Earnings Call: H1 2021

Feb 25, 2021

Good afternoon, ladies and gentlemen. Thank you for joining Sannong Kai Properties FY 2021 Interim Result Analyst Briefing. I would like to take this opportunity to wish you all good health and prosperity in a year of ours. As in the past, I shall give you an overview of the interim results and the performance of each business segment followed by the Q and A section with our senior management. First of all, I'll go through the financial highlights. Please note that all figures are in Hong Kong dollars unless stated otherwise. For the 6 months ended 31 December 2020, the group's underlying profit amounted to $17,500,000,000 representing a year on year increase of 30%. The growth was mostly attributable to the increase in property development profit from both Hong Kong and the Mainland. The reported profit for the period decreased by 12% year on year to around $13,600,000,000 after taking into account of the revaluation loss of investment properties of $3,800,000,000 due to lower open market rents as compared with a net gain of $2,000,000,000 in the first half of financial year 2020. Similarly, the underlying earnings per share was up 30% to $6.03 and reported earnings per share declined to $4.69 On dividend, the Board of Directors has declared an interim dividend of $1.25 per share, the same as last year. Assume on this slide, we have been maintaining the dividend policy of paying 40% to 50% of the group's full year underlying earnings. This table shows the profit breakdown by segment. The property development profit surged 81 percent to around $12,400,000,000 in Hong Kong as majority of the property development scheduled for delivery in this financial year were handover in the first half, the profits for the period rose 65% year on year. Besides, property development profits from the Mainland drum over 200% mainly due to higher volume of residential units delivered. Our rental business in Hong Kong continued to be negatively affected by the pandemic, in particular, the retail portfolio. On the other hand, the group's Mainland Retail portfolio recorded strong performance, benefiting from the domestic spending boom in luxury goods in major Mainland cities. As such, Hong Kong's net rental income dropped by 8% year on year while net rental income from the Mainland increased by 24% year on year in Hong Kong dollar term and up 20% in RMB term. The increase in Mainland's net rental income offset over 70% of rental decline in Hong Kong, resulting 2% decline in the group's overall net rental income. The group's hotel business continued to be hit hardest by the pandemic and recorded a loss of $228,000,000 after depreciation charge of $330,000,000 during the period. Profit from other business grew 11%, mainly due to the increased profit contribution from business such as data center and supermarket business. The total operating profits was up by 27 percent to $24,200,000,000 for the period under review. For financial position, the group balance sheet remains solid. The net gearing ratio and net debt were 14.4 percent $84,000,000,000 respectively. Interest coverage was around 15.3x, and net book value per share was around $201.30 The group continues to maintain strong financial position and remain one of the best rated developers in Hong Kong by Moody's and S&P's. Let's move on to talk about our Property business in Hong Kong. As at the end of December 2020, the group's total land bank in Hong Kong amounted to 56,000,000 square feet of RHBODO GFA, including completed properties of around 33,700,000 square feet and 22,300,000 square feet of properties under development. For completed properties, 36% is shopping malls and 31% service. For properties under development, around 77% of the total is for residential use and is sufficient to meet the group's development needs over the next 5 years. During the period end of review, the group successfully converted the farmland into residential use with a total GFA of about 614,000 square feet. The group has around 75% stake in the development. Moreover, the group acquired an industrial site in Tunmun via private deal, of which the group has an effective interest of 69.9%. We plan to convert the site into office and retail users with GFA of over 770,000 square feet. Moving on to the property development business in Hong Kong. For the period under review, the group recognized $23,400,000,000 property sales in Hong Kong, up over 59%. The significant increase in profit was driven by the fact that majority of the property development scheduled for delivery in this financial year were handover in the first half. About 1,300,000 square feet of residential GFA were completed in the period, while only about 800,000 square feet are due for delivery in the second half of this financial year. Thanks to better development margins. Development profit increased by 65 percent to $10,500,000,000 As at the end of December 2020, approximately $26,700,000,000 of accumulated sales were yet to be recognized. During the period, we achieved continued sales of $11,300,000,000 in Hong Kong. The primary residential markets transaction volume in Hong Kong was affected by the month long social distancing measures. The table here shows a breakdown of the major contributors. For the coming months, we have ample salary resources. As shown in this map, we plan to launch 7 new projects for sale spreading across different regions in the city with a wide range of products from malls to luxury residential as well as an industrial projects. Additionally, we shall continue to sell inventories and other remaining units of previously launched project. Now let's move on to the performance of our Hong Kong rental portfolio. Tightening the social distancing measures and cross border travel restriction continue to wait on the performance of the group's rental