Q2 2026 Swire Properties Ltd Earnings Call - Q&A
[Company Representative] (Swire Properties): Questions at a time. First gentleman in the front.
Operator: Questions at a time. First gentleman in the front.
Speaker #1: At a time. first gentleman in front.
Speaker #2: Thank you. this is Karl Chan from JP Morgan. I have two questions. The first question is on China mainland—uh, mainland China retail. Because I guess if we look at the overall retail sales in China, I think it started to soften in May, so just curious, is this something that you also see among your shopping malls in mainland China?
Karl Shen: Thank you. This is Karl Shen from J.P. Morgan. I have two questions. The first question is on Mainland China retail, because I guess if we look at the overall retail sales in China, I think it started to soften in May. Just curious, is this something that you also see among your shopping malls in Mainland China? What would be your outlook on tenant sales in Mainland China in H2 of the year? That would be my first question. The second question is on Hong Kong office. I think it's encouraging that the overall rental income is turning flattish. Just curious in terms of rental reversion for both Pacific Place and Taikoo Place, when do you expect that it could potentially turn stable or neutral or even positive? That would be my second question. Thank you.
Karl Chan: Thank you. This is Karl Chan from JPMorgan. I have two questions. The first question is on Mainland China retail, because I guess if we look at the overall retail sales in China, I think it started to soften in May. Just curious, is this something that you also see among your shopping malls in Mainland China? What would be your outlook on tenant sales in Mainland China in H2 of the year? That would be my first question. The second question is on Hong Kong office. I think it's encouraging that the overall rental income is turning flattish. Just curious in terms of rental reversion for both Pacific Place and Taikoo Place, when do you expect that it could potentially turn stable or neutral or even positive? That would be my second question. Thank you.
Speaker #2: And then, what would be your outlook on tenant sales in mainland China in the second half of the year? That would be my first question.
Speaker #2: And then the second question is on Hong Kong office. So I think it's encouraging that the overall rental income is turning flattish. And then just curious, in terms of rental reversion for both Pacific Place and Taiko Place, when do you expect that it could potentially turn stable or neutral, or even positive?
Speaker #2: So that would be my second question. Thank you.
Speaker #3: Thanks, Karl. On Chinese mainland retail, I think—well, I think we saw, as I mentioned earlier, I think we saw a strong second quarter. We've continued to see, particularly in San Li Tuan, strong, very strong growth in retail sales across—for our Taiko Lee and Taiko Wei retail malls.
Tim Blackburn: Thanks, Karl. On Chinese Mainland retail, as I mentioned earlier, we saw a strong Q2, and we continue to see, particularly in Sanlitun, very strong growth in retail sales across for our Taikoo Li and Taikoo Hui retail malls. As far as the midpoint of the year is concerned, with that, we see a relatively strong July. There's some variability. I think that's largely weather related, some very hot weather and some heavy rains in certain parts of the country. Certainly retail sales continue to be healthy across the portfolio. I think you'll see maybe some normalization of our retail sales growth in HK or Taikoo Hui in Shanghai, where the Louis is now cycling on a 12-month. We'll start to see some normalization, but still a very healthy trend.
Tim Blackburn: Thanks, Karl. On Chinese Mainland retail, as I mentioned earlier, we saw a strong Q2, and we continue to see, particularly in Sanlitun, very strong growth in retail sales across for our Taikoo Li and Taikoo Hui retail malls. As far as the midpoint of the year is concerned, with that, we see a relatively strong July. There's some variability. I think that's largely weather related, some very hot weather and some heavy rains in certain parts of the country. Certainly retail sales continue to be healthy across the portfolio. I think you'll see maybe some normalization of our retail sales growth in HK or Taikoo Hui in Shanghai, where the Louis is now cycling on a 12-month. We'll start to see some normalization, but still a very healthy trend.
Speaker #3: As far as sort of the midpoint of the year is concerned, I mean, that we see a relatively strong July. There's some variability. I think that's largely weather-related.
Speaker #3: Some very hot weather and some heavy rains in certain parts of the country. But certainly retail sales continue to be healthy across the portfolio.
