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Edited Transcript of 1972.HK earnings conference call or presentation 9-Aug-18 9:45am GMT

Interim 2018 Swire Properties Ltd Earnings Presentation

Aug 22, 2018 (Thomson StreetEvents) -- Edited Transcript of Swire Properties Ltd earnings conference call or presentation Thursday, August 9, 2018 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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* Jeff Yau

DBS Vickers Research - Analyst

* Jonas Kan

Daiwa Securities Co. Ltd., Research Division - Head of Hong Kong and China Property

* K.C. Ng

Macquarie Research - Analyst

* Karl Choi

BofA Merrill Lynch, Research Division - Director

* Ken Yeung

Citigroup Inc, Research Division - Director

* Nicole Wong

CLSA Limited, Research Division - Director and Regional Head of Property Research

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. Welcome to the analyst briefing of Swire Properties interim results announcement.

Today's briefing will be hosted by Mr. Guy Bradley, Chief Executive of Swire properties; and Ms. Fanny Lung, Finance Director of Swire Properties.

Guy and Fanny will take us through the interim results followed by the Q&A session.

As usual, before the presentation, we are going to show you a video, which highlights the key developments and achievements of the company in the first half of this year. Let's have a look.

(presentation)

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

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Good evening, everybody, and thank you very much for coming. It looks like a great turnout this evening, and I do appreciate your attendance. I know it's been a really busy day for probably all of you, and there's 2 or 3 other competing opportunities to attend going on at the same time.

So thank you for joining Swire Properties this evening.

As you can see from the video, it's been a very busy 6 months. I'll just going to dive straight into the presentation here and then we can get to some questions at the end. This captures really the main news, 3 big points for the results, that's very strong underlying earnings growth driven by better performance of all of our investment properties, coupled with some profits of sales from the non-core properties.

We've actually brought on some active capital recycling, which puts us in a strong position to pursue pipeline growth, and I think that's a very positive statement of intent from the company.

And the other big highlight for 2018 is that we got 3 projects, which are very exciting, which all are scheduled for completion this year, including the flagship 1 Taikoo Place down in Quarry Bay.

Good news for shareholders, dividends or up 8%, which is in line with the growth in recurring rental income. And the underlying profit, up 34% and the value to shareholder is up 7%. So lots of green there, good story, I think, for the first half.

I mentioned capital recycling, and obviously, it's no surprise that we've been selling the Kowloon Bay office. That completed in June. So we've been able to book the profit on that, and that's contributed to the half-year results.

The other big news, of course, this year, which you'll all be familiar with, is the conditional sale of our interest in Cityplaza 3 and 4 down in Taikoo Shing for the sum of HKD 15 billion.

Why are we looking at capital recycling? Well, the answer is that we have a very attractive looking forward pipeline and we need to find the money to develop as much of that as we can.

This year, I mentioned that we've got 3 projects opening, One Taikoo Place, South Island Place and Tung Chung Town Lot 11 extension, which is the Citygate retail extension.

Next year, we're going to build on the Sanlitun portfolio and add to it another 300,000 square feet in the southwest corner there. And then we have Qiantan coming through, again, in China, in Shanghai in 2020.

2021, the second of the 2 million square feet office buildings in Quarry Bay comes on stream as Two Taikoo Place, alongside a small residential project in Wing Fung Street, which will be very exciting when it gets built.

Going beyond that, 2 pieces of news that I'm able to talk about now. The Po Wah Building that we mentioned, we've been successful in January at the compulsory sales process, we're now -- it's now under planning application and we expect that, that will become an office tower, which will connect 28 Hennessey Road to Queens Road East. So that's pretty exciting in terms of scaling up the Pacific Place portfolio.

And the real newer news, I guess, is the compulsory sale application that we submitted a couple of months ago for the Zung Fu and Wah Ha Industrial buildings down in -- between 1 Islands East and Taikoo Station, which if we are successful in achieving 100% ownership will be redeveloped into a further office stock to add to the already quite exciting decentralization theme.

