Wharf Real Estate Inv Co

Good afternoon, everyone. A very warm welcome to Warwick interim results presentation. You may download the PowerPoint from this QR code on the LED wall and the recording of the event will be uploaded to our corporate website afterwards. We kindly request that attendees refrain from taking photos or videos during the event. Our management today include Mr. Stephen Ng, Chairman and Director, Mr. Horace Lee, Director, and I'm Angela Ng, Investor Relations Manager. Today we will first go through the PowerPoint presentation before the Q&A section with our management. The theme for the presentation is Hong Kong recovery while below pre-COVID. Now, let's take a look at the results highlights. We are pleased to report sequential half on half improvement on retail revenue. But this improvement was overshadowed by the amortization of rental concessions granted during the COVID years. In addition, the office market remains weak. the valuation of IP had not yet bottomed out as the challenging environment persists. By comparison, hotels turnaround is more visible, although it has been losing momentum since the second quarter. in terms of financial management. With Hibor breaching 5% in June, our borrowing cost tripled in the first half. However, the rising cost will be mitigated by the reduction of debt to the lowest level in four years. the recovery pace of the market has been slow. Hong Kong retail sales only recovered to 85% of pre-COVID level in 2019 and tourist arrivals recovered to 37%. the slow recovery pace was led by multiple factors, including the global geopolitical tensions and economic uncertainties, a strong local currency, as well as the very slow resumption in traveling logistics. Meanwhile, the office market vacancy rate is reaching over two decade high, and the situation has no sign of improvement so far. The overall recovery is further complicated by the mounting pressure on hiking interest rates and inflating costs. To navigate this headwinds, the group proactively adjust marketing span to capture both local and tourist spending. Additionally, reducing debt has become a priority and some long-term investment were disposed. net debt reduced by $6.1 billion to $39.1 billion with gearing ratio down to 20.1%. The group's premier Hong Kong IP portfolio had a proven track record in pre-COVID years, which set a high benchmark for recovery. Retail spot rent has stabilized and turnover rent contribution increased, but the growth was overshadowed by the amortization accounting. As a result, our retail revenue increased by 8%, reaching around 70% of the pre-COVID level. Overall, Hong Kong IP revenue report a 2% increase, which was significantly dropped by the decline in office segment. Despite rising manpower and energy costs our efficient spending on marketing helped to offset the impact on profitability Hong Kong IP operating margin improved by three percentage points to 86% under the high interest rate environment. The group's borrowing cost increased by $0.7 billion year on year, resulting in 9% decrease in group UMP. IP valuation declined by 0.5% compared to last December. Cap rate remained stable. Core UMP being the UMP of Hong Kong IP and Hotel decreased by 5%. Dividend policy is maintained at 65% of Core UMP representing an interim dividend of 67 cents per share. A strong financial position is crucial under the current business environment Our current debt level is nearly the lowest level since the company was listed Gearing improved by 3.1 percentage points to 20.1% Average interest cost increased to 4.7% mainly due to the floating rate debt However, there is a possibility that this trend could reverse as some in the market expect the rate hike cycle may be nearing an end. Our interest cover was healthy at 4.8 times and we maintained a 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 core of our Hong Kong IP revenue. HyperCity saw a 9% increase in retail revenue and 60% in retail operating profit. Occupancy improved to 96% with tenant mix refined to cater to both locals and tourists. The office portfolio also received more leasing interest from the investment and insurance companies targeting the mainland customers But the market is still lacking sizable demand Occupancy of Harvard City office maintained at 88% with over 500 diverse retail outlets. Harbour City maintains a balanced mix of trades with fashion, leather goods, jewelry, beauty, and accessories, accounts for over 80% of retail rental. Harbour City is more than just the largest shopping mall in Hong Kong, but also an all-in-one destination with dining, entertainment, and panoramic view of Victoria Harbour. Additionally, its convenient proximity to the high-speed rail station and various transportation options also make it a popular choice among the local and tourists In addition, the engaging marketing strategies also help the mall to stand out One of the latest examples is the Disney 100 Anniversary event hosting at Harbor City, Times Square, and Plaza Hollywood, which has become a popular summer attraction. By integrating interactive technology, customers can explore the Disney-themed journeys at different corners of our malls while collecting virtual Disney stickers and redeeming prizes on the game website. This combination of engaging digital and physical experiences is very effective in drawing footfall. Moreover, our tourist-centric offers have also been well received. The Canton Road frontage is a must-have location and showcase for the road's best brands. It is home to the flagships of Hermès, Chanel, Dior, LV as well as the high-end jewelers such as VCA, Piaget and De Beers Some of the key tenants are reporting full sales recovery comparing to pre-COVID our world class tenant portfolio is carefully curated by our proprietary selection strategy which helps to promote synergies among the top tier retailers while minimizing tenant turnover and ensures the property is well maintained. Over 40 retail tenants have committed lease at Harbor City in the first half. and then we will talk about Times Square. This vertical mall is continuously refining BrandMax to broaden customer base. It is also enriching diverse experience to customers, including cold baking space, VR experience zone, and Cosway Bay's most popular multi-plat cinema. the mall occupancy was stable at 94%, but office is still facing multiple headwinds and the occupancy was 87%. Then switching to the regional mall, Plaza Hollywood, which is located atop the Diamond Hill Station. The new Chung Ma Line has greatly benefited Plaza Hollywood by providing an easy access to a larger population from both Kowloon and the new territories It helps to effectively expand the catchment area of the mall Occupancy was 96% in the first half Our hotel portfolio is operate under Niccolo Brand and Marco Polo Brand which include the Murray in Central and the Marco Polo Hotels on Canton Road Hotels reported visible growth in gross operating profit but the industry is facing mounting cost pressure Our Forbes five-star luxury hotel, The Murray, has received more corporate demand and event bookings since the borders reopened Similarly, Marco Polo Hotels on Canton Road has seen more tourist demand and Prince Hotel was renovated and reopened by phases from May this year And then moving on to the outlook the post-pandemic readjustment is still ongoing. The recovery pace of retail and hotel sectors are under challenge while the office market supply is expected to persist until a significant change in business climate. And other important factor to consider is the trend of cost inflation and timing for interest rate to peak out. In the last part of the presentation, I will walk through our efforts in sustainability. The group has formulated the 2030 long-term target to reduce environmental footprint and the progress has been on track. we remain a constituent of Hansen Corporate Sustainability Index with AA plus rating and also one of the top ESG leaders in Hong Kong on Hansen ESG 50 Index. We have continuous asset enhancement to optimize operational efficiency across our portfolio and solar panels are installed at HyperCity and Plaza Hollywood to promote the use of renewable energy Meanwhile, the Star Ferry has three low-emission green ferry in the fleet and has participated in the full electric ferry pilot program The group's support in youth development also continues through an array of business in community initiatives including our flagship project We Can We are also making continuous efforts to promote corporate governance talent development and workplace safety That concludes my presentation We will now proceed to the Q&A section A quick housekeeping note before we begin If you have any questions, please raise your hand and our hotel staff will provide you with a microphone And please identify yourself and state the organisation you represent before asking the question you may feel free to ask no more than two questions each time. So now may I invite Mr. Ng and Mr. Lee on stage please.

Good afternoon. I should be on sick leave but I'm not. I had a small operation. Strictly speaking, I am on sick leave but because of the results announcement, I decided it would be a good idea to show up and meet with yourselves face to face rather than trying to do it online.

and uh like to welcome you relatedly um Angela yeah um so may we have the first question from the floor uh maybe um Praveen from Morgan Stanley hi can you hear me