Speaker #3: I think you'll see maybe some normalization of our retail sales growth in HKI Taiko Wei in Shanghai, with the Louis is now cycling on a 12-month.
Speaker #3: So we'll start to see some normalization, but still a very, very healthy trend. And we're looking forward, I think, with the plans to open the new Taiko Lee in San Yat end of the year.
Tim Blackburn: We're looking forward, I think, with the plans to open the new Taikoo Li in Sanya end of the year. We're working very closely with the brands to capture that momentum in Hainan as well. As far as Hong Kong office is concerned, we see the negative reversions narrowing across the portfolio. We're seeing some positive growth, specifically in Pacific Place. To answer your question, I think in early 2027, we'll see some opportunities for positive reversions in Pacific Place. It'll take a little bit longer in Taikoo Place.
Tim Blackburn: We're looking forward, I think, with the plans to open the new Taikoo Li in Sanya end of the year. We're working very closely with the brands to capture that momentum in Hainan as well. As far as Hong Kong office is concerned, we see the negative reversions narrowing across the portfolio. We're seeing some positive growth, specifically in Pacific Place. To answer your question, I think in early 2027, we'll see some opportunities for positive reversions in Pacific Place. It'll take a little bit longer in Taikoo Place.
Speaker #3: We're working very closely with the brands to capture that momentum in Hainan as well. As far as Hong Kong office is concerned, we see the negative reversions narrowing across the portfolio.
Speaker #3: We're seeing some positive growth specifically in Pacific Place. So to answer your question, I think in early 2027 we'll see some opportunities for positive reversions in Pacific Place.
Speaker #3: I'm going to take it a little bit longer in Taiko Place.
Speaker #1: Thanks, Tim. Next, lady in the front.
[Company Representative] (Swire Properties): Thanks, Tim. Next, lady in the front.
Operator: Thanks, Tim. Next, lady in the front.
Speaker #4: Thank you. This is Cindy from CT. I have two questions. So first is on the new retail assets at Chinese mainland. So how is the ramping up of Q1 comparing with your internal expectations?
[Analyst] (Citi): Thank you. This is Cindy from Citi. I have two questions. The first is on the new retail assets at Chinese Mainland. How is the ramping up of Julong Wan comparing with your internal expectations? Did any matrix exceed your budget? The Sanya, as you mentioned, you are working very closely on that. Is there any data you can share on pre-leasing rate? What's the strategy on overall treatment and positioning? Has there been any anchor brands that you might be able to share with us for now? Which month do you plan for the grand opening, actually? Second question may be for CFO Roy. It's actually great to see you on the stage. What is on top of your to-do list after taking office? Do you expect any shift in the overall capital allocation priorities?
Cindy Li: Thank you. This is Cindy from Citi. I have two questions. The first is on the new retail assets at Chinese Mainland. How is the ramping up of Julong Wan comparing with your internal expectations? Did any matrix exceed your budget? The Sanya, as you mentioned, you are working very closely on that. Is there any data you can share on pre-leasing rate? What's the strategy on overall treatment and positioning? Has there been any anchor brands that you might be able to share with us for now?
Speaker #4: Did any metrics exceed the new budget? And for the San Yat, as you mentioned, you're working very closely on that. So is there any data you can share on pre-leasing rate?
Speaker #4: Or what's the strategy on overall trade mix and positioning? Has there been any anchor brands that you might be able to share with us for now?
Speaker #4: And which months do you plan for the grand opening, actually? Second question, maybe for CFO Roy is actually great to see you on the stage.
Cindy Li: Which month do you plan for the grand opening, actually? Second question may be for CFO Roy. It's actually great to see you on the stage. What is on top of your to-do list after taking office? Do you expect any shift in the overall capital allocation priorities? Noting that the HKD 100 billion plan is already near 70% committed, do you see any potential change in the future deployment progress? Thank you.
Speaker #4: So what is on top of your to-do list after taking offers? Do you expect any shift in the overall capital allocation priorities? And noting that the 100 billion plan is already near 70% committed, so do you see any potential change in the future deployment progress?
[Analyst] (Citi): Noting that the HKD 100 billion plan is already near 70% committed, do you see any potential change in the future deployment progress? Thank you.
