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Edited Transcript of 1972.HK earnings conference call or presentation 13-Aug-20 9:45am GMT

·33 min read

Half Year 2020 Swire Properties Ltd Earnings Presentation Oct 27, 2020 (Thomson StreetEvents) -- Edited Transcript of Swire Properties Ltd earnings conference call or presentation Thursday, August 13, 2020 at 9:45:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Guy Martin Coutts Bradley Swire Properties Limited - CEO & Executive Director * Ngan Yee Lung Swire Properties Limited - Finance Director & Executive Director ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good evening, everyone. Welcome to the live webcast of the Swire Properties Interim Results Analyst Briefing. Please allow me to introduce our speakers for today. Hosting our analyst briefing are Mr. Guy Bradley, Chief Executive of Swire Properties; and Ms. Fanny Lung, Finance Director of Swire Properties. Guy and Fanny will first take us through a detailed look at our results for the first half of 2020 to be followed by a Q&A session. (Operator Instructions) Before we begin the presentation, we would like to show a short video highlighting Swire Properties' key developments and achievements so far in 2020. (presentation) -------------------------------------------------------------------------------- Operator [2] -------------------------------------------------------------------------------- May I now invite Guy and Fanny to take us through the presentation? -------------------------------------------------------------------------------- Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [3] -------------------------------------------------------------------------------- Good evening, everybody, and thank you for joining us. As you've just seen in the short video there, there's quite a lot going on, despite the unusual 6 months that we're all going through and have just had. Let me just start by talking about the highlights for the interim results. I think we've got a very encouraging 3% increase year-on-year in sustainable dividend growth. And that reflects our confidence in the business and the resilience of the underlying profit figures based on our property investment business in spite of some absolutely unprecedented market conditions. We're seeing a strong recovery in footfall and retail sales in the Chinese mainland, and we've been seeing that since March, and that's very encouraging for the rest of the year. And I think financially, we're well positioned for long-term growth with the continued capital recycling that we've been doing and a very strong balance sheet. Major developments in the last 6 months have been the successful divestments of 2 and 3 Brickell City Centre over in Miami, which is very consistent with the disposal program of what we call our noncore assets. So we're very pleased to be able to conclude that transaction in July. And on the green financing front, we managed to launch 2 sustainability-linked loans totaling HKD 2 billion and some green bonds totaling HKD 1.9 billion. Just turning to our investment portfolio, and specifically Hong Kong office, which is our biggest profit contributor. You can see from the occupancy figures here, both in Pacific Place and down in Taikoo Place, that the office market is still, as far as we're concerned, proving resilient to the conditions, with Taikoo Place in particular almost full, which I think is an incredible position to be in. Rental reversions over the first half have all been positive and in Taikoo Place case, double digit. I think this is probably a testament to the appeal of the decentralization of Hong Kong office. Clearly, it's an attractive option for tenants wanting to -- wanting to get lower economic rents and increased specification for their buildings. And it's a trend that's begun now for probably the past couple of years with One Taikoo Place, and we're fully behind the part 2 of that, which is the launch of Two Taikoo Place, which is under construction right now, but it's a great trend. I think it's one that's here to stay. Just moving on to the Hong Kong retail side, which has been incredibly tough due to the impact of the social unrest and then the COVID-19 situation, you can still see from these figures here, a very robust set of occupancy numbers. Pretty much all our 3 centers are full despite the drop in retail sales, particularly hit hard in Pacific Place, which is perhaps more vulnerable to the lack of visitation from overseas than Cityplaza, for example. But I think the higher levels of occupancy certainly point to the effectiveness of our tenant relief measures. We've been providing rental concessions since August 2019 when the social unrest began. We continue to provide those concessions on a case-by-case basis, and we will continue to do that for the foreseeable future to support our tenants. The Hong Kong office portfolio, this chart you see every time, but I think it just points to the strong and diverse tenant base that we work very hard to maintain. And you can also see, if you look at the bar chart on the left, that the -- there's only a very small proportion of leases which are expiring in the second half, particularly on the office side, 2.3%; and on the Hong Kong retail side, only about 4% of our leases are due to expire. So quite a sort of comfortable position, I think, in a tough market from a demand perspective. In terms of the Hong Kong portfolio, generally, our strategy for growth remains unchanged. We continue to invest in our 2 core clusters, both in Pacific Place and in Taikoo Place. And as you can see, in Taikoo Place, we're very confident to launch the second of the 2 office buildings, Two Taikoo Place, which will be coming on to the market in 2022. And then switching back over