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Edited Transcript of 1972.HK earnings conference call or presentation 8-Aug-19 10:00am GMT

Half Year 2019 Swire Properties Ltd Earnings Presentation

Aug 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Swire Properties Ltd earnings conference call or presentation Thursday, August 8, 2019 at 10:00:00am 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

* Ken Yeung

Citigroup Inc, Research Division - Director

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Presentation

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Operator [1]

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Good evening, 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. (Operator Instructions)

As usual, before the presentation, we would like to show you a very nice video, which highlights the key developments and achievements of the company in the first half of this year. Hope you enjoy.

[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 for joining us this slightly later time of the day. As you can see from the video, lots of exciting things happening. I'd like to say, as usual, Swire Properties' pretty much on all fronts. So there's a lot to cover. We've had a busy 6 months. I think the interim results basically portrays a set of very strong performance that puts us in a stronger position for the future. And I'll try and run through that, in conjunction with Fanny on my right.

The 199% increase in underlying profit is the headline result, I think, for the 6 months. Obviously, it is very much influenced by the divestitures that we'll talk about in a minute. I think this active capital recycling, which boosts the underlying profit growth, reflects an attempt to make the balance sheet stronger so that we can have lots of firepower ready to invest in the sort of growth pipeline that we -- that we're very keen on establishing.

The rental income growth was very solid, supporting what you'll see are very sustainable dividend growth. And I think, as I said, it leaves us in a great position for -- to realize some of the opportunities, historically low gearing since the listing, I think, we're running at right now.

Some of the key developments. I mentioned disposals, we completed the sale of $15 billion of Cityplaza Three and Four in April. And then in July, this sort of hot-off-the-press news was the sale of our 50% interest in 625 King’s Road, which is an office building we've had for over 20 years, realizing $2.4 billion. It's very good news. It was very clearly a noncore asset as for Cityplaza Three and Four, allowing us to take capital out of essentially old and noncore assets for reinvestments in new assets, and I think that's a very good story.

On the new project side, you'll have seen -- we've had the Singapore projects for a couple of years now in the public domain. The new news is it's now called EDEN, and it's due to be finished and completed probably towards the end of the year, I'd say in about November. 20 high-end units down in a fantastically high-end location in Singapore, and it will be our first project down there.

The other exciting news in Southeast Asia was the announcement in July of projects on a 50-50 percent basis with a joint venture partner in Jakarta, and that's as yet unnamed, we'll be unveiling a name for that project in due course, but it's our first project in, again, a very good location in a high-end neighborhood down in South Jakarta there. So quite exciting expansion project for us.

And finally, in July, on the finance side, we'll touch on this a bit later, we announced the first in Hong Kong, first sustainability-linked loan, which I think is a great thing to do.

On the pipeline side, I think this is important because a lot's made of the successful divestments, but it's important that we do something with that capital. If you see the published pipeline in front of you on this slide, which shows in 2019, of course, the already well-publicized extension to Citygate Outlets is the big news, and of course, the Singapore project. But next year, in China, it's the year when we intend to open our sixth investment Taikoo Li Qiantan, and also to extend and scale up the opportunity that we've already realized in Sanlitun and under Taikoo Li, which will be really exciting for Beijing.

The other thing to note on here really is just the sort of variety and -- of the mix here and the things that we're doing. Obviously, it's across geographies. You've got Southeast Asia. You've got China, you've got Hong Kong. But we're also investing in trading projects and we're -- such as Chai Wan in Hong Kong, such as Jakarta down in Southeast Asia. And we're reinvesting capital into Taikoo Place as you can see with the Two Taikoo Place we launched in 2021. And then beyond 2023, there's a couple of projects in the pipeline there that could actually further augment the exciting story on the office side down in Quarry Bay.

Just turning to the investment portfolio for a minute. On the Hong Kong office side the rental reversions have been extremely strong in the first half. You can see the figures there: Pacific Place 19%; Taikoo Place office curtain wall buildings, 13%; and One Taikoo Place and One Island East at 11%. I think it's a very robust performance down there, and ditto in Pacific Place for the first half. And as you can see, the occupancies in the portfolio are close to full.

On the retail side, I think it's now quite well understood that Pacific Place has had, as has most of its shopping mall peers, a fairly sort of soft first 6 months: retail sales, down 4.2%; occupancy, still full. Cityplaza, relatively better in that sense. It's, as you all know, rather less impacted by visitors from overseas and from the Mainland. And Citygate outlets has also had a lot of closures while we've been getting ready for this extension, and I think it's put in a fairly decent performance for the first 6 months.