portfolio, especially to let us shopping malls. The gross rental income of our retail portfolio dropped by 13% year on year to $4,700,000,000 mainly due to difficult operating environment and the rental concessions over to our tenants during the period. Without the $370,000,000 rental concessions, the decline in gross rental income of our retail portfolio would have lowered to 6% year on year. Please note that all the rental concessions have been recognized in the period under review. The performance of the office portfolio has been resilient, a registered year on year growth of 2% to over $3,300,000,000 accounting for 37% of the total gross rental income in Hong Kong. The group's overall gross rental income amounted to over $9,000,000,000 down around 7.6% year on year. The overall average occupancy of our rental portfolio in Hong Kong stood at around 93%. In view of the difficult environment, the group has made considerable efforts to support our retail tenants through a series of initiatives leveraging both offline and online platforms. We have revitalized outdoor spaces, introduced sports facilities for Siletta Malls to cater for a growing appetite for outdoor activities. For example, an over 10,000 square feet of urban farm site was launched in the outdoor space at Yoho Mall in Yunnan. And then our outdoor sports zone was built at Newtown Plaza in Shatin. The group has raised hygiene standards at its premises via hardware upgrades, collaborating with its new subsidiary, SmartTone, to utilize 5 gs and advanced technology in order to provide all stakeholders with a safe, convenient and comfortable environment. These initiatives include enhancements of air ventilation systems, installation of additional contentless facilities, application of smart washroom solutions, multiple function 5 gs robots and Internet of Things. We have made good use of our online platforms, including the SH KP MOAR app to support our extensive traditional promotional campaigns and enhanced customer shopping experience. With this membership surpassing 1,000,000 to date, the point by SH KP, the SH KP, the loyalty program under the SH KP Mores app not only better served shoppers but also managed to drive footfall and boost sales for tenants. Turning to the group's Hong Kong office portfolio. During the period, the performance of the group's office portfolio continued to be relatively stable despite the soft market. Hong Kong IFC and Hong Kong ICC remained the preferred choices for renowned cooperation and achieved high occupancies. Despite the fierce competition in Tallinn East, the Mainland City Cluster continued to maintain satisfactory occupancy. Complementing the existing Minnan City cluster, the joint venture development at 98 Haoming Street in Kowloon East will further strengthen the group's strong foothold in this history. Comprising about 650,000 square feet of Grade A office space and a 500,000 square foot shopping mall, the project is scheduled for conditions in 2023. The mega commercial complex atop at the high speed world West Carol interments comprising Grade 8 offices and premium retail space will not only create synergy with the group's ICC and the Rascallen Cultural District, but we also play an important part to capture the business opportunities from the development of the Greater Bay Area. This concludes my discussion on the property business in Hong Kong. Now let me talk about our business property business on the Mainland. As at the end of December 2020, the group's attributable land bank and on the mainland stood at around 67,000,000 square feet. Of this, around 16,300,000 square feet was completed property and about 50,600,000 square feet was properties under development. Let's move on to the property development business on the Mainland. During the period, the group recognized close to 3,500,000,000 property sales on Mainland, up over 100% year on year due to high GFA book. Development profit surged over 200% year on year to around $1,900,000,000 Major contribution came from Forest Hills and Park Royale both in Guangzhou, The Woodland in Zhongjiang, Orantoban in Foshan and Toptan in Shanghai with satisfactory development margins. As of the end of December 2020, our $110,800,000,000 contract sales were yet to be recognized. During the period, encouraging attributable contracted sales of RMB3 1,000,000,000 or HKD3.4 billion were achieved on the mainland, exceeding 60% of our full year sales target. The table here shows the breakdown of individual projects. For the major new launches on the mainland in the next 10 months, we shall launch brand new phase of Grand Water Fund in Dongguan, new branches of joint venture projects such as Oriental Bunn in Forshan and The Woodland in Zhongshan. Moving on to the performance of our rental portfolio on the mainland. During the period, the group gross rental income from Mainland rental portfolio increased by around 19% year on year to over $2,800,000,000 or increased by 15% in RMB term. For the retail portfolio, supported by the robust growth of nursery and retail sales at our shopping malls, the gross rental income increased 26% year on year to around $1,800,000,000 Gross rental income of office portfolio was up 11% year on year to over $900,000,000 And during the period, the gross rental income from the mainland accounted for 23% of the group's total gross rental income. International travel restrictions, together with the domestic circulation mode, have resulted in a domestic spending boom in luxury goods in major mainland cities. The group's signature shopping malls, including Shanghai IFC Mall, IAPM and 1 ITC in Shanghai as well as ParkCentral in Guangzhou, are at the forefront to capture a strong start in retail sales. In line with the government's dedicated initiatives to upgrade the environments in Wangfujiang, Beijing APM completed a winning project in 2020 