Wharf Real Estate Inv Co

Good afternoon, everyone. A very warm welcome to Warwick Annual Results Briefing. It is good to see you all again without a mask. Our management today include Mr. Stephen Ng, Chairman and Managing Director, and Mr. Horace Lee, Director, and I'm Angela Ng, Investor Relations Manager. Before the presentation and Q&A session, may I first invite Mr. Ng for opening remarks.

Thank you, thank you. I just want to say a few words before we start. I'd like to welcome all of you. welcome you back to our briefings we haven't had one like this for three years and it feels a bit strange sometimes I need to adjust to it myself I don't know about you I don't know whether you've attended a physical briefing so far in the last month or so but this is certainly my first behind me we've got a beautiful picture of Ocean Terminal but it was taken last year very tranquil because there was no business. We've got the doves. This is where the cruise liners are supposed to birth. There was none for three years, but the first started to return in January this year. And since then, we've had three or four. And hopefully, they will be coming back more and more. That's the cruise side. At the same time, we're getting visitors back from all parts of the world. initially, actually the results indicate, the government results indicate There's a good number of arrivals from Southeast Asia. Not as many yet from mainland China, but hopefully there'll be more of them. And then long haul visitors are still relatively low in quantity. Again, hopefully they'll return soon. 2022 was not a good year for us, as for most of you, I think, I don't know for sure. Hopefully 2023 will be better for all of us and I'd be happy to talk about it some more at the end of the presentation that Angela is giving you. Thank you.