to Pacific Place, we continue to add to the office family there with the development that we're building on Queens Road East, just opposite 3 Pacific Place, and that will be due for delivery in 2023. And you will also be aware that we're going through the process of compulsory sale for a further 780,000 square feet of office down in Taikoo Place, which subject to satisfactory lands tribunal proceedings, we hope to launch into the market just shortly after the Two Taikoo Place launch. Switching on to China and the Chinese mainland portfolio, you can see now that the retail from these figures, retail is actually the second largest contributor to our rental portfolio after Hong Kong office, which is a tremendous journey it's been on. You can see what's happened in the chart on the right. Most of the attributable gross rental income is derived from retail in China, as you know. But Hong Kong office is growing steadily too. And in combination, the Chinese mainland now accounts for 28% of our total gross rental income in the first half, and that's a very, very positive achievement. Same chart that we've produced for Hong Kong here for China now, again, shows a very balanced and diverse tenant base in terms of lease expiries, where, again, for the balance of the year, we're not expecting a huge risk on those renewals there. I think the bright spark of the -- if there is one in the last quarter, has basically been the improvement in the rebound in retail sales in China. And this chart points to that. It gives you some color on the occupancy figures, which are pretty healthy in the late 90 percentiles. And you can see there on the retail sales growth, we've put some extra figures in there to help you understand the impact of the second quarter rebound against the first quarter. And particularly in the case of Guangzhou, Chengdu and Shanghai, you can see some very healthy-looking recovery figures there. Beijing, a little bit lagging behind. I think it's had a sort of harder time of COVID-19, especially with the extra wave in Xinfadi, but we're still delivering some fairly sort of robust numbers even in Beijing. So very sort of encouraging recovery, I think, coming out of China retail. In terms of the pipeline in China, we've talked about these 2 projects for a while, namely Taikoo Li Sanlitun West, and Taikoo Li Qiantan. Qiantan's due to be completed by the end of the year. And all I can say at this stage is the pre-leasing on both these projects is going extremely well. They will be the subject of further announcements between now and the end of the year in terms of figures. So I haven't any figures to share, but we're very confident in the leasing progress thus far, and it's going to be very exciting to launch our second project in Shanghai some time in 2021. In terms of office in China, you can see both in Guangzhou and Shanghai, our major office clusters, we are showing occupancy in the late 90% and that's a very good story. It's a little bit weaker in INDIGO in Beijing, but we think that, that's very much a sort of temporary position, and we're -- we continue to be very positive about the office outlook for Beijing and for the INDIGO location. Over in Miami, I mentioned earlier, we disposed of the 2 and 3 Brickell City Centre office towers as part of our capital recycling program. And those -- the funds from that disposal will be retained in the U.S.A. in Miami to support future growth of that -- those opportunities in and around the Brickell area. So a very important transaction. We're very pleased to have got that done. Unfortunately, on the shopping side, on the retail side, occupancy is still pretty high, but the sales have dropped by nearly half when actually due to the COVID-19 lockdown, we had to close Brickell City Centre for at least a couple of months. So it's been a very tough time for U.S. retail in general and Brickell City Centre specifically. Just turning on to the trading portfolio. We've not had much of a land bank for last 2 or 3 years since the successful completion of the mid-levels trading projects. I'm very pleased to say that we're starting to rebuild that land bank. And the residential pipeline in Hong Kong is demonstrated on this chart, where you can see 4 projects in timing order. We've got 8 Star Street, which should be ready in 2022. We have a quarter share in the Wong Chuk Hang stage 4 MTR project, which is an 800-flat development in a very exciting part of Hong Kong. That should be ready for about 2024. And then beyond that, we've got an 80% share in Chai Wan residential scheme, and then there's the residential in Quarry Bay. So the good news is, I think for Swire Properties is that we've got some land bank now. We've got some exciting residential projects to get on with and to leverage the brand that we've built. And that's -- I think that's a good story for us. Meanwhile, overseas on the residential side, we continue to, albeit slowly, sell the remaining units in Miami on Reach and Rise. We've sold 83% of this stock and given the state of the situation with South America in both in currency terms and travel restrictions. The rate of sales is actually quite slow at the moment, but there's not an awful lot of units left to clear there. More excitingly, on this part of the world, we've got the launch of EDEN in Singapore, which is our first development down in that market. It's very high-end. It's very, very well designed, and Thomas Heatherwick's first residential project worldwide, and we're really excited about it. We've had to put the sales effort on hold for a couple of months due to COVID-19. But as soon as we can get people to come in and have a look at that, we will. But it's a great product. And then the new news, I think, is Jakarta. I mentioned we'd have an office down there for a