Not much to say here. It's a familiar slide, which basically continues to show you that we do maintain a strong and diverse tenant base, and the expiry profile of our major leases is extremely well balanced.

I mentioned Citygate outlets. It's obviously the new exciting news for the summer. We're 98% leased on the new extension, which is fantastic news. Citygate will become an 800,000 square-foot mall. It's almost doubling in size, and we hope to have an opening in August on a soft basis going forward. We've got lots of exciting new outlet brands to stimulate the market, both from overseas and on the F&B side.

Just talking about geography here. The pipeline projects that I've mentioned, Citygate, Two Taikoo Place and a couple more buildings in Quarry Bay, and also the extension that we're going to do to the Pacific Place family in Wanchai basically suggest that we are continuing to reinforce the existing clusters of assets that we have in Hong Kong, and that's been a strategy and a focus of ours for a few years now. It underpins the reason why we get rid of noncore assets in places like East Kowloon because we want to reinvest a lot of that money in basically Admiralty, Pacific Place and Quarry Bay Taikoo Place, and that's been a focus for a long time. No change in that.

9% growth over the next few years on the completed property portfolio in Hong Kong, I think, is a healthy sign that we continue to believe in our home market. And -- but also in Mainland China, you can see on this chart that the figures show we've more than doubled rental income in China since we opened most of our malls in 2013, which I think is an absolutely staggeringly good performance. And it reflects the fact that we've built some world-class shopping malls in some great locations in China, and we continue to have confidence in that market.

Here's to reinforce what I just said. Here's some detail about the centers that we have. Again, if you look at pretty much all of those, you're in double-digit year-on-year sales growth, Sanlitun at 9% maybe being the exception. Still a very good performance for our most mature property up there. But I mean that -- those figures on the chart there really reflect the robustness of the domestic retail spending that we're enjoying at the moment in China for the first half.

In terms of the pipeline, I mentioned the addition to Sanlitun coming from another 250,000 square feet of GFA in Taikoo West. I think the highlight, though, for next year and the big project that we're all excited about in Shanghai is Taikoo Li Qiantan, which we hope to have open very much towards the end of next year. If you haven't already been to see the Qiantan master plan, please go visit. It's a really exciting project within an exciting master plan. And Lujiazui, who are our partners on this, have built out a phenomenal project so far in terms of realizing major international partners, including ourselves, and then making it happen.

And just to give you some sort of idea of the scale of Qiantan beyond our mall. The planning and ambitious -- ambitions are for 15 million square feet of office space, which is sort of 1.5x the size of Taikoo Place by the time it's finished. And that will accommodate, hopefully, about 150,000 workers. At the moment, they've got a part of that finished. They get -- I think by about 2022, there'll be about 70% of that built. There's about 20,000 office workers currently already in occupation in Qiantan, and we hope that all of that population will nicely feed into the shopping mall experience that we're building here as the first and major retail brand -- retail developer for the master plan itself. So we're very excited about that potential. It's a great location. And as I say, please go check it out.

Just another sort of highlight, I think, with Qiantan is to show the kind of vision of Lujiazui. They've -- about 1/3 of the space of Qiantan is going to be -- is allocated and earmarked for green space. So it's actually going to be a really, really attractive place to not just work and shop, but also live. And that's quite unusual inside the Middle Ring Road for any developments in Shanghai, and so we're very excited about the choice of location there.

Recall -- not much to add really versus what we said at the year-end, other than just to say that the mall is nicely positioned and retail sales continue to build. It's still quite early in that process, but we're excited about the tenant quality. The anchors in both the retail and the office are extremely good anchors. Great names and sales are building nicely on the retail side. And it's been a great place to be an office landlord because the market has been very favorable for landlords. We're completely full on the office side, and I kind of wish we built more office really, but there we are. We -- it's not over, isn't Brickell. We've got Phase 2 to come, and there's an office component in Phase 2.

On the trading side of the house, in Reach and Rise over in Miami, we continue to sell at a reasonably slow pace versus 2014, 2015 when the market was very hot, selling 3 to 5 units a month at this stage. We've currently nearly finished the sales of Reach, and we're about 3/4 of the way through the sales of Rise. So it's a slower story, as we've been saying for the last sort of 18 months, based on the fact that Latin America, from an economic point of view, is still somewhat slow, and a major source of our buyers comes from Latin America. I think you all understand that.

