1H 2024 Half-Year Results Presentation

Good morning. Good morning. Lots of familiar faces, which is great to see. And as most of you know, this is my first time doing this. I have leniency on the newbie. But welcome, everyone, to Hong Kong Land's results presentation for the first half of 2024. I am Michael Smith, the chief executive of Hong Kong Land, and with me is Craig Beatty, our chief financial officer. Over the past few months, I've had an opportunity of meeting many of our colleagues, our business partners and tenants from across the region, to better understand their achievements, their challenges, and their aspirations. I was impressed by the expertise and passion there is in abundance amongst colleagues across the business, and the high standards and expectations to which Hong Kong land is held by our business partners and tenants. Having spent that time getting to know the business, I've initiated a strategic review of our overall business strategy, our long-term goals, and our commercial priorities.

This is the first time in 135 years that Hong Kong Land has had a self-reflection. And the strategic review will look at how we optimize the way we operate and better leverage our core strengths to deliver sustained growth of the business. The review will conclude before the end of the year at which time we intend to present our vision for Hong Kong Land's future to you all. Getting back to the presentation at hand, there'll be an opportunity for questions at the end. For those of you on the webcam, please send us your questions through the website and we'll include them in the Q&A session. So firstly, the agenda. Today, I'm gonna take you through some key highlights of the first half of the year, provided trading update on the group's key business strategies before turning it over to Craig to talk through the financial and sustainability highlights. I'll then conclude with our outlook for the second half of the year, followed by a Q&A session. Before moving on to the results, let me first walk through a few key highlights from the

first half of the year. All monetary amounts are in US dollars, unless otherwise stated. Firstly, on the office front. Despite headwinds in the global financial markets, the group's core office portfolios continue to outperform the market. In Hong Kong, portfolio vacancy remains significantly lower than the market, despite completion of new supply in Central. This is largely a result of the group's capturing a flight to quality demand via active lease management, delivering premium tenant services, as well as strong sustainability credentials. In Singapore, our portfolio is effectively fully occupied, with positive rental reversions driven by both tight supply in the core business district around Marina Bay and market-leading offerings and amenities. On the luxury retail front, the group is pleased to deepen its strategic partnerships with its luxury retail tenants by meeting their changing demands on space and elevated experience

for their discerning shoppers. In Hong Kong, the recently announced Tomorrow Central transformation plan for Landmark will result in the creation of 10 multi-story masons and a luxury retail proposition that would not only be unique in the city but also globally. The group will invest around $400 million over the next three years to complete this project with our luxury retail partners investing a further $600 million on their respective flagships and I think that $600 million is quite a conservative estimate. One central Macau is currently undergoing an evolution. While the scale of the project is significantly smaller than that of Landmark, this repositioning will help result in improvement of amenities and optimization of tenant mix to better cater the group's deep pull of very important customers. On the Chinese mainland retail, the group continues to make steady progress on growing its retail footprint and recurring income base. WF Central in Beijing benefited from higher tenant

sales and rents post-repositioning, whilst the Ring Chongqing saw double digit tenant sales growth in the first half of 2024. Separately the group opened the ring Chengdu in June which has had net less net lessable area of some 51,000 square meters and achieves over 90% occupancy. Capital recycling from our development property business. In light of the subdued property market conditions on Chinese mainland, the group conducted a comprehensive review of its pricing strategy on its build to sell portfolio. So this was a very, very granular project by project assessment that we undertook across our portfolio. A non-cash provision of $290 million was recognized on a handful of selected projects with a bulk of its relating to residential assets in non-prime locations, principally across three cities, which Craig will explain further, to facilitate recycling of capital from existing inventory.

Well-located projects in core areas, such as the residential for sale component of the Westbun project, continue to outperform the market. On the financial front, the group continues to maintain a strong balance sheet and a net gearing position with no change to net debt from the end of last year. Our average borrowing cost sits at 3.7%, a result of our active capital management. Our credit ratings remain robust, despite macroeconomic uncertainties. On the sustainability front, as expectations on the group's sustainability performance from tenants, from key business partners, and the investment community continue to increase. I am pleased to report that the group continues to make solid progress towards sustainability commitments across the region. On decarbonisation, the group remains on track in working towards its absolute Scope 1 and 2 emissions target of 46.2% by 2030 from its 2019 baseline.

For 2023, this group achieved a 29% reduction, so we're more than halfway to our goal. In addition, the group recently became the first developer to attain triple platinum ratings for existing building certifications from Beam Plus, LEED, and Well Standards across its entire commercial portfolio in Hong Kong, underscoring our commitment to meet and exceed the highest standards. Turning to an overview of the 2024 half-year results, The group's underlying loss in the first half of 2024 was $7 million, significantly down year on year as the group recorded a non-cash provision on selected development properties across China's mainland. Excluding this provision, the underlying profit was $288 million. Profit from the group's investment properties remained resilient, as improved performance from our Singapore office and Chinese mainland retail partially offset reduced contributions from the Hong Kong office portfolio. Loss attributable to

shareholders was 833 million dollars which included a net loss of 826 million dollars arising from revaluations of the group's investment properties primarily due to a modest decline in open market rents for Hong Kong office. The board has declared an interim dividend of six cents per share which is unchanged in the prior year. The group's financial position remains strong with net debt maintained at 5.4 billion dollars which is consistent with that at the end of December 23. The NAV push share as well as the shareholder funds as at 30 June 2024 declined compared to the end of 2023 mainly due to the revaluation lost on the Hong Kong office portfolio. Turning now to an update on our key business segments. Firstly, on the Hong Kong office portfolio, remain resilient and continue to outperform the market underpinned by a flight to quality. We are seeing an increased divergence in office market with buildings that are

located in core areas with strong sustainability performance as well as high quality facilities and services outperform the market of rents and vacancies. This is particularly clear when you look at our vacancies compared to the broader market. Under the backdrop of a market vacancy of 12.1% for Hong Kong Central Grade A offices at the end of June, which is, I think, amongst the highest on record, at the mid-year, our office portfolio outperformed with a physical vacancy of only 7.3%, down slightly from 7.4% as at the end of 2023, bucking the trend of increasing vacancies across the broader market. Vacancy on a committed basis is down to 6.8%, so nearly half of the broader market. Negative rental reversions during the period were in the low double digit range. The weighted average lease expiry of 3.7 years was largely in line with the end of 2023, whilst the wow for the top 30 tenants is considerably lower at over five years, longer.

