Good afternoon. Thank you all for coming to Hysan Development's 2026 interim results announcement analyst briefing session. Let me introduce our panel for this afternoon. Our Chairman, Ms. Irene Lee, our Executive Director and COO, Mr. Ricky Lui, and our CFO, Mr. Andy Choi. We will start with the presentation from Irene, Ricky, and Andy, and we will open the floor to take questions. Now I will invite Irene to start first. Irene, please.
Thank you. Welcome to the analyst briefing on Hysan's 2026 interim results. Hysan delivered solid results in the first half of the year. Turnover was broadly stable under a dynamic market with structural changes. Recurring underlying profit was up by 1.7% year-on-year, driven by disciplined cost control measures and reduced finance costs following capital recycling and debt reduction. Underlying profit grew by 7.4%, contributed by the realized gain on the sale of residential units in two blocks within Bamboo Grove. Turnover for our retail, office and residential portfolio all registered positive growth. If we normalize Bamboo Grove unit sales, our turnover increased by 2.3% on a like-for-like basis, while residential revenue recorded an increase of 34%. Let me turn to the Lee Gardens rejuvenation, the vision we set out and what it has delivered. Back in 2022, the market was going through structural changes.
We chose to invest in our core portfolio and embarked on a Lee Gardens area-wide rejuvenation during COVID. Since 2023, investments in our community through Urban Park and Urban Hood have given the already trendy and youth-centric Hysan Place new energy and lifted traffic across the entire Lee Gardens area. New and expanded flagship Maisons have made Lee Gardens a home of luxury, and we have captured strong luxury sales growth since 2024. There is more to come. By the end of this year, a transformative second street level will redefine how you move through Lee Gardens, bringing seamless convenience to our community. The results speak for themselves. This is a very, very good diagram. We should look at that carefully. Since the first half of 2023, retail revenue is up 15%, and prime rent per square foot is up by 22%.
As of June this year, both tenant sales and prime rents have made a full recovery to pre-COVID levels. This is what we targeted. We began with a clear vision. We moved into inception, then transformation, and this year, connection. As our vision unfolds and comes to life, we will continue to unlock more value as Lee Gardens evolves. We will and must stay dynamic, energetic, and maintain momentum. We must anticipate and stay ahead of what our customers want. Built on our century-long approach to thoughtful curation and our community business model, Lee Gardens is one of a kind, and this unique positioning has enabled us to deliver solid results. In the first half of 2026, our retail portfolio recorded 17% growth in tenant sales and 8% growth in foot traffic, leading retail sales recovery in Hong Kong, in the Hong Kong retail market.
Behind these numbers is a deeper shift. Consumers are responding to retail environments that feel relevant, authentic, and culturally alive. What makes Lee Gardens distinctive is its rare combination of luxury and trendsetting elements, together with authentic culture and original experiences. This allows us to connect with different generations, meeting the evolving needs and aspirations of both our long-standing customers and a younger audience. Our positioning as a home of luxury continues to gain depth, supported by phased completion of the renovated and expanded flagship Maisons. These renovations represent a reflection of the confidence that leading global brands have in the long-term appeal of Lee Gardens. We will show you a video now, and I'll talk as it evolves. Along Hysan Avenue and Yan Ping Road, luxury flagship Maisons have made Lee Gardens the home of luxury.
Next are our pedestrian footbridges, and further ahead, the nearly completed covered walkway from Lee Gardens to Hysan Place and to the MTR. At our trendsetter, Hysan Place, we have installed a mega screen at one of the busiest and most visible street frontages. What you are seeing is the large scale harvest phase of Lee Gardens rejuvenation. It's a whole precinct working as one. Our approach is asset enhancement plus content curation. We curate experiences that people cannot find anywhere else. We also bring in unique experiences with unique appeal. Just two examples. There are many. For instance, the Louis Vuitton and the 2025 world number one bar, Bar Leone, have revived the glory of our Yum Sing Bar from the Lee Gardens Hotel. Tiffany's iconic Blue Box Café has been so well received by customers. These are some of the special features that bring people back.