Also, Southeast Asia, we've covered -- but they are trading projects, and I think they represent our ambition to do more residential trading. And again, not to mention our home market, which we know and love and understand so well. We've got the 21 to 31 Wing Fung Street project, which is small, but high quality and just off Star Street there, next to Pacific Place Three. And then there's a potential for building out Chai Wan into a 700,000 square-foot retail, a residential project with a tiny bit of retail in the podium. That will be on Hong Kong Island, of course, and we're quite excited about moving forward with that project.

On the hotel side, I'm very pleased to report that the hotels that we manage, we've got 7 hotels that are currently open now, none of them underway -- are being built. They're all now operating. So I'm delighted to say that the operating profit before depreciation increased to $122 million for the first half, which is an 18% increase on last year. So what you're basically seeing in trend terms is the ramping up of all our new hotels to a maturity stage, which we're going to be pretty comfortable with right now.

On the nonmanaged side, we obviously have stakes in some of the Pacific Place hotels and other hotels around the world, including Miami and Guangzhou.

But the exciting news here is -- as well as the Citygate retail extension, we get a new hotel out in Tung Chung called the Silveri Hong Kong, which is part of the MGallery brand, and that will be opening later in the year.

At this point, I'm going to ask Fanny to take you through some of the numbers. And then I'll come back at the end.

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

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Thank you, Guy. First half result, a very good set of number, I would say. The total underlying profit is up to HKD 18.6 billion, a record high for Swire Properties. Two main reasons, one is the very strong divestment profit, generating HKD 14.6 billion and also a very solid performance from our recurring activities.

If you look at the table, roughly from the recurring activities, most of the profit was generated from the investment property portfolio, which generated a very solid growth of 7% on a year-on-year basis. Trading property was a little bit thin, because last year, we did have the contribution from the sale of Whitesands in Hong Kong, which we didn't have this year as it was finished last year.

Hotel did a very good job making a turnaround, producing underlying profit of a positive number of HKD 52 million. That was mainly driven by the fact that U.S. did very well with a higher occupancy and RevPAR, together with the 2 new hotels in Shanghai ramping up very nicely over the period, which offset the slightly struggled performance that we encountered in Hong Kong.

On the divestment profit, largely it was driven by the divestment of the Cityplaza Three and Four. I think that we have not finished at all the booking of the divestment profit. You will be able to see, in the second half, that because of the completion of the 625 King's Road, the related profit will be reflected also in the second half as well there.

So on the investment property portfolio, the gross rental income. This is an analysis of the portfolio across the board. I'm very pleased to say that, basically all across the board, we recorded a very good growth in Hong Kong, China and also in U.S. as well there. In Hong Kong, the office portfolio was up by 5%. As Guy mentioned about, we have very good positive rental reversions recording in our office portfolio, ranging from quite a lot of double-digit positive rental reversions.

And on the Hong Kong retail portfolio, despite the very challenging condition, we did have a 3% up from that of last year. Basically, it was generated from the higher base rent. For our PRC portfolio, it was a fantastic performance for the whole portfolio with the 5 existing projects, each of them generating -- ranging from a high single-digit to a double-digit sales growth. And not only that, the rental reversion was quite positive for the whole portfolio as well then.

So across the board, on an overall basis, we achieved a 14% increase in renminbi terms. But of course, we all know that the renminbi depreciated, which resulted in an 8% growth in the PRC total rental growth.

U.S. also did very well, as guy also mentioned about the sales growth for U.S., which drive the rental income upward.

So this slide shows the historical dividend per share growth over the past 5 year. We did have a accumulated annual growth rate of 6% over the past 5 year. And then for the first interim dividend, it was a 7% growth on a year-on-year basis. Our aim is to deliver a sustainable growth in the dividend per share. And how are we going to do that? As Guy, in the first part, mentioned that we did have quite a lot of exciting program, including for the investment property portfolio, we are adding almost like 20% of our GFA capacity in the future, including the project like developing Po Wah, Zung Fu, Wah Ha, et cetera there. So -- and on the PRC side, we are also growing our retail portfolio by adding Qiantan and also the extension of the Salintun, which adds another 10% of our GFA portfolio for our PRC portfolio. I think with that growth in our GFA, we are comfortable that we will be able to deliver a growth in the future for the dividend per share.

A very important value of our -- well, asset is in the investment property portfolio. On an overall basis, the total portfolio grow by 1%, up to HKD 276 billion. The major increase was represented by the fact that we did record a net fair value gain in our investment property portfolio of about HKD 3.8 billion.

