrates that with efforts of trying to collaborate with tenants could produce very, very interesting results. And then I think that this is what we will continue to do. And then I think with this approach, so that's why I remained relatively positive about the performance of the retail sales in the second half. Of course, unless the market have a significant,

the upturn and sentiments significantly reversed in the wrong direction. Obviously, one cannot tell. But based on our own experience and the effects that we have seen so far. I think the retail performance should be fine if you ask me. Office vacancy, of course, generally you're asking about the office outlook. Of course, the office outlook is, as I mentioned in the concluding statements, is relatively uncertain. Obviously, we all know about the macro environment are quite uncertain interest rates. Can someone tell me when will the interest rate come down? And then, again, the geopolitical situation is also getting unpredictable. I will use the words. And also, China, which is quite a factor to Hong Kong as well.

So China environment is also concerning. So a number of these are affecting the market quite a lot. And then with these uncertainties, certainly, would people be brave to take up a lot of space at the moment of committing to new office space? Obviously, I won't be able to give you a precise answer. Of course, some indications, I would say, if rents remain relatively stable at this level, I should see the negative rental reversions should gradually go away in the next 12 months. Of course, if you believe that rents keep going down and then sharply, then obviously we would have a longer period of negative rental reversions. I think in an uncertain market, I think while I'm unable to tell you when will the recovery come, when will the vacancies really out of control, etc., very hard to predict that.

One can say that I would say Hong Kong central market should continue to outperform. The fact that central market, again, I mentioned in the presentation that the new supply in the next couple of years cumulative, you talk about 5% new supply of the existing inventory, get increased by 5%ish. The wider market has got a much higher increase in terms of percentage terms. So the supply in the central market remains relatively healthy, I would say. And the fact that for those, the property owners who pay more attentions about quality of buildings, surfaces, especially on the ESG side. That trying to work hard on the ESG credentials should continue to outperform. You have seen a strong story of flight to quality in the last two years. And why is that? It's again, because those are more ready for recovery,

should benefit for an outperformance. So I think I'm sure Hong Kong land will be, belongs to that category of outperformance. When the market comes along and recover, so we should be the first one to recover more faster than other people. We already demonstrate our outperformance in terms of our vacancy level, generally well below the market norm as well. So I'm reasonably confident that, wow, I cannot give you precise answer about the recovery. I hope I know the answer, but I'm very confident that Hong Kong land will continue to outperform. All right, okay, maybe fair to the people online. That I will come to you later on. Just pick up the questions. For those questions that I have largely covered, I will not mention it. So don't feel offended that if I did not mention your questions, because I think quite a number of questions

is about the office outlook, et cetera. I think I have covered that part. But if you have any specific areas on the office side and also the retail sales of Hong Kong land, please come forward and raise again that you want me to elaborate. Otherwise, I would not repeat the question here. Oh, the question is from HSBC Jeffrey Choi. He talked about, of course, how a lot of Hong Kong office market, which I have covered. He also asked about the mainland China portfolio. What is our view on the outlook of mainland China portfolio?

Our mainland China portfolio, of course, at the moment, our IP assets in China, relatively small. So it is mainly about our development properties market. The, I've mentioned about, of course, the market in China is also generally weak at the moment. Actually, after a brief re-bunk in about until probably April, then you will find that the market has turned particular or has turned weak. Weekly sales, weekly sales, they'll have re-bunks from the, used to be 100 million, 200 million renminbi on 100% basis per week and have rebunked up to 500 million per week sales in March and April and then now have trend back to more 100, 200 million just to give you an

idea about the sales. So that is certainly an indication of the weakening of market. But you see that the government is keen not to let the market in China, especially the property market collapse. It is such an important economic pillar of the whole China economy. You have seen a lot of stimulus measures have been put out. Last few days, you probably also read the announcement that they would further relax the availability of mortgages used to be the check your background, have you got any mortgages in the past and then have you outstanding mortgages? So I think now they will be relaxing that part as long as you do not have any, they do not check your track record, as long as you do not have any mortgage, they will treat it

as your first purchase. in the past that they would not just look at what you have got at the moment, they would just check and they would also look at your history. Now if you do not have any on the books, you would be considered as a first time buyer sort of treatment. Of course, first time buyers means that you may have preferential interest rates plus the higher percentage of loan to value ratios. So again, this is an indication of how they really want to provide their availability, availability of mortgage loan to customers. They also announced that the transfer of secondhand properties have tax exemptions now. As long as this is your main residence, again, this is also another measure that they put out. So this is just an indication of the... it's just announced a few days ago or last week, in the later part of last week, that they make such an answer. So it's a wave of new measures coming in. Central government, they

