Earnings Call: H2 2021

Sep 9, 2021

Good afternoon, ladies and gentlemen. Welcome to Songhong Kai Properties FY 2021 End Results Analyst Briefing. As usual, I'll give you an overview of the end result and the performance of these assessments of the group, followed by a Q and A section with our senior management. First of all, I will go through the financial highlights. Please note that all figures are in Hong Kong dollars unless stated otherwise. For the year ended 30 June 2021, the gross underlying profit amounted to $29,900,000,000 representing an increase of around 2% year on year. The increase in profit is mainly driven by higher contribution from property development and rental income from the Mainland and non property businesses, partially offset by the lower development profits and rental income from Hong Kong and operational loss in hotel segment. The reported profit increased by 13% year on year to around $26,700,000,000 after taking into account the revaluation loss of investment properties of $3,100,000,000 which was mainly due to lower open market rents of Hong Kong retail portfolio. Similarly, the underlying earnings per share was up 2% to $10.31 and reported earnings per share rose to $9.21 On dividend, the Board of Directors has recommended a final dividend of $3.70 per share. Together with the interim dividend of $1.25 per share, the total dividend for the full year will be $4.95 per share, the same as last year. This slide shows that our dividend payout over the past few years and let's talk about the profit breakdown by segment. Benefiting from the significant increased contribution from the Mainland development projects, the gross property development profits grew by 14% year on year to around $21,000,000,000 driven by the revenue recognition from Shanghai Arch Phase 2b, property development profit from the mainland surged over 2 15%. On the other hand, decline in development profit from Hong Kong was due to lower residential completion as compared to last year. On rental business, the group's net rental income increased by 3% to around $19,000,000,000 The increase was mainly attributable to robust rental growth in the Mainland portfolio, partly offset by the decline in net rental income of Hong Kong's rental portfolio. Less rental income from Mainland rental portfolio jumped by 39% year on year in Hong Kong dollar terms or 31% in RMB terms. In Hong Kong, net rental income dropped by 6%. The group hotel business in Hong Kong continued to be severely affected by the pandemic due to the absence of tourists, resulting in an operating loss of $511,000,000 Profit from other businesses increased by 9% largely due to the growth of data center operations and improved operational efficiency of telecommunication businesses. The total operating profit grew more than 8% to over $44,000,000,000 for the year under review. For financial position, the group balance sheet remains solid, the net gearing ratio as of 30 June was at a healthy level of 16%, interest coverage was around 13.8 times and net book value per share rose to around $205 Under our prudent financial management, we maintain sound financial position. The group also maintains A1 and A plus credit ratings from Moody's and S and P respectively, both with a stable outlook. We shall continue to stick to the prudent financial management discipline. Now let's move to our property business in Hong Kong. As at the end of June 2021, the group's total land bank in Hong Kong stood at around 57,900,000 square feet of attributable GFA. It includes completed properties of around 34,000,000 square feet and 23,900,000 square feet of properties under development. Shopping malls together with offices accounted for the majority of completed properties at around 60% of the total. For properties under development, the majority is for residential use representing to 74% of the total. During the year end review, the group's acquired 5 sites adding about 2,600,000 square feet attributable GFA to our Hong Kong Land Bank, of which 50% from farmland conversion and 44% from public tender. We will continue to increase our land bank through multiple channels including farmland conversion. The 5 sites we bought during the year include the Koutong project in Fanning, which is located adjacent to the planned MTL Kootong station and close to the planned Hong Kong Shenzhen Innovation and Technology Park in the Loch Mar Chou Loop. The residential comm retail project has a total GFA of over 1,100,000 square feet, of which 88% are for residential units and the remaining will be developed into a shopping center. Moving on to the property development business in Hong Kong. For the year under review, the group's recognized $34,900,000,000 property sales in Hong Kong, down around 5% and the development profit decreased by 11% to $14,600,000,000 primarily due to less completions of residential development during the year, while development projects remain satisfactory. As of the end of June 2021, about $25,700,000,000 of contract sales were yet to be recognized. In terms of completion, we completed a total attributable GFA of 2,100,000 square feet of which 1,700,000 square feet were residential projects. For the next 5 for the next 3 financial years, we expect an average annual completions of around 3,400,000 square feet, of which around 2,600,000 square feet are residential developments. Apart from these new completion, we have around 700,000 square feet of completed properties, which have been sold and will be booked in the coming years. During the year, we achieved contract sales of $23,200,000,000 in Hong Kong. The lower contract sales achieved during the year was mainly due to slower than expected progress in obtaining PISL's consent for 2 large scale residential developments. Recently, we have launched Redland Season Bay Phase 1 and already sold over 900 units in the last 3 weeks. And since July this year, we have already achieved contracted sales of $9,200,000,000 As shown in this map, we plan to launch 8 new projects in FY 2022 spanning across different regions in the city and covering residential developments from mass to luxury as well as an industrial project. The first one is Red Land Season Base 1 and 2 with over 1600 units of which 900 units have been sold. In addition to new launches, we will continue to sell inventories. Now, let's