and is undergoing train mix enhancement. All this will enable the mall to see opportunity upon economic growth. On the office front, the group's office portfolio in Shanghai continued to perform satisfactorily even though facing keen competition. The premium office space at Shanghai IFC and Shanghai ITC remain popular addresses for renowned corporations. Offices in the first two phase of ITC in Shanghai were fully led. In Shanghai, the bulk of Cruise Megawatt ITC project will see gradual completion by phases over the next few years. The 220 meter tour premium office tower is scheduled for completion in mid-twenty 22 to provide about 1,200,000 square feet of Grade A office space. Constructions of the remaining parts, including 2,500,000 square feet shopping mall and a 370 meters tall skyscraper is progressing smoothly. Offices at Lanxing 1 IFC have achieved a completed occupancy of about 75%, while Lanxing 2 IFC was just completed in the second half of twenty twenty. The luxury landing IFC Mall of over 1,000,000 square feet is scheduled for opening in 2022 and has received encouraging preliminary leasing responses. We have been replicating our successful model of developing integrated landmarks in Hong Kong to key cities on the mainland. I mentioned that our FY 2020 annual results in September last year, the group expected to complete attributable GFA around 12,000,000 square feet of properties for investment purposes over the next 4 financial years. We have made good progress during the period under review With the recent completions of the 1,500,000 square feet Nanjing to IFC, the group's core Mainland property investment portfolio was about 15,000,000 square feet at the end of last year. This variable property investment portfolio will be further expanded to around 25,000,000 square feet in the next 4 years. Among this 25,000,000 square feet portfolio, about 46% will be retail spaces. That's all for the group's Mainland Rental business. Now I will go through the hotel business performance in the next slide. During the period end of review, the operating environment of hospitality stutter in Hong Kong continued to be tough amid the pandemic. The group's hotel portfolio was inevitably affected with occupancy and revenue per available room falling significantly. We have introduced a series of measures to mitigate negative impacts and further enhance operational efficiency, including creative promotional campaigns to target long standing customers. The performance of Whiskows in Shanghai, Pudong, saw a modest improvement from trough, although it has been affected by the fluctuation of the pandemic. We have 2 new hotels in the pipeline, including Anderson Nanjing and Four Seasons Hotels, Suzhou, scheduled to open in the coming 1 to 2 years. Let's cover our business updates. Let me talk about the market prospect. In Hong Kong, various domestic external challenges brought by the pandemic will continue to wait on the economy in the short term. For the primary residential markets, solid end user demand, the low interest rate environment and the boring stock market will underpin the property market. However, high lump sum transaction will be under constraints amid tight mortgage policy. For retail sector, leasing momentum improved marginally with some new demand from retailers focusing on domestic demand. The operating environment, in particular, the tourism industry, will remain tough. A full recovery will be subject to the local pandemic control, mass vaccination among wider local population and the relaxation across broader travel restrictions. On Grade 8 office market, MMC are expected to remain cautious amid an uncertain macro environment. Leasing momentum may improve gradually with the economic recovery. The Mainland economy will grow at a relatively fast pace this year, led by its effective containment measures and drew circulation's economic strategy. For primary residential market, solid end user demand and revival of buyer competence will support the market, while city specific housing and land policy will remain in place. For the retail sector, resilient domestic consumption with a swift sales rebound in luxury goods helps instill confidence in local and Florence brands. Leading luxury malls will continue to benefit from the spending boom in luxury goods with outbound travel restrictions in place. On Grade A office, keen competitions amid ample labor supply, particularly in noncore areas, may wait on the leasing performance. Attractive economic prospects may draw M and C interest in further expense in selected prime cities. Moving on to our business prospect. Over the short term in Hong Kong, we will leverage on our ample salary resources to launch the projects to drive sale. We expect the leasing renewals to remain challenging and rents continue to see downward pressure, especially for shopping malls selected shopping malls. Hotel business operating environment is likely to remain tough as long as cross border global travel is restricted. Having said that, the group is also well prepared to embrace further business opportunities from the reopening of the borders and anticipated economic recovery. For the Mainland, we believe our well located high quality property investment portfolio will continue to benefit from the relatively fast pace of economic growth on the Mainland. In the medium- to longer term, we have unwavering confidence in Hong Kong. The city is well positioned under the principle of 1 country, 2 system to benefit from the continuous growth of the Greater Bay Area. We continue to develop landmark commercial projects for rents, and we have sufficient development land bank for sale in Hong Kong. Our core Mainland property investment portfolio will be further expand from current 15,000,000 square feet to 25,000,000 square feet in the next 4 years. That will significantly enlarge