saw that you saw a statement saying that because China property market have the supply and demand have faced structural change, they should do something about that. So immediately after that recognition of structural change, I'm sure they refer to structural challenge of the property market in China and hence they immediately after that statement they put out some additional measures. There won't be any silver bullets to deal with such a challenging market. It takes time, even in the past, the seamless measures or even cooling measures, it takes time. January takes 6 to 9 months before it takes the effects to really impact the market. I mean, I would not be able to predict whether, again, this time we just wait six to nine months and you will get it. I think, of course, it's too simplistic to make such a prediction. No one knows, I would say. It takes time, so I think we need to be patient.

Again, the segment of the market that, you know, this is the overall environment, you know, the government is keen to see the revival of the market. It takes time for that to take effect. Hong Kong land business, if our energy continues to focus on the upper end of the market, focus on the quality of our products, even in a weak market, we are already seeing, continue to see outperformance of our market. A typical project said, while other people cannot sell, we can still continue to sell. I'm not saying that we can still be sold at hot kick, but we generally still enjoy outperformance in the market. So when the market recovers, I think like the office segments in Hong Kong, I'm sure we will also enjoy the outperformance in the, as long as we focus, continue to focus our energy on product quality, et cetera, which will remains our key competitive advantage in China.

All right, this is the online and then Praveen, yes. Hi, this is Praveen from Oregon Stanley. I have a couple of questions. The first one is just a follow up on buyback. I understand the difficulty in the higher cost of debt environment, but imagine that you buy a little bit or not and then the year ended. Would you start a new program, because let's assume this $500 million ends in December, 2023. Is it an ongoing program or has just happened for the last two years? That's the first question. The second question is about the cap rate. I've seen that cap rate has expanded by five basis point. But when you look at the US rates, or rates generally, it's going up and still not paused. Just to understand, do you think there's a risk on further expansion in future? And would that result in your gearing looking a little bit higher than today?

And the last question I have, which is numerical question, both in China and Singapore, you have this number $2.2 billion and $7.45 million sold but unrecognized, would you tell us the margin structure for that business, thank you. Okay, maybe if I take a couple of those questions, but if you're not on the buyback, first of all, I think what you're essentially saying is, will the board want to extend the buyback beyond the end of this year? Given that we're in July, seem to be August, I think it's too early, really, to sort of pass common on that. The key point is we've got ample headroom in what's already been announced through the end of the year. So we'll need to see how things progress in the coming months with respect to how much we deploy and whether we feel the need to extend that going forward. I think the main point though on Buyback and you alluded to it around the fact that we've had it for the past two years and will it carry on? It is very much views an opportunistic allocation of capital. The group remains primarily focused on

expanding for growth over the long term, generally by acquisition. So, if I go back to our capital allocation priorities, it's to invest in new projects with attractive rates of return, which as I mentioned earlier, our expectations on that have gone up. So, of course, we are being quite hard-nosed about that. Secondly, it's about dividends and maintaining and ideally growing our dividend. And thirdly, it's about the buyback. So I think that those principles we've been very consistent on and there's no plans to change those principles So we really just need to see where we get to the end of the year And we'll update you on that when we announce in the early part of next year So I think that's the point on buyback on the cap rate expansion I think as you all know the valuation of properties comprises both the cap rate But also the rent levels and in Hong Kong what we've seen is that the rent levels and the valuations have adjusted.

So they've come down in the last couple of years, given some more challenging market conditions that we've seen. So the valuation of the Hong Kong portfolio has gone down, not just because of cap rate, but also because of rents. The recent cap rate movement, five basis points, end of June, five basis points at the end of 2022. Quite mild actually, particularly compared to what we've seen with interest rates going up, but also in other markets around the world where commercial properties have been, the cap rates have adjusted more quickly. I think here in Hong Kong, the market landscape for central prime properties is quite unique, it's tightly held. Limited supply, I mean Robert's touched on the supply that's coming through, but just quite modest in the scheme of things overall. So I think that tight supply dynamics has a big bearing on valuations generally. Secondly, we've already seen a sort of fairly

reasonable movement in the valuation, primarily through rents, as I mentioned, and then the cap rate piece. So I think it's the recent trend on cap rate expansion has been quite mild. The big, big point here in Hong Kong is that there's just really an absence of market transactions to point to for large single building transactions. And ultimately, I think people always look to the market transactions to get a feel for what people are willing to do deals at. So in the absence of any transactions, there's no real third party evidence to point to to suggest that cap rates should be expanding quite significantly. I think going forward, it's not really appropriate for me to try and call the market generally, but stating the obvious, it's gonna be driven by, I think, what happens with interest rates. And it's not so much the short-term interest rates, it's more the longer-term interest rates.