Lastly, on there you can see there is a Phase 2 that for Brickell City Centre over in Miami, and that's another very, very large tower that we intend to be a composite use tower, office, retail in the bottom and some condominiums for sale at the very top.

Just put that on there, just to show that the pipeline isn't just in Hong Kong. It's in Hong Kong, it's in China and it's in Miami.

Key developments, this year. We've mentioned the first 2 Citygate Outlets extensions, Middle House opened in May, which is the final piece in the long-running Taikoo Hui Shanghai saga, it's taking us a long time to get it all open, but now with the hotel open, we can finally say that it's complete and started off very well.

On the same theme, being Shanghai, we really like that city and we've been looking to do a further project in Shanghai for a while, and we've finally been able to conclude the joint venture on a fantastic piece of land in Qiantan, which will become a retail -- a retail development and it's a 50% interest with Swire and Lujiazui group who are the master planners for that Qiantan district, so we're very excited about that.

And then lastly is the Taikoo Place -- One Taikoo Place and building that we all know by now. And it topped out in January, and we are hoping to get OP very soon.

Just looking at the financial highlights very briefly. Underlying profit, as I mentioned at the start, up 34%. Obviously, the gross rental income in all of our markets is up 8%, which is very healthy for the business and pretty much without repeating everything, all I think we need to sort of pay attention to on there. On the left hand side, the comparable 2017 figure is, obviously, the HKD 4,624 million that contains the profit on sale of Alassio. If you took that out, you'd then end up with a positive year-on-year growth on the rental income side of the business, and that's what we think really counts.

Waterfall chart shows that movement. Again, there's that positive number that I just talked about there on the plus HKD 321 million just shows the impact of year-on-year of the investment property portfolio. And then talking about the change in the valuation of that property portfolio, obviously, we had a valuation gain of -- fair value gain of -- on net terms over HKD 15.5 billion and that was somewhat offset by the removal from the valuation of those interests in Cityplaza 3 and 4. So in net terms, we improved the valuation of the property portfolio by about HKD 3 billion. Again, reiterating the point I've made about twice already, rental income, growth is coming from all segments, and I think that's the first time I've been able to say that. And Hong Kong retail has been a great story so far this year at 4%. Cityplaza is now all open and the movie theater being the last thing to open, and it's effectively fully let and going very nicely. Pacific Place, of course, we're going from strength-to-strength, producing great results for the half-year. Since the Hong Kong office, again, we're pretty much full, obviously, space constraints -- supply constraints in Central are keeping office rents in Central high, Pacific Place benefits from that. Rental reversions are positive and on the China front, again, we're still getting positive rental reversions in our malls. Retail sales are growing at faster rates than the average for those cities. And then in renminbi terms, we're still looking at growth of 20% on the PRC side. So very sort of, overall, healthy picture I think on the rental income.

I will just skip the -- some of the detail here in terms of office. I mean, we've basically got momentum across both Pacific Place and Quarry Bay and then Taikoo Place. So it's a reasonably balanced picture looking at the office side. On the retail performance, as I said, Pacific Place is 22% for the half year versus last year. Cityplaza's gone positive and Citygate, again, positive, 9.3%. So we're look at a, as are most of our peers, I think, a reasonably healthy first half year on the retail side in Hong Kong, which is encouraging.

This slide, we show every year, it doesn't really vary too much and it basically just describes the usual balance and diversity of our tenant mix and lease expiries, and I think it just signals an overall sort of attempt to create a more healthy, less lumpy approach to tenant mix.

One Taikoo Place, this has been the big story for the best part of 12 months now, in terms of leasing, and the numbers got higher and higher. We are now over 90% committed on that tower, which is a fantastic story. If you look at the names there on the office tenants, I think there is one word that could describe it, which is just diversity. I mean you've got great names from all sorts of different sectors coming down there.