This is indicative of the group's approach of building and maintaining long-term relationships and keeping a strong mix of tenants in our community. In terms of schedule lease expiration and rent reversions taking place in the second half of 2024, the bottom left hand chart, as at this point in time over 90% of our rent reviews have been completed, with the vast majority of tenants staying within our portfolio. So our leasing team now can just focus on the existing vacancies rather than having to focus on rental reversions and rental lease negotiations. In terms of leasing trends in recent months, the flights are quality of mind is coming largely from family officers and asset managers, though the size requirements are small, typically at 5,000 square foot or below. As part of Landmark's transformation plan, four floors of office space, totaling just under 50,000 square feet, will be converted to retail use. The group has identified alternative spaces for all affected office tenants, with the vast majority remaining in our portfolio. Moving on to the central office market,

just some observations that we thought we'd highlight. In terms of vacancy, the group's central portfolio has outperformed the broader central market since 2017. Since 2020, the gap in vacancy between Hong Kong land central portfolio and central overall has widened. This is partly explained by the flight to quality trend we have seen developing since 2020, where tenants have increasingly indicated their preference for high quality office space over absolute size. The group's central portfolio with its unique ecosystem, including top-notch and silvery facilities, strong tenant community, the group has cultivated over many years, as well as significant efforts on delivering sustainability credentials to meet rising tenant expectations. It's positioned to continue to take advantage of this. The chart on the right shows a comparison between the group's central portfolio, net rent against the broader central spot rent. The gap has further increased since 2022. This is indicative of the flight to quality

and the trend of the group's buildings have been benefited from and has thus been able to be more resilient than the broader market. Turning to Hong Kong retail. Average net rents remain broadly stable at 206 Hong Kong dollars per square foot despite retail sales being down 11% compared to the first half of 23. The land might perform better than market, which based on HKSAR government statistics on sales under the Jewelry Watchers and Clocks category was down over 21% for year to date May. Landmark VIC loyalty sales were up 11% compared to the first half of 2023, demonstrating the resilience spending by our core customers. Overall, there were three key factors impacting tenant sales, including firstly a high base from the first half of 2023 upon reopening from COVID, but before flight capacity was fully restored. Secondly, there has been some leakage in sales to other destinations in Asia, particularly Japan,

in the second quarter, largely as a result of the strong Hong Kong dollar. And thirdly, planned tenant movements to facilitate the recently announced transformation of landmark. As of June, 2024, the physical vacancy and vacancy on a committed basis were 2.6% and 1.4% respectively. The group expects the landmark to be effectively fully occupied post-transformation works. Chances are you would have heard about the landmark transformation already. We made quite a big show of it back in June 26th, July 26th. Before we get into more details on the transformation, Landmark in its current form already enjoys the support of some of the most loyal customers globally. In 2023, the top 70 customers who shop at Landmark spent over 1 billion Hong Kong dollars, so $125 million spent by 70 people. The average annual spend of our top tier VCs was about $1 million Hong Kong dollars, and on average, they made a purchase every other week.

This transformation is about jointly investing with our key brand partners to better service their needs and elevate the customer experience. The group will invest over $400 million to expand and transform Landmark over a three-year period. This transformation will cement Landmark the central portfolio and central as the city's preeminent luxury and lifestyle retail destination for the long term, with the highlight being the creation of 10 new Maison destinations. I'd now like to show you, break it up a little bit and show you a video to give you a taste of our vision of tomorrow's central.

Many exciting times ahead. I'm looking forward to seeing an eight-story Hermes and an eight-story Chanel. It's going to be quite exciting. So why has Hong Kong Land committed to undertake this transformation? First, this strategic investment is a powerful endorsement of Central as the city's iconic retail and lifestyle destination. It also demonstrates the group's and strategic partners' shared, unwavored confidence in Hong Kong and reinforces its bright future as global financial center and luxury retail destination. Second, this strategic investment will reinforce the Central portfolio and Central as a world-class retail, dining and business destination for decades to come. Effectively we're building a moat around Central. Thirdly, the evolving needs and wants of customers and clients have spurred our key brands and tenants to spend more than 600 million dollars to create new global luxury flagships to elevate the customer experience. This project provides an unprecedented amount of retail space for them to meet their strategic adapters which enables the group to have

of extend our long-standing partnerships with all of them. These brand partners have committed to average lease terms of around 10 years. Fourthly, the project will enable the group to capitalize on growth opportunities this will bring, including rental upside on the expanded luxury retail space, as well as further enhancing the central ecosystem, which benefits all our tenants and their employees. I know most of you are interested in getting a sense of returns on investment. Our initial assumptions at Underwrite had been an IRR in the mid to high teens. Based on the contractual obligations we now have entered into, we believe that the IRR is going to be in excess of 20%. So this will be one of the better investments I think that Hong Kong land has ever made. In addition, the group also expects this transformation to further enhance the value, actually significantly enhance the value of the central portfolio. Finally, this transformative initiative is a pivotal milestone that exemplifies our global central vision to create world-class luxury-based lifestyle and retail destinations that serve

as gravitational hubs for the world's most prestigious brands and their discerning customers. It will serve as a blueprint for Hong Kong Land's global developments such as Shanghai's West Bund area and beyond. Some key features of the Landmark Innovation. We will develop 10 globally defining mason locations, some of which will be the largest stores anywhere in the world. We will create a jewelry and watch boulevard along Chata Road. We'll introduce 30 new and refreshed F&B concepts. Retail diversity being incredibly important because clients enjoy the experience both of local and international brands. So when complete, the landmark will still offer more than 200 stores with what we currently have. And we will continue to retain many of the unique Hong Kong brands that Landmark is known for, as well as the many only in Hong Kong brands that Landmark is privileged to have. There will be a reconfiguration of the core retail podiums with improved circulation and