while, and we're now getting on with a 50%-owned project in South Jakarta, again, which will be a very-high-end development of about 400-residential units, and we're excited about that. On the hotel side, due to all the travel restrictions, it's been extremely tough for anybody in the hotel business, and we're no different. The trading conditions have been awful, both for our managed hotels and our nonmanaged hotels. But despite that, we continue to invest in those products. We've got 2 great brands, 2 images on the right there from the opposite House show some new exciting F&B that's opened quite recently. And actually, on the Chinese mainland, we're starting to see some positive signs of recovery on the hotel side, given the rather large domestic base. And the fact that mainland Chinese consumers and guests are not able to travel overseas. That seems to be beneficial for hotels domestically. So both in Chengdu and in Shanghai and in Guangzhou, our hotels are starting to pick up in terms of occupancy, which is great. At this point, I'm just going to hand over to Fanny, who will give you a bit more color on the financial side, and I'll come back and talk about prospects after that. Thank you. -------------------------------------------------------------------------------- Ngan Yee Lung, Swire Properties Limited - Finance Director & Executive Director [4] -------------------------------------------------------------------------------- Thank you, Guy. I'll start with the recurring underlying profit first. Recurring underlying profit decreased by 9% in the first half of 2020 principally reflected an underlying loss from our Hotels division, partially offset by a slight increase in the recurring underlying profit from investment property portfolio. Looking at the investment property portfolio, which form the majority of our profitability, it recorded a 2% increase for the first half of 2020. This principally reflected lower operating costs and finance charges as we consciously reduced costs and have various cost-mitigating measures in place. We made a small underlying loss of 40 -- $45 million in relation to the trading property portfolio, resulted from the sales and marketing expenses in Singapore and also losses in relation to our residential units in USA. Hotel recorded a loss of $330 million compared to a profit of $52 million in the first half of 2019, mainly due to the adjusted effect on the occupancy rate and on the revenue coming out from the effect of COVID-19. On the sale of interest in investment properties, we did generate quite a significant profit in 2019 in relation to the sale of Cityplaza 3 and 4 in the first half of 2019, which we didn't have in the first half of 2020 that has resulted in a significant drop in our overall underlying profit for this year. Rental income. Our gross rental income achieved at a low -- a reduction of 4%. But looking at the individual portfolio, Hong Kong office portfolio did well, despite we had a loss of rental contributions from Cityplaza 3 and 4 and also 625 Kings Road after their disposals. The total attributable gross rental from our Hong Kong office portfolio increased by 2%. That was driven by the positive rental reversions from PP and also from the Taikoo Place portfolio; and also an increased rental contribution at One Taikoo Place, as more tenants move into the building. Moving on to the Hong Kong retail portfolio. The portfolio was significantly affected by the COVID 19 impact, which reduced sales and also reduced the turnover rent. As a result of that, rental concessions were granted during the period. We had a change in the accounting treatment for rental concessions in 2020 first half. According to the accounting standard, we amortize all the rental concessions from the date of grant up to the end of the lease term. So if you look at the impact of the Hong Kong retail, overall, we got a decrease of 7%. But disregarding the amortized rental concessions, it was a drop of 6%. And luckily, during the period, we got effectively 100% occupancy for our Hong Kong retail portfolio, which mitigate part of the downside risk of this particular impact. Moving on to the Chinese Mainland retail portfolio. Unfortunately, we still record a 9% drop in the overall rental contribution. That was down to 2 factors: number one is the RMB depreciation. There was a 5% RMB depreciation in the first half of 2020; and the second factor was the rental concession, which we granted to help our tenants over this particular difficult period. But if we were to exclude the rental concession, and also the RMB depreciation effect, in fact, we have recorded a 2% growth in our Mainland Chinese rent -- retail portfolio. There was a strong rebound in the footfall and also in the sales, as well as the rental contribution since the beginning of March of this year. And that the strong rebound was led by the luxury sector, the waters and the jewelry sector as well. So we are very pleased and this is a very encouraging sign of the recovery. On the Chinese Mainland office portfolio, total loans in the rental contribution as compared to last year was 9%. As I mentioned, there was a 5% depreciation -- renminbi depreciation impact as well. So the impact in renminbi term is 4% down from that of last year. That reflects the reduced demand for the current situation. On dividend, despite the lowering of our underlying profit, we are very pleased to say that we managed to increase the dividend for the first half, up by 3% to $0.30 per share. And this is based on the fact that we believe that the COVID-19 impact is short term and our underlying strength of the business is still there. And there is no change in our long-term investment plan and strategy. And our aim is to deliver sustainable growth in dividend. And this