move on to the performance of our Hong Kong rental portfolio. The goods that are provided rental portfolio in Hong Kong continue to provide sizable recurring income with an overall average occupancy of about 91%. Overall gross rental income amounted to $18,000,000,000 down 5% year on year. The decline was largely due to the retail portfolio, while rents and occupancy of the office portfolio remains relatively resilient throughout the year. The lingering pandemic continued to rate on the group's retail portfolio, leading to negative rental reversions. The gross rental income decreased by 8% to $9,100,000,000 The gross rental income of the group's office portfolio slightly declined by 1% to $6,600,000,000 As the pandemic has been subdued in Hong Kong, the tenant sales of group's retail portfolio have bottomed out in late 2020 and continue to see positive growth in recent months. Our regional malls continue to perform better than those tourist focused ones. Our seasoned leasing teams have managed to optimize the tender mix by bringing in new retailers such as trendy lifestyle brands and special restaurants and introduce wide range of measures to drive footfall. We see overall occupancy of the group's retail portfolio has improved in the recent months. To safeguard the interest of its stakeholders and to support its retail tenants amid the pandemic, the group has been allocating resources to the continuous facility upgrades, asset enhancement works and introductions of innovative technologies. Apart from installing contactless facility and upgrading air ventilation systems, we have incorporate green and wellness concepts to add various recreational facilities at selected malls. We have also leveraged our list of subsidiary SmartTones 5 gs network along with other advanced technologies such as Internet of Things to raise the hygiene standard and operational efficiency of our shopping malls. We'll make good use of offline and online platforms to launch comprehensive marketing campaigns. Our loyalty program, the points by SH KP under the SH KP Mores apps has boosted its popularity with membership more than 1,200,000 in 2 years. The group has continued to upgrade the apps functions and strengthen the rewards platform. After the retail portfolio, let's move on to talk about the performance of our office portfolio in Hong Kong. During the year end review, overall occupancy of the group's office portfolio remained at a relatively stable level of about 92%. Hong Kong IFC offices were virtually fully let, while ICC recorded stable performance. The Millennium City office cluster maintained a reasonable occupancy despite keen competition in Kowloon East. For a joint venture development at 98 Haoming Street in Kowloon East, the construction is scheduled for completions in 2023. The project is designed to attain Pantheon ratings under LEED and World. According to the latest approval of planning, the high speed World RASCOVERN Terminus development will feature a brand new concept with lots more open space for public use. The total GFA of the project is about 3,200,000 square feet including a 600,000 square feet shopping mall. We target to obtain Pantone ratings for this project from LEAP, BEAM Plus and Well. This concludes my discussions on the property business in Hong Kong. Now, let me turn to our property business on the Mainland. As at the end of June 2021, the group had a total land bank of around 75,300,000 square feet of archipelago GFA on the mainland. Completed properties amounted to 16,300,000 square feet of which 46% were shopping centers and 39% were office. Amount of 59,000,000 square feet property under development, about 47% will be developed into high end residence for sale. In April, the group won the bid for a large scale mixed use project adjacent to the Guangzhou South railway station consisting of residential service apartments, office, a shopping mall and hotel space. Guangzhou's Seoul railway station is the busiest high speed rail station in the country with excellent connectivity and this addition will further strengthen the group's strategic presence in the Greater Bay Area. The development with a total GFA of 9,300,000 square feet is set to become an integrated station city transport hub. The project will adopt flexible and balanced strategies for leasing and sale arrangement with a maximum of 57% of the GFA for sale and that we mainly question for rental and long term investment purpose. Next, let's turn to property development business on the mainland. During the year, the group recognized around $11,100,000,000 property sales on the mainland, up 155% year on year, mainly driven by the revenue recognition from Shanghai Arch Phase 2b. Development profit jumped 2 15 percent to around $6,400,000,000 As at the end of June 2021, around $4,600,000,000 contributed sales were yet to be recognized. During the year, we achieved RMB4.9 billion attributable to 100 sales on the mainland, exceeding the full year sales target. The table here shows a breakdown of individual projects. The table in this slide shows a major new launch on the mainland in the next 9 months including residential units of Suzhou ICC and Jianghehui project in Hangzhou. Turning to the performance of our Mainland rental portfolio. During the year, the group's gross rental income from Mainland rental portfolio increased by 25% year on year to RMB5.2 billion or 33% in Hong Kong dollar terms. The growth was mainly driven by the strong performance of our shopping malls And benefiting from the domestic spending boom in luxury goods, the gross rental income of the gross retail portfolio grew 47% year on year to $3,900,000,000 Gross rental income of office portfolio increased by 13% to around $1,900,000,000 The gross rental income from the mainland accounted for 25% of the group's total gross rental income during the year, comparing to 19% for FY 2020. Supported by the robust domestic consumption, the group's retail portfolio on the mainland recorded impressive growth in tenant sales, exceeding the pre COVID level. An integrated loyalty program called Strategy KPI Club was introduced in Shanghai to strengthen the synergy of the cruise mall in the city and to offer shoppers with a more convenient cross mall consumption experience. On the office front, the Group Shanghai IFC maintained high