Retail today is increasingly about memories, purpose, and meaning. Customers are drawn to places that are engaging and resonate with their aspirations, tell stories they can relate to and want to be part of, and create moments worth sharing. We continue to showcase the unique character of Hong Kong's art and culture through our street campaigns to engage and resonate with different generations. Hong Kong's office market remained competitive during the period, as companies continued to be cautious when evaluating their space requirements. I'm sure you're experiencing that in your offices. Our full range office portfolio, combining traditional office space with flexible co-working solutions, provides both stability and agility, positioning us as a compelling office destination for the new economy. Lee Garden Eight marks a key component of the rejuvenated Lee Gardens as a vibrant melting pot of work, play, and life.
Due to open in the fourth quarter of this year, Lee Garden Eight will expand our Lee Gardens leasable portfolio by approximately 30%, with quality tenants secured for both retail and office segments. Lee Garden Eight is equipped with advanced green building technologies. It has been recognized by a number of prestigious industry awards and top-tier green building accreditations, setting a new benchmark for sustainable development. You've seen this before, but you will see it in real life soon. This is the integrated pedestrian walkway system scheduled for completion by the end of this year. It'll connect the Lee Gardens precinct to the Causeway Bay MTR station. This will make the neighborhood more accessible and pedestrian friendly in all weather conditions. The elevated walkway will create a second street level, connecting and extending our retail space for customers and commuters.
It'll help shape Lee Gardens into an even more human-centric and walkable neighborhood. The footbridge connecting Lee Gardens Three and Lee Garden Five has been completed. I recommend you try it. The rest are expected to come into operation by the end of the year. Our strategic pillars contribute to both business and geographic diversification. Lee Gardens Shanghai is an extension of the Lee Gardens brand into the mainland. It brings together high quality office tenants, retail offerings, and lifestyle elements to create a rich business and social scene. Our flex office business venture, in partnership with the world's leading flex operator, IWG, continues to grow steadily with 54 centers across the Greater Bay Area. Our healthcare investment through New Frontier Group supports our exposure to a sector aligned with long-term demographic and wellness trends. These strategic pillars are broadening our growth base while maintaining disciplined capital allocation.
Let me close on what matters most to you, the value we created and how we created it. Over the past three years, Hysan has delivered a total shareholder return of 28.7%. That compares with 13.4% for the sector over the same period. This is a testament to our differentiated strategy, our proven execution, and our financial prudence. The extensive rejuvenation of Lee Gardens along Hysan Avenue and Yan Ping Road was timely and strategic, which successfully captured the strong luxury sales growth since 2024. We also took action when the luxury residential market picked up in 2025 and launched unit sales at Bamboo Grove. That decision generated a net asset value uplift of HKD 3.7 billion. That is 44% above pre-launch book value. It validated the real worth of our prime residential portfolio. We have recycled HKD 4.5 billion since 2025, 56% of our 2030 target.
This disciplined capital recycling program supports meaningful deleveraging and a stronger balance sheet, ensuring we keep a sustainable capital structure through future market cycles. I'll now pass the floor to Ricky, who will share more about Hysan's business operations in the first half. Thank you.
Thank you, Irene. Let me share with you Hysan's business review for the first half of 2026. Our group turnover was broadly stable year-on-year. Turnover of our Hong Kong retail portfolio was up by 1.2% to HKD 861 million. Occupancy increased to 96%. Expanded luxury flagship and curated tenant mix continue to enhance rental income. Overall rental reversion rate on renewal rent review and new letting remain positive. Office turnover and occupancy remain stable under a competitive market. Negative rental reversions continue, but it's showing early sign of improvement. Hong Kong residential market has strengthened, which drives stronger leasing and sales momentum. Strong residential sales also support our capital recycling. Our residential leasing portfolio turnover was HKD 100 million. Occupancy increased to 90%. Lee Gardens Shanghai's ramp up continued to increase our office revenue.
Retail. The tenant sales of our Hong Kong retail portfolio increased by 17% during the first half. Occupancy increased to 96%. In addition to the improvement in base rent, turnover rents increased by 8% year-on-year. This reflects the strong sales momentum of our tenants and shows that Lee Gardens continues to attract quality footfall and consumer spending. Sales across all retail trade categories record growth with particularly strong performance in watches and jewelries. As shown in the chart at the bottom right, Hysan's retail portfolio revenue has continued to grow over the past two years, consistently outperforming the Hong Kong retail market. These have demonstrated our strong customer base, which is well-positioned to attract high quality local customer and overseas tourists. We have been receiving long-term support from our loyal customers. Member spending at Lee Gardens was up by 25%.