connectivity, including new office lobbies for Edinburgh Tower and Gloucester Tower moving from the second floor to the third floor of Landmark Atrium. New access points in lower level of Landmark Atrium as well as redesign of the Landmark basement and the arcade in Landmark Princes. Looking briefly at the timeline, you'll have seen this morning whilst coming to this event that preparatory works for the program have already begun in Landmark Atrium, Landmark Alexandra and Landmark Chatta. Each of the major phases of work has been carefully timed to ensure that Landmark continues to be activated, energized, and vibrant throughout the three year period. We plan to have new openings in Landmark every year, including the recently opened Sotheby's Maison downstairs. And I really do encourage all of you to go and have a look, because it is really another world when you come out from the lower floor. Again it feels as though you're moving from one world to another. We see Central and Landmark being at the heart of Central as not only a place of

location but more importantly of lifestyle. It is a destination that allows people to work and play in one holistic ecosystem. This is a lifestyle that Hong Kong land has been diligently curating for the people of Hong Kong and for visitors for 135 years since we bought our first piece of land here in 1889. And with this investment we look forward to evolving it further for generations to come. Turning now to our Singapore office portfolio which has performed very well driven by flight to quality demand and limited new supply despite cautious business sentiment. Average rents continue to show growth whilst occupancy remained resilient. Not dissimilar to Hong Kong better quality buildings located in prime areas have benefited from this flight to quality and have outperformed the market. Physical vacancy across the portfolio was 2.6% on a committed basis. Vacancy was down to 1.1% so given structural vacancy it's effectively fully occupied. This compares favorably to the

overall market vacancy of 5.3 percent. As at the end of June, 11 percent of the portfolio was subject to expiration on the second half of 2024. This expiration pertains largely to two major tenants in which negotiations are at an advanced stage and we expect deals to be signed immediately. Once renewed, our top 10 tenants WoW will increase from 3.2 years currently up to 4.7 years with quite positive renderable versions expected on both of these leases. In terms of leasing trends in recent months most of the inquiries received are from financial services and consulting related sectors. Moving on to the group's Chinese mainland business. Over the past five years contributions from our retail portfolio on the Chinese mainland has grown steadily as the group continues to execute on its existing pipeline. Growth is expected to continue and be supported by the recent opening of the ring in Chengdu in June of this year, as well as the upcoming pipeline of retail assets scheduled to open

between 2025 and 2027. At WF Central, our central branded series model in Beijing, performance was stable despite challenging market conditions with luxury goods sales in China contracting in recent months. This is largely the result of repositioning efforts that we've undertaken over the past 12 to 18 months. In Chongqing, the ring mall continues to show improved performance since it opened in 2021, so we're now going into the second leasing cycle of that asset. But tenant sales have grown by around 30% in the last year, so it's a very encouraging sort of backdrop. The Central Series Malls is part of Hong Kong Land's retail strategy to develop best-in-class luxury retail and lifestyle destinations in major cities. We're actively leveraging our heritage, our experience and capabilities in Hong Kong and Singapore to grow our Central Series brand on the Chinese mainland. To cater to the uniqueness of each market, we've structured the Central brand across different product lines. Landmark along with the Westbourne Central form two

cornerstone projects to our leading global central product line. These are projects in one-of-a-kind locations that can support a holistic ecosystem of high-end retail, office and hotel with the potential to attain global significance. This is supported by two other product lines, Mega Central and Boutique Central. These product lines will be developed over time as we identify new cities which are significant geographically and where we can adapt scale and composition. Turning now to the group's largest ongoing project Westbund. Before I give you an update on recent activities let's have a look at a video introduction of this mega project please. We've tried to do is

extend that Riverside Park into our site and create a vibrant buzzing excitement in the industry. Many exciting things to look forward to over the next couple of years including what we're doing here and what we're doing in Shanghai and I'd highly recommend that if you are in Shanghai next this project really is coming out of the ground quite quickly. The first phase which we call lot G is effectively completed. I mean

very encouragingly we the residential component has outperformed our expectation. So we released 80 units a couple of months ago and they've all pre-sold at a price of 178,000 RMB per square meter. This is the highest average selling price achieved amongst all high-rise residential projects launched in Shanghai in 2024. And to give you a sense the lump sum quantum in US dollars, it's an average price of close to eight million US dollars for each unit. So there was a six hundred and thirty million dollars for eighty apartments. The biopool of the project was restricted to Shanghai residents or non-locals who have paid taxes in the city for not less than three years. There were also a resale restriction of five years and despite the restriction the project was extremely well received and required allocation using the lottery system that was governed by the government. So it's just a really good endorsement that And these are people who want to live and stay in this Westbourne community. And it made us feel very good that if this is the first thing to happen here, it's a great first thing to have.

Handover to buyers is expected in the second half of 2024, so we'll come through the next results, with the group's profit recognition on this component alone being over $70 million, which is considerably more than we expected at the time of underwriting. Another element here, the first phase of the group's proprietary branded service departments. The Westbourne Central Residences was launched earlier this year and has been very well received by the market. So we put 40 units. At the moment, the physical occupancy is already over 50% and we have least commitments to ensure that occupancy will be closer to 80%. And to give you some sense of pricing of these apartments, the average rental price per unit achieved is over 30,000 RMB per month, which is amongst the highest in Shanghai. The group will launch a further 800 units in phases under the same Westbourne Central Residences brand from early 2025 onwards. And then there'll be a further 300 service departments to be managed and operated by Mandarin Oriental which will be launched in early 2028. So upon completion the group will have close to

