Hang Lung Group Ltd S/Adr

Okay, so good afternoon, ladies and gentlemen. My name is Joyce Kwok, and I'm the General Manager of Investor Relations at Hanong. Welcome to the analyst presentation for FY25 results announcement that were made earlier today for both Hanong Properties, 101.hk, and Hanong Group, 10.hk. We welcome the audience who are at our Hong Kong headquarter, and also the audience who are at our live broadcast now. Our presentation pack is now available on our corporate website or through these QR codes. There are English versions and simplified Chinese version for you to choose. Today, our senior management team is all here to join the presentation. They include Mr. Adrian Chan, our chair, Mr. Robert Low, our CEO, and Mr. Kenneth Cho, our CFO. This time, we would like to start the briefing with a quick video that visualizes the update on our latest strategic growth blueprint, V3. Thank you. Thank you. I hope you have enjoyed the video. So now, our chair, Adriel, may start with a few words, and then our CO Weber will also like to walk through some slides on the result highlights. And then our CFO, Kenneth, is going to go through our financial management and other slides as well. And then after that, we will address the questions from the audience from both the floor and the webcast. So Adriel, you turn now.

Thanks, Joyce. Thanks for coming, everybody, and joining on the webcast for those of you who are joining online. The reason why we showed V3 is because I think a lot of people understand sort of intellectually what this entails, but can't visualize it. And so this just helps fill in, put some meat on the bones. What I would say about V3 in particular, which is one of my key talking points today, is that it really is a new page for us. It doesn't mean we're throwing out the old. We continue to invest in our existing properties. We still think that that strategy works, but it will be with a different pace and a different scale going forward, whereas v3 is a way for us to scale with a doing what we do best without the capital outlay. And of course, one of my favorite parts about V3 is the speed. So it's a lot faster when it comes to bringing a project from imagination to fruition. The hope is we can do it within just a couple of years. I think we can achieve that. Whereas if you remember some of our asset-heavy projects under V2, they took up to 10 years to go from buying the land, i.e. the first dollar out until the first dollar in. So you think about the cost of capital for 10 years, even though we have a very healthy cost of capital, which Kenneth will talk about a little bit later, but it's still a very long time. What I'm really keen on is that additional GFA, the additional scale, and that's not just leasable area, that's also frontage, that's connection, that's a stronger community, that's a bigger footprint in every aspect, both physical but also in mindshare of these cities. It's in our strongest cities, so we have Shanghai, Hangzhou, Wuxi, and Kunming, which are among the four best performance cities. So increasing that mind share, increasing that market share is very meaningful for us. But, of course, we're leveraging the teams that we already have. So not only is there minimal capex, there's also minimal opex because the teams, the leasing team, the government relationships, the banking relationships, everything is already in place. And so this is a way for us to go with super speed into increasing everything from ROI and ROE. so um v3 is i think you know it's not an understatement to say it's very exciting and it's very meaningful for the company and it should be meaningful on a time frame which is much shorter than what you're used to um the second point i would talk about uh maybe just very briefly uh some views on on hong kong and mainland chinese markets um i know weber and kenneth will talk about this later so i'll just uh gloss over it but you know there's a series of um Corrections taking place in the market both in Hong Kong and in the mainland across resi Office retail some of them are structural So those are the ones that we're very careful about and some of them are cyclical The question is where do you think there's a structural shift and where do you think there's a cyclical shift? We can jump into that in a little bit The third point is that when you see our numbers, that Weber will, or actually, maybe I should talk about this after Weber goes through the presentation. I think it'll be more meaningful. So I'll leave the rest for a discussion a little bit later, and I'll let Weber take it away.