occupancy amid keen competitions. These premium office developments remained a preferred choice for leading corporations. Shanghai ICC has high committed occupancy, offices in the first two phases of ITC in Shanghai were virtually fully led. In Shanghai, the remaining phase of the group's mega ITC project is currently under construction. Its 220 meter tall premium office tile is scheduled for completion in mid-twenty 22. The pre leasing of the Grade A office tile has received encouraging response. Constructions of the remaining parts including a 370 meter skyscraper and a 2,500,000 square feet of mega mall is progressing smoothly. Both the office towers are decided to obtain LEED Platinum certificate. In Nanjing, office at Lanxing 1 IFC has achieved a committed occupancy of about 80%, while the leasing of Lanxing 2 IFC which was completed in the second half of twenty twenty is proceeding satisfactorily. The luxury landing IFC mall is scheduled for opening in phases from 2022 and have received encouraging pre leasing responses. We are making good progress to expand our Mainland property investment portfolio. Over the next 3 financial years, the group is expected to complete around 10,000,000 square feet of properties for investment purpose in terms of eligible GFA including the remaining phase of ITC in Shanghai. The group's mainland property investment portfolio will increase to about 25,000,000 square feet by end of FY 2024 and will further expand to over 28,000,000 square feet by end of FY 2026. Now, I'll discuss the hotel business performance. During the year under review, the group's hotel portfolio in Hong Kong continued to record operating loss due to the lack of tourists despite some size of improvement since the beginning of 2021. To alleviate the negative impacts, we have introduced different initiatives such as creative staycation programs. On the mainland, the WishCard in Shanghai Pudong saw a recovery from the pandemic during the year. For Anders Nanjing, we plan to open it from 2022. Next, I would like to share with you about our ESG initiatives. The group has worked hard to achieve considerable progress on the ESG front. This slide showcase some of the key initiatives including the development of Redlands Season Park, an environmental friendly residential project, the launch of Smartworks, a 5 gs enabled site management system to enhance safety of construction workers a major transitional housing project in Yunnan and Green Building Certification for our existing major rental properties. On the environmental front, the group has established targets to reduce electricity consumption, greenhouse gas emission, water usage and construction waste to help combat climate change. We also aim to attain the LEED certification for all new investment properties. In particular, the group has targeted to obtain LEED Gold or platinum ratings for its core commercial projects under development. During the year, the group's dedicated work on ESG has been well recognized by external parties including ESG rating agencies. For instance, we are a member of Hainan Corporate Sustainability Index Series with AAA rating. We have received an MSI ESG rating of A during the year. That covers our business update. Let me talk about the market and business prospects. In Hong Kong, economic recovery is likely to continue amid Mainland's healthy economic development and improved global prospects, while the relaxation of the cross border travel restriction remains a prerequisite for a full recovery of different sectors. For the primary residential markets, solid end user demand and low interest rate environment will underpin the market, particularly for mass market segments. Luxury segments will perform better upon lifting the cross border travel restriction. For retail sector, retail sales have largely bottomed out and are improving. On Grade A office market, improving sentiments amid the ongoing global economic recovery is underway. The mainland economy will continue to perform well underpinned by the dual circulation strategy and well continued the pandemic. For primary residential markets, solid end user demand continues, land and home prices are likely to remain stable. For the retail sector, domestic consumption growth will continue to support tenant sales. On Grey 8's office, market momentum remains positive with increasing inquiries. Turning to our business prospects, in Hong Kong, we believe the performance of the group's rental portfolio and hotel business will be constrained by the cross border travel restriction in the short run. We will continue to leverage a wider application of SHKB Malls app and promotional campaigns to bring more shoppers to our malls. On property development fronts, capitalizing on our ample salable resources, we will launch development projects for sale once ready. On the Mainland, bolstered by healthy domestic consumption, the group's Mainland retail rental portfolio is expected to perform well. In the medium to long term, we will continue to strengthen our core business by acquiring land selectively both in Hong Kong and major cities on the Mainland, which will speed up the conversion of farmland into buildable sites in Hong Kong. Moreover, the group will continue to build large scale integrated projects in Hong Kong and major cities on the Mainland. The combined GFA of new additions to the group's property investment portfolio in Hong Kong and on the mainland is expected to exceed 16,000,000 square feet in the next 5 years. Finally, I would like to wrap up my presentation with a message extracted from the Chairman's statement as follows. The group is confident in its future business development and prospects. With its extensive knowledge and experience accumulated during the ups and downs of about half a century, the group will weather the upcoming uncertainties well. Its forward looking and experienced management team together with a solid financial position with sizable recurring income will be able to turn future adversity into opportunities. As a caring and socially responsible company, the group will continue to contribute to building a better world through its commitment to ESG, in particular issues on climate change and green building. The group's pursuant of excellence, which has been strongly embedded in its mission and mission, will