Wharf Real Estate Inv Co

Good afternoon everyone. Welcome to World Week interim results presentation. I am Angela from the IR team. You can download the PowerPoint presentation from the QR code on this LED wall. Our management presenting today includes Mr. Steven Ng, Chairman and Managing Director, Mr. Horace Lee, Director, We will first go through the PowerPoint presentation and then open the floor to the analysts for a Q&A session with the management. The theme for the presentation is 42% dividend increase on dividend payout revision, which I hope will give you a positive surprise. Now I will share some key highlights from the reporting period. With the leveraging as a key strategic priority since listing in 2017, we have consistently reduced our debt and gearing to new lows, resulting in stronger balance sheet and lower borrowing costs. Help by the lower borrowing costs, group underlying net profit increased by 6%, while net cash inflow before financing increased by 41%, or $1.4 billion. Considering the current earnings base and the debt profile, the Board has decided to increase the distribution payout ratio from 65% to 90% of recurrent core earnings from 2026 onwards, while keeping the policy under regular review. This implies a 38% increase in base dividends. Reflecting the revised 90% payout ratio, our interim DPS increased by 42% to $0.94. Subsequent to the period end, the Group has agreed to dispose of Willow Place in Singapore at 12% premium to book value. Under completion of the transaction later this month, our gearing is expected to fall from 16% to around 11% by end of this year, further enhancing our strength and flexibility of balance sheet. Now let's take a closer look at our financial management, which is a core strength that enables the group to navigate different market cycles effectively. Net debt and gearing ratio were reduced to record lows and as at the end of June 89% of ball wings were on floating rate and our average interest cost further improved to 3.5%. Our financial health is affirmed by Moody's A2 rating and our interest cover remains strong at 8.2 times. The benefit of our deleveraging strategy is clearly visible. Since 2020, net debt has fallen by a cumulative $22.8 billion. As shown on the chart in the left, this proactive deleveraging strategy helped cushion the impact of rate hike cycle and support earnings resilience. With low lead depth in the first half, our borrowing cost declined by 26% or around $200 million. As reflected in the chart on the right, our group UMP and DPS remain resilient throughout the rate hike cycle in the past few years. And this year, our interim DPS continued to grow following amidst single-digit growth in 2025. And then the financial highlights. Group loss level with the lower IP revaluation deficit, which is long cash and unrealized. Cap rates remain unchanged. Our recurring core UMP increased by 3%, supported by lower borrowing costs. As mentioned before, DPS increased by 42% to 94 cents, representing 90% of recurring core UMP. Upon completion of Willock Place disposal, we expect a gain of approximately HK$1 billion and net sale process of approximately HK$6.7 billion will be used to support our deleveraging strategy. Regarding our core earnings performance, underpinned by six premium quality properties in Hong Kong, the group's core revenue from Hong Kong IP and hotels were resilient at $5.9 billion. Retail remains the dominant earnings contributor, accounting for nearly 60% of Hong Kong IP and hotel revenue. Office accounts for 26% and the remaining comes from service apartments and hotels. As one of the most productive retail assets in Hong Kong, Harbour City generates over 80% of our Hong Kong retail revenue. With Harbour City delivering mild revenue growth and a 4% increase in UMP, this key earnings pillar accounts for nearly 80% of the group's core revenue and 86% of recurrent core UMP. supported by rising tourist arrivals and stronger discretionary spending. This landmark destination achieved double-digit retail sales growth, outperforming the overall Hong Kong market. In the following slides, I will walk through the performance of our Hong Kong IP and hotels. First of all, let's take a look at the market condition. Driven by discretionary spending, Hong Kong retail sales grow 9.6% to $200 billion, despite a moderation in second quarter. Visitor arrivals grow 13% to nearly 27 million. Same-day visitors, predominantly from the mainland, account for more than half of the total, highlighting continued reliance on day-trippers. In contrast, overnight visitors only grew by 2% during the period. For non-mainland visitors, which comprised 23% of total, the top five markets represent nearly half of this segment, of which four were short-haul markets. And at the same time for local outbound travel, it climbed to 62 million in the first half, taking up around 70% of total cross-border passenger traffic. Nearly 90% of outbound travel was by land, with land departures growing 10% while air departures remain flat. This reflects the continuing trend of northbound travel, which remains a headwind to local consumption market, particularly in non-discretionary categories. Against this backdrop, our premium retail portfolio outperformed. As mentioned earlier, Harbour City delivered tenant sales growth well ahead of the overall Hong Kong market, and Times Square also recorded positive sales growth. While retailers are still cautious on major leasing commitments, our malls continue to attract leading brands including some regional debuts and flagships. At Harbour City, Toys R Us has been transformed into first world-class flagship store, while the luxury cluster continues to be strengthened through new openings such as Sedna and other brand expansions. At Times Square, Fever Museum made its Asia Day build and SKIMS, a globally popular brand, will open its first Asia flagship store at Times Square. The group also stepped up marketing initiatives to drive footfall across different customer segments. Highlights include the Toy Story 5 and the Millions event this summer, alongside a lineup of experiential campaigns. Turning to our office portfolio. The office market is showing signs of cautious stabilisation, but rental pressure remains. We maintain flexible leasing strategies while accelerating asset upgrades to strengthen competitiveness. As a result, our overall office occupancy increased to 93% at period end, outperforming market average. Then we will switch to our hotel portfolio in Hong Kong. Benefiting from the prime location, the three Marco Polo hotels on Canton Road outperformed the district in occupancy, while the Murray in Central achieved strong double-digit occupancy growth. Our effective pricing strategies also drove double-digit growth in revenue per available room across the hotel portfolio. While performance remains solid, growth momentum moderate towards the end of the period as visitor arrivals begin to slow Moving on to the overall market outlook Hong Kong continues to benefit from safe haven capital flows, a weaker Hong Kong dollar and rising visitor arrivals, although the recovery may remain gradual and uneven across sectors due to a complex and uncertain external environment. Despite these uncertainties, the group remains well positioned to navigate evolving market conditions underpinned by our premium asset portfolio, strong balance sheet and disciplined financial management. In the last part of the presentation, we will go through our efforts and performance in sustainability. Last year, the group's near-term science-based targets were approved by SBTI, which marked an important milestone for our sustainability journey. Our efforts have also earned us strong ESG ratings. And this year, hybrid city becomes one of the largest lead platinum mixed-use developments in Hong Kong, covering approximately 6.5 million square feet of certified floor area. As of June this year, sustainable financing made up over half of our financing. More details about our sustainability efforts could be found in the PowerPoint presentation. So that concludes my presentation. We will now proceed to the Q&A. A quick housekeeping note for the analysts before we begin. If you have any questions, please raise your hand. Our hotel staff will give you a microphone and please state your name and the organization you represent before asking the questions. 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. Lee to come to the stage, please? Okay, so we will have the first question from the lady, Cindy from Citi. Thank you, this is Cindy.