dividend increase actually is in line with this dividend policy that we set ourselves. Moving on to investment property portfolio. Investment property portfolio valuation decreased by 1%. The decrease primarily was reflected -- the fact that we had a net fair value losses of HKD 2.6 billion during the period. There was no change in the cap rates in Hong Kong and Chinese Mainland portfolio. And this HKD 2.6 billion fair value losses mainly reflected the lower fair market rents in our Hong Kong investment property portfolio as well as the U.S.A. retail investment property portfolio, whereas the Chinese Mainland portfolio valuation remains very steady. On the net transfer bar that you can see from this chart, we have included the reclassification of 2 and 3 Brickell City Centre, the 2 office tower, which was a transfer to the asset held for sale as the asset was disposed of in July in 2020. On net debt and the gearing position, I think this slide actually is telling us that the financial position of the company remains very strong. There was a slight increase in our net debt over the period, up to -- the net debt was increased to almost HKD 17 billion. And during the period, the net rental fee receipts was around $4.3 billion, which is slightly lower than that of last year, reflecting rental concession granted to help tenants and as well as the increase in working capital as well. Tax rate, you may notice that was a bit large for -- during the period. But that was a reflection of the fact that some of the tax payment, which was originally scheduled in last year, was pushed down to first half of this year. So nothing alarming at all. Overall, the financial position of the company is really strong. Our gearing ratio is 5.9%. And all the parameters, including interest cover and everything, is on the right track, and we are quite pleased with this particular strong financial position. This slide show the maturity profile and liquidity position of the company. And perhaps the thing that I want to flag from this particular slide is -- #1 is the company continues to make use of the green financing to support our investment in our portfolio. Highlighted here is we issued at one point about $1.9 billion medium term notes, and they are all in green formats, in green form, green bonds, and which particularly may not be explicit in this particular portfolio is we have converted $2 billion of loan from a traditional bank loan into a sustainable -- sustainability-linked loans. So, so far, I'm very pleased to say that 100% of our financing is in the green format. And there are some more in the pipeline. And as mentioned here, we have another $2 billion loan facilities, which will be completed in -- actually was completed in July and also in green format. With all these green financing, I think the total green portfolio in our financing, we reached $10 billion recently. And this is part and partial of our SD 2030 strategy, and we are very pleased to continue to support the green financing market in Hong Kong. Other than the green financing, I think the other analysis, as illustrated in this chart is, we have a very stable fixed-to-floating-rate ratio, and our currency profile has not changed dramatically from that of last time. Liquidity position is really strong. We have cash and uncommitted undrawn facilities of up to $20 billion at the end of June 2020. And I think you may see a big bar under 2022 with the maturity profile suggesting that we have around $12 billion of long -- or our long-term financing to be refinanced. I think given the very strong financial position of the company, I'm not at all concerned about this refinancing, and we will monitor the market and we'll always refinancing as and when we acquire the debt. On the capital commitments, the picture actually doesn't change too much. And at the end of June 2020, we still have about $16 billion capital commitment. And mainly under Hong Kong, the Hong Kong capital commitment basically reflected our commitment for Two Taikoo Place, Queens Row East, Wah Ha and Zung Fu Building redevelopment. And for the China capital commitment, it mainly reflects the Qiantan, Taikoo Li and Taikoo Li Sanlitun West and other capital commitment for all our centers in Chinese Mainland. With that, I pass it back to Guy, on sustainable development. -------------------------------------------------------------------------------- Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [5] -------------------------------------------------------------------------------- Thank you, Fanny. The next few charts are about sustainable development, which is a topic we feel is becoming more and more important and continues to be a significant driver of value creation for Swire Properties. In the interest of time, I'm just going to share a few key recent performance highlights from our strategy for sustainable development. And for details, you can refer to our sustainable development report and the webinar that we held in June, specifically on ESG progress updates. On the environment side, I'm proud to say up to the first half of 2020, we're on track to meet or even exceed our 2020 targets on energy and carbon reduction. Through adopting low carbon technologies and management practices, our energy management strategy has helped us achieve some HKD 80 million in saving in 2020 in Hong Kong versus the baseline and some $21 million saving in the Chinese Mainland, which is a great performance. We're now working hard to establish new targets for the next 5 years to drive even further improvement. In late March, we published our first Places impact report. The focus of this report was Taikoo Place and -- which is where we're headquartered and the surrounding Island East neighborhood. Utilizing our new Places impact