1200 units of high-end residential apartments rental apartments along the Fainhorn River which is a pretty unique opportunity. In terms of plot G retail so for the first retail piece that's open the retail components will open in phases from 2024 through to 2027. The first phase is located, as we said, on plot G, which is adjacent to the residential components that we sold, so the 80 apartments has some retail ancillary at the bottom with a total GFA of around 10,000 square meters. This phase is already over 80% pre-leased with brand opening scheduled for next month. Some of the more unique brands scheduled to open include Panatha, which is a high-end gym club operator now with a diamond class flagship at Westbund. Unia Specialty Coffee, an award-winning coffee shop from Japan opening its first shop in China, and Shogun Burger, a renowned burger shop from Japan also opening its first store in China. The group continues to make progress in executing on its central series assets,

with construction work and pre-leasing discussions largely on track. Construction progress on Sucho Central, our first venture in the city, is on schedule, as you can see from the left-hand side. Opening is scheduled for early to mid-2026, and Mandarin will be occupying the hotel, and then we have the mall, which, as I mentioned, we've had very good traction with many of the luxury brands. Another project we're very excited about is MxC Central Chongqing. It's our joint venture with China Resources. In the city center, Guangying Chao CBD District is also under construction, with an opening expected in mid to late 2026. Including the landmark and on an attributable basis, the total net-lessable area of the Central Series retail assets is expected to increase from the current 92,000 square meters, predominantly here, to some 250,000 square meters by 2027. And these are very much luxury-based central offerings.

Separate from the Central Series, the group has also established a lifestyle retail series the ring. We have been quite a very, we have been a very large residential developer and these are many of the lifestyle malls that we were committed to complete as part of residential projects. After the successful opening of the Ring Chongqing in 2021, the group was pleased to open at second Ring Series Mall in Chengdu last month. The wholly owned property has a net lessable area of 50,000 square meters and was over 90% pre-lit prior to opening. Over the next several years, the group will open another five ring series malls on the Chinese mainland in each of Shanghai, Nanjing, Chongqing, Hangzhou and Wuhan. Including the group's other exciting lifestyle retail assets and on an attributable basis, the total net lessable area of the ring malls is expected to increase from the current 189,000 square meters to some 360,000 square meters by 2027. So across our retail portfolio, there will be more than 6 million square feet of space across here and China.

In terms of our group's development property portfolio, market conditions remain weak, which is no surprise to anyone in this room. Although the group has made progress in managing its exposure by focusing on accelerating sales and recycling capital from existing inventory, net investment in development properties on the Chinese mainland decreased by 14% from $6.6 billion to $5.7 billion. as the group suspended land banking activities and generated close to $800 million in presale proceeds. In addition, a wide ranging review of project pricing was conducted with provisions recognized on slow moving products at selected projects to drive sales velocity and further reduce the group's exposure. Whilst market conditions remain challenging, the group's products which are primarily targeted at upgraded demand continue to outperform the market. Contract sales in the first half of 2024 reached $838 million, which is up 12% from the first half of 2023.

A lot of that was the Shanghai – no, it wasn't Shanghai, was it? There'll be more of that coming through in the second half when we, I think, hand over Shanghai Westbourne in September. In addition to the aforementioned example of the strong performance of the Resident opponents of Westbourne, the group also recorded the highest contracted sales amongst all developers in Chongqing during the first half of the year. This concludes my updates on the group's key business segments. I'll now hand over to Craig to go through the financial and sustainability highlights. Thank you. Thanks, Michael. Good morning, everyone. I will now take you through the financial results for the first half of 2024. And as usual, all the numbers referred to are in US dollars, unless otherwise indicated. So the group delivered a solid performance in the first half, despite the macro challenges. And whilst contributions from development properties declined due to the market conditions in China, which resulted in the one-off provision, contributions from our investment properties portfolio

was resilient. Investment properties operating profits decreased by $15 million year on year, and there were positive rental reversions in Singapore and improved contributions from our mall in Beijing, which partially offset the decline in Hong Kong office rents due to negative rental reversions. Operating profits from development properties excluding the one-off provisions decreased by $117 million year on year, primarily due to a combination of lower profit margins and less planned sales completions on the Chinese mainland. Total contributions in South Asia was lower year on year due to a lower progress on project completions there. And the bulk of the 295 million China provision related to residential trading components on a handful of specific projects or phases where the expected sales price based on market comparables had fallen below carrying value.

And there was a seven million increase in net financing costs, although this was largely offset by reduction in corporate expenses. Turning to rental income, which was comparable to the same period in 2023. Rental income from Hong Kong office declined by 4% due to negative rental reversions and vacancy was stable. Rental income from Hong Kong retail declined slightly due to the lower tenant sales year and year as Michael mentioned earlier, as it was some leakage of retail sales to other markets. There was moderate growth in our Singapore office portfolio supported by low vacancies and limited new supply in the CBD market. And growth in our China retail portfolio was led by higher contributions from our mall in Beijing driven by tenant mix optimization efforts there. And performance from the other segments including our hotel operations were stable. Turning now to 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 on the Chinese mainland are recognized when projects complete construction are handed over to buyers. This means that construction progress and the number of projects in the pipeline will cause fluctuations in profitability across our reporting periods. Profits in the period excluding the inventory provisions reduced by 77% year-over-year reflecting a combination of fewer number of project completions and lower margins. Profits in Singapore are recognized in a different way and they're recognized on a percentage of construction completion basis and profits in the first half were lower due to lower stock levels. Contributions in Indonesia declined due to planned sales completions, less planned sales completions and the inventory provisions that we mentioned were predominantly in Chongqing, Ruhan in Nanjing and only on selected projects where the inventory was generally slower

moving and located in less prime locations. Over 80% of our projects in the mainland have healthy profit margins with no impairment. Let me now give you an update on our balance sheet. Net asset value at the end of June was 30.5 billion down 4.6% compared to the end of 2023 and this This decrease was mainly due to a slight fall in investment property valuations in Hong Kong. Positive contributions from underlying earnings per share were more than offset by inventory provisions in China. Exchange translation differences of $284 million mainly related to assets on the Chinese mainland and Singapore which had a lower value due to the strengthening of the US dollar. Overall, net asset value per share was $13.82 at 30th June. Our investment property's portfolio valuation decreased by a net 3% compared to the end of

2023 and the decline is primarily due to a 6% decrease in Hong Kong office due to the lower open market rents. This decrease was partly offset by an 11% increase in the value of our Hong Kong retail portfolio driven by a valuation uplift for the landmark retail transformation project that we've just announced, which factors in the committed rental growth from the new leases that we've signed. Cap rates in the period were largely unchanged. I'd just like to take a moment to highlight the resilience of the group's recurring rental income portfolio despite the volatile market conditions that we've all witnessed over the past five years. And you'll see on this slide that the reduction in rental income from the portfolio in Hong Kong has been compensated by recurring income growth from other regions, especially from Singapore and in mainland China.

