Wharf Real Estate Inv Co

Good evening, everyone. Welcome to Wolf-Rick Intron Results presentation. I am Angela Ng from the IR team. You can download the presentation from the QR code on the LED wall. Our management team presenting today includes Mr. Steven Ng, Chairman and Managing Director, Mr. Horace Lee, Director, For today's briefing, we will first go through the PowerPoint presentation and then we will open the floor for the analyst for Q&A section with the management The theme for presentation is the leveraging continues while asset value falls Now let's take a look at the results highlights In view of the persistent weak market condition, our investment properties revenue slipped by 3% and operating profit by 4%. However, thanks to the drop in highball, borrowing cost decreased by 27%. We remain committed to deleveraging with gearing further down to a new low at 17.6%. Underlying Net Profit was stable and healthy IP Revaluation Dividend widened, which is an unrealised and non-cash item Core underlying net profit from our Hong Kong investment properties and hotels increased by 3% Our dividend policy remained consistent since IPO which is 65% of our core underlying net profit Accordingly, our interim dividend per share increased by 3% to $0.66 looking at the macro environment in recent years Geopolitical tension, serious disruption to world trade and uncertainties around interest rate and the economy have continued to weight heavily on real markets The retail market in Hong Kong is perhaps in a base building phase As shown in the chart, Hong Kong's overall retail sales have retreated to 2011 level and Harbour City retail revenue at 2014 level Despite the weak market, Harbour City has maintained its revenue position relative to peers thanks to its scale, location advantage and reputation Our base rent structure also helped to cushion the impact of market volatility Zooming in on the first half The first quarter remained challenging but signs of improvement emerged in the second quarter as the Hong Kong dollar weakened and highball dropped sharply Visitor arrivals and retail sales in Hong Kong also showed quarter-on-quarter improvement Growth in inbound visitation rose from 9% to 15% while retail sales ended a 14-month decline with positive growth in May and June Our Hong Kong investment properties portfolio reported a mixed performance Our retail rental softened mainly due to a drop in turnover rent and rental reversion remained challenging On the other hand, office rental rose by 2% driven by higher occupancy though negative reversion persists Now let's take a look at the financial highlights Core underlying net profit increased by 3% as mentioned earlier thanks to the lower borrowing cost which dropped by nearly $300 million year-on-year While the non-cash and unrealized IP revaluation deficit led to a grip loss It is worth noting that cap rates remain unchanged for our Hong Kong investment properties Our dividend policy has been consistent since IPO Interim DPS increased by 3% to $0.66 While asset value fall, we remain focused on deleveraging and maintaining solid cash flow Since our IPO, total equity has declined by 11%, mainly due to IP revaluation However, net debt has increased notably by 21% Comparing to the peak at the end of 2020, net debt has been reduced significantly by 36%, reaching a record low of $33.3 billion. Over the same period, total equity fell by 10%. Also, our gearing has consistently stayed below 20% except during the COVID years. looking at the first half with 79% of debt in floating rate. We benefit from lower high ball reducing average interest costs by 1.3 percentage points to 4.4%. Interest cover remains strong at 6.2 times and our financial health is affirmed by Moody's A2 rating with stable outlook. In the following slides, I will walk through the performance of our Hong Kong investment properties To respond to shifting travel and spending patterns, the group enhanced experiential retail to drive engagement and sales at Harbour City. Our strong brand partnership supported the expansion of Louis Vuitton, adding a VIP level to its four-storey flagship, which is the largest in Hong Kong. This shopping destination also attracted premium brands launching debuts and concept stores in the first half. and at Times Square. We are curating distinctive offerings, including Louis Vuitton's return, Louis Vuitton's expansions, and the launch of CR7 Life, the world's first Cristiano Ronaldo merchandise store. Turning to the office sector, While office supply remains a challenge in the office market, our prime location and mixed use complex remain a key strength. Both Harbour City and Times Square achieved Platinum Certification reinforcing our commitment to premises improvement We also focus on tenant retention and in-house expansion to remain resilient As a result, the group's office portfolio delivers a respectable performance driven by occupancy improvement In the first half, overall revenue at Harbor City remained steady. Retail occupancy was 93%. This year, we are pleased to welcome the return of Star Cruises to Ocean Terminal, which will help drive footfall. On the office side, Harbor City office continues to attract interest from insurance and financial sectors. Occupancy was 90%. as the largest shopping mall in Hong Kong. Harbour City remains focused on balancing trade mix and enhancing offerings for both locals and tourists. Retail rental was 2.5 billion in the first half, In response to the market competition, Times Square has been undergoing active rejuvenation of tenant mix. Mall occupancy rose by 2 percentage points year on year to 96%. On the office side, occupancy rose by 3 percentage points to 90%, despite new supply within the district. Then we will switch to our hotel portfolio which includes the three Marco Polo hotels on Canton Road and the Murray under Niccolo Brand Hotel occupancies improve, driving the growth in revenue and operating profit However, cautious consumer sentiment and intense market competition continue to pressure room rate, dining and events The sector outlook remains challenging. To stay competitive, capital investment will be required to enhancing offerings and driving performance. Moving on to the general outlook. In Hong Kong, renewed momentum in financial sector and major tourism events may offer support for market recovery However, geopolitical risks continue to shape the global economic outlook Against an uncertain macro backdrop, the Group will stay agile, maintaining proactive strategies and low leverage to navigate ongoing headwinds In the last part of the presentation, I will walk through our efforts in sustainability. In June this year, the group's near-term science-based targets were approved by SBTI, which marked an important milestone for our sustainability journey. We aim to cut scope 1 and 2 emissions by 42% and scope 3 emissions from downstream leased assets by 25% before 2030. using 2022 as the base year. Our efforts in sustainability have earned us strong ESG ratings, including an A rating from MSCI ESG assessment. Times Square has achieved both Lead Platinum and World Health Safety certifications, while this year, Harbour City offices also earned Lead Platinum, demonstrating our excellence in sustainable building management. Sustainable Financing made up 36% of our financing as of June this year, while an accumulated total of $15.8 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 and 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 Sorry. Maybe a lady first. We will have the first question from Cindy from City.