There was no change in our cap rate. And then the change in the -- the upward change in the fair value was driven by the open market rent increase in our office portfolio in Hong Kong and also in our PRC portfolio at all then. Also, with the increase, it included the capital expenditure that we spend in our investment property portfolio, mainly reflecting the Taikoo Place redevelopment and as well as the capital expenditure on our PP. We did have a little bit of translation differences, reflecting the renminbi devaluation.

So on the financial capacity of the company. As Guy also mentioned it about, the divestment program added quite a lot of strength to our balance sheet. Looking at the net debt position, you may notice a very substantial reduction in our net debt position dropping from HKD 29.9 billion by the end of last year to HKD 15.67 billion at the end of June this year. The major change was due to the divestment proceeds. HKD 14 billion generated for the first half of this year, mainly reflected at the proceed, the remaining balance of Cityplaza Three and Four divestment, and some other investment property that we disposed of as well there.

And apart from that, you can also see that we have very strong cash flow from our rental mainstream, which generated HKD 5.4 billion. Which -- also, because of all these, if you look at the top right-hand corner of the table, which summarized the key financial parameter of the company, the company's financial position has been growing from strength to strength, and now we have reached the strongest position with a gearing ratio at 5.5%. And all the interest rate parameter is having the heavy -- the best position ever there.

So this is the maturity profile and liquidity. Very healthy outlook. Not much that I can add. You may notice that we have quite a lot of cash at the end of June 2019. That is for some reason which I'm going to touch on that later on there. The other point that I would like to highlight is the sustainability linked-loan that we signed in July this year.

This is a new initiative in order to support our SD 2030. The company do have more appetite to do green financing in order to support the development of the green financing in Hong Kong. Even though we have quite a lot of cash for the time being, I think we do have appetite to convert some of our existing nongreen portfolio into green. So please get your proposal ready if you have interest on that there.

The capital commitments. This is to summarize the capital commitment of the company. All together, we still have HKD 16.8 billion capital commitment with quite a lot of that in Hong Kong. The Hong Kong numbers includes the Wah Ha and Zung Fu future capital commitment as well as the Po Wah building redevelopment, which is also on top of the Taikoo Place development, mainly for the phase 2, which is Two Taikoo Place. The Mainland China number include mainly the Qiantan development and also the Salintun West development.

But I have to say that beyond this number, we have been working on quite a number of projects in Hong Kong and also in PRC. These are projects that we have not signed at the agreement, so they are not included in this particular sheet. As soon as we have the commitment or the agreement to sign that particular agreement, this particular number, I'm sure that we go up there.

So this is a summary of all our divestment program proceeds. So far, well, we have done all together, realized HKD 27.9 billion through these divestment program. I think we have -- well, largely received all of them except around HKD 0.2 billion, which we'll still be receiving in the second half of this year then. So it's pretty successful divestment program that we have done so far. But I think we have done most of the non-core asset in our portfolio then.

So in summary, what I would like to remind everyone is we do have quite a strong financial position due to the divestment program, which improve our profitability for this year. But the money that we have for the time being is to provide the growing power in the future by investing into the project that we are working very hard on. And so that would drive the future recurring profit for the company.

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

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Thank you, Fanny. I'll just cover a brief few comments on prospects and finish with some news on sustainability. Prospects-wise, I think we can expect downward pressure on rents in the central market for the fact that there's two reasons. One, that those vacancy caused by a movement to decentralize offices down in Taikoo Place, which we're probably responsible for largely, but also, there's clearly a softening of demand in Central from Mainland China at the moment. We've said this before, I think it's well understood.

The effects of all of that on Pacific Place is minimal, I would say. We're still enjoying good reversions in Pacific Place office, and we're full at the moment. So although there is that softness emerging at the moment, we're not feeling it too strongly in Pacific Place.

On the Taikoo Place side of office, you're still seeing robust demand as the flip side of what I just said for Central. So that's great news for the great story that's going on down there. And rents are very resilient because of that. So we're kind of optimistic about trying to pre-lease Two Taikoo Place, which is the next exciting building in our repertoire. And it's another 1 million square feet on top of One Taikoo Place, which is now 80% occupied, I think.

Hong Kong retail is soft for the first 6 months. It was softening last year, it's continued to be soft this year. And I think for the balance of this year, there's no reason to expect any change in that for obvious reasons that we're going through at the moment, coupled with this drop in visitors. I think Hong Kong retail, the outlook, will continue to be on the soft side.