enable it to advance the best interest of its customers, employees, shareholders and business partners and the community as a whole. This concludes my presentation. Look forward to meeting you all in person next time. Thank you. Ladies and gentlemen, welcome back for joining our Q and A session. Now let me introduce the panel to you. From your lab, Mr. Brian Sung, whom you've just met Mr. Christopher Kuo, Executive Director Mr. Allen Feng, Executive Director Mr. Victor Lo, Deputy Managing Director. The center is Mr. Raymond Kuo, Chairman and Managing Director Mr. Mai Wang, Deputy Managing Director Mr. Adam Kuo, Executive Director Mr. Eric Dong, Executive Director and Mr. Patrick Li, Group Chief Accountant. Before we start, may I invite our Chairman and Managing Director, Mr. Raymond Kuo to share with us some key messages. Mr. Kuo, please. Thank you. Ladies and gentlemen, during the year under review, some of the group's businesses continued to be affected by the COVID-nineteen pandemic and cross border travel restrictions, but the overall results remained stable and we recorded an underlying earnings growth of around 2%. With the strong support of the country, Hong Kong now has a stable social and business environment. Together with the easing of the pandemic, a robust maintenance economy and sustained recovery of Hong Kong's economy, The group will have promising future ahead. Sonangi Properties is confident about the future of Hong Kong. The National 14th 5 year plan clearly supports Hong Kong in enhancing its status as an international financial transportation and trade center and developing into international innovation and technology hub. Under 1 country, 2 systems, Hong Kong is well positioned to seize the opportunities in the Greater Bay Area and integrate into the dual circulation development paradigm of the country. Our group continues to invest in Hong Kong and major Mainland cities. During the year, we have increased our land bank in Hong Kong through different channels, including proactively converting agricultural land into buildable sites. We also work to expedite the construction of various quality residential projects to help alleviate the housing shortage in Hong Kong. Early this year, the group acquired sites adjacent to the Guangzhou South Station, which is the busiest high speed railway station in the country. The project will be developed into another landmark transit oriented development, creating synergy with the group's other projects along the high speed rail, including the one atop the West Kowloon Terminus in Hong Kong. The group promotes and adopts the latest technologies in different businesses to enhance the quality of its products, boost operating efficiency and provide a better experience to customers, tenants and residents. In addition to building our 5 gs digital infrastructure, the group has launched the city's 1st 5 gs Lab at the Sky 100 Hong Kong Observation Deck at ICC. The 5 gs Lab will raise public understanding of 5 gs technology and its applications in enhancing business operation and quality of life. The group also works hard to fulfill its environmental, social and governance commitments. Its residential projects will be developed into cross generational communities with a wide range of facilities to meet different age groups' needs for living, work, shopping and recreation. Our Wetland Seasons Park, which is adjacent to the Hong Kong Wetland Park, for example, has fully demonstrated the group's success in striking a balance between development and environmental conservation. The group makes every effort to integrate the concepts of green building and wellness into its office buildings and retail premises, offering unique work and shopping experience in tune with the new era. Moreover, the group has leased out a parcel of land and a nominal rent for building United Court, a major transitional housing project in Yunlong. This project supports the Hong Kong government's effort to provide suitable temporary housing for underprivileged families who are waiting for the public housing to be available. Construction work for United Court has already started. A point is scheduled completion in 2022 that will house 1800 grassroots families. The Group is confident that with different sectors joining forces to fight the pandemic, Hong Kong will eventually fully recover from the coronavirus crisis. With a wealth of knowledge and experience, strong financial position, as well as a well recognized premium brand, San Joao Ke Properties will capitalize on present and future opportunities and help Hong Kong integrate into the development of the country, enhancing the value for shareholders and other stakeholders alike. Thank you. Thank you, Mr. Kuo. We will now open the floor for questions. Our first question is from Ken Yuan with Citigroup. Hi, fans, fans management, fans. It's Ken from Citi. I have three questions. One is on property sales, second on Hong Kong office and thirdly on the China DoD land bank. So may I come 1 by 1? The first is on your sales. Given that you have spiked you have missed your FY 2021 target on delays in pre sell consumption. Should we expect a higher contracted sales target for FY 2022 and FY2023 on the stack up of resources? And also, it seems to me that some luxury project like Victoria Harbor Central Peak has not been launched or not launching as aggressive as planned. Are we ready for the border reopening before launching this? So this is the first question. And second question on Hong Kong office is what kind of rent tow reversion have you achieved on for your renewal or relaxing recently? And how is your reversion outlook for this year? Are you concerned on the supply surge for the calendar year 2022? And lastly, on the China ToD side, you have been focusing on buying major ToD projects on major train or metro station. How do we see the investment opportunity this year? And also for the Guangzhou South Station project, can you share with us your expected margins on the development side on the DP side and the initial yield on cost on the IP side? Thank you. Maybe Peter can start first. Yes. On the first question on property sales, last year, we have been some delay on the sales concern issuance under the pandemic, But we are very confident to catch up later as you can see recently that we have an overwhelming