Thank you. Thank you.

Good afternoon, ladies and gentlemen, and welcome to the 2025/2026 interim results presentation for Link REIT. As today's meeting is being webcast live, I also extend a warm welcome to those joining us online.

It's my pleasure to open proceedings, and I will provide a few brief remarks now. With regards the interim results period, despite a range of macroeconomic and market challenges, Link has continued to deliver resilient results during the first half of this year.

We saw a modest decline of 3.4% in net property income compared with the same period last year. This is mainly due to market challenges in Hong Kong and the Chinese mainland.

Our distributable amount and distribution per unit are down 5.6% and 5.9% respectively compared with the first half of last year. Before inviting our management team to run through the details, I want to start with an overview of how global trends are shaping our business and the execution of our strategy.

While capital markets continue to rally on the back of optimism about AI, and interest rates look to be trending downwards, the global business landscape remains as complex as ever. Wars, geopolitical tensions, and shifting trade dynamics continue to create uncertainty.

The recent shifts in US policy are leading to fundamental structural changes in how investors view the world, which will continue to take shape over the months and years ahead. Whilst we're starting to see some encouraging signs of stabilization in terms of the environment, our business, many of our tenants are still suffering from a prolonged period of challenge, particularly in Hong Kong.

Therefore, it will take time before the improvement in consumer sentiment translates into higher rental income for Link. In anticipation of these challenges ahead at the beginning of the year, of this calendar year, we launched a wide-ranging operational efficiency drive and have already made significant progress in reducing costs.

On an annualized basis, we're on course to make savings of more than HK$200 million to our ongoing people and general and administrative costs. These efforts, together with our ongoing asset enhancement, are all part of our commitment to protect unitholder returns in future.

Regarding strategy, Link's primary current strength is still owning and managing shopping malls in Hong Kong, the Greater Bay Area, and other locations in APAC, such as Australia and Singapore. We are continuing to focus on this strength.

As we evolve and refine our strategy, alongside the active management and optimization of the Link portfolio, we're also expanding our real estate investment capabilities. This includes some new capital partnerships, as well as advancing investment opportunities.

As a consequence, we're now managing close to US$1 billion in third-party capital already. This part of the Group's business will continue to focus on value-add strategies and higher returns, providing diversification away from single-market and sector dependency, enhancing unitholder value.

We recently announced the planned retirement of our Group CEO, George Hongchoy, and this will take effect by the end of this year. Before inviting him to run through the interim results, I'd like to convey gratitude to George on behalf of the Board and myself for his significant contribution and leadership.

During his tenure, Link has grown and transformed to the benefit of unitholders, tenants, employees, and the wider communities it serves, of course. The interim leadership team is on stage today.

We look forward to welcoming John Saunders, our Group Chief Investment Officer, to the Board. We're excited to continue to work with Kok-Siong Ng and John Saunders alongside the newly formed Chair's Committee, which is there to provide support and provide strategic guidance to the management.

We are currently running a comprehensive search for a new CEO. We're seeking a proven real estate investor with international experience who can lead the next phase of the company's strategy.

Given the seniority of the role, the search will continue to take time, and it's reasonable to expect a lengthy notice period is possible for an incoming candidate. Hence, our decision to put in place the robust interim management solution I was describing earlier.

Thank you. I'd like to invite George now to take us through the presentation.

George?

Thank you, Duncan. While our business continue to navigate and feel the effects of various macro and local market-level challenges, I'm pleased to report that we have achieved a resilient set of results for the first half of 2025/2026.

I would like to express my sincere thanks and gratitude for the hard work and efforts of all our colleagues who have make this possible. As we approach the 20th anniversary of Link's IPO, I believe that this is also a moment for us to reflect with pride.

Together, we have delivered strong financial results and make positive impact on our communities, even as we face many challenges along the way. The achievements we have realized over the past 20 years give us every reason to be confident that Link's ability to successfully navigate the path ahead.

Back to the results, negative rental reversions in Hong Kong and China mainland will have impacted our overall performance with NPI down and DPU declining. Despite the tough conditions, we remain committed to deliver strong returns to our unitholders, and we have launched multiple efficiency initiatives aimed at reducing costs and preserving margins.