our recurrent income base from the Mainland. The group will continue to seek land acquisition opportunities in both Hong Kong and major mainland cities with strict financial discipline when opportunities arise. Finally, I would like to wrap up my presentation with a message extracted from the Chairman's statement as follows: Established for over half a century, the group has read many crisis and cycles together with Hong Kong and is adept at turning challenges into opportunities. The group remains confident in the long term economic prospects of Hong Kong and the Mainland, and we'll continue to acquire land for development when good opportunities arise. With this trusted bank, brand and strong fundamentals, including a forward looking, experienced management team and a solid financial position, the group believes it will overcome this unprecedented challenge and become a stronger, increasingly resilient and competitive company, creating long term value for all stakeholders. Last but not least, we are making more efforts on the ESG, and our latest sustainability report is now available for download on our website. You can simply scan the QR code on the slide to get a copy. This concludes my presentation. Thank you very much for your attention. Thank you. Ladies and gentlemen, welcome back for our Q and A session. Now let me introduce to you our panel for you today. From your left, Mr. Brian Sung, whom you just met Mr. Christopher Kuo, Executive Director Mr. Alan Feng, Executive Director Mr. Ricker Le, Deputy Managing Director. The center is Mr. Raymond Kuo, Chairman and Managing Director Mr. Mei Wang, Deputy Managing Director Mr. Adam Kuo, Executive Director Mr. Eric Tong, Executive Director and Mr. Frederick Li, Group Chief Accountant. Before we start, I would like to invite our Chairman and Managing Director, Mr. Raymond Kuo, to share with us some key messages. Mr. Kuo, please? Thank you. I would like to talk about our company's interim results 2020 to 2021. During the period under review, the COVID-nineteen pandemic continued theoretically and the external environment remained uncertain. Despite this, the group managed to run its businesses smoothly and achieve year on year growth. This growth was primarily attributable to the completion of a majority of the current financial year's development projects for sale in Hong Kong in the first half of the year. The hotel business, however, was seriously impacted by the pandemic. In keeping with the group's core belief in building homes with heart, our staff showed great commitment to maintaining business operations throughout the pandemic. With such efforts, we were able to safeguard the health and safety of residents, tenants, customers and employees with comprehensive hygiene measures. We have also provided appropriate and timely support for tenants to help facilitate their businesses. The pandemic has also driven the group to adopt creative and innovative ideas. We took proactive steps to better understand market trends and listen to our customers' views, especially their requirements for environmental conservation, community integration and innovative technology. These steps have helped the group maintain its market leadership by continuously improving building quality and services. Given the pandemic's negative impact on Hong Kong's shopping mall business, the group leveraged the point by SH KP, our loyalty program with over 1,000,000 members. Also, we also have a variety of online and offline promotions to drive footfall and good sales. These initiatives helped mitigate the pandemic's impact on our mall tenants. On the maintenance, however, our shopping malls performed well, thanks to the maintenance' effective pandemic containment and fast economic recovery. The results in recent months have surpassed the corresponding period last year. The group has been actively supporting the government's anti pandemic measures and is pleased to see the recent easing of dine in service restrictions in restaurants amid reduced rates of infection. However, for the group's businesses and the overall economy to fully recover, the upcoming mass vaccination program must be effectively carried out among the wider population, so as to bring the pandemic under control and ultimately allow resumption of cross border travel between Hong Kong, the Mainland and nearby regions. San Joaquin Properties will continue to look for suitable land acquisition opportunity in Hong Kong and on the Mainland. We will also focus on developing a number of large scale integrated landmark projects, including the project atop the high speed rail West Kowloon Station in Hong Kong, the ITC project in Shanghai, the Nanjing IFC and the Jinhe Hui project in Hangzhou. With new projects coming on stream in the next 4 years, the group's properties for rent and investment on the Mangan will substantially increase from around 15,000,000 square feet to over 25,000,000 square feet. The group remains confident in the long term prospects of Hong Kong and the Mainland. Hong Kong is well positioned under the 1 country, 2 systems principle to benefit from the continuous growth of the Greater Bay Area and the anticipated recovery of the global economy. We firmly believe that Hong Kong with its time tested economic resilience, solid work ethics, cultural diversity and well standard business practices, we remain a premier financial trade and business hub for both the Mainland and the world. Hong Kong has experienced a relatively long period of difficulties and challenges since the social incidents in mid-twenty 19 followed by the COVID-nineteen outbreak that has lasted over 1 year. In the short term, the business environment is likely to remain challenging. Nevertheless, Salonke Properties has been operating in the city for over half a century and has weathered many crises together with the people