sales on Valentine's Day. And in next month, we are going to launch another sizable project, the Yoho Hub in Yunlong, atop the Yunlong Station. Actually, in last year, our projects like Whale and Season Park and Regency Bay were all well received. Over the next 10 months, we have quite a number of projects to be marketed, namely the Yoho Hub in next month and also the competed Pin Central in Pin Silver Grove, also Phase II of Victoria Harbour. And also in last month of the year, that would be Phase 2 of Singlisha, our luxury project in Sartine. And in Q1 of next year, that would be our another sizable project the Sihong project in Chunghun together with our project in Park Seqo and lastly also our JV project in Belcher Street in Hong Kong Island. So you can see that we have quite a number of projects to be launched in the coming 10 months that would deliver a sizable revenue of RMB45 1,000,000,000 in this financial year. And in medium long term with our ample marketing resources and also high level of projects under development, we are very confident that we can achieve an average annual sales of RMB40 1,000,000,000 in Hong Kong. As for the luxury project, I think we all know that the luxury market is a bit subdued in the past 2 years, especially in 2019 and 2020 under the pandemic and also the social events. But we have seen luxury buyers are gradually coming back starting from this year and improving political stability. Of course, the future border reopening will also boost the market sentiment as properties in the luxury in traditional luxury location are still very limited. And earlier this year, we have seen 2 government tender sites in the peak were being sold at transacted price at high end of market expectations so that we can see that confidence on this sector is still very strong. For our luxury project like Victoria Harbour, we are going to market Phase 2 upon its completion. And also later this month, we are going to launch Phase 2 of Central Peak that comprise of townhouses. They are in high quality finishes together with innovative design. For sure, these townhouses would be the highlight of luxury market in the coming months. On the office side, we have been very successful to retain our tenants in the past few months. We have actually confirmed over 70% of our lease expiry in the next 12 months and rents are stabilizing, especially for our 2 flagship development line, IFC and also ICC. For IFC, it is it continue to be a short lived address for most of the leading financial institutions. And actually, recently, we have leased our 2.5 floors to a belong PLC Financial Institution on favorable terms. And for ICC, I think it's going to enhance a lot in this future connectivity and vibrancy due to the high speed rail link and also the future West Kowloon culture area. And actually, ICC is doing a premium rent for the whole Kowloon area. So all in all, I think the offices in CBD and also Jinsha Cho will continue to outperform other submarket especially for development like IFC and ICC that we have majority of tenants in the finance sector and also we launched PRC cooperation together with MNC. But for other submarket like the decentralized office in Kowloon East, I think the leasing activity may be quite subdued in the short term. But our buildings are a lot affected as most of our tenants are belonging to reliant corporations in different sectors and with longer leasing term? Thank you. Thanks for the question. I think the first overall question relating the second question relating to Guangzhou South Station. I think first of all, we're very happy to be able to embark on this project at a reasonable land cost. Yes, you noticed that this is a continuation of TOD projects that we've historically been able to execute successfully all over China and Hong Kong. Of the 9,300,000 square feet, actually, we are not we are actually also helping the local city government to drastically improve the existing public transportation network and also the car parking provisions. So I want to emphasize when we execute this project, we're not only looking at our the enhancement of our commercial facilities, but also for the city. And so together, there will be great synergy. I say this because there will be 12 lines including if you include the high speed rail lines, if you include the regional lines and the local MTR lines connected to this project. And on top with the enhancing of the car parking and the buses and the taxis and the the DDs, then together, I think it will be a great synergy we undertake. In terms of math, actually I want to highlight to you at the end of this year, there will be 11 lines already out of the 12 that connects to the South Station. And with all that, we will be able to go to Guangzhou City Center, be it the new Pearl River New Town or the old Laiwan Town, we'll be able to get there in 30 minutes, within 30 minutes. And then within 47 minutes, of course, we can connect to our XRL station and there'll be a lot of synergy. And finally, with the completion of the new lines, we can get to the Baiyun Airport, Guangzhou Airport within half an hour or 2. So with this being GBA center, we believe it will be very suitable for a lot of tenants. May I add also, if you were to pick a point in GBA that can get to all 11 cities, this will be the spot because it can get there within 1 hour through transport from Guangdong South Station to all the 9 plus 2 cities, you can get there within an hour. Our returns initially, we are looking to sell over around 55% over 55% around 57% of our GFA will be sold as a balanced approach. In fact, as soon as end of next year, we'll start selling the 1st phase of our residential. We'll only be keeping around 45% of the GFA for our long term purpose, mainly as the mall, the office and a bit of a hotel. For the parts that were remaining around 45%, we're expecting initial EBITDA yield. I'm talking about net EBITDA yield of around 4% to 6% on cost. For the sales portion, we are expecting healthy, reasonable mid teens margin and that includes not only the residential, some of the service apartments and also sizable portion of offices. And these offices will be an easy to sell 30000, 40000, 50000 square meter blocks ready for GBA centers. Thank you. Our next question is from Kyle Choi with Bank of America. Great. Thanks. Thanks