Thank you. So I don't repeat the numbers here. Oh, sorry. Sorry about that. First of all, in terms of our core business, the leasing, you can see that the revenue, although down by 1%, mainly because there's still some depreciation of renminbi impact into 2025, but overall operating profit and losses we are up by plus 1%, versus 2024, and underlying improved by 3%. So both the HLP and HLG, we deliver the same dividend, same $0.52 and $0.86 for HLG. Next one. Okay, I will focus more on the leasing revenue this time because this account for 94% of our revenue in 2025. So if you look at the mainland revenue, especially for the rental revenue, is at 5.878 million, which is about 68% of our total rental. flat in terms of RMB, minus 1 in terms of year-on-year on Hong Kong dollars, as I mentioned about the depreciation of the RMB. However, if you look at Hong Kong, we managed to get down by 2%. If you remember in the first half, it was down by 4%. Now, the overall down by 2%. That means we have done something okay in the second half to mitigate the overall year down by 2%. property because of the less booking compared to 2024 in aperture but we will talk about the overall what we have done in 2025 to bring in more capital next one rental revenue in mainland China if you look at revenue total year on year flat focus I would like to draw everyone attention is on the plus 1% on retail Office, we see the headwind. The headwind is not easy. I'm sure everyone knows that. We will explain a little bit more about what's going on, but we believe that this headwind will continue at least for 18 to 24 months. Overall, we believe that the good news is we were up by 1% in 2022, up by 7% in 2023, and 2023 was our peak. and it was down by minus 4 last year and it's flat this year so hopefully we can stabilize and go again next page so retail I think this is really our core that account for 83% of our mainland because office account for only 17 so you see that first half we were flat to 2024 but We see a plus 3% year on year in the second half and generally 1% overall in 2025. In a very tough year when you hear about the luxury goods are having a soft year, but at the same time, we managed to get our revenue up by 1%. You see across the board we managed to increase except three and Heartland and Forum we'll talk about it later but with these still a headwind but overall all the other market we see a pretty good revenue growth in a very tough market Next page So I think this page I think a lot of people ask in details I think we show every details When we were at the same place last year we see already say minus 18 back to minus 11 in fourth quarter last year but we told all of you that we see a little bit improvement So when we meet each other in end of July, we said hopefully we see positive in second half to make the overall year become break-even. But actually this is better than what we expect. So plus 4, because we have 10% increase in Q3 and 18% in Q4. And by the way, to just give you a dimension, 18% year-on-year Q4, Q4 sales in our history is the record high. Because when you look at the Q4 in 2024, it was down by the record high of 2023 by 11%, but it's now more than offset, the 11%, and up by 18% in Q4. So across the board, you can see, except the two, you can see the sales are in good growth, especially from the second half. Next one. So what we have done, I think a lot of the work behind the scene coming from the active management with the tenant So you can see that across the board mostly all of our properties with the higher occupancy The one that you might ask about why Plaza 66 was down because we need to build a rooftop, we have to build a tunnel sorry the basement to the pavilion and we have to close some of the shop otherwise it will not be 96 but otherwise if you see across the board we managed to increase occupancy so not only by managing the number increase but also we increase the new letting new letting increase by 15% and renew increase by 5% so a lot of work behind the scene to make this happen and in the middle of it you find that 200 of them are new to the city brands so we continue our tradition by bringing first in the market kind of brands into respective cities and at the bottom of the chart you can see that also there will be some LFA changes in terms of category so luxury remain the same but if you see the personal care and beauty improved by 4%, even though you may hear from the market that this is a tough market, but we see we increased by 4%, the sales increased by 8%. And F&B increased by 3%, and also the sales also increased. As well as the others, including some of the service trade, experiential trade, and all that. So I think this is the action behind the sales growth, especially we see from the 2025 starting from the first half which getting some fruition in the second half next one happy to also report that this is in our history the record high footfall together with our 65th anniversary we run a lot of signature event celebration events IP events so I think this is something working well and especially Last time when we talked about it, we discussed. In the weekend when we have events, no problem. In the weekday without events, there's a problem. Now we get the tenant to improve. Once the tenant improves with more F&B with a full price range, we can also help the increase of footfall in the weekday as well. So I think that's helping. Used to be in Hang Long discussion, everyone asking about luxury. But 2025 was led by a long luxury sales increase and long luxury effort that we have done over the years. So 2026, we look forward to celebrate our 66th anniversary. So it's very seldom to have a company to celebrate in consecutive years, 65th and the 66th, but because 66 means something to us, and that's why we will celebrate a lot, this time more a B2C, last year more a B2B. So we will celebrate a lot more activities, especially what we see we have done a lot of things working in 2020-2025. We believe that when we put together something meaningful and interesting and experiential, customers will come. Next page. Alright, this is the user page, but all numbers at least looks healthy, valid members Valid members means members with spending So increased by 24 New members increased by 10, member sales increased by 7 So even valid member increase, sales increase but in a lower magnitude because the average spend per customer decrease, right, I'm sure you understand the market dynamics of China. But overall, I think it's healthy. We managed to get more customers through the door, more active customers, and therefore the member sales increased. And the penetration also increased by four points. Next page. Okay, this is the tough part, which we have to tell all of you The office, especially in the mainland, we experienced 8% down First half, five, and second half get a bit worse to 12, partly because of a big tenant in Shanghai that we have to restructure with them to retain them for a longer period. So I don't want to name them, but at least... that help us to maintain the occupancy, that help us to retain them. Otherwise, you may see even worse numbers when the contract expire. So in mainland today, customers might have a better bargaining power today because they have a lot of supply in the market. So they may come to you and say, even though I have two more years with you, if you don't reduce the price, I will leave. And at the same time, I promise you I will not renew. So you have to talk to them and negotiate and make sure that they will stay, hopefully above the market price, but actually stay with us and therefore they don't need to move. So I think that will have some impact. Someone asked me, how long do you think it will last? I think at least 18 more months to 24 months because we see the supply continue. to pop up in the main city, especially like Shanghai. But for some other cities like Kunming, like Shenyang, when you are having a much dominant leader position, you might have lesser impact, but you still need to negotiate with the customers when the customers having a lot more option. For example, domestic players, most of them, they have their own office in the past. but because of our better office facilities as well as more they would like to rent with us when their business is doing well but now their business is tough they want to go back to their own properties so there's a lot of discussion like this so that's why I will see this negative drag might being around for another 18 months to 24 but as we discussed in an earlier section everyone talked about very bearish in Central a year ago but now seems like it's stabilized so This is really something we need to look forward to, especially when the foreign investment will come back. I mentioned to the media, I see at least a few prime ministers from the other countries visit China, and I hope a little bit of the movement going back into China and invest into China, and hopefully with this kind of more collaboration, bilateral kind of agreement, more companies will go back into China. So this is something we hope for. but at least we have to prepare this kind of trend and hopefully we can retain most of our existing tenant. Next one. Hong Kong, good news is we mitigate from a negative nine. to negative two in 2025. And the retail side, the reason why we have that is because of one single tenant in Causeway Bay expired a very high rent into a new market normal rent. That is the impact. Otherwise, retail is more or less quite stable. If you look at the second half, almost flat. So office, I think minus one, which is because we don't have much office in our portfolio so that's why quite stable for example the Standard Chartered Bank building we have over 90% of occupancy so I think we are quite comfortable with our existing one and residential service and apartment is the really bright spot I'm sure you heard about the rental market increase and improve over the years and that will reap the benefit as well so you can see that overall we are minus 2% in Hong Kong Okay so I think this one is important I want to highlight and highlight the difference So total 2025 the proceeds that we get back from our properties is $1.6 billion I think this is really highest in the last eight years Out of that we booked $264 million in revenue and the remaining will be booked in basically 2026. So out of that 1.2 billion and then 700 million will be in Hong Kong and 500 million will be in mainland. And also there will be disposal from the summit as well as one Boopoo roll The good news is the momentum seems like gather. So we saw another bubble roll in January. So I think the good news is when the market improves, some of the property we can actually sell with positive margin, I think it's a great way for us to accelerate the sales process and hopefully we can lower down our gearing continuously. Next one. Okay, some time left. Maybe I will fetch it. Okay. Okay, you moved too much. All right. Not much news on this page. Why don't I do it myself? Okay. Presidential, I think not much news. We continue to sell down the Bupu role. Good news is this is on... Sorry about... Okay, let me do it. Okay, don't touch everyone. Okay, it works. Okay, Poo Poo Roll, we have five unsold, now it's four unsold because we sold another one in January Wilson Roll, we got most of the approval already, so Demolition will start very soon. Hopefully we can finalize everything. Southern Hill, we still waiting for some planning and final approval and hopefully we look for a premium from the Lands Department and hopefully we can get it as soon as possible. Aperture, now we only have 90 something left for sales from a 294 So we sold already over 200 units in the past two years Mainland, Heartland and Grand Hyatt residence in Kunming continue to be slow but we believe that Today, even though you drop the price, it may not help. So we continue to sell at the right price and hopefully market improves. But we see a quick traction in center residents. So we already sold 50 plus units at a very good price. The highest in Wuxi, about $40,000 per square meter. So I think this is really encouraging. I think that actually reflects the strength of our mall and our district. This is really the core city centre and hopefully we will continue to sell down these properties. So I will pass on to Kenneth on the financial management numbers.