It's very, very exciting, this whole decentralization theme. I would actually go so far as to say at the moment that it's starting -- Taikoo Place is starting to look like the second CBD here in Hong Kong, I mean, with those sorts of names and the momentum and the people that are, sort of, expressing interest. We need to be, sort of, looking ahead and doing more down there, because I think there's more to come.

I shouldn't skip my comments on office without commenting on another building that we've been developing down in Wong Chuk Hang, which is South Island place. That opens -- has an OP later this year, it's 50% Swire Properties, 50% China Motor Bus, great product in an emerging area, quite an interesting part of town, and we're quite excited about getting that building up and running.

And finally, I've also mentioned the extension for the Tung Chung Town Lot 11, which is going to make Citygate almost double in size from a retail mall perspective. So that should be good for -- also a very attractive location in Hong Kong.

This slide just points to -- the key word on here is transformation. I mean, it's what Swire Properties are known for, that's why we focus and build clusters of assets in the same place. We try to transform neighborhoods and create value that way for everybody. Two Taikoo Place is going to be the next major tower that we build, it's already in the foundation stage in Quarry Bay and ready for its completion in 2021. And I mentioned earlier, the Po Wah Building, which with its buildings to the rear should allow us to connect 28 Hennessey Road to Queens Road East and form a bigger part of the Pacific Place family.

Overall then, Hong Kong portfolio is extremely well positioned, full of growth, not only if you've got a 12% hardwired in, increase in GFA over the next few years, but we've also got these projects under planning, which we haven't talked about before, which will continue to add to that portfolio. So very healthy looking direction.

Mainland China, this chart gets better every time we show it. And the triple -- growth rental income has almost tripled since 2012. It's even grown 30% year-on-year to just under HKD 2 billion, which is just a tremendous story for retail in China. It's just very, very exciting.

This shows the sales of the existing assets. You can see the percentages in the green box in terms of half-year, year-on-year growth. All very positive. I would like to just add that HKR Taikoo Hui in Shanghai has got off to a great start. We can't give you a comparable sales growth figure because it wasn't open the year before, but it's very encouraging so far and it's going to be a fantastic asset for us going forward. Probably worth the wait.

As part of that, obviously, I mentioned, the Middle House, which is the latest hotel in the house collective. If you like The Upper House here, go and stay at The Middle House, it's part of the same family, very impressive, designed by Piero Lissoni, I think it's worth a try. We're very happy that it's finally open. And we think the city of Shanghai needs a hotel in that sort of quality and that caliber.

So do try The Middle House for us. Now it's finally there.

In terms of the China pipeline, I mentioned Qiantan, it's fantastic looking project. One of the reasons it took us this long was, obviously, complicated way to get in to the project, that's now behind us. We're fully formed as a joint venture, but the exciting news was that while we were trying to do all that, Lujiazui was so confident and large that they began to build the project to our design. So we have this very unusual situation in China where we had such mutual respect for each other that we got on and they got on, and you can see in the picture that the building's already broken the surface and we're already building the superstructure.

So the capital injections only just going in this year, but we expect to complete that project in 2020. So it's actually just around the corner in development terms. So that's been a fantastic project so far, and can't share too many details about the design at this stage, but we will as soon as we can. But it's an emerging part of Pudong, and I think that's the right place to be in the city of Shanghai going forward.

Just a quick word on the Yashow building that I mentioned at the start of the presentation in Sanlitun, it's really just another example of the way we do this place making philosophy of scaling up and reinforcing existing assets. You will see in most of our China projects there are opportunities to do that and it's something we take very seriously because we create value and then we just build that value. And this is just the latest example, we're adding another 300,000 square feet to what's already a very successful project. And its location is absolutely spot on, it's right between the busiest corner of Sanlitun and the emerging new Metro station. So it's going to help us get much closer to traffic flow. So we're very excited about that. It should complete next year. Miami, again, fantastic project. It's really transforming that city, again, that were transformation, it's very important to us to do these things which have a big impact and, therefore, create value for everybody. Brickell City Centre is just one of those projects.