Number of Club Avenue members increased by 23%, while number of single transactions over HKD 100,000 saw a 33% increase. During the period, Club Avenue continued to strengthen collaboration with tenants to create exclusive experiences that appeal to high net worth members. hy! membership program serve as our engagement and sales engine. It helps identify members with strong potential and encourage them to join Club Avenue. By bringing the two program together, we are further advancing our dual engine CRM strategy with data-driven analytics to drive overall sales performance. We launched more than 120 promotional campaigns in the first half to engage the community. We collaborated with more than 50 strategic partners in a series of high-profile pop-ups and immersive experiences to deepen customer engagement. We completed the façade enhancement work at Hysan Place and introduced a new media screen at one of the busiest streets.
This helped raise market visibility and business for our campaign and pop-ups. Many overseas brands recognize Hysan Place positioning as a trend setter and have chosen it as the location for their first store in Hong Kong. As we have mentioned, Hong Kong office market remained competitive during the first half with an ongoing Flight to Quality trend. Our Hong Kong office portfolio was proven resilient with its prime locations and curated tenant mix. Tenants retention exceeds 70%. Occupancy was defended at 93% under challenging market conditions. Lee Gardens offer a compelling option for companies seeking a workplace that supports brand presence and talent attraction. The wealth management sector continued to occupy the largest shares of almost 21% of our floor area. Co-work sectors and professional and consulting sector occupy the second and third largest shares.
We initiated our HKD 8 billion capital recycling program last year through strategic sales of non-core assets over a five-year period. They are aligned with our disciplined capital allocation strategy and strengthen our further financial position to deliver sustainable shareholder return. The target assets comprise of two blocks within Bamboo Grove and the build to sell units from VILLA LUCCA and One Victoria Cove residential projects. Taking advantage of improving market sentiment in the residential sector, we have made good progress towards this target and are ahead of schedules. We have collected HKD 4.5 billion in the first half of this year, representing 56% of our HKD 8 billion target. It helped strengthen our balances and drive the leveraging. A further HKD 0.6 billion in sales proceeds have been contracted, and is expected to complete by end of this year.
I now pass the floor to Andy, who will share more about Hysan's financial performance. Andy?
Thank you, Ricky. Just a quick recap on the financial KPIs. As of June 30, our shareholders' fund was HKD 65.3 billion. NAV per share was HKD 63.6, and we maintained our interim dividend at HKD 0.27. As Ricky mentioned earlier, the capital recycling program is progressing very well. That provides a very good means of deleveraging. You can see that our net debt ratio has improved by 1.5 percentage point compared to the year end. It now sits at 30.9% for the gearing ratio. Also, as you can see in the chart, one of the major debt maturity we will have is the refinancing of Lee Garden Eight project loan, which amount to around HKD 10 billion and is due in the first half of 2027.
Since the commercial property market has seen some improvement in the first half, I would say the funding environment improved quite a lot recently. We have been in talks with bank to refinance this loan, and that's very good progress in the recent negotiation. We are confident that we will complete the refinancing early in the second half of 2026. Apart from that, the group continue to maintain ample liquidity. Adding together the undrawn committed facility and the cash we have on hand, we have HKD 14.5 billion available facility and cash to basically meet all the financial needs in the coming 3 years. We also have a very active dialogue with the credit rating agency. So far the credit rating has been stable, and the rating agency has issued stable outlook. We also saw some improvement in terms of effective interest rate.
It has been down 20 basis points in the past half year. I think that help us to save finance costs by 16% year-on-year. The group will continue to maintain a prudent financial management and to create sustainable return for the shareholder. That concludes my update.
I will conclude by saying that the market is expected to remain dynamic with changing consumer behavior in the second half of 2026. Our management team continues to demonstrate disciplined approach through effective and efficient execution, as well as prudent time and cost control. With Lee Gardens' rejuvenation nearly finished, we are at full realization. With Lee Garden Eight approaching completion, we are looking ahead to the next phase of growth with confidence and focus. We will remain agile, disciplined, and purpose driven to shape the future of Lee Gardens and contribute to Hong Kong's ongoing development as a global city. Thank you.