On the balance sheet front, our capital position remained robust, supported by credit markets' flight to quality and our blue-chip reputation. Net gearing stood at 22.5%, and our cost of borrowing has declined to 3.2%, and we have also retained A ratings from S&P, Moody's, and Fitch.

This strong foundation enable us to pursue inorganic growth and portfolio diversification. Our expansion into Australia and Singapore demonstrate this strategy, with retail assets in both markets achieving near full occupancy and strong double-digit reversion.

KS and John will now give more details.

Thank you, George. Good afternoon to everyone.

Despite the ongoing macroeconomic headwinds, we have taken the strategic decision to retain high occupancy levels at the expense of rental revenue. Our continued focus on cost restructuring will involve certain one-off charges.

Meanwhile, we expect operating conditions in the second half to slightly worsen before stabilizing. We believe our non-discretionary retail and car park assets will remain resilient nonetheless.

Our international business is a highlight. As George mentioned, our retail assets in Singapore and Australia achieved near full occupancy and double-digit positive rental reversions during the period.

On the financing side, we have benefited from the temporary dip in HIBOR, and our borrowing cost dropped to 3.2%. We have prudently managed our interest rate exposure with expectations of longer-term rates easing, and I'll share more details in the next few slides.

Valuation of the Link REIT portfolio stood at HK$223 billion as of end September 2025, down about 1.3% from 6 months ago. Hong Kong and the Chinese mainland still hold the majority part of our portfolio at around 88%, while international, with the majority in Australia and Singapore, took up the rest.

Cap rates have been relatively stable compared to 6 months ago. Breaking down by geographies, ongoing weakness in rental performance across Hong Kong and the Chinese mainland has led to decline in valuations.

For our international portfolio, valuations have remained stable in local currency terms. However, the depreciation of Hong Kong dollar gave a slight uplift in reported valuations overall.

Lastly, on capital management, our strong financial position is underpinned by a healthy balance sheet, as reflected in the key metrics shown below. As of September 30th, net gearing remained at a healthy level, while the average borrowing cost declined to 3.2%, supported by the temporary dip in HIBOR during the first half, as discussed.

Our fixed-rate debt ratio remained within the prudent range of 50% to 70% at 66%, reflecting our continued careful management of interest rate exposure and heightened uncertainty over future rate movements. Financial stability is further reinforced through competitive credit margins and effective FX risk management.

Over the past 6 months, we successfully refinanced more than HK$10 billion of debt at highly competitive rates, achieving a lower overall margin compared to previous year. Total debt increased slightly from HK$53.5 billion to HK$55 billion, primarily due to currency translation effects.

Our debt maturity profiles remain healthy, with an average tenor of 2.9 years and a well-staggered schedule extending over the next 13 years. Strong A ratings from all three agencies secure favorable funding terms, supporting our future financing needs.

We also remain well below covenant thresholds, providing ample headroom for acquisition and strategic opportunities. With that, I'll now hand over to John for the portfolio highlights.

Thank you.

Thank you very much, KS, and welcome to all of you. Thank you for coming.

I'll now walk you through the Link REIT portfolio highlights, starting, of course, with the performance of our Hong Kong retail segment. Despite market challenges, occupancy remained very solid at well over 97%, and although revenue declined by 3.1% year-over-year, mainly due to negative 6%-plus reversions, but pleasingly, tenant sales showed improvement, narrowing the decline to just over 2%, and I'll now break that down by category for you.

Supermarkets and the foodstuff segment actually returned to positive growth, which is both encouraging and it marks the first increase since 2023, and in that sector, we outperformed the Hong Kong market in the first half. F&B for the first half was flat, and that was broadly in line with the overall Hong Kong market trends.

The overall decline in Link tenant sales was dragged down by the general retail segment, which includes, of course, only a small proportion of valuable goods, as opposed to our main tenancy focus on non-discretionary. Overall occupancy costs stayed very healthy at around 13%, and I would say that together, these metrics do suggest that while some challenges do still persist, resilience within the portfolio remains very strong and evident across our entire range of portfolio.

That said, retail businesses in Hong Kong do continue to face some near-term pressure from heightened e-commerce competition, and that has weighed on some non-discretionary trades. To cope with the challenges, we continue to proactively refine our tenant mix to stay ahead of evolving market trends, and we'll share more details on these initiatives in the forthcoming slides.

