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Edited Transcript of 1972.HK earnings conference call or presentation 14-Mar-19 9:45am GMT

Full Year 2018 Swire Properties Ltd Earnings Presentation

Mar 22, 2019 (Thomson StreetEvents) -- Edited Transcript of Swire Properties Ltd earnings conference call or presentation Thursday, March 14, 2019 at 9:45:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Guy Martin Coutts Bradley

Swire Properties Limited - CEO & Executive Director

* Ngan Yee Lung

Swire Properties Limited - Finance Director & Executive Director

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Conference Call Participants

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* Justin Kwok

Goldman Sachs Group Inc., Research Division - Executive Director

* K.C. Ng

Macquarie Research - Analyst

* Karl Choi

BofA Merrill Lynch, Research Division - Director

* Ken Yeung

Citigroup Inc, Research Division - Director

* Wai Ming Liu

HSBC, Research Division - Analyst

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Presentation

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Unidentified Company Representative, [1]

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(technical difficulty)

briefing for Swire Properties 2018 annual results. So today's briefing will be hosted by Mr. Guy Bradley, Chief Executive of Swire Properties; and Ms. Fanny Lung, Finance Director of Swire Properties. So Guy and Fanny will first take us through the company's results, followed by a Q&A session.

And before we begin, we would like to show a video, which highlights the company's key developments and achievements in year 2018.

(presentation)

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [2]

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Thank you. Good evening, everybody, and welcome to the Swire Properties analyst briefing. Thank you for joining us. I think we'll dive straight into the presentation so that we can concentrate on probably what you're all here for is the questions afterwards.

I'll characterize 2018 as the result of another solid year for the company with our businesses performing well right across the board. We had strong growth in underlying profit, reflecting a double-digit growth in recurring profit from property investment and profits from sales of noncore properties. We've also enjoyed an expanding investment properties portfolio, supporting growth in recurring profit and sustainable dividends, which left us in a strong financial position now to pursue growth opportunities.

So the results. I'm very pleased to report a 30% increase in underlying profit and a 9% increase in EPS.

We've clarified the dividend policy this year. And you can see what it says in the box on the top right there, but basically, the position now on dividends is to deliver sustainable growth in dividends and to pay out approximately half of our underlying profits in ordinary dividend over time. I think that's a positive change for the better.

In terms of the compound growth rate in dividends over the last 5 years, we've delivered a 6% increase and paying a total dividend for 2018 of HKD 0.84 per share.

Key developments in the year. On the asset disposal side, as you probably heard in the Swire Pacific briefing, we raised over HKD 20 billion primarily in the sale of 3 office buildings, Cityplaza 3 and 4, which we've conditionally agreed to sell for HKD 15 billion last June, that should complete in April this year. And we booked the profits on the sale of the Kowloon Bay office building, again which we deemed a noncore asset, and those profits were booked and we realized HKD 6.5 billion last year.

So over HKD 20 billion raised. On the completion side, projects we've had a very successful year with One Taikoo Place, which not only hit OP on time last year in October, but by the time November came around we've 100% leased the building which was a great success and a good result for the team.

In Wong Chuk Hang, the South Island Place asset was also completed and construction ends in August, and the leasing there, progress, I'll talk about later, is very encouraging, too. And over at up in China and Shanghai, we finished the final piece of the HKRI Taikoo Hui mixed-use development, which was the Middle House hotel, and we opened that property in May.

In terms of pipeline, you can see on the right-hand side, we have a sort of healthy increased pipeline there with the fixed investments in China called Taikoo Li Qiantan, which is a 50% acquisition, which we completed in March 2018. It's 100% retail in Pudong, in an area that we think has very, very high potential for the future. So we're very happy about that.

The other projects in the pipeline cover both office and residential, and I'll talk about them in more detail as we go through.

Here's the pipeline as is. And, I guess, the message on here, really, is that it's very balanced. The new projects are balanced across geography and they're also balanced across sectors. So you're seeing what I think is a very healthy pipeline of investment properties in both Hong Kong and China and also some trading properties now, which we're very pleased to be able to say we have.

Let's hand over to Fanny to talk a little bit about some financial highlights, and I'll come back after that.