Thank you, Barbara. In the coming two slides, I would like to share with you our financial management. I think the key points I would like to highlight is the net gearing ratio. By end of last year, it was 32.7%, lower than the gearing by end of 2024. I think the different adjustment and also the scripted arrangement help us a bit. But I think more importantly for CapEx, I think as we communicated earlier, we have already passed the peak of our CapEx cycle, which help us to further reduce our debt. Overall finance costs actually declined by 8% because of lower borrowing costs. Both the benchmark rate, for instance, highball and mainland LPR declined last year. But also on the margin, my team have worked very hard, you know, to get a very competitive pricing on our financing. And the net finance costs increased a little bit by 3% is mainly because of a lower capitalization ratio, which result into higher net interest expense. Nonetheless, I think if you look at the interest cover, it has been improving, you know, last years to 3.1 times. For our overall debt profile, I think around 47%, if you look at the left-hand side of our debt, 47% are RMB denominated debt. So I think in the long run, of course, there's still room for increase, but I think the current ratio, I would say, is optimal. In terms of debt maturity profile, only 9% of debt will be due within one year. And my team and I are working on various refinancing one year ahead, and so far the progress is very encouraging and smooth. If you remember last year, we have done a 10 billion Hong Kong syndicated loan in the Hong Kong market, which help us to increase our dry powder and also help us build to build our wall chest. For next, I pass it to Weber.

Yeah, I think just, I think have a lot of score put up here. You see that on the left-hand side, ongoing effort, a lot of improvement. In terms of the score, in terms of rating, very glad to mention we deliver our 2525 goals on ESG Which I think this is something we are very proud of and now we are setting our journey into 2030 and then we are very committed to do well on this part even though western world now might not focus a lot but we believe that we have to do the right thing and China is leading the way to achieve this kind of sustainability target on the right hand side decarbonization great to talk about our journey to net zero this is really the first time I think not many company really having this kind of discussion we issue our paper in March 2025 And the low carbon emission and procurement, the two projects that we mentioned, Westlake and Plaza 66 Pavilion, our carbon emission actually was down by 42%. And one thing I also want to mention, very proud, eight out of our mainland operating properties powered by renewable energy. It's not only about really the achievement in the ESG, but it's saving costs. Because the cost in this renewable energy is cheaper than the traditional one. Okay, I think we talked a lot about V3, but I just want to capture not only the video, but this is really strategic move. that we would like to accelerate, involving much less capital, but more efficient and more strategic in terms of expanding our leadership. So, other than other companies talking about so-called asset life, We focus on only the core city where we believe that we will either already command the leadership position or we will be the leader in the market So we Shanghai, Hangzhou, Wuxi and Kunming And from a customer perspective, we see that not only the area will be improved but also the facade the street level in terms of visibility will be improved so you can see that from Hangzhou will be triple from Shengyi Jie will be plus 53% and from Wuxi will be plus 30% and I think most importantly which we disclose this time all these four projects we will spend around 1 billion RMB only right of course not only this is compared to the scale of what we used to be in V2 will be much less but that give us the additional GFA that give us opportunities to command the leadership and that give us leveraging on our existing resources not only people but also the existing team as we mentioned existing relationship with the government as well as the existing leadership already which we command over the years So if you have a chance to go to Kunming, it's a simple way, just I think other property developer have done in Causeway Bay, for example, other outside of their mall, you just make the street more meaningful, more interesting, and people will come through that into your mall, right? So we have done exactly the same at that. Plaza 66, which we are very efficient now, we are getting OP. and hopefully we will be ready by q2 and then we will launch and getting the first dollar as uh adriel mentioned in q3 this will increase our plasma 66 lfa by 13 On the right hand side, I stay with Nanjing Shilu, right? So 13% in the pavilion But if you include this project, this will increase our retail by another 67% So 67 plus 13%, the Nanjing Shilu retail area will be increased by 80% Not only that, we will have office, we will have hotel in this building And the good news is this is a joint venture that we will own 60% of that and then we will and the landlord will be responsible for the CAPEX to improve the building and then we are responsible 60% of that into our interior design as well as the internal fit out so I think that is the project same thing apply in the wuxi we will increase our facade and we will have 40 close to retail space increase in wuxi which we are already undisputed leader in wuxi we want to be even stronger and then if you have a chance to go to wuxi used to be we are on the right side so we are not in the the cross row between the main row. And once we have that, we have the best facade. We can put on LED. We can really illustrate a lot of brands with a high visibility. And the west link, a lot of people say, okay, this is the one that you have not done yet. Why you already expand before you do the first one? But I can tell you that we all know when we bought this land, we need a phase two. But this time, we don't need phase 2 anymore with this expansion because we get the best angle and best corner of this particular junction So I think once we have this expansion, we will increase our facade triple and also increase the GFA by 40% for the retail Okay, this one I'm sure everyone will ask Office, we have five tower, because the tower A is not ready, because we are still doing the internal fit out, we only have B, C, D, and E, and E already we delivered to one tenant in November last year And then if you only look at B, C, D, E, our leasing progress, pre-leasing is 38%, right? As 34%, because Tower A account for 50% of the total GFA of office. So because that is not available. But as of today, we already increased to 40%, right? So once the Tower A will be ready for us to lease, and then hopefully we can run up. But again, at the backdrop of tough office market. We don't want to be rushed, but at the same time, we also want to make sure that we can lease at the reasonable price. So the team working very hard on this one. On the retail side, last time I recall, we're talking about 80-something percent releasing. As of today, we are 91%. So when we open in Q2, we will be ready with 80% opening rates and 90% by Q3 So this will be a one-stop shop and together with the expansion, hopefully will be with luxury, with the retail long luxury and with the F&B and with the culture as well as with the relics and with the museum below the ground And together with the hotel on the left-hand side, the Manduino Rental, this will be open in early 2027. That's all I have. And now open for discussion and question.