Also, as a testament to our extremely capable leasing team, we've secured a little over 345 new leases during the reporting period, which is a very strong result indeed. Leasing activity was shaped in large part by emerging trends, including specialty F&B, learning and interest classes, and also game and family entertainment.

We also capitalized on growing demand from Chinese mainland brands, and that's further diversifying our tenant mix beyond specialty F&B to include new operators in fashion, services, and entertainment. Meanwhile, tenant retention remained extremely healthy at around 80%, which underscores our focus on engagement and long-term partnerships.

Revenue from car parks and related business was broadly stable. Monthly income softened a little due to fewer tickets, but upward tariff adjustments helped offset much of that impact.

In addition, we've rolled out smart parking systems to streamline operations and introduced dynamic pricing and diversified services. Leveraging real-time analytics, this approach aligns rates with demand patterns, and that helps us maximize utilization and also deliver greater flexibility and value for our customers.

Moreover, with the rising popularity of EVs, the growing demand for parking spaces equipped with charging facilities will provide additional support for our business performance. As part of our defensive strategy, we've continued with our asset enhancement projects with a current HK$2.3 billion pipeline, and during the reporting period, we invested HK$59 million at Lei Yue Mun and HK$21 million at TKO Spot.

These efforts reflect our vision to future-proof our assets, and those two projects are expected to respectively deliver ROIs of 14.5% and, in Chung On, at just over 29%. Alongside these major upgrades, we also made smaller improvements, including reconfiguring spaces to better meet tenant needs and to optimize product layout for better productivity.

Now let's shift our focus to the Chinese mainland retail portfolio. In the first half of the financial year, there were still market headwinds which were exerting pressure across that mainland portfolio.

Despite the challenges, though, the retail portfolio continues to show very strong occupancy of 95.9% amid the prolonged tough conditions. Rental reversion was soft due to subdued sales sentiment, primarily in Beijing, and indeed, if you include Link Plaza Zhongguancun and the retail portion of Link Square, rental reversions actually quite pleasingly were positive at plus 2.5%.

We continue to optimize asset quality to drive sustainable growth, and significant AIs were successfully completed at Tianhe and Tongzhou, with a combined capital expenditure exceeding RMB 440 million. Both projects achieved outstanding double-digit ROIs, even in the current, more challenging market environment, and I'll give you more details on the asset enhancement at Tianhe now.

We also completed, just before I get to that, several small-scale projects at Central Walk, Qibao, and, as I mentioned before, Zhongguancun, with an average ROI of around 9%. Combined with the strategic tenant remixing efforts, we've attracted more innovative and competitive brands.

Let me walk you through an example from Link Plaza Tianhe that I think really highlights our asset enhancement capabilities. Down in the basement here, we strategically downsized an anchor supermarket tenant and introduced Foodie+, which is Link's own food court concept, and we applied that to the freed-up space.

We also took an underutilized area and turned it into leasable space, which further maximizes the value of the property. This approach isn't unique to Tianhe, of course; in fact, we implemented a similar concept at select assets in our Chinese mainland portfolio.

This included Link Central Walk, Link Plaza Qibao, and Link Plaza Tongzhou, and it's proven to be really quite successful. Now I want to move on to our international retail portfolio.

In Singapore, we had near full occupancy and very pleasingly double-digit rental reversion, and I think that demonstrates strong leasing demand from tenants and underscores the dominant and strategic locations of our malls there. Thanks to SG60 promotions and the rollout of government vouchers, we saw solid support for tenant sales.

That said, retail sentiment is still a little cautious, and we need to monitor any signs for any slowdown in discretionary spending there. In Australia, occupancy across our retail centers remained very solid at over 98%, and the rental reversion was an extremely strong and quite impressive 16%-plus.

Tenant sales were also up by over 15%. Looking ahead, we remain optimistic about the retail sector thanks to rising household incomes, lower interest rates, and improving consumer sentiment.

Let me just share with you now, if I may, some updates on our strategy. We've continued to actively manage and optimize the existing Link portfolio, but we're also expanding Link's real estate investment management capabilities, as you've heard, to some degree of success, as mentioned by the Chairman earlier.