Let's turn to dividends. The group declared an interim dividend at six cents, which was unchanged despite the drop in underlying earnings and we endeavoured to maintain a steady and hopefully increasing dividend over time. Hong Kong land is a strong track record of maintaining dividend per share through different market cycles which is underpinned by our resilient recurring income from our core assets that was on the previous slide, our robust net debt position, no land acquisitions in the first half of this year, ongoing capital recycling from our China Development Properties portfolio, and proactive efforts to manage operating and financing costs. The maturity profile of the group's debt is shown on the left-hand side of this slide. The debt maturities are staggered over a number of years and are well-diversified between a mix of banks and debt capital markets. The group is in a strong position with respect

to its refinancing plans, as no bonds are due to mature until the second half of next year, and we remain well supported by a broad range of relationship banks. The average tenor of our drawn debt at the end of June was 6.2 years. Average interest cost was 3.7%, down from 3.9% at the end of last year, driven by lower average interest costs in renminbi onshore borrowings. And the impact of higher for longer market interest rates was mitigated by having 65% of our debt at fixed rates. At the end of June, the group had available liquidity of $3 billion, and our credit ratings by both S&P and Moody's remain unchanged at A and A3, respectively. Let me move on to sustainability now and give you a few highlights of what happened in recent months for the group overall. In respect of our science-based targets, which we signed up to a couple of years ago, the group

continue to make great progress here. On decarbonisation, the group's now achieved a 29% reduction in its scope 1 and 2 GHG emissions at the end of last year, compared to our 2019 baseline, which is more than halfway towards achieving the group's committed 46.2% reduction in scope 1 and scope 2 GHG emissions by the year 2030. And as a leader in sustainable building practices, particularly in Hong Kong, the group constantly reinvest in its portfolio in Central and continues to advance in the green building certification program. And we've now just achieved another milestone, as the whole entire Central Portfolio Buildings has achieved LEED Platinum rating for existing building operations. And Jardine House, which recently celebrated its 50th anniversary, has become the highest scoring building in all of Hong Kong under the scheme, is quite a remarkable achievement.

As a result, we're now the largest owner of LEED Platinum-certified buildings in Hong Kong, and the central portfolio represents 27% of all LEED e-bomb Platinum-certified buildings in the city. As you can see in the slide, we're now triple platinum-rated for our entire portfolio. In April this year, we launched the Women in Central Initiative, which aims to create an inclusive community within the Hong Kong land ecosystem in Central and to drive diversity and inclusiveness in the workplace and in our society at large. And in collaboration with our tenants, Women in Central organized a series of enriching and engaging events with the intent to educate, communicate, give back, and build community. And this is really the start of a program that you should expect to see more of in the months and years ahead. Over the past year, we've also introduced the Sustainable Shopping Awards program to encourage our retail customers to make sustainable product purchases at participating retail tenants,

both here in Landmark, but also in WF Central and Beijing. And over 36 brands participated, offering over 170 sustainable products. And finally, Hong Kong Land Home Fund, which we established three years ago, has invested over $117 million Hong Kong dollars into a variety of community projects, with two key main areas of focus, which is to provide upward mobility for young people and to assist families with housing challenges, both of which are particularly acute problems in Hong Kong. To date, these programs have benefited over 500,000 individuals across the communities of which the group operates in Hong Kong, mainland China, and Singapore. Let me now hand back to Michael, who will close with comments on the outlook for the rest of this year. Thank you Craig. Operating conditions across the group's key markets

are likely to remain uncertain for the remainder of 2024. In the office sector in Hong Kong, demand is expected to remain weak until there is an upturn in capital markets activities. The group's central office portfolio, however, is expected to be resilient and continue to outperform the broader market, underpinned by the unique central ecosystem, its prime location, as well as scarcity of supply of high quality, well-managed space in Central. Negative rent reversions are expected to moderate but will likely persist at least until 2025, given elevated vacancies across a number of grade A office buildings in Central. The group's landmark retail portfolio with its competitive strength in luxury retail and lifestyle offerings, as well as robust loyalty program in Bespoke, is expected to remain resilient in a mixed market. The group's key focus going forward are to continue to differentiate its amenities, strengthen and broaden relationships with our key strategic partners, as well as to stay connected with

our customers. And I think Sotheby's is a great example of what we want to do going forward, and all the nine mace-ons that have to follow Sotheby's have got a pretty high bar to emulate. In Singapore, office demand is expected to be muted to the uncertain macroeconomic outlook, limiting near-term growth potential in office rents. Although in a tightly supplied market, the group's market-leading office portfolio should continue to enjoy low vacancies. We remain optimistic about the growth potential of our Chinese mainland retail portfolio, although we are cautious in our short-term trading outlook. Following the extensive review of the group's development projects, the group's strategy on residential developments on the Chinese mainland is to prioritize returning capital from existing inventory. Contributions are expected to increase in the second half of the year as a few projects including the West Bund are expected to be handed over. In Singapore, sales of the group's existing projects have performed well whilst the

pipeline of two projects is underway and expected to be launched gradually over the next 12 months. Due to the non-cash provision on development properties impacting the group's first half underlying profits, full year underlying profits on a non-cash basis are also expected to be significantly below 2023. Let me now close by saying it's a pleasure and a privilege to be appointed as the Chief Executive of Hong Kong Land. I believe one of the most prestigious companies, real estate companies in Asia. While the market is challenging, this is an exciting time for our company. Big investments like that of Tomorrow Central will elevate our core central retail portfolio, promises to strengthen its status as a premier destination, expand our market share in the luxury goods segment and deliver significant returns. Our Westbund project has started strongly and has a lot more to come. Finally, the strategic review I have initiated will lay out our future growth priorities of