Conversely, in China with the renminbi being slightly weaker, that will impact Hong Kong, but it will have probably a positive effect on domestic spending and the fact that the visitors that don't come here will choose probably to stay in China and spend there. And we've seen that effect before. And we're confident that for the rest of the year, the China centers on the retail side will continue to perform well.

That's pretty much what I want to say on the prospects. We can do some questions later. But the final slide, which I always like to finish on, is what we're doing on the sustainability front. And the news, since we last spoke on this, in no particular order, that we've extended our alliance and our funding of the research departments in Tsinghua University in Beijing, where we are doing some great pioneering work in terms of building energy efficiency, and we've been working with them since 2008. And we have a great partnership there, and we're getting some fantastic learning out of some of the work that they're doing, and we've extended that arrangement.

We've also become the first and only real estate company in Hong Kong and China to commit to science-based targets, which are a very stretching set of targets under the Paris Agreement, but we're confident that we need to be sort of that ambitious.

Not in the slides, but you may, if you've been very observant, of course it's in the video, but the hot news in INDIGO, in Beijing, is it's become the first mixed-use project in the world to be awarded the LEED 4.1 Platinum award for existing buildings. So we're quite excited about that.

And as Fanny just mentioned, we just launched the first sustainability-linked loan. So we're not sitting still on this important area. In fact, we're sort of trying to realize our vision of being the leader in the industry globally by 2030. And that's -- there's some great progress towards that goal.

With that, we'll stop and take questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We now take the first question.

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Ken Yeung, Citigroup Inc, Research Division - Director [2]

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It's Ken from Citi. I have 2 questions, one on office. The first is on office. After reading your quarterly operating data, which is very informative, I think this is the first time for many years that we see the latest rental for PP1, PP2 to drop $5. So my question is, are you seeing this -- how significant or basically, how long do you expect that this kind of downtrend should we see? And that is how do we expect, in terms of the rental reversion in Central for your portfolio in, let's say, in the second half or 2020? On another side is on your [core retail] portfolio.

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

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Should I just answer that before you go on and now forget the first question? I would say, I wouldn't read too much into that, that figure. I mean it did -- we did lower the range to $160 million at the top end. But typically at that end, those are very small deals, small space deals. And on the sort of one-off or two-off basis, I wouldn't take too much attention to that being a major, sort of, significant event. But I did say that inquiries and demand in Central, including for Pacific Place, has dropped off significantly. And so there is a lack of demand. But that was very much -- at that end of the market, we're looking at sort of small space spot deals. And we just didn't have one at the high levels that we had in the previous 6 months. So we're part of Central, but we're full at the moment. And reversions, as I said earlier in the commentary, are still positive for the rest of the year.

Question two.

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Ken Yeung, Citigroup Inc, Research Division - Director [4]

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How about the outlook or forecast on reversion rate? I mean for office. What is essential?

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [5]

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That was for us?

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Ken Yeung, Citigroup Inc, Research Division - Director [6]

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Yes. Is it going back to the single-digit or...

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [7]

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I think we said, sort of high single digits. We've been in double-digit territory for quite a while. And I think we're probably looking at high single digits for the balance of the year, which is what we actually said at the year end, too. So there's not been a lot of change on that.

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

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I think second question is on dividend. So basically, last time, when you pay out that kind of second interim dividend, that Fanny mentioned there, has partly considered the disposal thing on that. But of course, this time, the first interim, we didn't see that is linked to their -- that kind of disposal gain off Cityplaza Three and Four. Should we expect that will be somewhat to be paid out in the second interim dividend?

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

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I think we mentioned previously that we did not distribute any special dividend arising from the disposal of Cityplaza 3 and 4, and the proceeds will be used to drive future dividend growth. So I think we are in line with this particular statement. And for how much that we are going to drive on the second interim dividend, that will be the key thing. Well, I think this would be depending on the second half results, as well as the new projects that we are putting in, in the future there.

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Operator [10]

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We'll take another question. Any question?

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Justin Kwok, Goldman Sachs Group Inc., Research Division - Executive Director [11]

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Justin Kwok with Goldman. Perhaps 2 questions again. One on the trading property side. So now you have started the operation for Singapore and Jakarta. From the opportunity standpoint, or from your allocation standpoint, you think these cities will become more meaningful to you? Or it's more like still in a very early stage of investment where we're just giving this level of exposure for the time being? Perhaps that's the first question.