of Hong Kong. The group is confident that Hong Kong will eventually overcome the pandemic. We as a group are fully prepared to capture the development opportunities as soon as the economy is back on track and to create sustainable value for shareholders, investors and other stakeholders. Thank you. Thank you, Mr. Kuo. We will now open the floor for questions. Our first question comes from Citi's Ken Young. This is Ken from Citi. I have three questions. One is on Hong Kong Resideo, one is on off the Hong Kong office and the last one is on Mainland Retail. So first of all, it seems that the first half itself still running quite behind with your RMB35 1,000,000,000 target. Is management confident on achieving this target? And how should we catch up in terms of the launch pipeline for the rest of the year? And more importantly, the recent concern of some clients will be mostly on the impact of the immigration, people leaving Hong Kong to U. K, etcetera. Will management I understand from Chairman's statement that Raymond is very confident on the longer term outlook, but does that have some negative impact on your residential outlook, let's say, in the near 1 or 2 years? So this is the on the residential part. And second, on the office, is the group concerned on the impact of rent from home on your office demand? And how is the latest leasing demand from MSC versus the Chinese corporate? Are you seeing has it been a trend for the work from home or downsizing in some of the sectors that this stands that you are seeing? And lastly, on the retail on the mainland retail side, I see that you have recorded very strong growth in revenue. How was the performance of the tenant sales of your China mall? Are you concerned that the tenant sales growth or retail sales growth will decelerate due to very high very tough competition in the second half of the year? That's it, guys. Yes. On the sales in Hong Kong, as you know, our marketing of new projects was indeed a bit affected by the pandemic in last year. But projects like the Wetlands, Seasons Park and Regency Bay were all very well received. And in the next 10 months, we shall have a number of projects to be launched, namely the Prince Central, which we are marketing now. And then in next month, that would be Phase II of Regency Bay and also our luxury project in Sarting, Saint Michel. And in next quarter, that would be Yunnan Station project together with Phase 2 of Victoria Harbour and also the wetland project, Lot 33, together with our JV project in Belcher Street. So again, you can see that in the coming months, we shall have quite a number of projects to be market that would deliver sizable liquidity for the group. And we are still maintaining that. We are very confident to achieve RMB 35,000,000,000 of sales target in Hong Kong. Having said that, as you know, the sales concern may be some slippage due to the partial lockdown of the government departments recently. So that may unavoidably affect our contracted sales in first half of this year. But we are confident that we can catch up in the next two quarters. For the Hong Kong office, I think the leasing the office leasing have been quite affected by the pandemic that caused a weakened leasing demand and also a higher vacancy. And some of the MNC are now holding back their expansion plan and but those companies in Financial Services are less affected. Like 1 and 2 IFC, we are almost fully let. And in fact, for core location and including Jinsha Choi, limited supply in the next 2 to 3 years, we'll continue to have a strong support on rental. As for ICC, we are doing a premium rent in the whole locality. And in fact, the location of ICCF will further be enhanced in terms of accessibility and vibrancy due to the high speed rail link and also the future West Kowloon culture area. As for long call location, as like Karunje, as some of the companies are involving in trade related sector, that may affect their business due to the macroeconomic uncertainty. But existing buildings like ours are not affected because most of our tenants are quite sizable and belonging to reliant corporations in different sectors. They are very stable and very demanding on building quality and also management services. And especially, they also appreciate our attentive service on health and safety. So our buildings in West Kowloon are still in very high occupancy, including those in Ranchai, Causeway Bay. But I think the overall, the rental growth in core location will slow down, but buildings like 1 and 2 IFC and ICC will be less affected because majority of tenants are evolving in Financial Services. As for long core offices, I think sentiment may remain quite subdued in the coming months until economic confidence recovers. But as I said, existing buildings like ours in current years will be less affected. Thank you. Regarding the work from home, I think in contrast to other major cities, I think the work from home the impact of work from home on office leasing demand is a bit overplayed in Hong Kong. As below, we have a very efficient transport level, and our different area are relatively small. And together, there's a need of social contact in order to enhance productivity. These are the factors that are in favor of a return to the office after the pandemic. Thank you. Regarding the impact of local immigration on the residential market, So far, we do not see there's any impact on the residential market. For the Thailand market, it is still resilient and in buoyant sentiment. And for secondary market, we have seen in many cases that those apartments being released by the people who are planning to live were being slapped up quickly in the market and prices remain very stable. Thank you. Yes. In terms of our company's shopping mall sales in China, we've seen a very strong rebound in the Q2 in China. And so overall, as a whole in