Speaker #4: Thank you.
Speaker #3: Sorry, I'll take—I'll take the first part. I think your question on Chinese mainland retail, particularly on the new retail malls, we're very happy with the progress that the team are making in Guangzhou, in Qilongwan.
Tim Blackburn: Sure. I'll take the first part. I think your question on Chinese Mainland retail, particularly on the new retail malls. We're very happy with the progress that the team are making in Guangzhou, in Julong Wan. It's a fantastic site. In phase one, we have about 75% of the retail is open in phase one as well. We're seeing very solid traffic numbers. We expect that the opening rate will continue through the balance of this year. We're looking for some opportunities to introduce new brands. I think certainly next year we'll start to see the opening of some of the luxury brands as well. This project still has some time to go. Phase one is what we refer to as an activation zone rather than a formal opening of the mall.
Tim Blackburn: Sure. I'll take the first part. I think your question on Chinese Mainland retail, particularly on the new retail malls. We're very happy with the progress that the team are making in Guangzhou, in Julong Wan. It's a fantastic site. In phase one, we have about 75% of the retail is open in phase one as well. We're seeing very solid traffic numbers. We expect that the opening rate will continue through the balance of this year. We're looking for some opportunities to introduce new brands. I think certainly next year we'll start to see the opening of some of the luxury brands as well. This project still has some time to go. Phase one is what we refer to as an activation zone rather than a formal opening of the mall.
Speaker #3: It's a fantastic site. In phase one, we have about 75% of the retail is open in phase one as well. We're seeing very solid traffic numbers.
Speaker #3: And we expect that the opening rate will continue. Through the balance of this year, we're looking for some opportunities to introduce new brands. And I think certainly next year we'll start to see the opening of some of the luxury brands as well.
Speaker #3: But this project still has some time to go. So phase one is what we refer to as an activation zone rather than a formal opening of the mall.
Speaker #3: Because of its waterfront location, we're able to activate the F&B and a lot of the retail quite successfully. So we're happy with that. And I think it's a very complementary to Taiko Wei and the expansion in Tianhe.
Tim Blackburn: Because of its waterfront location, we're able to activate the F&B and a lot of the retail quite successfully. We're happy with that, and I think it's very complementary to Taikoo Hui and the expansion in Tianhe. In Sanya, we're aiming for the soft opening in late December this year, and we're on track to achieve that. About 70% of the retail is committed, we'll be opening with 70% in phase I. The grand opening is scheduled for Chinese New Year, and this is to really capture the peak season for tourism in Hainan. Both those projects are looking very exciting.
Tim Blackburn: Because of its waterfront location, we're able to activate the F&B and a lot of the retail quite successfully. We're happy with that, and I think it's very complementary to Taikoo Hui and the expansion in Tianhe. In Sanya, we're aiming for the soft opening in late December this year, and we're on track to achieve that. About 70% of the retail is committed, we'll be opening with 70% in phase I. The grand opening is scheduled for Chinese New Year, and this is to really capture the peak season for tourism in Hainan. Both those projects are looking very exciting.
Speaker #3: In San Yat, we're aiming for the soft opening in late December this year. And we're on track to achieve that. About 70% of the retail is committed.
Speaker #3: So we'll be opening with 70% in phase one. And then the grand opening is scheduled for Chinese New Year. And this is to really capture the peak season for tourism in Hainan.
Speaker #3: So both those projects are looking very exciting.
Speaker #2: Thank you for the question, Cindy. And thank you for the welcome. It's a good time to be joining Swire Properties with such a strong financial position in many exciting projects.
Roy Shearer: Thank you for the question, Cindy, and thank you for the welcome. It's a good time to be joining Swire Properties with such a strong financial position and many exciting projects. It probably won't surprise you to hear me say there is no change in the strategy with the change in the CFO. We have a very clear strategy in place, and we're making good progress. You heard from Tim that we're almost 70% through the HKD 100 billion plan. That is going to grow our recurring earnings base, along with the increased proportion of residential. We will continue to focus on capital recycling, and all of that means we can continue to maintain the progressive dividend. In terms of your question, what my focus is, it's really making sure that we execute on that strategy, and we execute that strategy with very strong financial discipline.