In the first half, our focus on active management, operational efficiency, and streamlining has helped us to reduce operating costs, preserve margins, and this, of course, will be a constant, ongoing effort. I'm also pleased to report that we've recently completed the streamlining of our integrated facilities management, the IFM contracts, and this should yield significant savings both for now and in the long term.

We're also actively exploring new investment opportunities with a particular focus, as we've mentioned before, in Singapore and Australia, while we continue to look for ways to divest and recycle assets, but only where appropriate. On the investment management front, as I said, you've heard from the Chairman, Link Real Estate Partners is making very solid, very pleasing progress in forming partnerships with third-party capital partners, and we've already received commitments from new investors, which is extremely pleasing after a cold start 18 months ago.

I'll now pass back, if I may, to George for closing remarks. George?

Thank you, John, for running through the details. Before Q&A, I want to take a moment to express my heartfelt thanks for the trust and support that I've received over the past 16 years.

I'm truly grateful to our many stakeholders and colleagues and partners. Of course, I want to especially thanks so many of you here in the room today, our unitholders and research analysts, for all your ongoing support, the buy recommendations from time to time, and not too often sell recommendations.

It is truly a pleasure to serve as a Group CEO and have play a part in this remarkable Hong Kong success story. Over the past 20 years, Link has grown and thrived through many market cycles, overcome many challenges such as financial crisis, social unrest, and even a global pandemic.

All thanks to the dedication of our team. The success that we've achieved, both financially and in terms of the impact that we have made to the communities, has always been guided by a simple vision that we launched in November 2010: to be a world-class real estate investor and manager, serving and improving the lives of those around us.

I want to extend my best wishes to Link and all my colleagues. Together, we have built a strong and resilient platform and one that will be well prepared to meet any challenges that lies ahead.

Thank you very much, and look forward to seeing how this truly exceptional organization will continue to evolve as I start my garden leave in 1st of January. Thank you.

Thank you very much. Thank you, George, for your leadership.

We will miss you, and just wish you all the best. This is Karl Chen from JPMorgan, and I have three questions.

My first question is probably more for Duncan. As we know, we are trying to identify a new CEO, right?

Just curious, from your perspective, what kind of qualities or track record do you most look forward to in the new CEO? Then when the new CEO is on board, what kind of KPI you will give him or her?

Just curious if there is any tentative timeline on when the new CEO will be on board. That's my first question on the new CEO.

The second question is on the potential asset acquisition in Australia. Just curious if you can give us a bit more thoughts on the process behind.

Number one, why are we interested in those three shopping malls in Australia? How value accretive you think it will be?

How do we plan to fund the acquisition? Would this be a pure acquisition or would this be part of the fund management that we have been talking about?

That's my second question on the Australia potential acquisition. My third question is on Hong Kong retail sales because if we just look at the tenant sales of the last quarter, it seems like the year-on-year decline actually widened a little bit.

Just curious, for let's say October and November so far, do we see some marginal improvement? What's our latest guidance on the rental reversion for the second half of the year?

Thank you very much.

Thank you. Three questions, but three or four questions in each of the questions.

I'll try and deal with point one, and I'll hand to George, but I'll give a couple of headlines on point two and three, actually before I hand to John. The CEO process, there's a high degree of transparency on it.

It's a comprehensive search. It's an international search, and there is a process ongoing, I won't comment in too much detail, but I'll give you a little bit of guidance.

We are looking for a real estate investor with a proven track record who has worked cross-border and in an international environment. We are looking for someone who has done that in a public as well as a private environment, and we want someone who, of course, will continue to uphold the brand of and the integrity of the brand in Link and bring a good degree of humility to how Link and it's in keeping with its brand operates.

I think those things are a given in some ways, but I think it's very important that we focus on those as key criteria moving forwards. In terms of timing, it's a proper process that is taking some time.

It began as a global search. It has been gone from a long list to a long medium list to a medium medium list to a medium list to a long short list.

There will be a prolonged period of time, probably, before we can agree terms with the final candidate, and it is likely a number of the candidates have extended notice periods because of the seniority in their existing organizations. The part that you didn't ask that I'll add is, for that reason, it's key that we put in the interim management arrangements that we did, promoting John Saunders to the Board, there were two executive directors, and we have the Chair's Committee for oversight and support of the strategy, with a real focus on ensuring we don't take a break or a pause in execution of the strategy going forwards during that interim period.