Thank you. We now start the Q&A. Feel free to raise your hand for those in our Hong Kong office or by typing the questions in the box on the webcast page. I've got some questions on webcast, but Cal from JP Morgan, would you like to have your first questions? Thank you.

Thank you. So my first question is about the CEO's session. So I guess the first part of the question is more for Weber, because when we saw the announcement back in December, we were a bit surprised, right? So just curious, what's your thoughts behind your retirement? Because you're still very young, very energetic. So just curious, you know, your thoughts behind that. That's the first part of the question. And the second question is to Adriel. So I guess now we are in the stage of identifying the new CEO. From your perspective, what kind of qualities are you looking for in a new CEO? Are you going to find someone externally or are you going to promote someone internally? What's the direction and is there any timeline on when we'll be able to appoint a new CEO? So that's the first question on CEO. And the second question is on the mainland China retail. So last year, I remember that in the resource briefing, you mentioned that your outlook for second half is cautiously optimistic, right? So looking ahead into 2026, just curious, what's your general outlook? Do we expect tenant sales to still see a pretty good or positive growth? And I guess maybe if you have any colors on January so far. So that's my two questions. Thank you.

Okay, I maybe answered a hundred times already I will repeat again hopefully if this is not too boring to you This is always my personal goal even when I was 35 I would like to retire by 55 so don't discriminate the age I have been in the role for 8 plus year by the time when I leave my office when you know of course when I join Hang Long I would not say I will retire by 55 But this is really always my goal to do that. In the media section, I already mentioned, actually Adriel mentioned already, my next job, which has been confirmed, is my daughter's caddy. So I upgrade myself from a daddy to caddy. Because my daughter is a competitive golfer, and I want to spend more time with her. Not because I can earn any money from her, but I think if I can afford it, I think family time for me is very important. Especially before she moved to overseas for... for university I think by then I will be redundant anyway so I would like to spend more time with them and also my parents also they're old enough and I just don't want to leave them alone by focusing only as a CEO role so I have a son role I have a husband role I have my father's role and then I would like to balance for that so this is really not a tough decision for myself I informed the board and informed Adriel and Ronnie in January last year but we can only announce by December so I think in terms of the shock maybe a shock to you but not shocked to the company and to the board because they were informed one year ahead I think, I hope it will not create so much inconvenience. I work for US company for a long time. Everyone can be replaced. I don't believe that no one cannot be replaced. So I truly believe that Hang Long will be able to find one person or my successor to understand the business and then to do well. So I will... I will stay on and I'm sure Adriel can talk about my role after my retirement So but I'm happy to answer any questions if I have no answer So I have answered a few times I hope that if you still say okay maybe you have a role First of all I want to clear some of the rumor If someone spread the rumor irresponsibly, I have to say I have no job. I will not go to another place for CEO role. And if anyone believe that, I will put money on the table and back with you. But overall, I'm happy to be the retirementee.