of who we want to be in 2030 and how we're gonna get there and optimize our business. We look forward to sharing our vision for the future with you before the end of this year. I'd like to thank you for your support. Be nice to make it my first one. And happy to take any questions that you may now have. So come sit down and take, thank you. Oh, I'm kick off. Hi, Karham Choi from Bank of America. Welcome aboard, Michael. Couple questions for you. First of all, could you give us a little bit more color regarding the strategic review, about the scope of the review, what areas you plan to cover, a little bit more color will be helpful. Importantly, is there anything that is off the table? For example, asset disposals. Previously, the group was pretty adamant about not selling any of its Hong Kong office assets is that still the case. Second, regarding mainland China retail, you mentioned the slowdown in the second quarter,

and you also mentioned pretty good releasing progress with your upcoming upscale more in the westbound and also Shuzhou. Any concerns that the luxury retailers will start to pull back regarding as a result of the slowdown in Chinese consumption? Thanks. Great, great questions, thank you. The scope of the review, we are about halfway through. We have appointed a consultant to help. I think that consultant may have reached out to a few of you and wants to ask you your views of Hong Kong land. We really, from what I've, my understanding, And there isn't anything restricted from the table. We really need to, first time in 135 years to take a really good look at ourselves and where we want to be. Our business model has been consistent. We've built a great track record, property, great management. There's some core DNA to Hong Kong land that I think there's a lot of opportunity to leverage off. But it's probably too premature to say too much now, but we will in November be engaging a lot more with you and the investor community to explain our vision and how we're gonna get there. But to your question, there's nothing, really quite a blank piece of paper, external sort of advisory and working

towards what's best for Hong Kong land and our shareholders. And then on the second point in terms of the luxury brand concerns, we're very fortunate we have no luxury completions next year. Next year I think is going to be a tough year. I think many of the luxury tenants are still quite optimistic about 26 and 27 as we move through the cycle and we have had some very good commitments to Westbourne and Sultrow in particular. So we are happy that we're not completing next year. I think next year could be quite challenging and even with this project all of the commitments this will be fully open in 27 so you know fortunate timing or otherwise we've managed to maybe miss out on a little bit of the tip. Craig have you got any...well covered. Thanks Mike Craig this is Cindy from Citi I have two questions first is on Hong Kong retail you mentioned that Hong Kong retail first half you have tenant sales decline in on percent but VSC sales actually increasing.

Is the increase coming from like per take a size or more VSC customers? How much of a VSC sales as a component to your overall retail sales? And with your renovation work kicking out from third quarter, how should it expect such impact to your tenant sales outlook in second half and next year potentially? Second question is actually on your capital management. So we understand you have the stable dividend policy, just trying to think about your capex plan, the kind of rental pressure, micro pressure, still high interest cost. So how should we reconcile your, say current gearing and your tolerance level versus the upcoming dividend policy? And in the case of say gearing hitting above 20%, say your negative cash flow, what will trigger you to review your dividend policy actually? And additionally, on back back, any thoughts on that? Thank you. I'll take the first view the second. Yeah, sure. OK. So in terms of Hong Kong retail, we are very, very fortunate to have a very strong, loyal customer

base. The first Chanel opened here in the 70s, the first LV. I mean, all of the luxury brands have had many, many multi-generational experience in Landmark. And many of their customers remember when their grandparents and their parents have shopped in Landmark. So that's a really incredibly loyal customer base. And we do benefit from that. And as I mentioned, the top 70 customers based on our bespoke loyalty program spent a billion Hong Kong. And they are on a similar trajectory for this year. So it's an incredibly resilient customer base. 85% of our customers are local Hong Kong families or local Hong Kong buyers. Unlike, I guess, some of the others in Tim Sichoi, where that composition is much more tourist related, particularly for mainland, we have none of those impacts on us. So I think I mentioned that the VIC customer base is up sort of 11% year on year. And that's versus the broader market, which is down to the 21%. So that really does show its resilience. I think on the capital management side, a few things to say here. First of all, the landmark renovation that's been announced

is obviously a three-year transformation project. It's been designed in a way that the retail will remain open throughout the period. So we're not closing the entire retail. To give you a sense of impact, later this year, about 20% of the retail area will be taken back to commence the renovation works. That 20% will increase to about 37% throughout 2025 and then it will fall quite significantly as we get stores returning back and they open. So I think the biggest financial impact will be next year in terms of rental income but it's not the entire portfolio is taken out. I think on the dividend point and gearing. It's important to know, as I was trying to show earlier, really what underpins our dividend is our investment property portfolio which has been very resilient and we also loop through the cycles with our dividend. So what I mean by that is whilst there may be some dicks from time to time we tend and

strive to maintain the dividend throughout that period. So the way we're thinking about the landmark renovation is that it's a temporary impact and that a permanent impact and as Michael was sharing earlier the post renovation rental impacts are actually positive and quite significantly positive so I think the board tends to look through that near-term dip in the cycle. On the gearing point I think the other point to note is that because we have a reasonable amount of residential properties inventory in Asia and South Asia, up in China and South Asia, that will naturally recycle. So as we sell down the inventory that returns cash to the group and given the scale of that portfolio our net debt position will actually start to trend down over time. So in terms of our dividend position we feel quite robust about where we are which is why it's been maintained. In the landmark retail rents I think it's sort of up 23-24% right? Yeah there's quite a significant post-

post-rental benefit. And as we mentioned we've suspended new land acquisitions. If that suspension continues to Greg's point there's quite a lot of capital that will come back to Hong Kong and our 5.3 billion dollars could sort of go to net cash quite quickly. Thank you Van Richmond for taking my question. This is Mark Lang from UBS. I have three questions. I think the first one I think is more on Michael because basically you have been on board maybe for several months I just want to check going forward which of the business you need you would like to spend more time to focus on or do you think any areas that Hong Kong that need to further improve I think that's the first questions and for the second question I think it's also related to the strategic review as well because I