On the office side, we're completely full. And on the retail side, in America, it's been a very challenging story for a couple of years now on retail, but we're 89% occupied and about 80% of the shops are now open and trading. And it's not looking too bad, if you look at the 10 profile there, those are the anchor names, there are some great names on there. And we're very confident about Brickell City Centre's future on the retail side.

Quickly on to trading. The new news since the full year results in March is that Whitesands and southland is now completely sold out. So you've all lost your chance to buy one of those. I did warn you, I think, at the last presentation that there's only a few left. Well, they've all gone now, which is great. A fantastic product. We are also, meanwhile, working on 21 to 31 Wing Fung Street, as I mentioned, so we don't want to sit still on that. Love to do more in Hong Kong in terms of residential. We've just struggled to find the right thing at the right price, but there is no lack of appetite on management's behalf in terms of trying to do more residential. But the reality is, at the moment, we're pretty quiet on that front having now sold all the mid levels and now Whitesands.

I will just take a pause there and hand over to Fanny Lung, who will just take us through some of the financing metrics.

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

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Thank you, Guy. On the financial position of the company, this is getting stronger and stronger, as you can see from these table, that the net debt reduced from the fee -- from the balance of HKD 35.3 billion from -- but the end of last year, down to HKD 30.9 billion by the end of June 2018. And quite a number of contributor to these very good improvement in our financial position. One is we still got a very strong solid rental income from our operation, which has generated [HKD 4.8 billion], as well as you may see that there is a very large intro of proceeds arising from our sale of a couple of investment properties, including in that is -- a large proportion of that is the completion of our sale of the Kowloon Bay in June 2018, which will receive the balance of the payment and as well as for our conditional sale of Cityplaza 3 and 4, which we have also done in June 2018 and we will receive a deposit for that particular conditional sale along the line of other disposal of investment property.

With this intro, we also support the capital expenditure that we continue to spend to support our expansion in portfolio. The total capital expenditure for the period is HKD 2.7 billion, largely due to the One and Two Taikoo Place redevelopment and also, you can see that there is a large number which is in relation to the investment in the joint venture. This is basically largely reflecting our investment in Qiantan, which is a 50-50 joint venture with Lujiazui that Guy mentioned it about.

With this very strong cash flow during the 6 months of this year, the gearing also substantially reduced at from 13.6% to 11.1%. Apart from the reduction in the net borrowing, we also benefited from the fact that there was a fair value change in our equity. Total equity increased because of the fair value change that we are taking on board for the first 6 months as well then. So looking at the bottom table, you may also find out that the other financial parameter continue to get stronger and stronger. In terms of the not only the gearing but also the interest cover and as well as the underlying interest cover is getting -- improving and down to a record good level.

So this slide shows the total committed facilities of the company. The total committed facilities of the company is HKD 45.5 billion, which we have drawn down to HKD 33.5 billion. So that means the available committed facilities are available to support our future capital investment, as well as our investment needs amounting to a quite high level, which is a HKD 14.7 billion, including the cash of HKD 2.6 billion. And the maturity profile of the committed facility is also very evenly spread in over the next 10 years, which provides a very strong protection against the refinancing risk for the next few years. In relation to the currency profile, I think there is not much significant change from the pictures that you have seen last year. We have the majority of our borrowing in Hong Kong Dollar, with a little bit of RMB borrowing, as we generated quite a lot of cash intro from our PLC portfolio. So the overall borrowing for RMB reduced as you compare that with the last time that you saw these. On the fixed to floating rate ratio, the total fixed debt ratio increased to 72% from last time what you see, which is lower than 70%.