So, you know, first of all, I do want to thank Weber here for his eight plus years of contributions. And if you think about our previous CEO, Philip, he was on for about eight years as well. So I don't think this should come as a surprise, frankly. And as you said, it's very common for companies to have to go through this. Everybody has their life plans, I think. plan, facilitated by the both emotional, mental, and financial freedom to do what he likes and to choose his path is very empowering, and I support that wholeheartedly. As a company, obviously, that leaves us in a position where we have to find a CEO, although, as he mentioned, it's not a surprise, so we have been looking for some time. When we have something to announce, we will announce it, but for the time being, I don't have anything to announce. What I can say, though, is that the boards have approved an advisory role for Weber, which will be similar to previous practice. And so, you know, there is absolutely no bad blood and absolutely nothing worth flagging in this transition. And so that will all be announced in due course as well, although it has already been approved by the boards. So I think on the succession, it's pretty standard. We'll work with what we have. On this China retail outlook, last year we were cautiously not quite cautiously optimistic, but we were cautiously hopeful that the second half would bring us back to parity. And it's done that and more, as Weber just mentioned. And the Q4 for us was record-breaking on multiple levels, both total retail sales, foot traffic, occupancy, or technically maybe we were at a higher occupancy when we only had the two Shanghai malls. but that was sort of like 15 years ago. So we're at a record high occupancy foot traffic and sales. So I think it's really a great way to start our 66th year. And with that 66th anniversary, obviously, we'll be pushing really hard into the consumer, the B2C side of that marketing. So what you saw in the V3 video is our 66th anniversary logo, which we'll be pushing to consumers. But even though we've had a strong fourth quarter, I am still excited. I still want to remain conservative and a little bit cautious. Partly it's because the luxury brands have not had a big uplift yet. They've been doing okay. By okay, that's in some cases, maybe down low double digit or high single digit. In some cases in our malls, maybe a little bit better than that. So maybe down single digit plus up single digit. And that is not where the growth in Q4 has come from. The growth in Q4, which I think is very gratifying, has come from non-luxury has come from F&B, has come from jewelry, and that is what we've been trying to focus on for several years now, to build a really compelling non-luxury offering in our malls, which means experience, it means entertainment, service, F&B, and so that's what we've done. And I think this is the pudding, or rather we're eating the pudding now. So I am Still cautious. If you look at LV's numbers, which just came out, obviously they're down for the whole year. But Q4, again, was also up like 1% for them. And so that sort of tracks for us as well. But it is not so confidence-inspiring that I'm willing to say, you know what, 2026, big numbers, luxury and non-luxury. I'm not ready to say that yet. But I think it's a great start, and I think that if we're able to execute... all these things that we've been planning, including V3. You might not see most of V3's impact in 26. That will be in later years. But I think the signal, the canary in the coal mine, is what we've done in Kunming, which is a simple 67-meter-long section of the shopfronts across from our mall. That has brought significant increase in foot traffic, at least from that entrance. It has brought a lot of life back into the district, and it has created a new buzz on social media and within government and within the community on what is happening around our mall. And that is really what we're leaning into as well. So retail, although I'm not yet willing to put my hand up and say back in a really big way, I am willing to say that it is confidence-inspiring, and we need to work hard to make sure we capture that.

Just to answer you about January, our numbers, if you look at the first 28 days, more or less the same as last year. But the good news, this is the good news. The reason why it was... Chinese New Year was in January last year so this year will be in 17 of February last year was in January 27 right so you can get my point right so if you have the similar sales of last year CMY then I'm pretty confident the two months will be good right so I think this is what I can share as of now whether that fully reflect the recovery Don't know yet but I think I'm not saying that we were forward-looking enough. The reason why when we drop so-called our luxury definition and non-luxury mode definition, a lot of people at that time say we worry about luxury and you are retreating from luxury. No. We already see the behaviour change of customers and that's why we don't want to label That particular mall is a luxury mall with only 15% LFA for luxury. We want to open it up and make sure everyone should come. That change of mindset, see our occupancy increase, our footfall increase, our luxury doing well, not because we just changed the definition. It's just because the behavior has changed. That's why I want to correct some of the people who say, because we worry about luxury. No. We continue to rely on both luxury and non-luxury. But so happened in 2025 was driven by the non-luxury growth, which we were spot on in 2025. So there's a lot of continuous refinement. There's a lot of way that we need to engage with our customers. But when you look at our LFA of luxury, we did not reduce. We are more or less the same. But we focus on reshuffling the luxury to capture the growth opportunities for more.

Maybe I'll take the opportunity just to expand that into Hong Kong. So when I look at China retail properties, I think what I'm seeing so far is that it's cyclical. If the economy comes back, which we expect it to do, if not immediately, at least in the medium term to long term, we're still bullish on China, then I think retail sales can come back and will come back. So I think that that is a cycle. On the other hand, here in Hong Kong, as I'm sure we all know, retail has been hit very hard by people traveling to the mainland, by the lowering in standards of service, the offerings. And so I think in Hong Kong, combined with the broader economic environment, I think Hong Kong is a little bit more structural when it comes to the retail landscape for landlords. And so in Hong Kong, I think we've done quite well considering all things considered. As whoever mentioned, there was sort of a one-off Hit in cause obey, but if not for that then we would have been pretty much flat So we seem to have found the bottom in Hong Kong retail and the question is how quickly will it return and I'm not I'm not yet confident to say that it's going to come back very quickly So so I'm not holding my breath So I think Hong Kong is a little bit more structural. Well, the mainland retail is a more cyclical I

May I clear some questions from the webcast? There's some questions on the financial management. So what's been driving down the net gearing ratio? This is the first question. The second question is what is the CAAT pass guidance for the next few years?

Let me give you some high-level figures for the CAAT pass first. So for this year, 2026, the CAAT pass would be around $3.1 billion. and 2027 would be around 2.6 billion. And subsequently, it will go down continuously. The figures I show you have already included the 1 billion attributable CapEx that we have to spend going forward in the V3 strategies. But substantially, those capex will be incurred, I think, from 2027 onwards.

And so for those of you who have watched us for a long time, you remember that for many, many, many years, our capex out was like $4 to $5 billion per year. And so this is a meaningful reduction. That's right.

And for the gearing, the question is, what are the factors which help us to bring down the gearing? So as I mentioned, the script dividend arrangement in the past two years has helped a bit because the cash outlay was much less in terms of cash dividend. As you may know, our major shareholders, HLG, opted for script so that HLP can preserve more cash. I think more importantly, we spend less capex. And as highlighted by Weber, for contrast sales, Actually, even though you look at the P&L, the revenue recorded is not substantial, but actually starting from Q4 2025, we had much more disposal in residential, particularly in Hong Kong. So we have already sold, I think, around 16 units in one quarter. And also we have some disposal in Bupu Road as well. So I think the recovery of the Hong Kong residential market provides us a good window to accelerate this disposal. So hopefully if the momentum continues, we should have more disposal for at least Hong Kong residents in the coming year.