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Ngan Yee Lung, Swire Properties Limited - Finance Director & Executive Director [3]

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Thank you, Guy. Right. Underlying profit growth is very strong in 2018, up 30% from the end of 2017. A big part of that is the sale of investment property. We generated HKD 2.6 billion from the sale of our office building in Kowloon Bay and as well as some unit fee in Aberdeen as well as some other noncore investment in Hong Kong. Other than that, investment property portfolio also got a very strong growth, 11% increase in the underlying profit, which amount to HKD 761 million in Hong Kong dollar terms, which offset the reduction in the trading property portfolio of about HKD 1 billion.

If you recall, last year, in 2017, we had the profit recognized for the sale of 197 units of Alassio, which recognized quite a lot of profit. So without that, there was a dip in our trading property profit.

The strong growth in the investment property portfolio, basically, is driven from the very strong growth in the gross rental income as well. 10% growth in the gross rental income. All our markets are recording a very good growth.

In Hong Kong, the positive rental reversions and the firm occupancy drive the rental growth, together with the contribution of our One Taikoo Place, which is opened in the fourth quarter of 2018, all together add up to a 4% increase in the GRI.

In the retail side in Hong Kong, all our 3 shopping malls also recorded a very good growth in sales, which also drives the rental increase, giving a 6% growth in the gross rental income.

Our portfolio in Mainland China got a very good story in 2018. All the 5 centers recorded tremendous growth in 2018, with positive rental reversion and also improved their occupancy. And also, even in the renminbi terms, it represented a total of 17% increase in the GRI.

The U.S. portfolio also recorded very significant ramp-up in the shopping mall of BCC retail center, recording almost double GRI increase. With that, our total attributable GRI in 2018 was up to HKD 13.8 billion.

So in terms of the balance sheet, very important item in the balance sheet is the investment properties. Our investment properties increased by 2% to the end of 2018 to HKD 270 billion. The increase was largely driven by the fact that we have a substantial increase in the fair value gains of HKD 19.5 billion. And the -- this particular increase in the fair value gain was mainly driven by the fact that there was a reduction of [12.5%] basis point in the capitalization rate applicable to the office portfolio in Hong Kong, which partly offset by the fact that we transferred that Cityplaza 3 and Cityplaza 4 properties from investment property to asset classified for sale, so there was a reduction of about 18 point -- HKD 14.8 billion, and we spent HKD 4.7 billion on the CapEx. And there was an unfavorable RMB translation difference, which caused a reduction of HKD 1.5 billion. So, overall, the IP portfolio increased in value by 2%.

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [4]

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Thanks, Fanny. Just switching into some detail on the Hong Kong portfolio, next. In terms of the office, you can see that the -- as you saw in the numbers, the strong performance has continued in 2018 that we've seen in the last few years now. The reversions across the board in office were positive. And you can see some of the latest rentals that we've been achieving in One & Two Pacific Place, albeit for fairly small units, hitting up to $165, which is a high point there.

The -- over in Quarry Bay, the Taikoo Place rentals, you can see that we've achieved from the mid-50s to the low-70s for the newer modern buildings that we're putting up as part of the decentralization trend. So good story in Hong Kong office.

And equally, in 2018, we had a good story across the board in Hong Kong retail, with increased retail sales. As you can see there, Pacific Place enjoying an extra -- an increase to 11.8% year-on-year.

I mentioned One Taikoo Place down in Quarry Bay, that really has benefited and driven the whole momentum around decentralization, which has been the most exciting story, I think, in terms of Hong Kong office in the last few years. And we're very pleased to be at the center of all that. Taikoo Place is a huge beneficiary of the chase for lower rents and better-speced buildings. And you can see from some of that lists there, the office tenants, that there's some fantastic names that have already made the move, people like Baker McKenzie, Ernst & Young and Facebook down there, represented sort of a healthy cross-section.

And I would like to just flag the fact that the Royal Bank of Canada came in to nearly finish off the building. And that's, for us, that's -- they're moving down almost in their entirety, which represents the first time a bank has taken its front of house team down into a decentralized location. I think that's probably the start of a very healthy trend in the banking sector as well. So we're very pleased about that.

I mentioned it's 100% leased, One Taikoo Place. We're expecting by the end of 2019, end of this year, that 80% of the tenants will have moved in.