for taking my questions. I also have three questions. First one is on Hong Kong resi, second one is on Hong Kong retail and then the third one is on dividend gearing. For Hong Kong resi, I think given the rise in home prices year to date, I think quite a few investors are concerned about potentially rising risk for cooling measures. Just wondering what's management's views on that? And also related to that, what would be some kind of sales strategy going forward? Would you focus more on margin or but you also looks like you also want to catch up on some of the contracted sales from last year, would you focus more on your volumes? Second question is on Hong Kong retail sales. Understand that they have bottomed up. Can you give a little bit more color on what kind of rental reversion you're seeing, whether spot rents have stabilized and also what kind of occupancy costs are you seeing? And then lastly, in terms of gearing and dividend, gearing level is still very healthy at 16%, but versus your 20% sort of target, doesn't necessarily need a ton of room for further that acquisition, but I think there's still a lot of opportunities out there. So just wondering whether you intend to stick to that gearing target and also what sort of the dividend outlook in terms of payout and also absolute dividend? Thank you. Yes. The residential market is now entirely an end user market. And in the past 2 weeks, when we are selling the valency system, we have found that over 95% of purchase are belonging to first time buyer and upgraders. And some people are talking about the vacancy way in Hong Kong. Actually, the vacancy way in Hong Kong for the residential market is not high at all and even quite low in for completed units in the hands of developers. Everybody knows that developers are watching to launch their new projects once they got their sales concerns. So I don't see any necessary to impose further measuring policy on the market. For our sales strategy, we are always sticking to the prevailing market condition and launch our new project at reasonable market price. And as you can see from our past experience, we can always strike a balance between volume and margin. And normally, we are for luxury project, which may lead longer time to absorb. But for mass project, we are aiming for a quick and high asset turnover. As you can see, in the past 2 weeks, we have disposed 900 units in well in season way. And as I said, in the coming 10 months, we shall have quite a number of projects to be launched and we are expecting high volume of sales in this financial year. Thank you. Yes. In terms of the Hong Kong retail market, I think it's for our portfolio, I think the retail sales at our shopping malls have bottomed out. And since beginning of this calendar year, we have started to outperform the Hong Kong market. So for our regional malls, which focus more on domestic consumption, have continued to perform better than those located in tourist districts. And second half of this financial year, we've recorded lower occupancy cost and also we've been able to keep vacancy within 10%. Recently, the government's econsumption voucher scheme that was launched in August has had a very good positive impact on the retail sales at our shopping malls and we continue to offer extra promotion schemes on top of that making use of our own consultant vouchers and also our loyalty program, the point. That being said, the full recovery of retail sales is still subject to the timing of the border opening. For our border malls, we continue to record a negative rental reversion during the year. And so for the short term, we will rely more on short term lease extensions as an option for ourselves to contain to keep our tenants and also to be able to give us the flexibility so that we can rebound from once the border opens. But yes, the key is still opening the borders so that we can reach levels of sales that were achieved in 2019, yes. On the third question, our dividend policy always is to pay about 40% to 50% of the underlying profits. And also, we will try to maintain the dividend per share even though 1 year there may be a fall of earnings per share. And on the gearing side, the debt to capitalization ratio is 16%. And we will try to maintain the S and P rating of A plus So that would be the criteria we try to achieve. Thank you. Our next question comes from John Nam of UBS. Thank you. This is John from UBS. Thank you for taking my question. I have two questions here. The first one is that I see that in the PowerPoint slide, the company plans to speed up or accelerate conversion of the farmland. I'm not sure if management can give us more details regarding on the conversion of farmland. This is the first question. The second question is about the outlook for the office and also shopping mall for both Hong Kong and also Mainland China. Also, if we can share more information in terms of the rental conversion and also about the retail sales outlook for both Hong Kong and also mainland. Thank you. On the subject of land banking, particularly on farmland conversion, I think we have actually made our submission to government to convert the farmland into buildable land. It's under various stages of conversion, namely planning and lease modification, accounts for about 2 thirds of our farmland reserve. And I'm glad to share with you government has actually put more initiative to speed up the whole process and we have seen progress have been a lot of improvement in recent months. And I would like to share that apart from those projects, we have announced there will be one important or substantial project will be very close to final or advanced stage of conversion. And I think that one will be announced within 2 or 3 months. And this is the report from but I'd like to share probably you're aware that we have made submission to government for the land sharing scheme and is part of our ESG initiative and was in the process waiting for government to approve and we hope this will help to alleviate the housing shortage and particularly for this project, we're going to provide 2,600 public housing units as opposed to about 1400 public units. And with that, if that project can be implemented, it will help to alleviate the shortage of housing. Sure. On the retail market in Hong Kong and China, I think for Hong