the year, we've seen very high overall average sales growth. And our rental income is up 26% year on year in Hong Kong dollar terms and Huawei still remain reasonable occupancy costs during this period. And based on our observation, we've seen a lot of international brands are actually allocating more resources to increase their exposure in China via SOAR expansion and also global first launch events. So we feel that as the domestic circulation development continues in the mainland, we expect the growth momentum of domestic consumption to continue over the long term. And we also think that with the excellent location and excellent connectivity of our shopping malls in key cities, we are well poised to capture this rising trend. Okay. Our next question comes from Justin Kuo with Goldman Sachs. Hello. Thanks for taking my questions. A couple of them. The first one, it's a follow-up on the residential side. You talked about the sales target in terms of the appetite to continue to sell. Can you also comment a bit on what kind of margins or the margins outlook that you think you can achieve from now on? That's the first one. The second question is on the land banking side. Particularly on the farmland conversion or the potential pilot and sharing scheme coming with the government, can you kind of discuss a bit of update on what's happening there? It has been more than a year when the Chief Executive Trust announced it. Where are we at the moment? I guess the last part is on the China. Aside from the malls, you've got a big project ITC happening in Shanghai. Can you comment a bit on the progress? And at the end, what kind of aggregate contribution shown? And best to be looking at from ITC and also from the entire China rental portfolio even when all these are completed? Yes. On the local sales, as you know, our strategy is always sticking to the prevailing market condition. Over the years, you can see from our past record that we can always strike a balance between volume and margin. And normally, for mass project, we are looking for a quicker turnover. And as for the luxury project, which may need more time to absorb, we shall dispose at our pace. And as you know, the land prices remain very firm and developers are still difficult to acquire tender sites. So it is unlikely that anyone would cut their price in order to boost the sales. So I think in the coming new projects, the pricing would remain solid and stable. Although the price momentum have been slowed down in the past 2 years due to the social incident and the pandemic, but for our projects, in the coming 2 to 3 years, we shall expect a satisfactory profit margin for our new launches. Thank you. On the subject of banking in Hong Kong, there are 2 areas. 1 is the farmland conversion. As we appreciate, we have done a conversion in Sogon Wat into an area of a size of about 600,000 square feet, of which we have got Shanghai owns 75%. This is good sign that government has actually as confirmed by yesterday budget, government has actually allocated more resources to process the land application. And there is an office called Project Facilitational Office that's been set up within government system to try to process and give priority projects for units more than 500 units. And most of the projects are of a sizable project that exceeding the 500 units. We'd like to advise or advise that there are actually 2 or 3 cases in our pipeline, which has reached a very advanced stage of negotiation. That means planning is all done and is also actually premium stage. And we hope that there will be 2 or 3 cases can be concluded within this coming financial year. And on the other hand, for the land sharing scheme, as advised last time we met yourselves, we have identified a potential case and started the dialogue with government. And we hope government can start up or speed up deposits to process this kind of projects. Understand there was a few hurdles to go through, but we're still actively pursuing to try to convince government to try to make the scheme workable. We are doing one actually. And Justin, on your final question about the investment properties under development. On the mainland, we have about roughly about 10,000,000 square feet to be completed within the next 4, 5 years. We expect to generate about RMB 3,000,000,000 to RMB 4,000,000,000 from these projects, from these additional 10,000,000 square feet under construction. Thank you. Our next question is from Kyle Chai with Bank of America. Hi. Thank you, management. I have three questions. One is on the dividend policy. For fiscal 2020, the payout was already towards the high end of your 40% to 50% range and the development sales in Hong Kong have been impacted by the pandemic in the last 18 months. And so just wondering if earnings suffered a temporary drop and would you consider sort of raising your payout ratio to over 50% in order to maintain a stable dividend? And then a couple of questions on the operations. One is on the Hong Kong side. Can you talk a bit more about the retail sales performance in the second half of or I should say, first half of your fiscal year and the retail rent relief that you provided and the expectations for rental conversions going forward? And then lastly is on China office. We've seen a lot of news about weak office spot rent trends and your high vacancy. Can you talk a bit about your occupancy right now in China in office? And do you see the risk that the occupancy will drop and or the rental income could come under some pressure in the next year or 2? Thank you. On the dividend policy, our policy has always been trying to maintain a stable dividend stable absolute dividend. At the same time, we also want to make sure that our leverage is not too high, right? So that's why the policy has always been try to keep the dividend payout ratio from 40% to 50%. On