Thank you, Chairman. So the theme for the presentation is Pandemic Walls, Couple Financial Cost Escalation. In view of the rising interest rate environment borrowing costs increased by $500 million with annual rate high from 1.5% in the first half to 3.5% in second half The soft capital value led to a decline of 6% in IP portfolio value that is close to $15 billion of revaluation deficit in regard to our Hong Kong IP performance. Retail spot rent started to level off, but passing rent would take time to reverse. Therefore, our retail rents are at recent low. In view of the volatile global economy and an oversupplied market, office leasing top line declined. In 2022, Hong Kong's retail and hotel sectors mainly survived on local demand Overall market retail sales saw a modest decline of 0.8% With the borders reopened and mask mandate lifted starting this year the group is observing the post-pandemic trend and will embrace the new normal Over the years, the group strives to retain the market position through proactive retenanting and innovative marketing. Our marketing strategies are constantly adjusted in response to the market dynamics. As pandemics gradually reside, HyperCity and Times Square staged more large-scale mall installations and art exhibitions, which were proven effective in boosting footfall. to capture a larger share of the post-pandemic market. We are accelerating efforts on promotions and campaigns targeting the tourists. During the year, the decline in retail revenue of the three malls narrowed to 4%, although passing rent may take time to recover. Turnover rent is expected to rise following the sales recovery this year. Meanwhile, the office side is strapped by oversupply and a slow economy In total, our Hong Kong IP revenue decreased by 2% with an improving operating margin as a result of strategic cost control Group Revenue declined by 22%, mainly due to the phase exit from the low margin DP business of HCDL, which is our 72% owned subsidiary. The UMP performance was strapped by the increase in finance costs. Hong Kong IP and Hotel UMP remained flat. IP portfolio value declined by 6%, with cap rate remaining stable. Dividend policy is maintained at 65% of UMP from IP and hotels in Hong Kong, which represent a steady full year DPS of $1.31. The group maintained a prudent financial management. Total assets was $255 billion and net debt further reduced to $45.2 billion. Gearing ratio was 23.2%. Average interest costs increased to 2.5% with all floating debts. Interest cover was healthy at 7.4 times. The group maintained the premium Moody's A2 rating with stable outlook In the following slides, we will walk through the performance of our core assets in Hong Kong First, HyperCity, which accounts for 74% of our Hong Kong IP revenue Despite the challenging operating environment, hybrid cities' unique critical mass and retail management led to a steady stream of leasing demand, with the soft market providing opportunities for new entrants and expansion. Retail occupancies improved slightly to 94% by year end. Office leasing momentum remained soft, but HyperCity was cushioned by several sizable take-ups of insurance companies to take advantage of potential reopening. Office occupancy increased slightly to 88%. Overall speaking, HyperCity revenue increased by 2%. With Hong Kong fully opens its doors to tourists again, Harbor City continues to reinforce its position as a must-visit destination with retail attainment and sightseeing all in one As the largest shopping mall in Hong Kong and with a stunning view, the west-facing ocean terminal extension offers the best sunset and night views in Hong Kong The mall also enjoys a unique critical mass of over 500 diverse tenants which is fortified by value accretive zoning You can see the breakdown of our rental income from the tree map diagram here A balanced mix of fashion, leather goods, jewelry, beauty and accessories accounts for 80% of rental income to build a better tomorrow. The group has strategically added and realigned brands to create a fitters to survive brand portfolio in the past three years of COVID. Now, let's take a walk through the contiguous 530 meters high fashion frontage on Canton Road. Since 2020, flagships of Dior, De Beers, Ferragamo, Miu Miu, Van Cleef, Piaget and Hermès join the world-class portfolio along Canton Road The Dior and Gucci flagships are even the largest in Hong Kong, while Hermès is the largest in Kowloon The flagship store of LV and other top luxury brands including Chanel and Prada have established presence on Canton Road for many years As the most convicted location of the top retailers, Harry City welcomed more than 100 new shops during the year Next, we will talk about Times Square. Times Square has been refining its luxury tenant mix and enriching Gen Z target brand mix to broaden customer base. New openings of luxury brands include Fendi and Marni. Despite the high vacancy nearby mall occupancy slightly increased to 94% Office occupancy was steady at 90% Then switching to our regional mall Plaza Hollywood Occupancy increased to 97% with strong local footfall from a neighboring population of nearly 0.7 million in Kowloon East area Our portfolio in Hong Kong also include the hotels under Niccolo Brand and Marco Polo Brand namely the Murray in Central and Marco Polo Hotels on Canton Road In 2022, our hotels reported an improvement in gross operating profit For the Murray, the internationally acclaimed hotel was awarded the highest honour by Forbes Travel Guide Bookings of events and banquets are on the rise since the realisation of social distancing measures last year Occupancies at the Marco Polo hotels were mainly driven by local long-stay bookings Entering 2023, a range of compelling promotion have been launched to target potential tourist return, but manpower shortage presents a challenge to the hospitality industry. Moving on to the outlook. The retail and hotel sectors are surely the key beneficiaries of the border reopening While for office sector, the oversupply situation may take more years to digest We believe the progressive return to a post-pandemic normal premises are better 2023 But uncertainties remain given continuing macro conditions In the last part of the presentation I will walk through our efforts in sustainability The group has formulated 2030 long-term target to reduce environmental footprint covering reduction of greenhouse gas emissions electricity intensity and water consumption as well as waste to landfills During the year, Wolfric is proud to receive the Social Capital and Sustainability Grant Awards The group remains a constituent of Hansen Corporate Sustainability Index with AA plus rating and also one of the top ESG leaders in Hong Kong on Hansen ESG50 Index to Medicaid environmental impact. Solar panels are installed at Harbor City and Plaza Hollywood and solar thermal heater system was installed at Gateway Apartments. Asset enhancement were made to optimize operational efficiency across our portfolio. Meanwhile, the Star Ferry has three low-emission green ferry in the fleet and has participated in the full electric ferry pilot program. In regard to community contributions, the Wolf Group was once again presented with the second top donor award at the community chess annual awards. Youth development support continues throughout a way of business in community initiatives, including our flagship project weekend and a number of scholarships and volunteer activities. We also strive to promote the standards of corporate governance, talent development and workplace safety So that concludes my presentation Now we will come to the Q&A session So may I invite Mr. Ng and Mr. Lee to come to the stage please So please feel free to raise your hand if you have any questions. And I see the first one is Ken Yeung from Citi.