Kong, I've just as I said previously, I think that it really depends on when the borders open. Maybe I'll add a little bit more to that. I mean, recently, we actually positive that once the borders open, I think the mainland tourists will still come to Hong Kong to shop, right, Because we've recently actually done an internal survey where we found out that people from Shenzhen and Greater Bay Area, they remain very interested in coming to Hong Kong for shopping and services when the border reopens. Even though they have they become more sophisticated and demanding over the years, so they want better retail experiences, better promotions. And so we are I think we will be well prepared to capture the upside when the border opens by making use of our loyalty programs to engage customers directly and enhance and also enhance our on-site amenities, especially outdoor and wellness concepts, which have been in high demand since the COVID outbreak. For China, I think we've seen a very robust growth in both retail sales and rental income in the past year. In fact, I think retail sales is at an all time high at this point. I think going forward, I think so far it's been shown that the domestic consumption in China has been very strong, supported by the dual circulation strategy. And we believe that it will take more time for international travel to resume normality. And so kind of domestic consumption will continue to be very strong. And we continue to see brands, especially luxury brands offering exclusive product ranges and services for the customers on the mainland. So we believe that going forward, the strong tenant sales will be sustainable even though we are talking about a higher base, but the prospects are still very bright. John, I'd like to add for the shopping environment in Hong Kong, it's getting better, especially with the Financial Secretaries' econsumption voucher scheme. In August, we have found out that our points members spend more than they spend in July. So in a sense, the econsumptionvoucher scheme has helped. And also, I think people are coming back for dining and for shopping. As you know, when you experience going out to IFC, you can see that more people are dining and walking around in shopping mall. So and also the economy is not too bad, right? The unemployment rate is only 5.2%. So I think we believe that when the border with the mainland opens up, I think the sales for our tenants at our malls will improve substantially. Thank you. Our next question comes from Katherine Lam with JPMorgan. Hi, management. I have three questions. First on China Land Banking. I think after Guangzhou South Station, is that going to be the project that the company will be focusing on over the next few years? Or actually there are other attractive land banking opportunities available in China right now, especially given the deleveraging trend in China for the property companies? Now second question is, just want to see if you can give us any update on the progress of the last phase of the ITC in Shanghai and when should we be expecting the producing progress to process to start? And the last one is regarding your ESG initiative. Can you highlight some of the explicit targets that the company has set for itself to achieve as far as ESG is concerned? Thank you. Actually, I think at the moment now on the mainland, right, we have several major projects ongoing, right? One is Shanghai ITC, the other one is Hangzhou project, the joint venture with Ping An. And the 3rd project would be what Adam said about the Guangzhou Station, right? And also Nanjing, so the number 4 project would be Nanjing, it's about 3,000,000 square feet. So we are busy already with the projects on hand. And of course, I think for the right opportunity, we'll look at projects. But I think we'll be looking at selectively at major cities only and only at the TO at the transit oriented projects. So and on your question about ITC Shanghai, I would ask Eric. Thanks. Yes. For ITC Shanghai, for Phase 1, Phase 2 are computer ready and other offices are actually fully left. And for the remaining phases, Phase 3 and Phase 4, the smaller tower of the 2, which is something like 220 meters tall will be completed by the middle of next year. And the rent the pre leasing result is very encouraging. And the shopping mall in the main property, which is around 2,500,000 square feet will be completed by the end of next year. So despite slight delay last year because of the COVID, we'll be able to catch up the progress this year. So basically, it's on schedule. On the question about ESG maybe. On ESG, I would like to highlight 2 issues. 1 is to some set some targets for the reduction of greenhouse gas. I think we have a couple of targets or KPI for our projects to meet this ESG initiative on electricity, on power consumption. The next 10 year target is to reduce power consumption by 13%, 1%, 3%. On the greenhouse emission, we target to reduce by 25% in the next 10 years. On the water management, we will reduce water consumption by 5% over the next 10 years. This is the general guideline for reduction of energy and water and power consumption. But I must mention that the green label for our future projects, and we are committed to obtain highest green labels for our commercial investment projects, particularly for our high speed rail project in Wachikau Lun and our premium projects in China as well. And we are targeted to get the premium LEAP standard up to the platinum level. This is our commitment. And also, in general, we have highlighted it in our in my Chairman's statement with the title Sustainable Development. I've highlighted the general direction. We are following here. So maybe when you have time, please read our Chairman's statement section on sustainable development. Thank you. Thanks. Our next question comes from Raymond Liu with HSBC. Thank you, management for taking my questions. I got 2 in mind. The first one is about the business structures. So if you look at Asia, some companies conduct a mega M and A and some companies make a silicon business restructuring to drive higher earnings growth. So can management share with us how to use existing business structure of Shanghai Properties? Is it optimal? Optimal? Are you confident that the earnings of the company will improve again later time in between 2015 to 