your question about the impact of the pandemics, surely, I think it has impacted on our presale dates for our property projects. Our profits are recognized upon completion, not upon sale and purchase agreement. And at this moment, we don't foresee too much delays on the projects that we have already pre sold. So the fact that pre sell has been delayed may affect our profits 1 or 2 years from now, but not the next 12 months. On the Hong Kong retail side, for the so this is the calendar year for the second half of twenty twenty. The calendar year, we have seen a slower rate of decline in tenant sales compared to the first half calendar year of twenty twenty. We've also seen that the impact from the recent 4th wave of outbreak on tenant sales has been less serious versus the previous waves of outbreaks. And we think that given that we have a high quality mall shopping malls and services and good locations and also our leasing teams strengthened optimizing the tenant mix. I think we are able to we have been able to maintain satisfactory occupancy during this period for our retail portfolio. I believe also as Brian has also mentioned just now, we have been actively trying to alleviate our tenants' pressures through short term leases and rental concessions where appropriate. And so overall, the gross rental income has dropped 30% in the second half of last year. But if you exclude the one off concessions, it becomes a 6% drop. And recently, we have seen a good traffic flow at our shopping malls during the Chinese New Year. And it's also encouraging to hear about the government's plan to offer the $5,000 electronic consumption vouchers in the latest budget speech. So going forward, we believe the performance of the reader portfolio should improve once the pandemic is contained and the vaccinations get started and most importantly, once the cross border traffic restrictions are relaxed. On the mainland office, even though there are a lot of supplies in major cities, we believe that for the projects we have already now and also projects under construction, we believe our location is so good that I think there should be no major problem trying to fill up those premises, yes. Thank you. Next question comes from UBS John Nam. Nam. I have a few questions here. The first one is regarding on the management view on the cross border activities and normalization And also how the management expect about the magnitude of the recovery regarding on the retail sales? Secondly, it's regarding on the latest plans for the high speed railway commercial land sites. And the third one is probably the recent the mainland China policy of the land supply plan. So basically, it's about the concentrated or centralized land supply plan. So do management see that this may be an opportunity for the company to buy in the Mainland China, given that the Chinese developers are suffering from the fee realized entitlement? Thank you. I think on the final question, it's still too early because like you, we have only heard about this morning, right? But I think for I believe that for the mainland, we have an advantage that we would like to build an integrated project, whereas a lot of the mainland developers are they prefer to build residential rather than integrated project for rental. So I think we believe that our distinguished skill would be more on the integrated project for long term investment. I think everyone knows if we have the fortune to go to the Greater Bay Area, the overall consumption is very healthy, especially calendar year second half of twenty twenty. It's a bit of a tale of 2 cities. And so we see it not only in retail in our malls in Guangzhou, but we also see it in the hotels in there. And not only that, but we see the same trends in Shanghai and even more in the malls of luxury brand. And so as to when the border will open up, we don't know. It's anyone's guess. But of course, we urge that as vaccination becomes more prevalent that there will be it will open up sooner than later. But I would say the group overall is very ready to capture the opportunity, be it in our malls in Hong Kong, be it in Victor's sales, especially the premium ones, our Central Peak, our North Point and so on and be it in our hotels as well. And so yes, I think it will be a game changer when things go back to normality. Yes. I think if I just Sorry. If I just may add a little bit to that because I think we once the borders open, I think we are especially confident that those people who are living in the Greater Bay Area will come back to Hong Kong to shop first. I think we have good service quality in Hong Kong. And also there are the renminbi's appreciation against Hong Kong dollar actually makes it very attractive for main lenders to come back to Hong Kong. And building on Adam's point, I think we've seen actually very strong rebound in both hotels and shopping mall sales in Greater Bay Area. And we believe this is a part of reflection of pent up purchasing power of people living there. So once we can open our borders, we believe Hong Kong will again become the preferred destination for many lenders to come and shop. Yes. I actually have we did a Section 16 submission 2 months ago. And I think you have read that it's been approved by the government, but we are actually improving the scheme based on government's comments. And we will do a resubmission pretty soon. Thank you, John. Due to the time constraint, we will take the last two questions. Our next question is come from Pareen Chaudhry with Morgan Stanley. Thank you very much for taking my call. Three questions from me. First one is on dividend, if I may still try. It seems like your China business is doing very well, retail business, Hong Kong office is doing very well. And it seems like Victor is very comfortable with their contract sales target. Should we expect dividend to grow