That's the real focus. In terms of the other two, I don't think we'll comment on specific acquisitions.

What I think I would say is acquisitions of retail malls in Australia would be very much in line with our publicly declared strategy. John Saunders often describes this as the company's superpower in management of malls.

As I said in my part of the presentation at the start, our core competence is management of retail malls in Hong Kong, the Greater Bay Area, as well as other locations in APAC, such as Australia and Singapore. It should come as no surprise to analysts or investors that we might be seeking opportunities in those markets.

In terms of the third question and the headline about Hong Kong retail sales, well, the reversions have gone down 6.4% this half. The only thing I'll add and avoid stealing more of John's thunder is there is an obvious lag effect.

There is an average lease length, a normal lease length, of 3 years in Hong Kong. If a property was let 3 years ago at the market rent, with the best will in the world, most of those market rents are lower today, and when those leases renew, they'll be at the market rent, which will be lower.

Although we are genuinely seeing increased footfall, all sorts of positive signs of recovery, the real world may be recovering positively, but the impact on our numbers and seeing it come through the numbers will have a time lag. John?

Sure. Specifically on the Australia thing, I think we've said for quite some time that we are interested in doing more Australia.

Clearly, the existing portfolio is treating us very well. I think retail is very much center and core to what we do.

This is not at all opportunistic; it's very much strategic in nature. It's an extremely good fit, I think, with what we already have down there as a portfolio and what we're very comfortable managing and operating.

There was a question about funding, etc. We have plenty of capacity on the balance sheet to fund a transaction like that.

I think that allows us to bring to bear a fast liquidity solution for that particular situation. I think they're good assets.

I think we can do more with them. We'll see what happens as we go from here.

Thank you. This is Cindy from Citi.

I also have three questions. The first one, I want to follow up on your Link Real Estate Partners.

Just now we mentioned there has been some initial success and commitment. Can you walk us through the current structure of this third-party capital with you?

Is there any target for AUM? How should we think about your pace say in 3 years or 5 years, what will it be?

In terms of the potential investment target for the real estate platform, is it similarly with a priority for Australia followed by Singapore, or any difference with your own platform? This is the first question.

The second question, I want to touch a little bit on your own portfolio reconstruction. Just now we heard you want to increase your Australia portfolio.

Is there, say, a target of increasing Australia portfolio to what percentage within the overall portfolio? Is it fair to say that you are thinking it's getting more confident and interested to buy in today than, say, 3 months or 6 months ago?

Why are you getting a little bit more interested? In terms of, say, divestment, is there any asset within your portfolio that you think can be, well, interested to sell it and recycle capital?

The third question is actually on your cost control initiatives. We heard a lot of good news that you just shared on cost controls, but that has yet to reflect in the financial result.

If I hear correctly, I think KS mentioned that it could worsen in the second half before things getting better. Can you share with us a little bit on how cost control has been doing, how would it affect our overall performance, and when it stabilizes, what type of margin levels are we targeting at?

Thank you.

Thank you. I'll give some headline answers again, particularly around question one.

Questions two, I'll pass to John and then to KS respectively for question three. The overriding principles of the strategy for third-party off-balance sheet is to buy the right assets that enhance returns and the quality of earnings for the Group and the unitholders of the Group.

We do not have a fixed AUM target. The target is to buy in the right assets on balance sheet and to buy the right assets in partnership where we're co-investing to get the right returns from the assets.

There will naturally be some management-enhancing, and there may well be some management fees that come with managing other partners' money alongside ours, which is aligned and is long-term. We're essentially a REIT that is looking first and foremost to maximize the value of its capital invested by its balance sheet.

In terms of the target returns, I think this is relevant. It is self-evident that the balance sheet returns have tended to be high single digit.

Where we allocate 10% or 20% of the balance sheet towards the funds business or special situations, we would reasonably expect those returns to be higher and to be more enhancing to provide diversification, you could look at a value-add style type of return that would be 15%-plus. In terms of I think the second question, which was very much focused, I think, I've got some detailed notes here, on timing, and then we moved on to a degree to recycling.