Thank you, management. It is our Q&A session now. We will take questions from the analysts on-site, and then we will have questions from the online platform. DBS, Percy, please.
Thank you, management, for the presentation. This is Percy from DBS. I have three questions mainly. First of all, it is on the retail portfolio. Congratulations on the good tenant sales. As we are moving towards the second half of this year, that we are seeing a higher comparison base, what is your outlook in terms of the tenant sales growth for the second half, and what are you seeing on the ground in the recent months? Also on the occupancy cost ratio, what are we seeing at the level right now? Secondly, it is on the office portfolio. Just wondering, could you share some more color on the latest leasing demand, particularly from the wealth management as well as insurance firm, as we have seen news regarding the Chinese government implementing tax on related products.
You mentioned that reversions are improving. Does it mean that reversion are turning less negative, and do you have a guidance for the second half of this year? Thirdly, will be on the Lee Garden Eight. I am sure every one of us are very excited about the project. We also heard that Standard Chartered Bank committed a few floors at the project already. Just wondering, what is your target tenant type, as well as is there any pre-commitment rate that management could share with us? Thank you.
So many questions. The test is whether we remember them. On the retail looking forward the next half, we remain quietly confident. I mean, it is very, very volatile and I have always said it is quite fragile. The key is whether you have done a good job in curating what you have and whether the destination is attractive. It is really positioning, positioning, right? In terms of location and in terms of what you have and how you run your malls, how you have activities. It is pretty incredible, 150 events in half a year we have done. So it has to be very exciting. Every day we have to think about something new, be it community, be it high-end, middle-end, trendy end. It is a very dynamic thing. We are really good at what we do, and we are very, very purpose-driven and very thoughtful about it.
I think we just have to keep doing better and keep doing what we do, more and better. So that is on the retail. On office, it continues to be challenging. I think we are seeing good bottoming out, would be a good word, particularly for Central. But Central doesn't have a lot of new stuff.
Once the new stuff is filled, then it will have some lead-on effects. Some of our peers have already said they are looking forward to some positive reversions. We hope so, too. But I think the market remains tight because everyone is focused on cost. Everyone wants to see how much less space they can rent. But what we have great confidence is what we offer is premier. And because we have the flex offering, this is exactly what we thought about many years ago, seven, eight, nine years ago. We thought, people want flexibility.
People may not want to commit to 10 floors. They commit to eight and a half, and they can flex in and out. So we feel very confident that that is a very good combination in an office portfolio. No one has that. No one has the size of flex. And of course, we have a JV with the world's biggest and the best, IWG, so we feel very confident how we can manage the fluidity within portfolios. Having said that, the rents are under pressure. So, if our peers continue to slash their rents, then the pressure is on. Maybe that is not a very political thing to say. But I think we really have to look at what the value is. It is about value. It is about what you can offer, and people have to appreciate that. So on office.
Now, on Lee Garden Eight, as you know, we don't disclose on any of our properties, we don't disclose individual tenants, nor do we talk about— until the asset is more mature, then we can say 93% of our core portfolio is occupied. We will talk about that. Lee Garden Eight is absolutely in the midst of the launch of our pre-leasing. By year-end, October is when we achieve OP. That is also towards the end, maybe November, is when all the bridges are done. You will see it. I think people really— seeing is believing. I only walked the Lee Garden Six to Lee Garden Eight bridge a few days ago. Very hot. But I can tell you, it is very short, very approachable, very spectacular.
When the bridges are fully connected, which is not that far away, less than half a year, walking from Lee Garden Eight, which sounds far away, doesn't it? All the way to Hysan Place MTR is five minutes for your age group and maybe seven for me. That is if I don't stop and do anything, right? We're very excited to talk about the second street level.