The other decentralized location in Hong Kong at the moment, which we're playing a big part in, is Wong Chuk Hang and the South Island Place office building, which we co-own with China Motor Bus, is running at 73% occupancy right now. It's completed last year in August, as I said. And it's the largest floor plate building in Wong Chuk Hang and really sort of setting the market down there.

We're not sitting still in Hong Kong. On the retail side, 2019 will show the opening of the extension at Citygate, which is very exciting. It's pretty much well leased already, about 90%, I think, and we'll be looking forward to opening that in a few months' time.

Back in Taikoo Place, all attention goes back now to Two Taikoo Place, which is under construction, and we hope it'll open in the sort of either end 2021 or early 2022, but we're not sitting still with Two Taikoo Place.

If you look to the far right there, we've got 2 buildings that are under compulsory sale applications, which, if successful, would amount to be in the latest product in the Taikoo Place office suite, and so that's very exciting. Scale-wise, it's about 780,000 square feet.

On the trading side, I mentioned that it's quite good to see us back there. We've got a small project in Wing Fung Street underway and which should be complete in 2022. There's a project that we're codeveloping with Henderson in Pan Hoi Street, which will be, at the moment, earmarked for trading. And of course, there's the Wan Chai project, which is residential, and that's in joint venture with China Motor Bus again. So it's very, very good to see that we're starting to get back into some trading opportunities in Hong Kong.

In terms of the Hong Kong portfolio, you can see that we're, as I said, not sitting still, and the pipeline continues to grow. I think this is the positive message here is that we just have a continued investment in Hong Kong. It's our home. We believe in it very much, and we've got a good story going. This chart sort of shows the direction we're moving in.

Switching north into Mainland China. You can see the last few years have been an incredible story in terms of growth in attributable gross rental income where we've almost tripled levels since 2012. It's just been a phenomenal success, predominantly retail-driven. And I'm very happy to report that we grew that figure last year by 20% versus the prior year, which is -- amounts to a very, very strong China performance in 2018.

Incidentally, if you look at the bottom there, the China contribution to the total Swire Properties gross rental income is now just under 30%, which is very pleasing to see.

I mentioned in the media conference that we had very good strong momentum in retail in China, and these figures here demonstrate that. You can see pretty much across the board a very healthy year-on-year growth in sales. A very strong -- very strong occupancies in the 5 projects that we have opened. So China, I would say, is looking good at the moment, and we expect that to continue into the next couple of years for sure.

Pipeline terms. There's the addition later this year to Sanlitun West in Beijing that we talked about last August. And then the very exciting third Taikoo Li project in Qiantan in Shanghai, which is our movement into Pudong. And that's we're expecting to open probably towards the end of 2020. It's a very exciting location for us down there, and we're really happy to be scaling up activities and investments in Shanghai generally.

Wouldn't be complete without a mention of the U.S.A. Pretty much similar story to the interims. The shopping center is 89% occupied. And the retail sales, although growing off a really low base, are looking very satisfactory for now. And the 2 office towers have been 100% occupied for some time now with a list of tenants down there, as you can see, which are some very famous names on there, and we've got a great rent roll going there.

The one situation that hasn't improved really is the -- is on the condominium side where Reach and Rise, although we sold nearly all of Reach and 2/3 of Rise, so we're not in a dire situation, I'd say the market for condominium sales in Miami continues to be pretty slow. And that's very much a function of the economies down in South America for whom a large part of the buyers of condominiums in Miami come. And we really -- for that market to pick up, we really need Brazil to come back and 1 or 2 other economies down there, and then we'll be rolling again in Miami.

Forbes, I don't know if you saw that recently, just came out with an article describing Brickell as one of the fastest-growing destinations in the U.S.A. So I think we're in the right place, certainly in the right city for now, so Miami is a very good emerging story.

Quick note on our fledgling young hotel business. It's a young and very growing business. It provides a bit of magic to the mix. We've got 2 fantastic brands now in The House Collective and EAST. The most recent one of which I mentioned earlier, The Middle House opened last year. And a lot has been said about how long it takes these hotels to pick up. But I would say that I was very pleased in 2018 to note that the managed hotels that we actually operate ourselves grew at an operating profit level of 15% year-on-year, which was very pleasing. We now have all of 7 hotels under management open, and they just need to start scaling up in terms of maturities. So an exciting and emerging story there.