From CT. So two questions from me. First, obviously, it's on the dividend payout ratio. Wanting to better understand your consideration behind this 90% payout ratio. I mean, why wasn't it 95? Why wasn't it 80? And did the reloc place divestment actually moving the needle for you to making this decision? And any possibility of future upside or what could drive future upside? And also, how do you see buyback versus dividend payout in future capital allocation? This is the first question. Second question, wanting to dig a little bit more into your Singapore portfolio. So I think I think Ascot Square is your only portfolio in Singapore for now, so are you actively reviewing a potential divestment option for that? And should the divestment complete, how would the proceeds be allocated beyond further deleveraging, which apparently is maybe not the top priority for now? And will you pursue any, say, potential acquisitions to boost utilization of your balance sheet? Thank you.

Thank you. First question, revising the dividend policy from a 65% ratio to 90% ratio. The simple answer is you asked for it. I've been getting that question and suggestion many times. And typically, I would gladly deny it. In order not to create any speculation, a little bit like the Hong Kong dollar peg. Anytime you ask, I say no. But in fact, we've been thinking about it. Let me go back to when we started, when we first listed in late 2017. That was when the property market, the economy and so on were very hot in Hong Kong. and we decided to be more prudent and we decided on the dividend policy of 65% because we figured that the downside was probably bigger than the upside when the market was hot. Nine years later, it looks like things have stabilized post-COVID and we look at it again and it looks like the downside is no longer as Threatening as it could have been back in 2018, 17, 18. And why 90%? Because that's a REIT distribution. If REITs can do it and it's well accepted by the market, we'll do the same. It doesn't mean there will be the end of any expansion or development opportunity for ourselves because if you look at some of the REITs, LINK in particular, they've been paying 90% or more and it doesn't stop them from building assets or building the asset base. So the fact that we're distributing, or we revised the distribution policy to 90%, would not prevent us from growing the company at all. And in simple arithmetic, The additional distribution we would be carrying on an annual basis is roughly about HK$1.5 billion. It's not small money, but compared to the rate at which we've been able to reduce our overall debt It's manageable. And so we have not stopped the deleveraging direction. And what we're doing is we're trying to do both at the same time. What we could have done, as you probably suggested, is to do share buyback. But the difference between share buyback and paying a higher dividend, revising the dividend policy upwards, is that a share buyback would benefit those investors, those shareholders who are considering or who may be prepared to consider selling. There are also holders. Holders for now, holders for longer term, holders until next year, holders until three years, five years later. And whereas the increase in distribution would benefit all shareholders, whatever your investment thesis is. So I hope that answers the first question in a very, very long way. In Singapore, we currently have two assets. We have contracted to sell the bigger one of them. at a price which we, the directors, consider attractive. It's a 12 cent premium to book. And we also benefit from a favorable ethics factor. The Sing dollar has appreciated in the past eight, nine years, which enables us to book a profit of about one billion Hong Kong. The other asset we would probably sell as well. You may remember we actually put the Scott Square asset on the market publicly two years ago. We didn't sell at that time. So we do get reverse inquiries all the time, and we're dealing with them. So hopefully we'll be able to do a deal, so to speak, before the end of the year.