Roy Shearer: Thank you for the question, Cindy, and thank you for the welcome. It's a good time to be joining Swire Properties with such a strong financial position and many exciting projects. It probably won't surprise you to hear me say there is no change in the strategy with the change in the CFO. We have a very clear strategy in place, and we're making good progress. You heard from Tim that we're almost 70% through the HKD 100 billion plan. That is going to grow our recurring earnings base, along with the increased proportion of residential. We will continue to focus on capital recycling, and all of that means we can continue to maintain the progressive dividend. In terms of your question, what my focus is, it's really making sure that we execute on that strategy, and we execute that strategy with very strong financial discipline.
Speaker #2: It probably won't surprise you to hear me say there is no change in the strategy with the change in the CFO. We have a very clear strategy in place, and we're making good progress.
Speaker #2: You heard from Tim that we're almost 70% through the 100 billion plan. That is going to grow a recurring earnings base along with the increased proportion of residential.
Speaker #2: We will continue to focus on capital recycling and all of that means we can continue to maintain the progressive dividend. So in terms of your question, what my focus is, it's really making sure that we execute on that strategy and we execute that strategy with very strong financial discipline.
Speaker #1: Thank you, Tim. And Roy, next question. Gentlemen, second row.
[Company Representative] (Swire Properties): Thank you, Tim and Roy. Next question. Gentleman, second row.
Operator: Thank you, Tim and Roy. Next question. Gentleman, second row.
Speaker #5: Hi, Karl Choi from Bank of America. Two questions. Also sticking with mainland China, I want to ask about the office side, because you will have—you have a new office properties opening up in both Beijing and Shanghai.
Karl Choi: Hi, Karl Choi from Bank of America. Two questions. Also sticking with mainland China, I want to ask about the office side, because you have new office properties opening up in both Beijing and Shanghai. Given the difficult office market, can you give us a look at your leasing strategy or leasing progress? Any plan to dispose some of those if possible? I think there was some news earlier about the possible disposal of some office space there. Second question is, now that, Tim, you mentioned you are close to the harvesting stage for some of your mainland Chinese investments, and you have done some pre-leasing deals. Can you give us an update on the return characteristics or attribute that you expect from the mainland Chinese investments opening up in the next one to two years?
Karl Choi: Hi, Karl Choi from Bank of America. Two questions. Also sticking with mainland China, I want to ask about the office side, because you have new office properties opening up in both Beijing and Shanghai. Given the difficult office market, can you give us a look at your leasing strategy or leasing progress? Any plan to dispose some of those if possible? I think there was some news earlier about the possible disposal of some office space there. Second question is, now that, Tim, you mentioned you are close to the harvesting stage for some of your mainland Chinese investments, and you have done some pre-leasing deals. Can you give us an update on the return characteristics or attribute that you expect from the mainland Chinese investments opening up in the next one to two years?
Speaker #5: Given the difficult office market, can you give us a little bit of your leasing strategy or leasing progress? Any plan to dispose of some of those, if possible?
Speaker #5: Because I think there were some news earlier about possible disposal of some office space there. And second question is, now that Tim, you mentioned you're close to the harvesting stage for some of your mainland Chinese investments, and you have done some pre-leasing deals, can you give us an update on the return sort of characteristics or attribute that you expect from the mainland Chinese investments opening up in the next one to two years?
Speaker #3: Yeah, maybe I'll take this first one.
Tim Blackburn: Maybe I'll take the first one. You take the second one.
Tim Blackburn: Maybe I'll take the first one. You take the second one.
Roy Shearer: Yeah.
Roy Shearer: Yeah.
Speaker #5: Yeah.
Speaker #3: Karl, thanks. Thanks for your question. So as far as the office market in the Chinese mainland is concerned, I mean, our portfolio is pretty stable.