Beyond those 7 hotels, we also confirmed last year that we want to extend those 2 successful brands into other cities in Asia on an operator model basis. So there'll be no capital outlay for us, but we'll be looking to replicate the success of those brands in cities in, predominantly, Asia Pacific where we feel there's a need for a House or an EAST brand, and that's quite exciting for the hotel team.

Switch back to Fanny now for some more detailed financing, if you haven't had enough of that.

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Ngan Yee Lung, Swire Properties Limited - Finance Director & Executive Director [5]

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Right. Our financial position continues to get stronger and stronger. A few key points to highlight here.

A very strong cash inflow from the investment property portfolio, HKD 10 billion inflow, another HKD 10 billion coming from divestment program that Guy mentioned about. Capital expenditure, HKD 4 billion, which largely included the Taikoo Place redevelopment. And then on the investment on the joint venture and associated companies, HKD 2.9 billion, including the Qiantan investment, which was injected this year. That brings the total net debt down to HKD 29.9 billion. And together with the devaluation gain that we recorded in 2018, gearing substantially dropped to 10.6%, a 3 percentage point drop.

And if you look at the table summarizing the past 5 years, our financial parameter all are moving in the right direction. Very strong growth, reflecting in the interest cover. And also, the weighted average cost of debt continued to reduce to 3.3%. That is due to the fact that we have some very expensive debt, which we were managed to repay upon expiry.

The maturity profile of our debt portfolio also continue to be very strong. Altogether, we got HKD 44 billion committed loan facilities, of which we have drawn down HKD 31.9 billion. And we still have committed and cash and also other liquidity adding together and up to HKD 15 billion for us to use.

And if you look at the fixed-to-floating ratio, 75% fixed debt on a gross basis. And our credit rating is also very strong and maintained a stable outlook. With these financial position, we put the company in a very strong position to capture all the growth opportunities in the future.

Capital commitment. The total capital commitment at the end of 2018 was HKD 17.6 billion. Hong Kong is a large chunk of that, HKD 15 billion. Guy mentioned about the Wah Ha and the Zung Fu building. The capital commitment is under that particular line, together with the Po Wah building. And the Mainland China, HKD 2 billion, part of that was due to the Qiantan project that we got.

The movement in the capital commitment, as I explained just now, there is an upward trend because we are getting stronger and stronger investment pipeline.

So this one summarized all the capital recycling exercise that we have done so far. HKD 25 billion committed so far, we have signed. But the thing that I want to highlight here is for the Kowloon Bay line, we have all received all this particular proceed. Cityplaza 3 and 4, we have received 25% of the total HKD 15 billion of that proceed. And then the remaining last line, the HKD 3.7 billion, we have also completed that particular transaction. So as far as our inflow from the capital recycling, substantially, we have committed and received quite a lot of the proceed already.

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [6]

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Thanks, Fanny. Lastly, the prospects. I won't go through this line by line, but there's a couple of highlights I'd like to just flag in Hong Kong where, in the office sector, we expect high occupancy and limited supply to underpin rents at Pacific Place. And correspondingly, high occupancy and strong demand expected to result in resilient rents down in Taikoo Place.

On the retail side, we, particularly at Pacific Place, finished 2018 with a reasonably soft second half compared to the first half. And what we've seen in the first couple of months of this year is that, that softness continuing into 2019.

I would also point out that as we start to change a couple of the largest base anchors in Pacific Place later this year, that being -- they being Harvey Nichols and some remodeling on great supermarket, and we'll have to sort of shut down some spaces. I don't expect 2019 to be a very stellar year in Pacific Place in terms of sales growth because we are actually going to have to do some remodeling. But those are part of the turnaround of Pacific Place, and they're very important, almost final steps in what's been a sort of 3-year program for Pacific Place.

So retail outlook, I think, is probably tending towards the soft in Hong Kong. But obviously, in China, we feel that the sales situation is very different, and we're expecting sales to grow steadily in nearly all of our centers and particularly Beijing, Guangzhou and Shanghai.

Just last but definitely not least, we have been reporting progress on sustainable development in the last few years. We did, as you all know, our first -- the first green bond, I think, certainly for us, but in Hong Kong Property last year HKD 500 million, of which about 80% of it is already being allocated. That was a great financing that we got away.