Okay, there are two more questions related to dividend. The first question is about script dividend. Is it gonna be the last time we are having a script dividend scheme? The second question is, will the management consider a special dividend for the 60th anniversary?

It's hard to say if this will be the last one. That depends on the numbers when it comes to mid-year and end of year. But I think what we have been relatively consistent in saying is that this is not something that we necessarily want to do long-term. The question is what's the right timing. And as we have new projects coming online in Hangzhou's opening hopefully April, mid-year this year, then the hope is that there will be less pressure on the financial side and therefore we would not need to issue or offer script dividends as a way to ease our interest payments or our gearing. There's a broad intention not for this to last too long, but specifics will have to be up to the board when interim comes around. Oh, and on the special dividend, yeah, maybe if you're in one of my , then there'll be a lot of red packets going around, but in terms of special dividends, I'm not sure that that's something the board is really thinking about.

Cindy from Citi. Thank you, this is Cindy from Citi. I have three questions. First is a follow-up on China rate house. So we mentioned non-luxury upper form. Last year we added a lot of lifestyle and beauty. So I'm just trying to think of what will be your leasing strategy into 2026. We will continue to add on the experiential non-luxury space. And how do you think of the temporary underperformance of luxury? I think Shanghai mouse retail sales kind of underperformed that of Wuxi and Dalian. So is it because of the difference in the luxury positioning or what are the reasons behind? Second question is more on the underperformance of Wuhan and Shenyang. So those obviously has been undergoing the repositionings. I'm just wondering if the whole process is, say, aligned to expectation, and when will you see the stabilization in the performance? Is it 26 or even 27? And what would be the shopping malls after the repositioning? Then the third question is actually also on dividends. So I'm just trying to think with getting lower, with capex lower, with more rental incomes ahead, when would you start to consider maybe even increased dividends? Under what scenario, when earnings back to what level, will you start to consider that? Thank you.

I think I believe which also get some information from the luxury tenant Adriel and I went to Paris in December some sort of not brainstorming but getting some feedback from the tenants I think in general overall everyone is cautious but they still look for mid single digit recovery from a tough year of 2020-25 so I believe that there's a lot of consolidation happening because a lot of maybe some brands they over expand themselves so in terms of consolidation is happening so lucky enough that they don't consolidate hours but they consolidate the business to hours and therefore there will be hopefully some opportunities for us so i think this is more about luxury but the luxury side i think the momentum continues to have leisure i'm sure everyone talked about the good news now is that it's not only one brand they have a lot of brands doing pretty well. So I think it's quite across the board. Not only a pleasure, but if you look at Pogmark, for example, some of the IP, Jellycat, they are doing pretty well. So I think we need to look for what today is what customer really want. F&B, we find out in a very tough market, 2025 is that we have to offer various price range We can't offer only Michelin 3-star and stop there We have to offer something very cheap in order to attract tenant customers as well as footfall So I think I will not believe when the clock click from 2025 to 2026 things will improve or change dramatically The momentum will continue the footfall is continuing. So I think we believe we still look for a single-digit increase on sales, which I think should be doable based on what I just mentioned, the first two months. If we hang on for January but get an upside on February, at least we should have a good start. So I think this is the first part of your question. Second part, about the two I will not say struggling but the repositioning one because of the competition For Shenyang first, we are building a sports park next to Shenyang using the site that we stopped constructing but turned that into an urban park We want to really leverage on the park facilities to make this become an urban hub for sports, for a pleasure for fmb for some other places so i think this is ongoing and then the park will be opened by q3 next year at this year sorry q3 this year and hopefully with the park with a lot of interesting you can name it pickleball, basketball whatever venue that we can offer so pet friendly kind of facilities we can attract different traffic into the mall and that will facilitate more footfall into the shopping mall and speed up the the trade mix improvement Heartland I can see you can see the second half already improved partly because of one of the big competitor opened in 2024 July so when you normalize it the drop should be less but nonetheless we have to work very hard to improve our occupancy so you can see we have five points jump in terms of occupancy we are improving a lot more F&B offers I can tell you the challenge in Heartland is not luxury the challenge in Heartland is the long luxury because the one next to us suffocates us not allowing anyone to open with us so the key for us is to how to break through to get the long luxury going so we have some strategy I cannot disclose to you and hopefully by the middle of the year you can see we have some breakthrough so when we get the long luxury going you will have a footfall once you have a footfall everything will be improved so I think it takes time of course I don't want to always go back to those little brother need helps, but the good news is out of the ten, we have seven good ones. We have two a little bit struggle. We have one actually on the good foot with a high occupancy. We just need to make sure that the reshuffling on tenant mix will be relevant to the customers. We have to be on top on what's going on in the market and make sure that the tenant mix will be relevant. I think that is the key. The last one is the dividend. uh yes again i don't want to give a false hope you if you look at our growth and the net interest we still have a bit of capital interest will be realized to be a real interest that will drag us a bit even though if we have revenue increase so i hope that maybe hopefully we still need to go through the next 24 months and once we get through that capital interest and then when we see the earning improvement and then I'm sure we are more than happy to improve so this is not really this is what we can mandate the team to do but this is what the earning will tell the story and then we are already paying up to 81% of our earnings so I think if you look at even with the capitalized interest we are more or less deliver almost all so I think you can calculate your own mathematics so I think we are trying our very best to maintain it so again go back to the tough decision that we have made by reducing dividend last time so I think that A lot of you even asked me, should you cut more? I remember the problem, why don't you cut to zero? And of course, we have to strike the balance. We have to make sure that we find the place that will be making the shareholders as well as the company, both can be a win-win. And hopefully we can sail through the tough time. And we see a little bit of the KPI increase. Going into the right direction, the gearing now coming down, the borrowing coming down, the capex already peak. So I think a few years ago when we talked about we have to lower down the gearing, get the cycle, recycle back, we are working it, we are doing really hard on that, and hopefully you can see that.