Who talks about that? Who even thinks about that? I do, because street level, we all know. Street level, we all know, command exceptional rents. How do you replicate that? I think we have. Because we own the buildings, it comes in and out of our own buildings. We can thoughtfully find what is good at this end of Lee Garden Three, what is good at that part of Lee Garden Five, and make the whole journey with all the retail, F&B, line up as though you are walking on another street, but air-conditioned, and you can see the sky, too. I think that is another value creator. I hope I have answered most of your questions. It's really, you can feel the color is nothing is easy.
You just have to think about what the market needs, think about what changes, what structural changes have happened, and you just can't stop. You just have to keep going, keep yourself dynamic, keep making the changes so no one is allowed to have a rest. She's asked all the questions, you see.
We have a question from the online platform. It is Hui Yen from Bloomberg. She hopes the management will share the plan given their upcoming 2027 debt maturity.
Andy?
As you mentioned before, in 2027, the main of the maturity will come from the HKD 10 billion project financing for Lee Garden Eight, and we are already in talks with these lenders. We are confident that the deal will be concluded in the second half of 2026 ahead of this maturity. To supplement a bit on Percy's question earlier on those numbers, as you asked about sales, yes, as Chairman mentioned earlier, our sales recovery began in 2024. Yes, the base is higher and higher for us. We are still seeing very solid improvement going into June and July. We also see our tenant sales is back at 2018 level, that's pre-COVID level. Of course, there are some changes in terms of sales mix. Watch and jewelry is getting better, and we have very good growth in food and beverages.
Some trade are maybe weaker than before, like cosmetics. Overall, in terms of occupancy cost ratio, it has improved a lot compared to COVID time, and it's around mid to high teens percentage for the first half. I think it's also important to point out that our turnover rent actually improved in the first half. Despite we have set a higher base rent because we record positive rent reversion for retail portfolio in the past few years. The tenants, their business is even better than before. That's why they can pay turnover rent. I think that sets a very good backdrop for us going into the next rental cycle.
Yes. That's why slide three was very, very meaningful, because if you look at our retail revenue growth, I said to the team, "Gee, why is it so low?" Because we have already captured most of the growth. You have to look at it as a continuum. We launched our rejuvenation, and then we started to capture the rental reversion and the revenue growth. What is very interesting is what Andy has said. On a high base rent, normally, you move your base rent to meet. People have been doing well, so they pay turnover rent, and you look at the two numbers, and you move your base rent higher again to basically push your tenants to work even harder. At a higher base rent, usually, there's a lead and a lag.
You won't get much turnover rent because then they are already meeting what they were doing. The fact that we are deriving good turnover rent on a high base is very, very impressive. You really have to look at the journey. We started our journey, I would say, looking back, quite courageously. We all felt high conviction that it had to be done. No one should stay still, right? It was COVID, and it was tough. It was very tough to see through the brain fog. There was a huge brain fog, right? You don't know what is going to happen, the structural changes. We decided that we had to consolidate, we had to strengthen, we had to make our core really, really drive the engine. We started from 2022. It's actually not that long ago, but you can call it lucky.
You can call it good planning. We captured the very, very strong growth from 2024 onwards. It all got captured. I hope that we will continue to see this curve up. We have very, very ambitious targets. Because one of my very first target was, I do not want to hear year-on-year. I want us to look back at when we were at the peak before COVID. 2018 was our number, and every time we do a number, we look at that. How come and how can we go back to that? It is only going back, so we need to surpass again, right? It is not easy, but this is how we look at the business, is to continue to build, continue to sweat what we have invested.
Yeah. Chairman, while you talk about full realizations, may I add a little color of the full realizations? When we talk about full realization, LG2 now have the corner that under renovation, that over 10,000 sq ft is coming up. At the same time, the Lee Garden Eight will add another 100,000 sq ft. To give a little color-
That is in retail you are talking about, yeah.
the response of retail is very positive. Basically, most of the spaces have people in deep negotiation or committed. We are very positive about Lee Garden Eight retail's performance as well.
I am sure you will see it when it happens. We are really looking forward to it. I think Lee Garden Eight will really be very, very special. It really has to be part of our. We do not look at it as Lee Garden Eight, nor do we look at any of our individual buildings as it. It has to be a holistic approach. It has to move the entire traffic, the entire attraction of people who comes. It has to be moved within the ecosystem, and we try to look at number of hours, number of days spent, because I am sure all banks, you look at share of wallet. This is how we have share of wallet, and to make sure we have our wallet of grandparents, parents, and children. That is why it is so important to see our offerings, not just luxury.