I recorded in the past few years of the announcement, we always mentioned of the Asian gateway city. But since I did not see this first in this time, just want to check, is there any intention that we doesn't mention the Asian gateway city into our announcement? And I think the third question is regarding on the potential cap rate as well. Because maybe that's more related to crack. I see the office cap rate remain unchanged, but the retail has slightly expanded a bit, I just want to check voice of the eventual treatment and the rationale behind, thank you. Okay, great, great questions. I'll start with the first two. So in terms of where I want to focus my time, look, I feel very privileged to be the chief executive of Hong Kong land given how many exciting things we're currently underway. And these are quite long-term visionary projects. So what we're doing here and what we're doing for Westbourne is incredible. So I want to make sure that I'm spending a lot of time future-proofing the business by focusing time here. I think our China residential development business is critical to really get to the,

I think we have 37 projects in the residential space. So moving that inventory, being pragmatic around provisions and being able to recycle some of that capital is very important. I think there's probably, and some of this will come out in the strategic review. But one of the sort of initial observations that I've had is that the business is quite complex. And I'm not sure whether the market gives the complexity of the business a lot of value but it is quite complex. So as part of the strategic review thinking about simplifying making the investment case a little bit more easier to understand could be some of the broad objectives for the strategic review but probably too premature to say that now. It's sort of how to simplify the overall business. On the second question Asian Gateway Cities, we again the strategic review will determine maybe what sectors, what geographies we are best placed to leverage off the embedded sort of DNA and skills of Hong Kong land. But as I mentioned earlier, nothing is off the table. We've got a pretty open slate. So I don't think there was anything purposeful about not

mentioning them. And if anything, if we had a property in Tokyo right now, I think our share price would be quite a little higher, right? So I think there's real benefit to diversification as we're showing in our business. I'd probably just add to that point, though, that we're not looking to move beyond Asia as part of the strategy review. So a question Michael's had a lot of times, given his previous role, but Asia will remain the focus. I think on the point around cap rates, you're right. The office cap rates are unchanged. They continue to be supported by the prime nature of their location. Limited number of office transactions in Hong Kong, but there have been two that have been cited in support of cap rates, which is why it's not changed. The retail one's kind of interesting, actually. The approach that valuers take during a renovation is to they've widened the cap rate slightly by 10 bits during the renovation phase. But I wouldn't focus on that too much, because what's going to be more interesting is what

happens to the cap rate once the renovation is completed. Because it's not escaped our attention that actually the landmark at the end of its re-imagination is really going to be amongst the best in the world in terms of the brand representations. And if you look to other international markets, London, Paris, New York, for example, where we've seen quite a lot of very prime retail transactions of late, the cap rates that have been achieved, and those are well below what's currently being used. So I'm personally quite bullish about the outlook for retail in our portfolio. Let's take a few questions online, because there's a few coming in. The first one's from CICC, Cheryl Chai. What's the expected capex for this financial year and then financial year 2025 and 2026? So let me take that question. I think the main thing here is probably in relation to landmark renovation, where our share of the cost is 400 million US dollars

to be invested over the next three years. The bulk of that will come in 2025 and 2026, just because of the phasing of the works. But the important point is that for the last 10 years, Hong Kong Land has invested quite a lot of capex in the renovation and retrofitting of its portfolio here. This is really why we've been able to achieve market leading sustainability credentials. And we've invested anything between 50 to 100 million US dollars in each of the past 10 years to do that. Now that we move into the renovation of the retail, there'll be less investment needed on the office space and it's now shifting into the retail. So the point I want to get here is that really the CAPEX commitment for Hong Kong land is actually quite manageable relative to what we've been investing in the past. And just to remind everybody that the large Westbond project is 43% owned by Hong Kong land.

Our investment in that project was made in 2020 when we bought the land. There's no further entity injection required from the group into that project. The construction costs are being financed through a combination of local renminbi borrowing and also the proceeds that we've been generating from the sale of residential apartments. So I wouldn't expect any significant impact on the group's net debt from Westbond.

Next question from IAM. What's the short-term disruption and financial impact to Hong Kong land from the landmark renovation? I think we've addressed those questions already. And then maybe a question for you, Michael. Will the landmark Hong Kong concept be similar to what we're trying to achieve in Westbond? Yeah, look, I think that the luxury-based offerings that we're sort of synonymous with, particularly here, is something that we want to transfer all of those skills. And I think it's a very strong sort of core competency that we can transfer elsewhere. So there's a 1.4 kilometer retail strip. Many of our luxury-based brands have already identified their sites, want to grow with us. They have a lot of choice in somewhere like Shanghai. But I think given our track record and history here and our strong relationships here helps to transcend over to places like Shanghai and Xocho and potentially other markets. So yes. Yeah, I mean, I think it's similar in spirit. But because of the unique nature of Westbund, it will be quite a different experience. And actually, the retail is a lot larger in Westbund.

It's five times this. So it will be a luxury precinct. but there'll also be a larger, more premium mass market element too as well. But the beauty of having such a large parcel of land under one master plan, we have a passive partners there, we really have full autonomy to proceed as we feel. So it's great having that opportunity, particularly on the Whampo River. It's really quite unique. Got a question from Joe Ho from Rondell Investments. First one is how much office GFA will be converted to retail under the Tomorrow Central Program? Here we've taken back two floors of office in the bottom of Prince's building and the bottom of Gloucester Tower. In total, it's about 50,000 square feet, roughly, that's been taken back and then used and added back into the retail. The retail lettable area is increasing, but it's not going up by a massive amount. It's going up by 2%, only about 9,000 square feet in total.