2019? This is the first question. And the second question is about Mainland China Property Development Business. So the physical market there is getting more challenging and some local beer have slowed down the expansion pace. We will consider to scale up your investment in the residential projects there. And can you also share with us that your latest contracted sales target for this fiscal year in Mainland China? Thank you. On your first question, I think our major business is property development. And therefore, I think our strength is our recurring income. And then we have quite a big pipeline on investment properties, focusing in the all the Tier 1 or top Tier 2 cities on the mainland. And we are confident that over time, the rental income of these properties under construction, when they are complete, our rental will go up. For example, like the West Kowloon project, right? And also, as we mentioned before, our Shanghai ITC, our Hangzhou project, our Nanjing project and also the Guangzhou South Station. So organically, our rental income will go up over time. And on the development front, we are not slowing down. As Mike Wong said, I think we are keep on increasing we're trying to increase our residential land bank through agricultural land conversion, also participating in land tenders. On your second question, I think our strength really on the maintenance is on the integrated project with hotel, retail and office. On the residential side, we are not as fast as the maintenance developers. And also our management tend to be very cautious, making after that we don't break any laws. So therefore, don't expect us to expand too much on our residential completion. But we see our strength on the mainland more on the integrated project in the best cities and the best location, especially the project with a lot of railway lines around our project. Thank you. Just supplement the sales target is coming up for this year will be HKD7 billion. If you look at our historical range, we are mostly from HKD5 1,000,000,000 to HKD10 1,000,000,000. But I think ongoing as our Chairman says, even this year, most of our projects and the residential we sell or the service apartments we sell are part of integrated projects, be it coming up our Hangzhou residential sales or our Suzhou ICC resident sales. They are all, I think, ongoing. You can foresee that trend from us. So RMB 7,000,000,000. For the interest of time, we will take the last question, which is from Pareen Chaudhry with Morgan Stanley. Hi, thanks Stella. My question is related to the company's non property business, for example, SunnyVision or SmartTone. I just want to understand what's the future of those non property businesses? Do you want to spin off, etcetera? The second thing is SunnyVision is doing very well in the data center. Just want to understand if management wants to go into adjacencies such as data center, property management businesses like some of the other companies like ESR has gone into to capture that high growth segment? Thank you very much. But actually basically Smart Home and SunuVision have already been spun off as separate listed companies. But we continue to see them as very important companies for the group for two reasons. One is we believe that they have deep potential and we'll get to SunuVision in a moment. But data centers is a critical sector as mentioned by the 14 5 year plan and SunuVision is actually in a very good position to capture a lot of the growth because it's already one of the leading, if not the leading data center operator in Asia. And SmartTone, we also believe that it has a very good potential for the group. And we have recently built a world class 5 gs network, which will bring substantial benefits to consumers and enterprises. So and recently as the Chairman said, we actually built and launched the first 5 gs lab in Hong Kong. So if you have not been, go there and you understand why we believe that is important. And I think one final point on this is that we think that these businesses are important not just from a revenue or net income point of view to the group, but they're important because they're strategic. Both of these businesses are window for the group to build expertise in technology. And I can proudly say that all major new economy companies, U. S, China, what have you, are either a customer or partner of San Dimitry or Smart Home. This is very important for us to understand how to adopt technology. And we already those companies are already helping the group to digitize and transform itself. Again, if you go to the 5 gs lab, you understand what we're doing and how technology can actually help us. So we think that these companies are very integrated strategically with the group. On the point about data center property, data center business and growth, I'll be brief because I'll leave it to the management of data center, Sanjay Visshin to talk about it. We will not move out any potential growth opportunities because we believe in the sector. We believe it will grow. But at the same time, we also very clearly understand our strengths. Our strengths is that we provide superior quality. We have also a superior customer base. And these are the reasons why our customers continue to grow with us. So we will actually follow our customers' footsteps and so far it has been a very successful formula. So whether we will go to property management, it really will have monitored and see whether that is actually a heavy demand from our customers. But as it stands, many of the things we are doing, clearly we see major growth. Thank you. Thank you very much. Okay. I'd like to add that I think for our group, of course, I think we take pride in our hard work and teamwork. But also in addition, we need innovation to update our business all the time, including the public business. And we believe our SunnyVision SmartTone is a good window for us to understand technology, not just in the West, but also from the mainland. So therefore, I think given our asset based now, it's important for us to understand more about through technology to understand about the future world. Thank you. Thank you, Mr. Kuo. As this is the final question, this concludes our briefing session today. Thank you very much for joining us today. We appreciate your time and we look forward to speaking to you soon.