On the people side of the sustainable development program, which has now adopted a diversity and inclusion policy, and we're starting to bring out flexible working guidelines and various people-related campaigns like that, which I think are very positive for staff.

On the place making central pillar of the whole strategy, you'll notice that One Taikoo Place, we're very platinum, whether it's lead being plus or what I think is an increasingly important area of employee wellness, we've also achieved the WELL Platinum grade. So One Taikoo Place, in terms of specification, is really, really sustainable as well as very, very tech. So we're pleased about that.

And finally, on the energy side, something that's really important to the business is that we continue to, year-on-year, produce great energy reductions in all of our buildings just by constant focus on getting those numbers down. It's the biggest sort of footprint we have on the earth is our contribution to sort of energy carbon there, and we take that very seriously. So some good statistics shown here to show that we are performing well in that area.

With that, let's get into some questions. Thank you.

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Unidentified Company Representative, [7]

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Thank you, Guy and Fanny. So we'll now open the floor for questions. As today's briefing is being live webcast, so please remember to use microphone when you ask your questions. Also, please tell us your name and organization and try to keep the questions to no more than 2 at a time.

So we'll now take the first question from the floor. This gentleman in the front row, please.

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Questions and Answers

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Ken Yeung, Citigroup Inc, Research Division - Director [1]

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It's Ken from Citi. So I have 2 questions. First question regarding dividend policy. You mentioned about the dividend policy is around 50% of the underlying profit, which this year really pay out, which have include, if you talk about those disposal gain. Can I say if, 2019, you are likely to record a huge disposal gain on Cityplaza 3 and 4 versus the historic cost well below HKD 1 billion, HKD 2 billion? Does it mean that those gained part will be paid out as ordinary dividend? If it's the case, what's next 2020? If there's no gain, then should we expect a drop afterwards? So this is the first question. The second question is regarding your huge process, something like HKD 14 billion, HKD 15 billion to be received, likely to drive your gearing ratio to 5%. So where are you going to use up this balance sheet? Anything that you're thinking of can buy now or you're interested in? So -- and what is your target debt or gearing, which represents the headroom?

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [2]

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Fanny, would you do both?

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Ngan Yee Lung, Swire Properties Limited - Finance Director & Executive Director [3]

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Okay. Thank you, Ken, for your question. Dividend, I think the thing I want to particularly emphasize is the growth. We are committed to deliver a sustainable growth in absolute dividend per share growth. So what that means is we will be continue delivering that dividend per share growth every year. And the divestment profit that rising from the Cityplaza 3 and 4 will form part of the distributable proof in the future, but we are trying to use the money to generate profits, sustainable rental income in the future. So what that means, you can read it as because this divestment income can be lumpy, so the payout ratio may sometimes drop below that. And this year, 2018, the underlying profit and the payout ratio from that underlying profit is 48%. And I would expect that 2019 will be lower than that because you mentioned about we have a very chunky divestment profit. But I can assure you that we aim to deliver a growth in the absolute dividend per share growth, which will be sustainable in the future as well then.

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [4]

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And the second?

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Ngan Yee Lung, Swire Properties Limited - Finance Director & Executive Director [5]

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And the second question is in relation to how are we going to make use of the money. I think that, short term, there will be a very strong cash position. But as we spend all our money in the pipeline that Guy mentioned about, the gearing ratio may gradually pick up. So we have quite a lot of investment in the future. Apart from the HKD 17 billion that I mentioned in the capital expenditure, I do need to emphasize that the trading property project, which included in Guy's slide about the Chai Wan project and as well as the Pang Hoi Street project, which are trading in nature and they're not including the capital commitment schedule, which we do need to earmark some money to do that particular projects then. So you can expect, short term, we'll be building up a little bit of a strong financial position, but it will be used up.

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [6]

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We do want to get back into the auction room. We saw a bid unsuccessfully, unfortunately, in Shanghai in January for a project that was right next door to HKRI Taikoo Hui. And then I'm confident there'll be some more auction opportunities in Hong Kong going forward.

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Unidentified Company Representative, [7]

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Thank you. So we'll take the second question. This gentleman at the second last row.

