Wharf Real Estate Inv Co

Good afternoon, everyone. Welcome to WolfRig final results presentation. I am Angela Ng from IR team. You can download the presentation from the QR code displayed on the LED wall. Our management today, including Mr. Steven Ng, Chairman and Managing Director, and Mr. Horace Lee, Director, We will start with a PowerPoint presentation and then open the floor to the analysts for a Q&A section with the management. The theme for the presentation is Topline Challenges Remain Hard. Now let's take a look at the results highlights. Global economic and geopolitical uncertainties continue to pose challenges for the economy of Hong Kong and Mainland China. In such operating environment, group revenue decreased by 3% to 12.9 billion. Revenue from Hong Kong IP representing 81% of total declined slightly by 1% to 10.5 billion. in response to unfavorable interest rates. Our financial priority in the past few years has been the management of debt and borrowing costs. During the year, net debt decreased further by 2.1 billion to 34.2 billion. Gering ratio further improved to 17.8%. net borrowing cost has peaked, decreasing by 10% year on year. While Hong Kong's economy shows moderate growth, demand for commercial properties remain weak, leading to a 3% decline in the total value of our investment properties. In 2024, the strong local currency and gradual pace of interest rate cuts continue to dampen both business and consumer confidence. Notably, Hong Kong dollar against the RMB and Japanese yen hit decade high, together with the continued strength against other currency has weakened Hong Kong's competitiveness for both tourists and locals. As you can see from the chart, overall recovery of Hong Kong visitor arrivals remain incomplete and uneven comparing to the pre-COVID. Hong Kong retail sales also saw a slow recovery with 7% decline year on year, mainly dropped by consumption downgrade from key markets and local spending leakage abroad. under the weak market conditions. Our Hong Kong IP revenue declined by 1%, but OP margin maintained relatively stable under our effective cost controls. Retail rent was strapped by weaker retail sales. Meanwhile, office rent remained weak, but it was partially offset by the improving occupancies among our office portfolio. to support sustainable value creation of our IP and hotel portfolio. The group has been taking an incremental approach and invested $4.6 billion in total since our listing in 2017. This investment includes the addition of ocean terminal extension, the office conversion from Hampton Court surface apartments, and the recent strategic realignments of global brands on Canton Road frontage with the additions of multi-story maisons, which have together solidified the leading position of our iconic properties. At the same time, we consistently enhance our brand value through proactive brand portfolio management. Thanks to our proven track record and strong relationship with best-in-class brands, Harbor City welcomed the duplex expansion of Celine, while Louis Vuitton is set to expand to four stories in the second quarter this year. Meanwhile, Louis Vuitton at Times Square opened earlier this year, and Loewy has committed to increasing its base. a series of promotional activities have also been launched to capture food traffic and stimulate consumer spending. on the office front. In light of the high market vacancies, we maintain competitiveness by offering flexible lease terms and accelerating premises improvement. As a result, our office portfolio occupancy increased to 90% by year end. Now, let's take a look at the financial highlights. Group Revenue and Operating Profit declined by 3%. However, thanks to improvement in non-core DP business and a 10% reduction in borrowing costs, Group UMP increased by 2%. Non-cash and unrealized net IP revaluation deficit widened, but cap rate remained unchanged and conservative. Since listing in 2017, we have been completely upfront and consistent about our distribution ratio of 65% of core UMP as a policy Full-year DPS was $1.24 The group maintained some financial health with Moody's A2 rating Net debt is at a record low of $34.2 billion, down by $17.8 billion since the end of 2020. Average interest cost was 5.6%. With this rate, $17.8 net debt reduction would have saved $1 billion of interest every year. In view of the high rate environment, our floating rate debt further reduced to 80% Interest cover stands strong at 4.7 times In the following slides, we will walk through the performance of Harbor City, Times Square, and the hotel portfolio. First, Harbor City, which accounts for 70% of group revenue. Publicity continued to receive stable demand backed by critical mass and location advantage Overall revenue increased by 2% to $9.1 billion Retail occupancy was healthy at 94% Office occupancy rose to 90% mainly driven by the expansion and commitments from finance and insurance companies as the largest and most diverse shopping mall in Hong Kong. Harbour City maintain a steady and balanced mix of trades that caters to both local and tourists. Retail rental increased by 2% to $5 billion. Canton Road Frontage now features 16 best-in-class luxury brands, including the addition of Fendi And inside HyperCity, we also welcome the expansion of day build of various global brands and F&B outlets Moving on to Times Square We continue to refine its tenant mix to enhance competitiveness The mall has been enriched by the most popular luxury brands while the upper floor will feature more experiential retailing and trendier dining options On the other hand, office occupancy improved by three percentage points from the end of June to 90%, driven by tech, media, and financial companies. Then we will switch to our hotel portfolio, which includes the three Marco Polo hotels on Canton Road and the Murray under Niccolo brand. The Murray, which is where we are today, has been awarded Forbes Travel Guide Five Star for three consecutive years in 2024. Through consistent service excellence, our hotels maintain steady occupancy rates. But the overall industry is experiencing a decline in room rates largely due to intense regional competition and price-sensitive travelers To encourage repeat visits we have launched a cross-hotel rewards program along with attractive package deals Moving on to general outlook a full market recovery remains uncertain as concerns about looming trading wars and unfavorable interest rates and currency persist. However, the central government's substantial stimulus packages, along with the Hong Kong government's ongoing efforts to attract quality visitors, may help revitalize the market once cyclical factors improve. in the last part of the presentation. I will walk through our efforts in ESG. We have formulated the 2030 targets which are on track. Additionally, we are developing new carbon reduction targets in accordance with SBTI criteria. Our efforts have earned us strong ESG ratings, including A rating from MSCI ESG Assessment In recent years, Times Square has earned both LEED Platinum and World Health Safety Certifications Up to the end of 2024, an accumulated total of $11.1 billion Sustainability Link Loan has been arranged Energy saving initiatives are actively adopted and pursued across our IP portfolio and Star Ferry. Youth development is also our key focus and we are dedicated to various business in community initiatives, including our flagship project, We Can. Continuous efforts were also made on promoting corporate governance, talent development, and workplace safety. That concludes my presentation. We will now proceed to the Q&A section. A quick housekeeping note for the analysts before we begin. If you have any questions, please raise your hand. Our hotel staff will provide you with a microphone. And please identify yourself and state the organization you represent before asking the question, if I did not do so. You may feel free to ask no more than two questions each time. Now, may I invite Mr. Ng and Mr. Li to come to the stage, please? So now may we take the first question from the floor, Cindy from Citi.