I think in the current rising interest rate environment, this will be adequate to protect the company against any volatility arising from the interest rate hike. We have always said that our objective is to maintain the current credit rating, and the current credit rating that we are mentioning about is for future sink rate and Moody's is [8.2]. In order for the company to maintain the current credit rating, we look at several parameter. But I can tell you that with the current financial position of the company, we have plenty of liquidity headroom to support the company's growth in the future.

So this shows the capital commitment for the company as of the end of June 2018. The total capital commitment is almost HKD 19 billion, majority of that is for Hong Kong. Guy mentioned about the Taikoo Place redevelopment, including One and Two Taikoo Place, as well as we have submitted the compulsory sale for 2 buildings in Quarry Bay. So most of that is reflected in these capital commitments and as well as you may notice that, under the PLC portfolio, we also got increase, and increase mainly represents our commitment in relation to the Qiantan project as well as a little bit in relation to the Yashow building that Guy mentioned about. So this is -- in order to show the change in the capital commitment profile, from last time to this time, I think you may see that the buyer is quite a significant increase for the first 6 months just because the fact we have additional commitment in relation to Wah Ha Building as well as to the Qiantan project as well there.

So on the right-hand side, there is a table showing the capital commitment profile over the past few years. I think the thing that I want to highlight is, over the past few years, the major capital commitment was mainly due to the Taikoo Place redevelopment for One and Two Taikoo Place, which over the period, we substantially reduced as we spent all the money and repair that. But now you may see that we are kind of the capital commitment is slightly picking up again. But I can assure you as we show just now, the financial position of the company is very strong and we have enough liquidity to support the company growth including the future capital commitment. That's all.

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

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Thanks, Fanny. So I won't say much about prospects in detail other than to say that we broadly expect the trends that we've seen in the first half to continue for the second half, and we'd be happy to go into more detail in the questions and answer stage if you would like more color on some of that. And that probably takes us to that point. Questions and answers, right?

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will take the first question from the floor. So the first question from this gentleman, the left-hand side, please.

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Karl Choi, BofA Merrill Lynch, Research Division - Director [2]

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Couple of questions on -- Karl Choi from Merrill Lynch. Couple questions on retail. First is have you received any feedback from the tenants over at Pacific Place about July retail sales? Have you seen any impact from the weakening RMB? And second question is Cityplaza retail rental income was up 10% in the first half, very strong. I know you've done a lot of retenanting, but was there anything unusual that drove the strong performance? Was it turnover rent? Could you elaborate a little bit more?

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [3]

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Turnover rent in Cityplaza, you're asking Karl, is it? I think it's reflecting the fact that there were some closures, specifically the theater, which affected the 2017 number and that's now fully open and running, and those 1 or 2 other major stores that are now up and running. So I think you're just seeing at Cityplaza that it's, sort of, full steam ahead fast in the 2018. On Pacific Place, the July figures -- we haven't finalized those just yet but the evidence is been a -- it's another very good month for Pacific Place. I think you can probably all feel the footfalls exciting momentum down there is very good and there's lots of -- as we speak, there's lots of new ideas coming through in terms of both pop-up and regular stores and new names. So we continue to take that on and it's very encouraging at the moment.

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Operator [4]

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Well, take the second question, the lady in white shirt.

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Nicole Wong, CLSA Limited, Research Division - Director and Regional Head of Property Research [5]

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This is Shinji from CLSA. I want to ask how much was the turnover rent as percentage of total rent? And we want to know the number for the first half of 2017. And the second question is that we saw that there was a 21% to 25% rental reversion in first half for office portfolio, but why the office rental growth was only just up 2.4%? And we also see that there's a 5.6% half-on-half growth on Hong Kong retail portfolio. We want to know what contributes to such fast growth? Of course, we saw that in this half year the retail growth -- Hong Kong retail growth surpassed the office portfolio, and this rarely happens. We just want to know the reason.