Not everyone has to buy watches and jewelry, but we have the entire span to the affordables, to the trendy. We were one of the very first to recognize street life, streetwear, right, street culture. No one never heard of skateboarding, right. You just have to keep looking at what people want. Now with Lee Garden Eight, we can offer even more. I am very excited about the greens, the grounds that we will have, because we have never had enough grounds for events and for gatherings.
I think for them, probably you already observed from Lee Garden Three, you have Tiffany, right. You have Mastermind, you have Off-White, and then COMMUNE. All this is moving, connecting our main portfolio with the Lee Garden Eight. That is why I said the picture is very nice. Lee Garden Six has just finished the works, and you see the beautiful space.
I think we have expanded the Lee Garden retail portfolio. It will really bring that to another level, much richer and much more quality offering. We will attract more people. The spend will be much wider than before, and even tourists. Honestly, we see a lot of tourists coming to our place. It is different from maybe different TST, but we do attract appealing to a lot of new tourists coming to Hong Kong who really want to know about Hong Kong, to really experience Hong Kong. Lee Garden is the place to go. Just to build a little bit about even the office, we do not want to comment on any single protected news, but to give you some colors, we do have multiple committed tenants now, which give us, particularly when the building is almost completely sealed, attractions gain a lot.
As Irene Lee said, once we bring these people to the site, to the bridges, they can figure out how good Lee Garden Eight is. We are confident we will be able to attract more tenants from now on.
We think the pie has to be bigger. Now, if you just look at it, the pie doesn't seem to be growing. But with new economy, with the Mainland business coming to Hong Kong, it has to grow. Not everybody should be hunting for the same fish, right, in the ocean. Our offering is, we have been, for many years, we have been very high appeal to the new economy, to the technology companies, and I think that's great. They also need a location like Lee Gardens, which is community-based, which has a lot of nonstop F&B offerings because they need to attract people who want to go to work. No one wants to go to work, which is one, not convenient, transportation-wise, two, nowhere to have lunch, nowhere to do anything, right? I think that is really important for today's generation as well.
You're all young, you're all working hard. You want to be able to skip out when you are working late, right? Then still come back, skip out, have a bit of a release. You can have anything from wonton mian to pizza to I don't know, whatever, right? You can come back. I know there's a lot of provision of food in your office as well, but people actually want to get out, right? To us, it's very important and we're also very committed. The government wants to have a thriving culture, a thriving night, yeah, fun, fun, right? How do we get people to stay out? That is by not being boring. You have to offer things for people to do. No one needs to have dinner early and go home by 7:45 P.M. That is so bad, so boring, and you've got to motivate people.
We have increasingly built more and more so people have the option of having dinner, listening to music, going for a drink, having a coffee later. It's just meet friends. That to us, that is a good life.
If we talk about our office, one thing I have to remind the team that Lee Gardens are offering the full range of office because we do not just come to say super grade A, 100,000 sq ft or very cheap space. We are all well managed under our own team from the 50-year-old building to the newest building with different specifications. With the IWG, we actually extended it to the other end to accommodate people who really do not want flexibilities, and their business still changing as developing. To give a number, which was interesting, never think about our IWG to fill all the space. The IWG or the center have the occupancy over 85%, which is a very good number. That means this is a place that really fits the co-working tenants. They think this is the place to go.
I believe that we are more concentrated in the highest occupancy rate in Hong Kong about co-working, which actually equips our whole ecosystem in a very nice way.
Yes. We always see co-working space as helping us diversify our demographic as well, right? Because people go to, we see them coming in and out of our lift. I mean, you can come in shorts and slippers. Because there is a lot of people who are either transient, they are building a new company. So you add actually more interesting demographic to a portfolio. Otherwise, you always have bankers, fund managers, lawyers, accountants, right? So it is more interesting. Then they will demand different types of food. We just want to make sure that it is a good mix of community.
Thank you, management. We can conclude the session today. We sincerely invite everyone to come and experience our new second street level upon the completion of the connectivity. Thank you.
Thank you.
Thank you very, very much. Thank you.