Hi, management. Thanks for this opportunity. Two questions from me. One is on retail. So we see from results that second half 2015 seeing some more challenges in retail comparing with first half. So would you mind like sharing with us the reversion and retail sales performance in the second half last year? We remember first half we see still positive reversion at Harper City. So how did second half performance been doing? and what's your initial outlook for 2025? Say, do we see sentiment improve in the first two months? Is it still quite challenging? This is the first question. And the second question is actually on the retail occupancy. So obviously occupancy is still very healthy, but we see some fluctuation at both Harbor City and Times Square retail. Is it more a function of some proactive tenant remixing? or what's the reasons behind and how's your plan in say retaining the brands or say attracting more brands this year? Thank you.

The retail market in Hong Kong, as you know, is going through a downward trend. It's experiencing a downward trend. And that started actually from March or April 2023. And ever since then, the year and year, growth quote-unquote growth has been negative with the exception of course January and February of last year because they compared to pre-opening January and February so this is general knowledge and I don't I don't need to dwell on it and at Harbour City and Times Square we're not performing too differently from the market. Generally, it's been down. And we don't, looking ahead, first of all, we don't yet see improvement in the first half of this year. The first quarter is almost behind us, and we know there is no quote unquote good news. in the second quarter may surprise us, but given that We haven't started to see momentum yet. Even if the second quarter does improve, it will take a little while for the full impact of it to be realized. So that is the way we look at the retail situation in Hong Kong in the first half of this year. Second half is difficult to predict. The US president is toing and froing, and it makes the forecasting extremely difficult, if not impossible. the two sessions in Beijing produced favorable comments from certain quarters from a number of quarters but we have to see how quickly and how significantly that would translate into real dollars and cents at the Hong Kong level so I can't predict with any measure of certainty what the occupancy going forward would be, or the rental would be, other than to say that I am not optimistic about the first half of this year. Second half, hopefully, I don't know, not yet. Okay, thank you.