Tim Blackburn: Karl, thanks for your question. As far as the office market in the Chinese mainland is concerned, our portfolio is pretty stable. The encouraging signs in terms of occupancy in Beijing, I think we are at highest occupancy for One INDIGO since the pandemic, in fact, at 97%. The team are working hard on the pre-leasing for Taikoo Place in Beijing, and we'll be able to announce a few more details of the pre-leasing rate. Currently, we are between 30% and 40% pre-committed in Taikoo Place Beijing, which I think is pretty encouraging at this stage. We'll be opening in phases. In terms of the occupiers, we are seeing keen interest from MNCs, as you would expect. Some domestic TMT and retail customers as well.
Tim Blackburn: Karl, thanks for your question. As far as the office market in the Chinese mainland is concerned, our portfolio is pretty stable. The encouraging signs in terms of occupancy in Beijing, I think we are at highest occupancy for One INDIGO since the pandemic, in fact, at 97%. The team are working hard on the pre-leasing for Taikoo Place in Beijing, and we'll be able to announce a few more details of the pre-leasing rate. Currently, we are between 30% and 40% pre-committed in Taikoo Place Beijing, which I think is pretty encouraging at this stage.
Speaker #3: The encouraging signs in terms of occupancy in Beijing, I think we're at highest occupancy for one indigo. Since the pandemic, in fact, 97%. The team are working hard on the pre-leasing for Taiko Place in Beijing.
Speaker #3: And we'll be able to announce in a few more details of the pre-leasing rate. But currently, we're between 30 and 40% pre-committed. In Taiko Place Beijing, which I think is pretty encouraging at this stage.
Speaker #3: And we'll be opening in phases. In terms of the occupiers, I mean, we've seen keen interest from MNCs, as you would expect. And some domestic TMT and retail customers as well.
Tim Blackburn: We'll be opening in phases. In terms of the occupiers, we are seeing keen interest from MNCs, as you would expect. Some domestic TMT and retail customers as well. In terms of disposals, I think at this point in time, we are really focused on the execution to make sure we can deliver these projects on time based on the development milestones. We'll evaluate opportunities on a case-by-case basis, but nothing specific.
Speaker #3: In terms of disposals, I mean, I think at this point in time, we're really focused on the execution to make sure we can deliver these projects on time, based on the development milestones.
Tim Blackburn: In terms of disposals, I think at this point in time, we are really focused on the execution to make sure we can deliver these projects on time based on the development milestones. We'll evaluate opportunities on a case-by-case basis, but nothing specific.
Speaker #3: We'll evaluate opportunities on a case-by-case basis, but nothing specific.
Speaker #2: Yeah, so on the question, second question on returns in Chinese mainland. So overall, we are happy with the returns that we've achieved and what we expect to achieve on the new projects.
Roy Shearer: Yeah. On the second question on returns in Chinese mainland. Overall, we are happy with the returns that we've achieved and what we expect to achieve on the new projects. They all clear our investment hurdle rates. Focusing on residential, I think we are very happy with the progress of the residential in Chinese mainland. I think it's a very good use of capital, and it really complements our recurring earnings base, and it will become a more significant part of our earnings going forward. Given the quick turn of cash on Chinese residential, it then contributes to capital recycling. It puts cash back into the business quicker, ultimately helps with that ability to continue with the strong dividend.
Roy Shearer: Yeah. On the second question on returns in Chinese mainland. Overall, we are happy with the returns that we've achieved and what we expect to achieve on the new projects. They all clear our investment hurdle rates. Focusing on residential, I think we are very happy with the progress of the residential in Chinese mainland. I think it's a very good use of capital, and it really complements our recurring earnings base, and it will become a more significant part of our earnings going forward. Given the quick turn of cash on Chinese residential, it then contributes to capital recycling. It puts cash back into the business quicker, ultimately helps with that ability to continue with the strong dividend.
Speaker #2: They all clear our investment hurdle rates. And focusing on residential, I think we are very happy with the progress of the residential in Chinese mainland.
Speaker #2: I think it's a very good use of capital. And it really helps—it really complements, sorry, our recurring earnings base and it will become a more significant part of our earnings going forward.
Speaker #2: So given the quick turn of cash on Chinese residential, it then contributes to capital recycling. It puts cash back into the business quicker. And then ultimately helps with that ability to continue with the strong dividend.
