Wharf Real Estate Inv Co

Good afternoon, everyone. Welcome to the webinar of work week in from results breathing. I am Angela Ng, Investor Relations Manager. Our management team in the webinar include Mr. Stephen Ng, Chairman and Managing Director, and Mr. Horace Lee, Director. Before the presentation and Q&A section, we will start with an opening remarks by the Chairman

Thank you, Angela. My opening remarks should be short. Generally speaking, demand is still weak for the business we're in, primarily covering retail properties in Hong Kong, office properties and hotels. In respect of all three sectors, current demand is still weak. In terms of local demand, I would say it's probably back up to 80 to 90% of what it was previously before the pandemic. But what we lack is of course the visitor demand, tourist demand. And we will not be able to get back to what we used to have until the borders reopen and even when the borders first reopen I suspect it will take a little while before we can recover to a substantial amount of the previous demand that obviously will impact not only the hotel business but to a certain extent the retail business as well So I guess the outlook much depends on border reopening. I can come back to address any questions you may have, but let me hand back to Angela first to take you through the PowerPoint. Thank you.

Thank you, Mr. Ng. Now, I believe that you will see our PowerPoint presentation on the screen. The theme of the presentation is rental income remains depressed. with strict border control still in force due to the COVID-19 pandemic. The hospitality and retail sectors in Hong Kong are still on their knees. Bleeding continues for hotel and the discontinuation of the government's employment support scheme will present a new challenge for the second half. Retail sales have bottomed, but that was still 28% down from the 2019 level. the entire sector is still facing tremendous pressure until borders reopen. The prevailing vacancies and weaker market rents continue to depress the rental income of landlords. Although local consumption with bills with an 8% sales rebound in this first half, the absence of tourist spending is still a big challenge for the retail sector and the market competition is getting more intense with extensive marketing programs to sharpen our competitive edge. Retail revenue drop of our three malls in Hong Kong narrowed notably, but the mall's margin is eroded. Overall speaking, the improvements in turnover rent has partly compensated the negative rental reversion As a result, the group's Hong Kong retail revenue dropped narrow to 11%. On the other hand, the office sector still facing a soft demand under economic uncertainty and a new work culture. With new conditions inflating supply, the existing office supply in the market may take some time to be digested. Although the vacancies and soft rents continue to depress our rental income, the decrease in Hong Kong IP revenue narrowed to 11%. Since the pandemic, the group has been making strong marketing efforts to retain our market position and to strengthen the critical mass of our malls in a fast-changing environment. We have been very selective in re-tenanting in order to maintain a high-quality tenant base. As a result of our proactive strategies on different fronts, both Harbour City and Times Square achieved outperforming sales growth. Regarding the latest leasing trend, some sophisticated tenants used the opportunity to enhance store locations and sizes while the landlords also had the opportunity to enhance tenant mix. Turning to the financial highlights. The group reported a revenue growth of 10% with the drop in operating profit and underlying net profit narrowed to 11% and 15% respectively. Underlying net profit of IP decreased by 14% mainly due to weaker rental income and investments in marketing. The loss of hotel has narrowed. IP revaluation increased by 96%, contributing to a turnaround of net profit to nearly 3 billion. Dividend policy maintains at 65% of underlying net profits from IP and hotels in Hong Kong. which represents a GPS of 67 cents for the first half of 2020. In the following slides, we will walk through the performance of our IP and hotel portfolio, as well as financial management and outlook. First, Harbour City, which is our major source of income. As the IP and hotel sectors are still suffering heavy pressure, total revenue at Harbour City was 4 billion. Retail tenant demand continues on the back of its iconic positioning and improved sales productivity. Retail occupancy increased to 91%. Office leasing activity in Tsing Sha Tsui was relatively muted. Publicity office occupancy was 82%. As the most diverse shopping mall in Hong Kong, constant re-tenanting and stringent selection criteria are in place to maintain a desirable high-quality tenant base. We believe the comprehensive mix helps to mitigate the market risk to our tenants. The rental income distribution by different types of tenants is shown in the charts. Harbour City spares no efforts in a successful spending rewards scheme to encourage repeat purchases and dining out, which has driven above-market year-on-year sales growth with notable growth in local footfall. A variety of forward-looking international and local brands opened or expanded in the first half of the year. And we also fortified the F&B offerings, which show resilience demand from the locals. For the hotels in Harbour City, Marco Polo Hong Kong Hotel and Gateway Hotel are proactively joining in the local market. while Prince Hotel is ready to reopen with a fresh look when borders relax. However, post-pandemic manpower would be an added challenge for the hotel industry. Next, we will talk about Times Square. Creation of enticing fresh experience and marketing program started to bear fruits. Tenant sales growth at Times Square turned positive since the last quarter of 2020 and outperformed the market for the third consecutive quarter. The current market adjustment makes space for young brands and new impetus to revive the shopping and dining experience. Retail occupancy was 92%. Infection activities for pocket-sized units mildly recover. Office occupancy increased slightly to 88%. Total revenue was $1.1 billion. Then switching to Plaza Hollywood, which enjoys a relatively stable neighborhood demand. With the full commission of Chin Ma Line in June this year, Diamond Hill Station has become a new transportation hub for East Kowloon as an interchange station for the Kwun Tong Line and Chung Ma Line, which amplifies the geographical advantage of the mall. Occupancy was 96%. The next one is Central Portfolio, comprising Willock House, Private House and the Murray Hotel. The group's premium portfolio in Central continues to show resilience on the back of its diversified tenant base. Occupancies at World of Health and Private Health remained relatively high. As for the Murray Hotel, its successful local strategy led to a top-of-the-market revenue per available room, comparing to its competitive set. Although events and bankers are still badly hit by the social distancing measures, the Murray still managed to achieve operating breakeven under improved occupancy and tight cost control. Moving on to our Singapore portfolio comprising Woolock Place, Scott Square or the BC Orchard Road shopping districts. The most reported sequential sales recovery before the phase two safe management measures in Singapore in mid May to June. Moving on to the financial management. The group maintained a prudent approach on financial management. Net debt reduced to 50.4 billion and gearing ratio improved to 23.8%. average interest costs further lowered to 1.4%. The group continues to maintain the Moody's A2 rating. Looking ahead, cross-border activities are unlikely to revive in near term and no early recovery can be assumed for the IP and hospitality sectors. As always, the group will adhere to the proactive business strategies to stay ahead in the changing business environment. In the last part of the presentation, I will walk through our efforts in sustainability. The group is a member of Hansen Corporate Sustainability Index and Hansen ESG50 Index. We have published 2020 sustainability reports following GRI standards and referencing SASP standards. In regard to youth development, our business units are partnering with 16 WICAN schools to provide support. The group is also devoted to making a positive impact against climate change and operates in harmony with nature by promoting green and low carbon and also reduce waste. Our efforts can be seen from the data shown in this slide. So that concludes my presentation. Now we will come to the Q&A section. If you have any questions, please press the raise hand button on your Zoom control panel. Now, we will receive the first question from Ken Yarn City. Hello, Ken.