Thank you. This is Cindy from Citi. So two questions. First is on retail sales performance and footfall performance. So just now at the slides, you showed us a great quarter-on-quarter improvement in retail sales. So how do you see the sentiment going into July and August? What do you think are the key factors driving the improvement and do you expect that to sustain into the second half? And just now, I think we mentioned retail reversion was kind of challenging. So that challenge may be eased into second half if the retail sentiment continues. And the last time we talked, I think you mentioned to being not optimistic on the overall outlook in this year. So has there any change to your tone to that? So this is the first question. And second question is actually on your capital investment. So I think earlier on the hotel slide, there was mentioned on capital investment required to enhance competitiveness. So do you have any plan in head already? The timing, the scale for which asset, the required time, et cetera. Thank you.

Sound system wasn't as good or maybe my ears are not as good. In the second quarter, Hong Kong retail sales generally showed a year-on-year improvement in May and June. It's a small improvement, but it's at least a change in direction, which is clearly encouraging. But bear in mind, the base we were comparing to was a relatively low base. So it is rather premature to conclude that we're out of the woods already. And in fact, I suspect a lot of retailers will be thinking very much like myself. When they are trying to decide whether to invest more in the coming years, invest more either in the form of expanding the sales presence upgrading the existing presence, upgrading their stock offerings, merchandise offerings, upgrading the service by hiring better staff, more staff, and so on and so forth. So I suspect the retailers will take a few more months to form a clearer view about where the market's going. And in the meantime, I'm afraid retail rental will continue to be soft And we are ourselves not expecting a quick turnaround in the second half of the year Partly because a lot of the commitments in the second half have already been entered into before the second half. So the lag between a market changing direction, hopefully in the right direction, and that being reflected in the financial performance will be a matter of several quarters. The hotel investment that is required refers primarily to the biggest of our three hotels in Canton Road, namely Marco Polo Hong Kong Hotel. It's the oldest of the three, and it's also in the poorest physical state. We've been evaluating what to do with it. There are two main directions we can pursue. One of them is to tear down the entire building and rebuild it, redevelop it. Another one is to do a complete overhaul within the existing framework. the existing framework and structure is dated. and if we have to spend billions of dollars which we will have to for a complete overhaul the question is would it be money well spent or should we go all the way and turn it into a brand new property so that's a question which we haven't found the answer to yet and it partly or greatly depends also on what redevelopment plan would be approved by the building authorities. So I don't see work starting within this year, certainly not within this year, possibly within next year. but even if it were within next year it's likely to be towards the end of next year there's a lot of planning that we need to do plans that need to be approved and typically plans don't get approved first time you submit them so we're flagging that the current product is not competitive and will require investment either in the physical hardware and or on the soft side in service. In the meantime, the Marco Polo Hong Kong Hotel among our three hotels in Canton Road is the least performing of the three.