Yes, we'll always look to recycle, but what we would not want to do was hold on to assets, follow the market down, and sell at the bottom of the market, especially where they're assets that we have conviction on. I think there may, however, be some non-core assets that don't fit the criteria I've said in the past that might not be retail malls and might not be in the obvious target geographies that are obviously adjacent to us and we know and can operate in.

You could pick any number of offices as an example in the UK or warehousing in the mainland. In terms of the cost control, before I hand to John on question two, this year has a lot of noise in the cost control because when you make cost controls with targets, there are some exceptional items that go with that.

Again, the benefits will come through in the full annualized, if you like, normalized cost controls that we would be making. There are some one-offs this year, but essentially, the current annualized savings for the running and operating costs are a little bit in excess of HK$200 million.

John?

Certainly. Just adding a little to the third-party side, obviously, it's private capital for a reason, the clue is in the name, but what I can say is that the clients who've trusted us as fiduciaries to manage capital on their behalf so far, they are all very well known names and are all institutional capital.

I think the Chairman said it very well when he said we don't have a specific target per se, but I think our style has been to do things and then tell you that we've done them rather than perhaps tell you that we're going to do lots of things and it takes some time. I detected a couple of slightly widened eyes that, after 18 months, we do have a billion effectively under management, and I'd expect that to grow, and we'll continue to give you updates as time goes by.

Why Australia, I think is a number of reasons why Australia and why the retail sector in more detail. Australia, as I said before, it's doing us very well in terms of the existing portfolio.

I think it shows that where you have a high-quality center and you match our capabilities to it, we can produce outsized returns and accrete earnings for the DPU. It's helpful, of course, that Australia has some fantastic demographics behind it, and that affects all areas of society, including property, but it's particularly powerful for retail and retail catchments.

That's fundamentally, I think, a lot of what's driving it, and I think it makes very good use of the balance sheet because we are clearly able to invest at rates which significantly beat our cost of capital.

KS?

I think on the point that Chair articulated on cost savings, I think if you look at the business, there's probably about from the revenue line down 10% of revenue that is controllable, whether it's staff cost at the property level or staff cost outside the property level at the regional centers. I think where we have come in the first round is that with some of the staff headcount optimization or restructuring, there will be one-off separation costs, no difference from a lot of companies as they go through restructuring of costs.

This year, we will see a bit more taking in as I guess the senior departures or some of these departures will come in the second half of the year. Then like what Chairman has said, on a structured basis into the next financial year, the aim is to shoot for about HK$200-over million of savings every year.

Thank you.

Hi, Karl Choi from Bank of America. Three quick questions.

First, on the third-party capital question, just want to find out if there are any limitations to the capital that you have raised in terms of, for example, geographies where you can make the investment, and going forward, is there any guiding principle between acquisitions that you'll be making based on your own balance sheet and where you'll be tapping third-party capital to make those acquisitions? Second question is any more color on mainland China, especially Zhongguancun mall?

Looks like the negative rental reversion was quite severe in the first half because it dragged down the whole portfolio. Should we see some stabilization half-on-half?

The third question is regarding the headcount-related reduction charges. Should I clarify that you'll be making your distributable income after absorbing those charges, you won't be isolating them out separately?

Thanks.

Thank you. Again, I'm going to hand over to my colleagues, but in very simple terms, where we're working with third parties in partnership or in a fund structure, yes, the returns are higher, there's typically value-add-style returns, and yes, the strategies are relatively unencumbered, albeit they would be very focused in the region of APAC.

As I've said, the geographies could be wider, the sectors could be wider, as opposed to balance sheet, where there's a big focus on the particular four APAC markets I've mentioned and retail malls and our super strength. In terms of the reversion, I'll hand to John on this point.

I think the key factor for all of the reversions, whether they're upwards or downwards, whether they're Beijing malls in the mainland or elsewhere, is there's always a lag indicator. What's happening on the ground is always ahead of what you see in the financial numbers that come through because of that lag effect.

I think it's really important to note that as you do your modeling for the numbers, etc. John?

Yeah. On the third-party capital side versus the balance sheet, I think the balance sheet is very clear.