Speaker #1: Thank you. Next question.
[Company Representative] (Swire Properties): Thank you. Next question.
Operator: Thank you. Next question.
Speaker #5: Yeah, thank you for management. This is Mark Leung from UBS. I think the first—I got two questions in here. The first question is regarding the Hong Kong office outlook.
Karl Choi: Yeah.
Mark Wang: Thank you, management. This is Mark Wang from UBS. I got two question in here. The first question is regarding on the Hong Kong office outlook. Because recently or overnight, we got more potential restriction coming from the mainland Chinese government about maybe insurance or maybe ODI. Want to check with management how to view on the office outlook in H2. Have we seen any slowdown in the leasing activity or negotiation since June? I think that's the first questions. The second question is regarding on the China retail. I saw that in H1, actually, our retail sales is growing. Rental income actually is growing at par with the tenant sales, which is really strong and encouraging. Should we expect that trend should further continue? I think that's my two questions. Thank you.
Mark Lueng: Thank you, management. This is Mark Wang from UBS. I got two question in here. The first question is regarding on the Hong Kong office outlook. Because recently or overnight, we got more potential restriction coming from the mainland Chinese government about maybe insurance or maybe ODI. Want to check with management how to view on the office outlook in H2. Have we seen any slowdown in the leasing activity or negotiation since June? I think that's the first questions. The second question is regarding on the China retail. I saw that in H1, actually, our retail sales is growing. Rental income actually is growing at par with the tenant sales, which is really strong and encouraging. Should we expect that trend should further continue? I think that's my two questions. Thank you.
Speaker #5: Because recently, or overnight, we got more potential restrictions coming from the mainland Chinese government about maybe insurance or maybe ODI. So I want to check with management how to build on the office outlook in the second half and have we seen any slowdown in the leasing activity or negotiations since June?
Speaker #5: I think that's the first question. And the second question is regarding the China retail. So I saw that in the first half, actually, our retail sales is growing—rental income actually is growing at par with the tenant sales.
Speaker #5: So which is really strong and encouraging. Should we expect that trend should further continue? I think that's my two questions. Thank you.
Speaker #3: Okay. Well, as far as the office outlook is concerned, and we're still seeing strong demand for grade A office in Pacific Place. Occupancy at 98%.
Tim Blackburn: Okay. Well, as far as the office outlook is concerned, we're still seeing strong demand for our Grade A office in Pacific Place with occupancy at 98%. Similarly in Taikoo Place, we've got a high level of inspections, interest from new occupiers, and also for expansion space. We don't see any slowdown in demand for the office portfolio in Hong Kong. In fact, I think the list of inquiries is very active. In terms of Chinese mainland, we're seeing, as you say, positive sales growth, and we hope to convert that into positive reversions in H2 of this year.
Tim Blackburn: Okay. Well, as far as the office outlook is concerned, we're still seeing strong demand for our Grade A office in Pacific Place with occupancy at 98%. Similarly in Taikoo Place, we've got a high level of inspections, interest from new occupiers, and also for expansion space. We don't see any slowdown in demand for the office portfolio in Hong Kong. In fact, I think the list of inquiries is very active. In terms of Chinese mainland, we're seeing, as you say, positive sales growth, and we hope to convert that into positive reversions in H2 of this year.
Speaker #3: And similarly, in Taiko Place, we've got a high level of inspections, interest in from new occupiers and also for expansion space. So we don't see any slowdown in demand for the office portfolio in Hong Kong.
Speaker #3: In fact, I think the list of inquiries is very active. In terms of the Chinese mainland, we're seeing, as you say, positive sales growth.
Speaker #3: And we hope to convert that into positive reversions in the second half of this year.
Speaker #1: Okay. And in terms of time, we'll take the last question. If there's any. If no further questions, then we'll—this will conclude our analyst briefing today.
[Company Representative] (Swire Properties): Okay. In the interest of time, we'll take the last question, if there's any. If no further questions, this will conclude our analyst briefing today. Thank you very much for joining us.
Operator: Okay. In the interest of time, we'll take the last question, if there's any. If no further questions, this will conclude our analyst briefing today. Thank you very much for joining us.