So I tend to look at the 10-year treasuries and 10-year Hong Kong dollar bond rates, which have been moving around a little bit, but I mean, depending on your individual views, sort of general feeling is that we're getting close to the point of rates potentially peeking out but what that means for rates over the longer term I think we'll have to see. So I would just round off by saying that generally our Hong Kong portfolio has moved down in value by close to 20% in the last couple of years so whilst you can look at the cap rate instead of say it's not moved very much I think the overall value has moved by a reasonable question is on China Singapore I think on the residential profit margins do you want to pick that up Robert do you want me to carry on? Yeah well the margins I think they have you know trend down to in the low 20s region I do expect that to stay at that level of course you know the that would be I think is the medium term

you know the sort of margins that I would expect because without that margins we won't get the required IRR that we want. So when we target new projects, that would certainly sort of level that. And then the market, given the restriction on selling price, etc., I don't see that margins change a lot. It becomes actually more steady than before, yes, we all like better margins, but if we factorise ups and downs too widely, it's also unhealthy for a business. So I think that would be the sort of level that, of course, if the markets really take another strong deep, etc, one would expect that, margins, then that margin could probably fall a couple of per cent to the high teens, but at the moment I don't see that really happening anytime soon, you know, the except, you

know, if the market is really taking a strong deep, you know, the K. All right, okay. Take some questions from the floor, maybe again from from HSBC, Jeffrey Choi, as the market is improving generally post pandemic, does Hong Kong land have any plan to expand further into other geographical regions, real estate and asset class. At the moment, I mentioned about that, we have been quite cautious in placing new investments as evidenced by the fact that we haven't done much in the first half of this year. And then I think that will change significantly in the foreseeable future, at least in the next six months or 12 months. I don't see that happening, to be honest. And I think we also feel comfortable that our long-term strategy is to build up our prime commercial real estate in the regions.

That still remains our prime objectives of accumulating these jewels around the regions. Of course, the enhanced return of our performance, we also place investment in development properties. So I think investing in prime commercial real estate with opportunistic approach towards investing in development properties remains our key focus. I do not see that. We will swing away from that significantly in the foreseeable future. Any new geographical regions that we will look into, we have been focusing our energy more on China, and then going forward, on the IP assets, China still remains our focus in terms of enhancing the earnings of the group.

Development properties, China remains interesting, And also Singapore, I would say, also remains interesting. Even though we make some acquisitions in Indonesia, I don't see Indonesia becomes a strong earnings, the provisions we are accumulating, enhancing our presence there. But the fact that it's not too easy to acquire new deals or identify new deals in Indonesia, it remains a good submarket for Hong Kong land. But the key geographic areas that we continue to place our investments will probably be China and Singapore going forward with some acquisitions probably in the niches. I have mentioned in the past that we will probably slow down our appetite in regions like Thailand, Vietnam, Philippines. That will be the market that will probably slow down our presence. So instead of expanding into more regions,

actually we'll probably reduce our presence in regions and focus our energy more in areas that we feel that have better prospects. All right, okay. Any questions on the floor maybe? Okay, yes. Thanks, this is Fan Zhou from Bank of America. Just two more questions. One on China DP, as Robert you said, there will be structural challenges, but you just also mentioned China DP remain a interesting business opportunity for Hong Kong land. Just can you clarify a little bit more how's your capital allocation in this part going forward? And then secondly on Hong Kong retail, tenant sales already back to pre-COVID, but if you look, take a look at the average rent, first half, $204 Hong Kong dollar in first half 2019 is $239.

So can you comment about the latest occupancy costs and then how quickly you think the average rent could be ramped up back to the pre-COVID level? Thank you. Okay, obviously the structural challenge in China, everything is about, when the economic situation is challenging, people tends to delay decisions on acquisitions. It's the economic outlook that really presents the challenges to the property market.