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Ngan Yee Lung, Swire Properties Limited - Finance Director & Executive Director [6]

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Yes, on the turnover rent question. We don't normally disclose the total turnover rent proportion. But I can tell you that, on an overall basis, the retail growth -- in terms of the retail rental growth, is largely driven by the rent -- increase in the turnover rent. And you mentioned about the question there as to why the rental reversions for the office is so high, but that the overall total rental growth for the first 6 months is lower than that of the retail? I think you may understand that the rental reversions is -- may not take the full 6-month effect. Sometimes, we have the rental reversion at the back end, so it may not be a full so-called 6-month effect for that then. Whereas for the turnover rent, I think what we have seen is every quarter, even if you were to look at the first quarter and the second quarter, the driver for the turnover rent is sales. And then if you look at the first quarter and the second quarter sales figures, for all or more, you may understand that why the rental income for the retail is so high then.

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Operator [7]

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Let's take another question. Any questions on the floor? The gentleman over here.

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Ken Yeung, Citigroup Inc, Research Division - Director [8]

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It's Citigroup, Ken here. I just want to try regarding the disposal of Cityplaza 3 and 4, so total HKD 15 billion is going to come progressively through April. Given that your gearing is only 11% and the CapEx, you talked about just HKD 18 billion. So you don't have much CapEx even spread over the next 5 years. Will there be an option to consider to return the capital to shareholders?

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Ngan Yee Lung, Swire Properties Limited - Finance Director & Executive Director [9]

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I think we have included in the Chairman statement a clear intention for us to, well, use the proceeds from the sale of our Cityplaza for reinvestment into the projects that Guy just mentioned about. And also to capture some of the potential future investment that we may have in the pipeline. Because we believe that by reinvesting our money into projects like the Qiantan and also the Zung Fu and the Wah Ha Building, if we can get it, is going to create higher shareholders value to support the future recurring rental income growth, which in turn will support the sustainable growth in the dividend in the future.

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Operator [10]

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Carry on. Any questions?

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K.C. Ng, Macquarie Research - Analyst [11]

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It's David from Macquarie. Maybe if you could kind of do the opposite end of that question in terms of if you do come across some very gigantic opportunities for acquisitions. Apart from the HKD 15 billion available capacity, do you also -- are you also able to get additional intercompany loans from parent? And will you be also able to get some additional financing once One Taikoo Place is completed? Are there additional financing venue if you come across some gigantic investment opportunities? That's question one. Question two is for the Taikoo Place Surface Apartment, which you guys have put up for sale. Can you update us on the progress, and in view of the latest policy from the government about this idle property tax, is there any particular rush that you need to launch it for sales to avoid potential tax implication?

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Ngan Yee Lung, Swire Properties Limited - Finance Director & Executive Director [12]

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Okay. On the liquidity question, apart from the HKD 15 billion, which we already received a part of that and we have the balance to be received. Well, you may see in one of the slides the committed banking facilities, which is not drawn. There is another HKD 15 billion there. But I'm sure that there are quite a lot of bankers sitting here. They may know that we have a very strong balance sheet. So if we raise our hand to say, we want to have a few billions, I don't think that they will say no. And I think ultimately, what they will look at is the gearing ratio and also the debt to EBITDA ratio and the interest cover as well. And I think the slide also mentioned that in order to trigger some sort of downgrade for what we currently look at to maintain the credit rating, well it has to be a very dramatic increase in that in order to trigger that. So I think we have plenty of plenty of headroom to do the investment in.

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [13]

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I'll just take that second question on the Taikoo Place apartments that was -- we indicated that we are seriously looking at converting those into flats for sale. I would say the latest news on that is really that we're still reviewing that decision, and it may not be the case that we decide to do that. Why not? Nothing to do with the vacancy tax issue, as you probably heard me say in the media. We don't even know the details of the vacancy tax issue till it gets confirmed through LegCo. So we can't react to that. The way Swire Properties think about assets like that is on a much more long-term basis, and so we're currently reviewing the best long-term use for that building, and it's a 999-year lease building. So we need to be very, sort of, smart about what we think we're going to do with that. So I would say it's still under review, it's quite likely that it could end up still being a Service Department building going forward.