in FY 2021? Or do we need to wait for a couple of years when the China rental business from ITC and others comes through? That's the first question. The second question is related to the gearing level and non core assets. I was wondering if you have more non core asset disposal in plan to maintain both land acquisition as well as keeping the gearing down. And then the last question is about this whole IP revaluation loss this year, which I'm assuming is driven in Hong Kong. What's the outlook going forward in terms of the rental outlook so that the revaluation losses will be considered in FY 2021 or not? Thank you so much. Sorry, can you repeat your third question again? Sorry, Karim, yes. Your third question, yes. Yes. The third question was related to the IP revaluation loss. I just wanted to get the outlook going forward considering in Hong Kong, we are still facing some issues in retail business. Thank you. I'll respond to your final question first. On the revaluation side, the revaluation is down because the rental has gone down a bit. And we always try to maintain a conservative policy of using the same cap rate as before. But as you know, with interest rates going down, the cap rate should have gone down too, but we're just being cautious. On the dividend side, I think we have we're going to have more investment income over time. But at the same time, to finish those new investment projects, we need a lot of CapEx. So therefore, I think at the same time, I think we also want to maintain our gearing to be at or below 20% debt equity. At the moment now, equity debt equity ratio is 15% just less than 15%. So therefore, I think we have 2 consideration, right? Firstly, try to have a stable dividend over time rather than to have a volatile dividend stream. And secondly, at the same time, we also want to make well, want to ensure that we keep the debt equity ratio to be below 20%. I think it's important to maintain a good credit rating in this uncertain global situation, yes. Thank you. So we will have the last question from HSBC's Raymond Liu. Thank you, management, for taking the last question from me. So I got 2 questions. First question is about the land bank opportunities. So there are quite some change policy changes recently in especially Mainland China. And we looked at some of your peers have turned more active in purchasing the land. So the question is how do you see the land banking opportunity in Hong Kong and then in China, especially in Hong Kong? How can you like discuss further in terms of like mass market and also the luxury residential side? That's the first question. And the second question is about market opportunities in Mainland China. So couple of policies here already happened, including the 3 red line policies. How does Fang Kai will grab this market opportunity to like beef up and expand? And will there be any impact on your sales or other operation as well? Thank you. Yes. As you know, we normally on all the land sales, we participate actively regarding it is East Asia, Mars or Luxury or even Commercial. And of course, all our decisions are under a prudent financial discipline. And as the land sales market remain very competitive, We shall continue to be more active on farmland conversion and also negotiation to speed up negotiation with government on premium. And on the mainland land bank situation, we're only focusing on the Tier 1 and Tier 1.5 cities. We want to focus only on the prosperous cities. And we believe we are not really competing that much with our mainland developers because our focus would be more on integrated project with hotel, office and mall. And we are going to be very selective on the location. And from what I observe for the many developers, they would prefer much prefer to put their money in residential projects so that they can churn faster, so that they have the firepower to buy more land in the future. Whereas we want to select the best location in the best city with scale, so that we can nurture the investment properties over time to make it the landmark in those cities that we are investing. And can I add the land reform, obviously, everyone reads it on Bloomberg, right? And there's a big speculation. But I would like to say, at least according to the news we read, it is the land reform they are doing is only for residential land for the 22 cities. And so they will come out in 3 batches and more concentrated bets and that they will require higher down payment. And so maybe it will favor the bigger players. But in any case, as our Chairman say, the residential game in China is not really our focus. Even if we do it, it's more part of an integrated project in a very good location that we do. So it's not too relevant to us, I would say. But good for the market, I believe. Good for the healthy market, right, for the 3 red lines and all of everything. I would like to add one final point. Given the low interest rates environment in Hong Kong, given the booming stock market and new economy shares, it seems from talking to friends, most of the young guys have made a lot of money it seems. And Shenzhen is prosperous because of Shenzhen's strength in the new economy, in the IT area, right? So we believe that when the border opens up between Shenzhen and Hong Kong, there will be a lot of visitors from Shenzhen also, of course, from Greater Bay, but I foresee that the Shenzhen young people are working in new technology companies. They are going to have a lot of wealth derived from the shares market. Of course, some of them work for a lot of these startups, which could be very profitable, yes. Thank you. Thank you. As this is the final question and it concludes our presentation and briefing session today, thank you very much for joining us today. We appreciate your time and look forward to speaking to you soon. Hope we can meet in person next time.