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Wai Ming Liu, HSBC, Research Division - Analyst [8]

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This is Raymond Liu from HSBC. I've got 2 questions. The first question is regarding to the -- for the buildings that you mentioned, Wah Ha and Zung Fu buildings. So can you share with us more update on this project? Because the scale of this project is quite big. Will it become another Taikoo Place projects in the Island East portfolio? This is the first question. And the second question is about office rental reversion in Hong Kong, especially in the Pacific Place. So in terms of rental reversion, very strong in the fourth quarter last year, around 26%. Do you expect the rental reversion to further accelerate, like close to 30% in 2019?

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [9]

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Maybe I'll cover those. The -- on the second question of rental reversion. I mean, yes, it was a very strong year in Pacific Place office and the -- we do expect reversions to be positive, maybe not quite in that -- at that sort of area of magnitude. But certainly, they'll be positive again in 2019 for Pacific Place. And the first one was?

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Unidentified Company Representative, [10]

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Wah Ha and Zung Fu.

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [11]

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Wah Ha and Zung Fu, yes. Look, I think that's a pretty good bet that they're likely to be the sort of next generation of in the One & Two Taikoo Place office suite, which is a continuing story and a very strong one, I think, for Taikoo Place. It's all subject to, obviously, getting 100% ownership, of course. And that process is taking a little bit longer than it used to. So we're not there yet. We haven't crossed that line. We submitted last February, and I think we're still in the middle of all that. So there's ways to go here on that. But certainly, the way we're thinking about the design, it's certainly going to be the latest and greatest in terms of spec.

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Unidentified Company Representative, [12]

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Thank you. We can take the next question. This gentleman on the second row.

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Karl Choi, BofA Merrill Lynch, Research Division - Director [13]

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Karl Choi from Merrill Lynch. A couple of questions. First is, Guy, you mentioned the re-tenanting exercise over the Pacific Place. Can you give a little bit more color on what you intend to do and also the percentage of space that will be impacted? And the second is on the Sanlitun West, can you give a little bit more color on how the pre-leasing is going on?

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [14]

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Thanks, Karl. Yes, well, look, the major re-tenanting exercises is actually one that's already been announced with Harvey Nichols. It's not -- and, effectively, they have 85,000 -- just under 85,000 square feet of space over 2 floors. We're taking a floor of that back. They're very happy with that. We're very happy with it because what it allows us to do is to subdivide the new -- the floor that we gain and put more variety into that space. And Harvey Nichols, through the use of technology are able to half the amount of space that they have and more than double the range of merchandise. So consumers will be able to go into Harvey Nichols in future and buy pretty much anything they can find in the entire global catalog from the store, which I think is pretty exciting. So that's the major re-tenanting ahead. The great work we've mentioned before, I think, is that we've renewed the supermarket anchor tenancy with Great. And as part of that renewal, they're going to go put the store through some refurbishment, which I think will be very exciting when it's finished. So 2 large spaces that are going to be under work this year. But at the end of it, we'll have a very, very good looking Pacific Place to show for us, I think. And Sanlitun West. Yes, we published the basis. I mean, it's essentially going to be 3 or 4 new anchors in what is the most high-traffic and high-revenue-producing corner of Sanlitun. We haven't sort of announced who's going in there yet. There's going to be a little bit of shifting around there. As you know, that we're moving the Apple Store up in Sanlitun as well from its current old location into a new location. And with that, there'll be a few of the other anchors that sort of do a shift around. So we'll -- it will be the subject of the sort of special announcement when we get ready to do that, Karl.

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Unidentified Company Representative, [15]

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Thank you. Any other questions? This gentleman in the front row, please.

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K.C. Ng, Macquarie Research - Analyst [16]

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It's David Ng from Macquarie. A question on the Pacific Place office. We heard from some of your peers that some of this Mainland tenants may be slowing down a little bit, causing that, the spot rent, to basically slow down in growth. Whereas some of your peers say there's not much impact. How have you seen this impact on the Pacific Place office space over the last 6 months? And how would you foresee the upcoming year? For the Island East, there's a noticeable gap between the One Island East Taikoo Place one versus the other older buildings. Do you foresee potentially spillover effects in terms of as the space got taken up and not a lot of new space being released that even the older buildings right now at the 40s or low 50s, can they also move up in terms of the rental? Or are there things that you are working on, not major, but things you can work on the older buildings to help to achieve that purpose? And the final question is on the retail sales growth of Citygate. In Tung Chung as well as Cityplaza, the retail sales growth was positive, of course, but it actually underperformed the overall Hong Kong market retail sales in 2018. What attributed that? Or are there any other things that you are working on in these 2 assets to remedy that?