I would just add that we've previously said that the first priority was to deleverage. It still is. So we do want to reduce our gearing and interest costs. Do we necessarily have to get to zero borrowing before we start thinking about increasing dividends? Not necessarily. So it may not be that long. It'll be somewhere in between, and it'll be a discussion, and obviously it will depend on the trajectory that we see the business taking, especially in the mainland.

Mark from UBS.

Thank you, management. I got about three questions. I think the first question is regarding on some, maybe the two Shanghai malls. We got excellent tenant sales. When do management expect that should be reflected in the rental income? Or should we expect the non-luxury sales will be more base grant focus, it should be reflected maybe three years later. I think that's the first questions. The second questions, I think it will be more on the net gearing side. So we definitely want to fasten the disposal for the Hong Kong DP, right? But how about for the China, do we expect maybe dispose the China office, like the CREIT, or more innovative, lower funding cost method, for example, like East Wing CB, et cetera? That's the second question. And the third question will be more on Agriel. Do we see the current structure for HLP and HLG is optimal, or do we have any plan to any change for the corporate structure? Thank you.

When will sales turn into rent? Is that right?

Sorry about that. I think in Plaza 66 is quite optimal, I would say, because when you see the sales increase, you get the rent increase, which is more or less, I would say, when sales come up, you will get the impact of it. In Grand Gateway, used to be always our fixed rent is much higher than the turnover rent, right? So in the down cycle, we're happy with the high fixed rent, but in the up cycle, we may not be able to capture all the upside. So I would say if our sales and footfall continue to improve, you can see the fixed rent will be improved, right? if you really dig into the details of our mainland this year even with a very tough luxury sales our fixed rent increase by two percent right our sales rent basically flat right that's why our total increase almost by one right so i would say in a very tough time we still manage to get the fixed rent increase because we always believe more at the fix will be beneficial to the landlord rather than leave everything on the variable right now of course when on the other side when the sales go up very very quick then you say why don't you have more sales rent I can't basically have both right really depends on the nature of the properties as well as the competition next to you I don't want to mention in Shanghai the competition is very key That's why to us is that we have to make sure that we get the best offer for the customers We have to make sure that the occupancy cost will be reasonable Yes, you can drill and get and mute the cow to the max, but you might push the tenant to the next door. So that's why we are very cautious about doing that. I'm sure you understand what I'm talking about. That's why, on one hand, we want to be more energetic in terms of more footfall in the market but at the same time we want to be reasonable and therefore we can get the best dynamics once you have best dynamics with the best footfall this is the best defense for any competition so the second i passed maybe i have to answer the your second questions about gearing and you mentioned about series

First of all, don't speculate Hang Nong is working on any sea rig. Some of you write a paper like this which was misleading. But definitely, my team keep monitoring the latest development of the sea rig market. As far as I know, last year there were 11 sea rigs listed in Mainland. most of them are either you know those mass market outlet mall and some of them are community malls and so forth so This is interesting, and I've noticed the yield has compressed from the IPO price, but nonetheless, for us, we are still, the key challenges that we have observed is even the CSRC and the tool exchange in mainland, they spend a lot of effort to promote the CREIT product. we have not yet seen a very clear or clarity on the capital flow from offshore to offshore. Fairly little clarity. And I think as a Hong Kong based listed developers, it's very difficult for us to do something without a clarity. Not mention the tax implication of this. So I think for us we will keep learning and monitoring the market and of course you mentioned office if they say very active, now they call commercial REIT because previously they call consumption REIT. If there are investors who are interested in mainland office, we are happy to explore. But as far as I know, the regulators, they encourage the sponsors to do retail-related. Of course, you can have some office element or even hotel, but the majority are still retail-related, as far as I know. So I think give us some time to study, and feel free to share with us if you have any insight on it.

I think tying into that, with our priorities still, firstly, to deleverage, to de-gear, we will naturally look at opportunities to sell down. We'd prefer to start with non-core. As we have said many times before, non-core property disposals are something we look at on a regular basis. But of course, when push comes to shove, the prices are never great. So we've not been able to move maybe as quickly as we would have liked on some of them. But as our gearing starts to come down, as our interest expenses start to come down, the pressure to do so is lower. And at the same time, the market seems to be returning at least a little bit, and so the opportunities may increase. So, you know, it's always a balance. How much do you need to sell? And frankly, we don't need to sell. It's just a matter of preference. But then also, how does the market look that we're trying to sell into? we've been able to move uh residential relatively well i think over the past uh 12 months and we'll be able to book a lot of that this year and not rather than last year when when they were contracted um and uh we'll hope to continue that so you know we're still looking at all options but hopefully the market comes back and works in our favor on the um structure it's Something that we look at, again, on a regular basis, what is the optimal structure? Obviously, we have a lot of, not a lot, but several peers who have been making adjustments and tweaking. Some of them have done quite well in adjusting their approach to the governance and the holding structures. And so it's worthwhile for us to look, to watch and learn. But we don't have anything to talk about specifically.

Okay, so let me clear one question from webcast regarding Westlake 66. It's a positive sign, a positive number to see 91% of commitment rate. So the opening should be three months from now. So how is the opening strategy? Is it going to be event-driven or is it going to be CRM-driven, especially on the VIP segment and also on attendance profile? Anyone to highlight here? Thank you.