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [12]

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Well, I think the answer is, over the longer term, if they will become more meaningful. But we're learning. And so we're learning through these first projects. It's probably the case until we get the experience from these projects. We won't be scaling up at a rapid rate, but we'll see. I mean there's an appetite to do more in both markets. And perhaps more in other Southeast Asian countries as well as we go forward. I mean we're exploring Vietnam a little bit as well at the moment, and maybe more to come on that. But yes, look, I think we're very happy with the small position that we've got. We've been there in both those cities, Singapore and Jakarta, for over 3 years now. And this is what we've got to show for it. I mean they're great locations. And we're quite excited about doing these residential projects and learning how it works in different places.

I would say, though, that we're -- our appetite for doing more residential trading in Hong Kong continues to be strong. It doesn't look like that at the moment because we ran out of land bank when we finished selling the last projects in the mid-levels. But we're looking pretty hard and quite keen to find something. But we're not going to sort of -- not going to overpay for that. But when we see something that we like, we'll move quite aggressively to do that in Hong Kong.

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Justin Kwok, Goldman Sachs Group Inc., Research Division - Executive Director [13]

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Okay. The second question is, would you be able to give more color on your tenant sales in both PP and Cityplaza in June and July to get a sense of where the performance are in a way?

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

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Well PP and -- slightly different. I mean we had a fairly soft July in terms of tenant sales. We don't publish monthly data, as you know, we publish quarterly data. But I can tell you that July was soft -- softer than the first half figures that you do see. But there were 2 reasons for that. One was obviously the disturbance that we encountered in Pacific Place. And the second reason was the closure of Harvey Nichols. So there were no sales coming out of Harvey Nichols in July. It wasn't a very good month from that point of view.

But generally speaking, the F&B sales growth is reasonably good. And most of the sort of new brands that we're bringing in, performing quite well. What we're doing with the Harvey Nichols space on Level 1 is actually cutting it up and replacing it with some exciting brands, like I.T, Glasstique, adidas. So we're starting to add more variety into the Pacific Place mix, which I think will be an enhancement long-term.

Over in Pacific and Cityplaza, I think there's been a general sort of solid sales performance really versus where Hong Kong market was, I mean to even achieve positive territory, I think, is not bad actually. And for example, the Eslite bookstore that we've invested a lot in is growing quite nicely. It's not where we want it to end up, but it's improving year-on-year, and we're very happy with it. Some of the other anchors are good. So overall, the picture is reasonably positive, I think, for Cityplaza. We're looking forward in 2022 to a new ice rink as well. For those of you that like to skate, it's certainly something that everyone has grown up in Hong Kong, remembers about Taikoo Shing and Cityplaza. But we felt it was time for a new one. So we're going to kind of reinvest in doing that for next year. So that would be quite exciting.

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Ngan Yee Lung, Swire Properties Limited - Finance Director & Executive Director [15]

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And perhaps I can also add that, even though you haven't asked the PRC portfolio -- the PRC portfolio, the sales number in July is also trending very well. So it's also a very encouraging information for you.

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Operator [16]

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We'll take the last question from that gentleman.

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Unidentified Analyst, [17]

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This is [Simon] from HSBC. So can I ask 2 questions? The first one is, can you give us a bit color on the rental income in our Hong Kong portfolio if we exclude sales in Cityplaza on a like-for-like basis?

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Ngan Yee Lung, Swire Properties Limited - Finance Director & Executive Director [18]

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I think for our office portfolio, you know that we have indicated a 5% up from end of last year for the office portfolio. If we were to take out 625, and also if we were to take out the One Taikoo Place, which is the full year addition, and also the loss of the Cityplaza Three and Four, basically, the upward increase was 3%.

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Unidentified Analyst, [19]

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And the second question is also a follow-up on the dividend payout policy. Because I think we mentioned before in the -- during the full year result that we want to keep around half of our underlying recurring profit. So can I ask, can we expect an uplift in the second half on the payout ratio, given that in the first half is around slightly lower than that ratio?

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Ngan Yee Lung, Swire Properties Limited - Finance Director & Executive Director [20]

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I think this is quite reasonable to expect that because this is really our policy to distribute 50% of our underlying book profit over the cycle. So we will -- in due time, catch up with that in due time.

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Operator [21]

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Thank you very much. And we apologize for the delay in hosting the briefing and thank you for joining us today.

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Guy Martin Coutts Bradley, Swire Properties Limited - CEO & Executive Director [22]

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Thank you very much.