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Operator [14]

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I think we still have time to take 2 more questions. So this gentleman in the front row.

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Jeff Yau, DBS Vickers Research - Analyst [15]

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Jeff Yau from DBS. I have question about the PDs in progress of the 2 new projects in Wong Chuk Hang and Tung Chung, if there any update on this one.

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [16]

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Pre-leasing. Yes, well if we leave aside the speculation on the certain very large trend rental deal that hasn't happened yet, the -- I can tell you that the current net of that happening, the current pre-leasing status is just over 20%. Of course, that deal were to conclude we'd take the building to well over half leased.

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Ngan Yee Lung, Swire Properties Limited - Finance Director & Executive Director [17]

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Citygate...

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [18]

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Sorry, Wong Chuk Hang, was it? Both Tung Chung, we are currently over 50%.

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Operator [19]

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Any more questions? Gentleman.

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Jonas Kan, Daiwa Securities Co. Ltd., Research Division - Head of Hong Kong and China Property [20]

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Jonas from Daiwa. Guy, you mentioned earlier that in China and Sanlitun you see other opportunities to scale the portfolio. I wonder if you could elaborate about a little bit more and like which city you see the best chance of a scaling up of Swire's presence in?

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [21]

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Well there's nothing that we can -- that's not in here that we can talk about at this stage, but obviously, it is true that each of those projects do have either contiguous or opportunities to scale and I mean, the one that is most obvious is probably the Guangzhou Cultural Center, which we built for the government. And it's actually, sort of, almost joined at the hip with Taikoo and Guangzhou. It's been the long-term intent of Swire Properties to take an active role in either management or co-ownership of that. We haven't been able to move on that just yet but if that happens, we would be very interested. There's all sorts of examples, and that one Yashow, would love to do more around what we've created in that fantastic project in Taikoo Li Chengdu, and then there are opportunities to do that. So I can't really give you more details in that, Jonas, other than to say that it's a very sensible way to sort of reinforce the assets for us. It works everywhere we go. We've got opportunities like that in Miami as well, and so it's the sort of first priority place we look when we are trying to do increased investment.

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Operator [22]

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We will take the final question. So any volunteer?

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Unidentified Analyst, [23]

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[Ben Chow, BC Capital]. The market you are in has been in the other cycle for long time. You know the property markets is going through cycles. What do you think you have hedged to your interest rate foreign currency risk. What about the market risk you see in your market you operate? And the second question is you always invest in the pipeline in developments? Or you buy and get a yield from the existing build properties?

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Ngan Yee Lung, Swire Properties Limited - Finance Director & Executive Director [24]

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For the interest rate and currency risk, I think in one of the slide we showed that the fix rate is 72%. So even though interest rate increase, only 28% was exposed. But basically if you take out the renminbi portfolio, which basically do not follow the hyper liable rate of changes. It will further increase the so-called fixed rate to 74% maybe -- 74%. So with such a high fixed rate of interest, I think, even though there's an increase in interest rate, there will not be any material impact to the bottom line. And on the currency risk that you mentioned about, we hedge our portfolio in a way that, first of all, our operations in China most different by renminbi loan or the income and expenses are met. So basically the natural hedge position and the overall context, the R&D portfolio is not that material to our total portfolio, as you can see that Hong Kong portfolio is still the majority part of our portfolio in overall context.

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [25]

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And answering your second question, it's generally the case for us that we like to take the development risk. We love to design our own buildings and we think we can create a lot of value out of doing that. So we tend to shy away from designs that other people have done for their buildings because it may not be what we're looking for. So that's normally the approach.

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Operator [26]

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Thank you. I think that concludes our analyst briefing today. Thank you for joining us.

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [27]

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Thank you for joining us.

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Ngan Yee Lung, Swire Properties Limited - Finance Director & Executive Director [28]

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Thank you.