And the reason it's not going up so much is because we are using some of the extra space to create retail corridors which are not lettable. The former Harvey Nichols space in particular is going to be broken up into a series of smaller retail. But I think the key point here is that the retail that we do have, half of it approximately, is given over to the 10 mesons that we mentioned earlier. And the rent that we've achieved on these new leases is quite significantly higher. overall the productive nature of the space is going to increase. I think the second question Joe's asking is could you comment on your mainland residential development strategy going forward given the current weak market. You stop land banking in first half 24, will you stop further? Will you target the sell the under development projects on the mainland and even the IP project? So I think we have discussed about the suspension of the land acquisition. I think that's something we'll focus on on the strategic review and then come up with a determination.

markets a week we have a considerable amount of inventory the focus right now was recycling that inventory. In terms of target to sell under development projects absolutely in terms of the IP projects I think these type of assets are long-term multi-generational assets for us and the central series really is Su Chiu Chongqing this one in Beijing I would assume I suspect that these are projects that will be a little bit like this one which will keep within and and create a very, very high quality recurring income stream that hopefully you guys will put a higher multiple on over time. But the other properties are available. Many of those ring mauls were built, these lifestyle mauls were built on the back of a significant residential community, which we've made past profits on. And as we continue to perform, as we saw with Chongqing, where turnover is now up 30%, the yield on cost is increasingly going up and we'll be in a position at some point where we could sell these projects at a profit. Right now, it was a tough market to sell retail. But we're under no rush.

As we build these out, we might have eight or nine or 10 ring molds across the country. It could be an interesting proposition for a sea read, all sorts of different things that we could consider. But basically, all development properties by nature are built for sale. So they will be sold at some point. Any other questions from the floor? Be nice. Sarah? Sarah Cooper, Bank of America, just a couple of questions. Actually, Mike, curious, now that you've been in the seat for four months, you said you were impressed by what you'd seen, but any big opportunities that you see, any thoughts about the easiest wins yet to come, any thoughts on how maybe Hong Kong land can buck the Hong Kong trend in terms of trading closer to an asset value versus the historical Hong Kong, property company discounts or management discounts I might say.

And then secondly, just really curious on the sustainability given the age of the buildings. Craig, you alluded to that. Can you just for a simpleton like me explain how that's been achieved? Sure. Thanks, Sarah. So a great question and more will be involved at the end of the year. But right now, the points I made, it's a really talented group of people. There's a huge amount of passion and loyalty to the business. The culture, the history, the sort of fabric of 135 years is amazing. So all of those things were, as I expected, if not even stronger. I think the tenant relationships that we've curated over many years is incredible. In terms of future opportunities, we have 1.3, 1.4 billion US dollars of recurring income, a lot of which previously was going into development type businesses. If there is a continued hiatus in that, then there's still a lot of cash flow coming through, which could be directed elsewhere. It's a little bit like an insurance company with its annuity streams coming through and how we can best harness that, how we can grow it and harness it is probably where the opportunities lie.

But nothing specific yet. But at the end of the year, hopefully there will be. I think the complexity of our business makes it difficult. I think as being one of you guys for 20 years, looking at companies quite regularly, the more simpler the better. So I do think there's a simplification story here that can help close the gap. What that story is will be resolved, but I think that's definitely an opportunity for us and this business as to how we can close that gap by providing you guys with a much clearer story, a much more higher valued recurring income stream, these type of things, and that's sort of the broad direction, while still leveraging off the development capability that we have and the property management capability and sort of the core parts of the business. But we will tell more in November. Well, that is one of the big areas of focus, to try and narrow the gap. I think on the sustainability point, through a lot of hard work, Sarah, and investment, to be honest. I mean, effectively, the buildings here, you all see the core, the walls,

but inside the walls, we've basically replaced pretty much everything. So all the M&E equipment's been upgraded, all the pipes, all the air conditioning, everything we've done to try and get up to the sort of top standards across the portfolio overall. I think the other thing that we're in a really strong position with is around data, because we've got a large portfolio and we've been operating for a long time. In fact for the last 10 plus years we've been gathering operational data on the portfolio and we've now aggregated it and we're using it to do simple things like manage the air conditioning when it's turned on and off, when we do the maintenance and elevators, all sorts of stuff that we're doing. So I think the the 50 to 100 million US acapics that mentioned earlier, is really being primarily focused on trying to get our buildings right up there. But it's a message that we keep wanting to continue to communicate because there's a perception in the market that new buildings are the best buildings from a sustainability point of view. And I think

the Jardine House example that I shared, which has the highest lead operational rating in Hong Kong score, really tells you that's not quite the case. So we've got a bit of a PR story to do I think to sort of educate the market but this is really important because pretty much all our tenants and occupiers really demand best quality sustainability credentials but that's how we've gone about it. One question here for Mecho based Brian, will Hong Kong land be diversifying outside of its core markets? I think was similar to the question asked. You know it's not lost on us that if you look at the correlation between the Hong Kong Central Office Index and the Hong Kong Land share price, it's pretty closely correlated. So there's no point doing anything out of sight of Hong Kong office if that's the case. So I think in terms of diversification as a theme, how ways in which we can reduce that sort of reliance is something interesting. Got a question for you.

Thank you, Michael. Very good to meet you. This is Raymond from HSBC. Actually, I just have one question, which is related to Hong Kong office. So actually, put it at the other side. So like the Hong Kong office market is still remaining quite challenging. But will Hong Kong land, based on your thinking, will you Hong Kong land consider the focus or put higher priority on the existing projects or actually look for more opportunities to expand your, actually Hong Kong office portfolio, given the price has been correct quite a lot. Say for example, maybe there's a very nice project that's gonna be complete in two years later, say for example in Cosway Bay, will you ever consider to expand your portfolios in Central or Cosway Bay or other prime areas Central to expand your Hong Kong office portfolio? Thank you. Great question. I think all of this will be reviewed and is being reviewed as part of strategic review. I think we are very concentrated in Hong Kong. We are. And I think the correlation, as I mentioned, with office rental indexes and our share price is very strong. So do we want to continue to do that?

Or do we want to diversify a bit more so that we're not just a one-trick pony? So I think that's just a broad question. I think we'll continue to build a motor around our portfolio. We've got 12 office buildings linked two Mandarin Orientals, the Shopping Mall, and it's an amazing complex, and defending that from competition and future-proofing it, like we're doing with the Tomorrow Central, will be something that we will continue to do. But whether we want to continue doubling down and increasing our exposure or not, it's something that we'll have to sort of self-reflect on. Great. Fantastic. I think we've hit 11 o'clock now, so thank you for being very nice to me during my first results announcement, and appreciate all your attendance, and looking forward to staying engaged over years to come.