framework as a tool, this study looks at the different attributes of Taikoo Place through the lens of vibrancy, livelihood, well-being and resilience, and to measure the impact of Taikoo Place from an economic, social and environmental perspective. If you happen to come around Taikoo Place these days, you'll be greeted with these lively new characters, you can see on the slide here, representing our different SD values and goals. These are launched under our new sustainable development awareness campaign, We All Count, which showcases the crucial roles played by our people and our partners in creating a more sustainable place. Through a series of online and off-line communication channels, we wish to continue inspiring everybody to do even more towards achieving our sustainable development vision. I invite you all to visit our new Facebook and Instagram channels to help us spread the word. I'm just going to finish now with a couple of comments on the prospects before we take questions. Despite the weak demand that we've mentioned earlier about -- for office space, both in Hong Kong and Chinese mainland, only a small proportion of Hong Kong office leases are expiring in the second half. So we don't envisage that to be too problematic. Unfortunately, on the retail side, although we've got a strong recovery in the Chinese Mainland, we -- which we do continue to expect to improve, in Hong Kong, rental concessions are expected to continue and our policy of trying to support our tenants, we think, is the right thing and it's something that we will continue to do on an as-needed basis. The difficult trading conditions due to COVID-19 and the associated travel restrictions expected for our hotels for the rest of 2020 do not paint a very good picture on that side of the business. But overall, I think we are -- we're well placed with a strong balance sheet to get through this difficult time and to take advantage of the new opportunities that the pipeline presents. And here's a chart just to finish, which looks -- it shows that pipeline. We've talked about the China projects, the Hong Kong projects there. There's some trading projects to come. And this is the -- as we say every time, this is the pipeline that we can show. And I can assure you there's lots and lots of interesting projects that we're continuing to pursue, which may or may not come to fruition. But they're very exciting, and we hope to be able to get some more color on that in due course. But this is a great pipeline of diverse projects that the balance sheet is well set up to cater for. With that, let's do some Q&A. Thank you. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) The first question is from Mark Leung from UBS. What is the latest retail sales trend in China in July and August? The 2 malls in Beijing seems underperformed compared with the other malls in China. Besides from the second wave of COVID-19, is there any other factors attributing to the lower retail sales and occupancy rates? -------------------------------------------------------------------------------- Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [2] -------------------------------------------------------------------------------- Thank you. Well, we give -- disclosed retail sales on a quarterly basis. So I can't diverge the July and August figures. But I can say that the trends that we saw in the second quarter have continued into the third quarter. And July and August, in the Chinese Mainland, are still showing great signs of the recovery that we saw in Q2, led, of course, by Guangzhou and Chengdu and Shanghai. So we're very optimistic that this will continue into the third quarter and beyond. -------------------------------------------------------------------------------- Operator [3] -------------------------------------------------------------------------------- Moving to the second question is from Justin Kwok from Goldman Sachs. So a quick numbers question. Can you share any guidance for Miami's upcoming disposal gain? -------------------------------------------------------------------------------- Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [4] -------------------------------------------------------------------------------- Fanny, you want to? -------------------------------------------------------------------------------- Ngan Yee Lung, Swire Properties Limited - Finance Director & Executive Director [5] -------------------------------------------------------------------------------- According to this -- the agreement that we signed with the buyer, we are not able to disclose the detailed terms and condition. But I can say that there will be underlying profit arising from this particular transaction, which will be reported in the second half of 2020. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- And there's a second part to this question. The China retail portfolio saw some strong recovery, but it seems that there are some differences in performance of the Li and Hui portfolio. Is there any particular reasons or observations? -------------------------------------------------------------------------------- Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [7] -------------------------------------------------------------------------------- I'll take that one. I think the answer is no. The -- there's some great stuff happening in Chengdu, which is Taikoo Li, some really successful and interesting new developments in Guangzhou, which is Taikoo Hui. So I think we're seeing strong performance both in the Li and the Hui sides of the China retail business. So there's no sort of differentiation there. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- Moving to your next question. So COVID-19 will likely leave some lasting impact on fundamental office demand. For example, the rising trend of work from home, increased health and safety awareness. In view of these changes, will there be changes to the design and/or pre-leasing strategy for Two Taikoo Place? -------------------------------------------------------------------------------- Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [9] -------------------------------------------------------------------------------- That's a great question. I think it's too early to say specifically, but it's going to be driven -- the answer to that is going to be driven by productivity as it should be. For sure, there are going to be some changes to the use and the design of office space. And I can assure everybody that we're busy designing those -- some really interesting things into the new Two Taikoo Place building. You're going to see more amenities, and it's going to be the latest generation of office space. And it's going to be reflecting the, sort of, learnings that we've had from the work from home and the COVID-19 situation. -------------------------------------------------------------------------------- Operator [10] -------------------------------------------------------------------------------- Moving to the next question is from Hildy Ling of Morgan Stanley. So there are 2 parts to this question. The first part is on the Hong Kong office. Pacific Place office rental reversion was 2% positive in the first half of 2020, narrowed from positive 7% in the first quarter of 2020. This seems implying the second quarter has turned to negative reversion already. How should we think about the reversion outlook in the second half of 2020 and 2021? -------------------------------------------------------------------------------- Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [11] -------------------------------------------------------------------------------- Well, when we look at the second half of 2020, I think the negative reversion in Pacific Place can be expected to continue for the second half. But you're still seeing fairly positive reversions in Taikoo Place. So on balance, and in aggregate, we think for the second half of the year, we're still going to stay in positive territory. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- And there's a second part to this question, which is on Taikoo Li Qiantan. Can you share the pre-leasing progress, what kind of market position should we expect the retail more to be? -------------------------------------------------------------------------------- Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [13] -------------------------------------------------------------------------------- Well, as I said in the presentation, unfortunately, that will be the subject of a more exciting announcement specifically addressed at the Taikoo Li Qiantan project later in the year. So I'm not in a position to disclose figures on that or indeed the positioning because I'd like to save that for the purposes of a future press release, if not, press announcements. So all I can say is that progress is going as at or ahead of where we thought it would be, and the product is going to be really special. It's the third-generation of Taikoo Lis that we've got in China and the team up there are really encouraged by what's happening in Qiantan, which is the -- some people call it, the new bun up in Shanghai. -------------------------------------------------------------------------------- Operator [14] -------------------------------------------------------------------------------- Moving to your next question. Consultants reported a bigger drop in office rents in Island East compared to Central in the first half of 2020. Do you see a continuation of the decentralization trend in Hong Kong office markets? -------------------------------------------------------------------------------- Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [15] -------------------------------------------------------------------------------- Yes, we do. It's just a very compelling story. And to be able to move into a neighborhood like Taikoo Place, sometimes achieving significant rental reductions and gaining in building spec, it's a very hard proposition not to be attracted by. So we think it's a trend that's definitely a permanent one. And that's why we continue to invest in Taikoo Place. -------------------------------------------------------------------------------- Operator [16] -------------------------------------------------------------------------------- Moving to our next question is from Karl Choi from BofA Securities. Chairman of Swire earlier mentioned that there are a lot of acquisition opportunities for Swire Properties in China. Is there now a preference for acquisitions in China over Hong Kong? -------------------------------------------------------------------------------- Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [17] -------------------------------------------------------------------------------- No, there's no preference for China over Hong Kong. Hong Kong's our home base. We continue to invest in Hong Kong and we continue -- and we will continue to invest in Hong Kong, primarily in the 2 major clusters, Pacific Place and Taikoo Place. But as you heard in the presentation, increasingly on the residential side, too, which I think is very encouraging. That said, the scale of China and the opportunities that it's throwing up are really exciting. And we've got -- we've gained a very good reputation with the projects that we've done, the Taikoo Li brand, the Taikoo Hui brand are nationwide names now. They're well respected, and we have a lot of potential opportunities to extend those brands into other locations, and we will. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- Moving to the next question is from John Lam of UBS. So there are 2 parts to this question. The first part, is there a possibility to convert your parent's company Swire Pacific's Coca-Cola plants in China to your potential land bank in China as those plants are located in good tier 1 to 2 cities? -------------------------------------------------------------------------------- Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [19] -------------------------------------------------------------------------------- Well, it's an interesting question. We've looked at it in various places from time-to-time. It very much depends on the lease situation and the usage allow -- that's permitted for those locations. I would just say that if and when the usage can be allowed to change from essentially an industrial or a manufacturing use to probably a residential use, then we'd look at it very seriously. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- There's a second part to this question about retail. Our conversation with your tenants are all saying you are the best mall operator in China. Given strong retail sales growth in Mainland China, will you consider to accelerate your mall expansion in Mainland China? -------------------------------------------------------------------------------- Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [21] -------------------------------------------------------------------------------- Well, we'd love to accelerate the expansion. But we won't do that at the expense of the discipline that we've -- we always bring to these projects. We have 2 very strict criteria: one is location; and the other is entry price. And as you can see with some of the projects that we've got, we're pretty much best in city in terms of location, and we've achieved some very sort of attractive entry prices. So we continue to use those criteria with discipline. But yes, we would love to accelerate wherever we could. Because I think the retail story in China is a very exciting one, and we're right in the middle of it, and we want to do more. -------------------------------------------------------------------------------- Operator [22] -------------------------------------------------------------------------------- Moving to the next question is from Ken Yeung of Citibank. How do you see the impact of work from home on long-term office demand? -------------------------------------------------------------------------------- Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [23] -------------------------------------------------------------------------------- Well, I think we've sort of answered that a few questions ago. It's a little bit early to tell. There will be some change driven by work from home. I think flexibility will be important. And we're continuing to sort of trying to get our heads around what that's going to look like, particularly in terms of designing the next-generation of office. -------------------------------------------------------------------------------- Operator [24] -------------------------------------------------------------------------------- In the interest of time, we're only taking 2 more questions. So moving to the next question. It's from Joe Ho of Rondel Investments. Do you have any interest in the upcoming tender of the Central site and even Queensway Plaza? If so, will you do it on your own or form JV with peers? -------------------------------------------------------------------------------- Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [25] -------------------------------------------------------------------------------- Well, the answer is yes. We continue to be interested in really high-quality sites, commercial sites on Hong Kong Island, and those are 2 sites that are going to come up on the government sales. So we will be interested. They're really big, big sites, great locations. It's highly likely if we were to proceed with that, that we might be looking for partners, but they are certainly of interest, yes. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- Moving to the last question is from Alvin Wong of CLSA. You raised interim dividend by 3% despite earnings decline. Should we expect similar dividend changes for the full year if your view remains unchanged that COVID-19 impact is short-term and long-term growth of your portfolio is sustainable? -------------------------------------------------------------------------------- Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [27] -------------------------------------------------------------------------------- Fanny, do you want to cover that? -------------------------------------------------------------------------------- Ngan Yee Lung, Swire Properties Limited - Finance Director & Executive Director [28] -------------------------------------------------------------------------------- Okay. I think our dividend policy is to deliver sustainable dividend growth and to play out approximately 50% of our underlying profit. This policy remains unchanged. And as to the second interim dividend direction. I think, well, given our view that the COVID-19 is going to be short-term, and I think the direction -- directionally, I think we are still very confident of delivering growth. But as to the magnitude of the second interim dividend payment, this will be decided by the director at the time where with regard to the market situation and also the overall performance of the company. So this is a bit earlier to say, but I think this is confidence that we will still stick to the dividend growth policy. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- Thank you, Fanny, and thank you, Guy. That concludes our analyst briefing today. Thank you once again for joining us. And on behalf of Swire Properties, I wish you all a pleasant evening. Thank you.