If you look at the savings, actually, it's still plenty of savings in China to get accumulated. So people do have money, but it's just where they spend it in property or long-term acquisitions. you know, targets, you know, it's just questionable.

Of course, you know, I'm not going to guess what they mean by structural challenge, you know, but my interpretation of structural challenge is of course, you know, there is a strong trend in the past of urbanizations, you know, increasing populations, et cetera, and also economic, you know, the base is low, et cetera, people accumulating relatively rapidly, et cetera. But you also look at the trends of urbanization have slowed down and also the population growth is also, start talking about the much reduced birth rate, et cetera. So of course in the past, the volume of transactions of residential properties in China have reduced significantly. So, again, certainly the demographic changes in China is a source of structural change.

So against that structural change, IE in the past, the fact that you just invest in that segment, you will benefit from that. Generally, you don't have to be very capable. you can benefit from because you are selling on the rising wave. So you'll be fine. Going forward, I think this easy ride period has gone. So you really need to earn your earnings in a hard way now. So the way the Hong Kong land see that our competitive edge is not riding on this easy wave, of course, we focus, as I mentioned, focus on energy on the quality front of the equation. Even though the old four transaction volume in China has reduced, does it mean that there's no future with that market? I don't think so. Because still there is plenty of upgraded demand in the market. The many products in the past are generally more basic in nature.

If you recall 10 years ago, probably a large percentage of products in China are still best-share units. You feed out yourself. So actually the property deterioration is actually quite rapid in China. And there is a general upgraded demand need in China. So that's why we see that when we try to test markets appetite for high-end units, we find surprising results that we can have. Take Chongqing example, would you develop an apartment that costs people 8 to 9 million renminbi per unit? No one would think about that a year ago, but we try that ourselves, and they sell very well. 8 to 9 million is generally talking about the value of a house in Chongqing. So that's why people, if you look at traditional wisdoms, you do not do that because the market, oh, eight, nine million, I would have gone to a house, why would I buy an apartment?

But there are people that really need really nice apartments, well-built, well-designed, and fully fitted. And that is the product that we try. And then we have, you know, exceptional, you know, results, you know, with these, with these sort of products. So that's why that gives us a plenty of encouragement that if you did your, if you did your products, you know, better than other people, yes, our cost space will be a couple percent higher than other people, but our value is generally 15, 20% higher than the market of the equivalent product or equivalent segment of the market. It's actually also frequented, so I think we also make higher earnings out of such an approach. So I think the structural change in China definitely is coming. Easy money is not there, and then I think the players in the market needs to work doubly hard on their products before they can really win the market service.

Also, very important, you may have the right design, but can you execute the product with the easy to copy design, but not easy to do the execution right? When I say do the execution right, can you find the right, the teams, to manage the product and then built well, that generally of good quality, that is also very, very difficult. And then we do have an annual health check of our customers' satisfaction to our products. Generally, we have very high rating, it's an independent check. Market norm is generally customer satisfaction of Hong Kong land products and services, generally above 90% in the satisfaction rate, whereas the market norm is just 70, 80%. That's the sort of market norm. So again, that's also an illustration that

that is an important part of a brand building. Once you build up your brand in the market, then you find that actually your competitive advantage is very strong. You asked about the retail rents. When would that come back to the recovered level? Now the sales have gone back to recovered levels. It's just like office rents. Even though market rents has picked up, it takes time before it's really returned to the previous level, correct? Because you have the tendency locked in, et cetera. It won't, it won't, we won't be, you know, even though if rents comes down, it won't rapidly come off, you know, falling off the cliff because it's also a delay effect, just like rental increase. So we are about what, you know, the 15, 20% or more 15 to 20% below the peak that you know, before COVID. It requires sustained, you know, retail sales level before it could gradually go back. Whether of course it's a million dollar question again that you know, for the rest of this year, I'm reasonably confident as I explained.

