00:00I'm just wondering first, what are your thoughts on the Hong Kong market recovery in property,
00:05particularly for commercial real estate?
00:07What are you seeing specifically in Central among some of your properties?
00:12Great to be here with you both, and thank you for having me.
00:16Look, it's been a tough six years for the Hong Kong office market.
00:20The rents have fallen quite significantly over the last six years,
00:24but what we really are seeing is a great rebound.
00:26I think it's capital markets-led, and given our portfolio in Hong Kong Central,
00:30with the Hong Kong Stock Exchange being not only a tenant but a partner of ours now,
00:35a lot of the activity from business services, from hedge funds, from private equity,
00:40from family offices is quite centred in Central.
00:42So what we've seen is that the vacancies, so the amount of vacant space in our portfolio is now down
00:47to 6%.
00:48In some of our peers it's even lower.
00:50So that sort of rebound is a consequence of just supply and demand.
00:54There's a lot more demand for office space and a lot less supply.
00:59So what are you expecting this year for the extent in which the rental decline can moderate
01:05specifically for your office portfolio?
01:08So what we've seen, and people like Jones Lang and some of the broking agents have said,
01:13that market rents are on the incline.
01:15So I think we called sort of the bottom last year, and it's definitely coming through now,
01:18where market rents are elevating because vacancy is so low,
01:22particularly in the core central district of the very, very high quality prime office assets.
01:26Not so much across Hong Kong.
01:28There's still a lot of vacancy in pockets of Hong Kong,
01:31but in the core central districts it's very, very tight.
01:33So market rents themselves have been lifting.
01:36The problem that we have in our portfolio is that rents are still lower now than they were three years
01:41ago.
01:42So when we go and renew a new lease, the reversions are still negative.
01:46But as market rents continue to incline, that negative reversion will reduce.
01:51And I think Hong Kong is an incredibly exciting office market.
01:54From trough to peak, rents can go up very, very quickly.
01:57So as market rents go up and they start being higher than they were when our three-year leases,
02:03on average, when tenants are renewing,
02:04that's when we get real positive reversions and quite strong earnings growth.
02:09Michael, how quickly do you expect that recovery to continue?
02:13Look, I think, as I said, with our portfolio, it's very much capital markets led.
02:17You know, there's, as everyone knows in Hong Kong, the capital markets have been very, very strong.
02:21There's a very long queue form for new IPOs and public offerings.
02:25We have 70-odd legal firms in our portfolio.
02:28They're all very, very busy, I assume, on capital markets.
02:31The private equity and hedge fund space,
02:33many of the world's largest hedge funds are doubling in space in Hong Kong,
02:37given that capital markets activity.
02:38So I think on the demand side, it's very, very strong.
02:41And what we're seeing is many of our tenants are now trying to extend and blend their leases
02:46in the knowledge that when rents move up in Hong Kong, they move up very quickly.
02:49They're now coming to us on their own volition and saying,
02:52look, we want to stay, but we want to try and lock in a rent now
02:54rather than taking the risk of higher rents at a later date.
02:59Your asset disposal target by 2027, how's that faring?
03:03And do you have further plans to sell more assets either in Hong Kong or in China?
03:09You know, we announced the strategic review of our business in October 24.
03:14It was pretty bold in some of the assertions that we made
03:17in terms of doubling our dividends per share, doubling our profit.
03:19But what we also announced was an intention to recycle our balance sheet
03:25by $4 to $6 billion by 2027.
03:29Over the last just over 12 months, we've recycled $3.6 billion US dollars of balance sheets,
03:34or about 90% within a very quick period of time.
03:38That includes we sold some floors in Exchange Square to the Hong Kong Stock Exchange.
03:42We sold our residential business, MCO Land, in Singapore.
03:47We created a new fund, the first time that Hong Kong Land,
03:50in its 137-year history, has created a private fund
03:54where we invited and received some of the world's most credentialised investors,
03:59APG from the Netherlands, Qatar Investment Authority, join us
04:03and basically form a fund enabling us to grow that vehicle in Singapore.
04:07That's an $8 billion fund.
04:08It was our first fund.
04:10We had $1.8 billion of new equity from these investors coming in.
04:13So really excited about the opportunity to use that vehicle to continue to grow that.
04:18So although we're recycling capital, we're still reinvesting back in our core business.
04:23As part of our strategic shift, we're no longer in residential.
04:26So we had a big residential development business across Asia when I joined a couple of years ago.
04:32We're no longer investing in that business,
04:34and instead we're really focusing on what we're really good at,
04:36which is Hong Kong Central, which is Shanghai on the Huanpul River,
04:40and the Bund, which is around Marina Bay in Singapore.
04:44Could you share a bit more about the priorities for the fund beyond what you've just touched on?
04:53Sure. So this fund is a very, very high quality.
04:57It's some of the best office assets, I think, and although I'm not very objective,
05:00but Marina Bay Financial Centre, One Raffles Key.
05:03We recently merged those assets with Qatar Investment Authority's office asset in Singapore,
05:08Asia Square Tower One, which is probably one of the best buildings in Singapore.
05:12So we've now got a portfolio of about $8 billion of the highest quality office assets
05:17and intention to grow that.
05:19So with our partners and ourselves, we think there's a lot of opportunities in Singapore
05:23to continue to grow that vehicle.
05:25We have aspirations of moving it from sort of $8 billion to at least $15 billion
05:29in quite a quick period of time.
05:31And we have really great, very, very great relationships with our LPs
05:35who want to invest alongside us.
05:37And we're quite fortuitous in Singapore.
05:38Although that market, the supply demand there is very, very good.
05:42You know, our portfolio is at 96%, 97% occupancy.
05:46But fortuitously, there seems to be a lot of office assets coming to market right now.
05:50The fund itself has a very low cost of capital, very credentialized investors.
05:54So I think there's a really good opportunity for us to grow that fund over the short term.
06:01Do you have plans to create another fund for Hong Kong properties then,
06:06if you're seeing these opportunities out there?
06:09Potentially.
06:10I mean, I think we made our intentions quite clear in October that we want to be a fund manager.
06:14We don't want to just be a landlord, sort of a herb of all collecting rent.
06:18We want to be a more, you know, we want to have a more productive use of our time
06:23and our management team by creating fund management opportunities.
06:26And Singapore, SC Pref's a great example.
06:29You know, as our first fund, to create an $8 billion fund with $1.8 billion of third-party capital
06:34was quite an achievement.
06:35And I think that with our relationships with other investors of similar ilk,
06:39that we think we could replicate that in other markets.
06:42We have ambition of going into not just Shanghai, Hong Kong and Singapore,
06:46which are three core markets, but potentially into Seoul, in Sydney and Tokyo.
06:50So potentially bringing our investors alongside us into those new markets is possible also.
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