I think you named them all. We have to do events, we have to do good tenants, we have to push on sales. So we already recruit quite a decent number of members already around the areas. So the preheat has been done since the middle of last year. I think we are working very hard now. We hand over 90% of the of the space to our tenant and then they are submitting drawing start to renovate and then this is really the last mile every single mall when we open we need to push and making sure that they open on time so we will come up with some incentive hopefully everyone will be according to our timing so I think overall to start with i think this mall will be a one-stop shop including luxury including luxury including culture with a beautiful fourth floor as a garden we call it oasis and then with the relics on the b2 to really have a museum down there and then we will have art we'll have hotel and then with the expansion we have a lot more space so i think It will not be different from what we have done in Kuomintang and what we have done in Wuxi and most likely similar to Grand Gateway to start with, right? Because at the end of the day, there's no more Plaza 66, you can't only do luxury because Plaza is the one that we really first in the market and then this is special. This is home to luxury. But on the other hand, I think with the space and with the expansion that in a few years time, I think we will be able to do one stop shop in that area. So I think overall, I think we are pushing very hard on every step on promotion on even have an artist coming at the launch everything right so hopefully we can invite you to come in 2026 second half

May I clear one more question from webcast and then I'll send the last question to Carl Choi from Bank of America. So there's a question from webcast which congratulates us on a strong year of contracted sales in 2025. So any guidance for 26 in terms of the sales, whether it's from the DP or from our IP disposal?

If you look at our inventory, we don't have that much left to sell. I mean, we have a little – in China – sorry, so in the mainland of China, we have reasonable stock. I don't expect that all to sell like hotcakes. Some cities, as you've seen, are much stronger than others. Wuxi is doing particularly well. Wuhan is doing a lot less well. And that's a function of the various economies and the regional economies. In Hong Kong, obviously, we do have a couple of – we have – Jardine's Lookout, we have Shoes and Hill, and then of course we have the remainder of Aperture. And those are all things that we're gonna work on. But in terms of total number, it's relatively limited.

I think, out of imagination, we have some IP to dispose. We just dispose one. in a very tall building. Hopefully we can dispose more. That we have 50 something units. So I think with the market improvement, I hope and I wish we can dispose more. We have four more blue blue row house out of 18. So if we can sell four more, that would be great. And the Wilson row as well as the Susan Hill we will work hard at least to get all the master layout plan done first So if someone want to take it, take it So I think there's a lot of way we can speed up but of course I want to also strike the balance between the shareholder return If of course we need the money for survival of course we can sell at cost but if we have some breathing space I want to make good money for the shareholders So I think overall In Mainland, again, Wuxi doing pretty well. We want to continue to do that. And then Wuhan and Kunming a little bit tougher because the market is not up there to the price and then we are really premium in the market. We just need to wait a little bit until the sentiment improves. So overall, I think of course, if there is any long call available which the price is attractive, of course we will look at it. So I think overall, there's some, but there will not be a lot and also we have 94 aperture left and then we would like to dispose as much as we can if we can ride on the momentum of 60 in the last quarter of 2024 sorry 2025 I think if I just do the straight line we should be able to sell 1994 in 2026 easier for me to say when I retire right so I think overall I think If the market continues to improve like what everyone said, I think we have a good chance to dispose a lot more. But of course, we don't have a guidance because I don't want to give you a false hope. You know, I just want to sell at the right price. If the price is right, we want to sell as quick as possible.

Cal from BOA. Thank you.

Yes, actually, one of my questions was going to be about the summit. And given the very hot, luxury residential sales market, are we having some discussions there? Is it just a matter of just pricing? And that sounds like we are willing to sell if the price is right. And the second question is, we've touched on Hong Kong retail a little bit, but can you give us a little bit more color on the rental income outlook for Hong Kong, presumably still relatively stable? Just want to ask a little bit about Hong Kong.

Maybe I have to answer the submit first. I think, first of all, other than the disposal that we have announced last year at 160 million, something like that, for a unit, we have also leased out one unit at a very good price. I think if you look at the news, it's $300,000 per month. So, again, I would like to emphasize it is still an investment property. At the right price, if you are interested, no matter lease or buy, please come to me. Okay, but please don't lowball me, okay? You know where I come from, I come from investment background, so I'm quite demanding on the price. But nonetheless, my team and I are working hard to strategize overall how to put the asset into the market. The second question is on the retail.

Hong Kong, I think, as Adriel just mentioned, I think we are cautious. If this is structural, I think we need to wait and see whether the behavior of customer will come back a little bit more back to Hong Kong because last year, I'm sure everyone talked about everyone goes to Shenzhen, right? Seems like it down a little bit. Now, for our labor hood more, the impact is minimal. Now we see a little bit more tourists coming back so that should be beneficial to our commercial district So I think we will have some reshuffling of tenant mix in Causeway Bay That will have some void period and that hopefully will be very short that hopefully also give a uplift of the tenant mix for Causeway Bay and hopefully that will bring the sales increase and bring excitement to our fashion world so I think overall we are cautious I can't say cautious optimistic because whether this is structural or not we still need to wait and see but hopefully the really the peak of people leaving Hong Kong and go to the north a little bit I would say the peak has been passed whether it will dial down back everyone come back and shop here wait and see Just one supplemental questions actually we have seen a very good improvement on the footfall in Hong Kong

So if you go to Causeway Bay, go to the P, Mong Kok, very crowded. So I think the challenge to not only Heng Long, but all the landlocked, how to translate the footfall into the sales is key. And as mentioned by Weber and Adriel, actually we are working on, you know, very hard, you know, to reshuffle some of the tenants, particularly in Causeway Bay and the P. So please give us some time. We are working on this.

So ladies and gentlemen, this wraps up the endless presentation for our FY25 final results. Thank you very much for your participation. We'll see you next time.