But you know, if I'm predicting, okay, well, about the next two years, it's very, very hard for me to make a put, you know, that if, If of course I can only say that cafes with retail sales, that remains sustainable in the next two years-ish. So of course, I would say that retail rents should have an upside. And also, especially, I also see a good upside but it's more in not in the next two years' time of license. A lot of brands are now talking to us that can I double the size of the store or at least increase the store size to a global flagship level, 50% increase in the size of the store in central of our portfolio. Actually quite a number of brands, you name the usual suspect, they are all looking for additional space in our portfolio. But I don't have additional floor space in our portfolio.

what am I going to do? This is a happy problem that we are now dealing with at the moment. But if they have generally in time, we will try our very best to satisfy their demands. How can we satisfy their demands without compromising the browsing experience and the varieties of our experience, of our tendency, something that of our customers, is something that we are working at very closely. But if in, say, three to five years' time, when our major retail brands partners have upgraded their store in Central. I think our market share in the market will be impressive in the increase. So that in the medium term, I think that is the strong driver. If it stays the same, etc., we rely on market trend and also ability to capture the market shares, which of course is a hard earned share. But I think coupled with our tenants actually increasing their presence in our portfolio,

that will be another, you know, if they increase their presence, what is the implication? That means the whole range of product will be prioritized in the store. The higher the status of the store, the better the allocations of the product. The better the allocations, obviously, the customers find that it's a one-stop shop in our portfolio. Luxury shopping, where would you go? Hong Kong Land, of course, because they've got all sorts of offerings there. All brands, all the usual suspects are here with goods lined up, and then within the major brands that we have, they have full range of products as well, which is very important to the old offerings of luxury shopping. And then one also I will point out one point that you know the central market will be having its increasing importance as a platform for retail sales because of the general post office sites completing in time.

So we do not necessarily see it as our competitor only. We also see them as a partner just like IFC. It increased an attractiveness of central as a shopping destination. You know, it's not that's not actually quite, you know, the, you know, you roll out positions in the central market. So when, when general post office I get built and develop, then you know, the, it's not just about retail space, the general post office is also offering quite a nice external landscape area, you know, waterfront area for, it's a very, very different, you know, the experience, you know, that in Hong Kong you look at, you marry shopping and, you know, the really leisure, etc. You'll find that actually Central becomes a very pleasant destination as a whole. And then I think the, that would actually give ourselves a better market share, Central in general.

So we have a bigger pie in Central, then everyone will benefit from that. So that is also a medium-term trend for that Hong Kong land. So the retail portfolio of Hong Kong land, I think in central, I think I have a very, very positive outlook about that. Maybe take a question from the iPad here. Desmond Fung from Morgan Stanley Investment Management. Can you talk to the financial health of your John Venture partners in mainland China? Do you anticipate more acquisition of equity stakes from your JV partners in the second half of this year? Would you like to take a question? I think in relation to that, in short, no, we don't expect further acquisitions. We noted in the presentation today that we have acquired stakes from two existing partners in the first half of this year. That followed on from another state we bought at the end of last year, so three in total. At this point, looking forward, the existing joint venture partners that we have in China are generally with quite strong companies, so some of the state-owned backed or PoE

And therefore, looking forward, we're not anticipating having to buy any for other states. Okay, and a question from Goldman Sachs, Simon Cheung. We have seen you allocating more capital towards China investment properties in recent years. Based on your current assessment of all of the various market segments across Hong Kong, China, and Asian countries, which segments do you see more return-accretive opportunities more and more of your investment going forward. I think I touched on that before. We see that China remains interesting, the Singapore remains interesting for DEP investments. I think we already have a very strong pipeline of IP assets in our development activities. Would And I see an equivalent exposure going forward to enhance more, make more investment in the

IP, going forward to the same level as we have done in the last couple of years. I would say it's hard for us to see that now I have quite the 10 commercial developments, under-development at the moment. I don't see that we will have same extent of the new investment in IP in China going forward at least in the next couple of years because of the strong pipeline already in place. So I think going forward will still be more selective in China for increasing the IP investments. DP, I think, very much depends on the opportunities arising. Okay, anyone got any more questions from the floor?

Anyone? All right, okay, in order to be fair to, there is one last question from Hong Kong Land colleague, okay, Matthew Wu, talking about, so just to give you an idea, what the interests of our colleagues in our own business.

As the de-risking and decoupling of continues between China and Western world, how will this trend impact the group business outlook in Mainland and China and Hong Kong? Of course, it depends on the degree of decoupling.

If logic remains, obviously, one should stay in a constructive relationships, otherwise, everyone will lose out. But when it comes to politics, sometimes logic may not prevail. So it's very, very hard for me to say how that would, if they becomes very, very illogical and very politically driven, then obviously everyone will be impacted, not just Hong Kong land business. We just hope that the mega powers stay logical and reasonable. But I'm talking about something, whether it is wishful thinking, I'm not sure then. All right, okay, well, thank you very much for coming here today. I look forward to seeing you anytime soon. Okay, thanks. Thank you.