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [17]

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Three good questions. PP office, well, how has it manifested the -- in terms of the sort of demand and Mainland impacts. I think what we would say is that, certainly, the level of inquiries is a lot lower at the moment and has been for a few months than it was 12 to 18 months ago. So we've seen a dropoff of inquiries in Pacific Place from the Mainland. And -- but we have such a diverse tenant base in Pacific Place that I wouldn't say our exposure to any particular Mainland dropoff effect is very great. So that's where that is. In terms of the Taikoo Place, old curtain walls all the buildings, well the good news is actually that, there, we continue to invest in the entire campus down there. We're lucky enough to -- because we own so much of the neighborhood, that we can do a lot of things that we want to do. And we will -- that includes the old Taikoo Place curtain wall buildings. We will continue to upgrade them and keep the value high on that. And what happens when we do that is that the whole area in terms of rental levels is increasing. So it's not just a story about focusing on the new buildings and leaving the old ones to sort of whither there. But we're actually seeing a rental increase right across the portfolio down in Taikoo Place. And I think that's reflective of the product that we're creating and the neighborhood itself, which is actually why people want to be down there, is that there's so many amenities, and they benefit tenants in the old building, just as they do in the new ones. And in Hong Kong retail sales, yes, you're right, Citygate, obviously, had to go through a little bit of closure. For example, the cinema, as we were trying to rebuild and some of the food outlets were closed last year, so that would have impacted on the Citygate. Cityplaza, it was only a little bit shy of the Hong Kong average in terms of sales growth. I think Cityplaza is about 6.6, Hong Kong about 7 to 8. And as you know, Cityplaza does not typically benefit from any Mainland impact in terms of shopping. So -- in as much as a lot of the other centers in Hong Kong were benefiting from that, Cityplaza wasn't. So for us, it's a good proxy for true sort of Hong Kong demand minus the Mainland effect.

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Unidentified Company Representative, [18]

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Thank you. I think we have time for one last question. This gentleman at the back, please.

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Justin Kwok, Goldman Sachs Group Inc., Research Division - Executive Director [19]

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Justin Kwok with Goldman. Perhaps I got a question on the medium-term cash flow or the balance sheet situation company. So looking at the slides, you have roughly HKD 18 billion of CapEx committed. Obviously, it was higher than before, but not all the way back to the earlier peak. But on the outside, on the following slide, you have successfully recycled HKD 25 billion through different disposal. So in a way, I think, earlier on management committed that there's no special dividend or whatnot, but I guess, from a shareholder point of view, looking at the company, say, 2, 3 years down the road, with the accumulation of cash resources, should shareholder be looking at, say, your efforts to say pay down debt using these resources? Or more likely that the CapEx commitment would actually go up higher, much higher than HKD 18 billion for the reason that you're saving more cash?

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [20]

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Well, I'll have a go, Fanny, and then you can correct me if I get it wrong. But, Justin, I think the answer is that the HKD 17 billion capital commitments that we've put in here are those that we're able to tell you about right now. There's a lot more that we want to do. So it's really the latter point that you made to explain that. We want to get in the auction room. We want to win some of those sites, both in Hong Kong and in China. And we want to be in a sort of cash position where we can do that, and there's quite a lot of land assembly going on, which is a process that we've used very successfully. So beyond the HKD 17 billion that we can talk about at the moment, there's a bunch of things going on and a bunch of targeted assets that we want to put ourselves in a position financially to be able to win.

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Ngan Yee Lung, Swire Properties Limited - Finance Director & Executive Director [21]

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Yes, to supplement that, I think the continuous investment in our investment pipeline is very important for us to honor our promise that our dividend per share growth will be sustainable. So management is very mindful of continuing building up our investment pipeline and reserving our financial position to enable the company to do more investment will be very key.

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Unidentified Company Representative, [22]

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Thank you, Guy and Fanny. This concludes our analyst briefing for today. Thank you again for joining us. Please have a wonderful evening.

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [23]

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Thank you.