It continues to be very committed to Hong Kong and the Greater China area, the Greater Bay Area particularly. It's also very much a retail and, to some degree, an office-focused business, and it's fundamentally outside of Greater China, it's focused on Australia and Singapore.

That takes care of the balance sheet. In some respects, that's relatively straightforward.

Again, as you can see from some of the results, when you get the right assets with the right operational management, you can produce very good returns from those. The third-party business, the capital business, that is capable of operating on a wider scope, taking in some other jurisdictions and investment classes, it has a wider remit.

Having said that, it's still fundamentally operating in the same developed Asian markets. I think that probably covers the third-party capital side.

In Zhongguancun and the sort of reversions generally speaking in China, I think in that asset particularly, there were some challenges. There was a new mall that was down the road that came into existence, we had some weaknesses in occupancy, which is highly unusual for us because normally we pride ourselves on having very full buildings, as you can see from the results.

We had to deal with that, and in order to deal with that, that meant that there were steeper than normal reversions because suddenly we were competing, as I say, with a new offering. They've increased occupancy there.

We've done lettings for around about 35%-plus of the building overall. I don't want to be too confident in predicting, but I do feel that that is largely shored up.

Could there be some more weakness that comes from the general market? Yes, potentially.

I think we're now on a level playing field in terms of that asset. By the way, that asset is a perfectly good asset; it just suddenly faced some competition, and we've dealt with that.

As I say, as I said earlier, when you take out the impact of that particular property from the overall results in China, what's very encouraging is that we actually saw growth in reversions in China overall. I think it's with some cautiousness going forward, I think it's not a bad picture.

On the headcount reduction, I guess the way it's done is between a redundancy or retirement, there are statutory as well as contractual payments that we are obligated to fulfill. The accounting treatment is such that the expense of this payments needs to be all front-loaded to the last day of the employment.

That's why I say a lot of this will then be surfacing as we cross into the end of the financial year, into the new year. I guess when the exercise was conducted in the first half, and at the execution of this stuff is being done with notice period and all, quite a fair bit of this one-off will then be expensed into the second half of the financial year.

Thank you, management. This is Mark Leung from UBS.

I've got about three questions. I think the first one is regarding on the retail sales on the ground.

I think in first half, our tenant sales was mainly dragged by the general retail, which segment see underperformed the overall Hong Kong market. Just want to share what kind of category we underperformed.

You also mentioned about the e-commerce penetration. That's linked to the second question because I think in last week, one of the local e-commerce operator, they said they want to eliminate the brick-and-mortar retails in Hong Kong.

Just want to see your view and what's our strategy in defending our position for the local neighborhood mall in regard on the e-commerce threats. Number three is regarding on the occupancy cost ratio.

I think currently it's about 13%, but if you look on the what are reported across, seems the tenant margin is squeezing and also maybe some of the supermarkets are cutting the price. Do you think that the occupancy cost ratio may need to further trend down in the future in order to retain the tenants?

If that's the case, what is the sustainable level? Last but not least is about the Hong Kong car park.

We have a slight decline in the car park. Just want to check with management, what is our future growth outlook for the Hong Kong car park because seems the number of cars continue to did not rebound despite the population increase.

Thank you.

Thank you. I think most of these are for John.

Just to recap, I think there's a retail drag impact is your question, the occupancy cost, of which I'll just reiterate what's been said before, and that we've focused on a strategy to maintain high levels of occupancy rather than to hold out for last dollar in rents. That's because it positions the company better for a recovery in rents out of the bottom of the cycle when there's high occupancy.

I think your third question is related to that because it's about occupancy costs. I think there is a fourth question, which is about car parking, which may be a fourth that KS may want to comment on.

If I can hand to John now on the retail drag?

Sure. Yes, I guess when you look at the Hong Kong retail sales, the first thing to say is that it's encouraging.

When we were speaking a few months ago, obviously, we had a few data points, and I suppose we were all hoping that a few data points might become a few more and that we might be okay to start calling it a trend. Obviously, those figures capture luxury, particularly they capture gold and jewelry.

There was also the impact of the latest sort of iPhone offerings, whatever number we've got up to next. No doubt my children will tell me on their Christmas list.

We don't really have much exposure to that, I think that's why our figures lag a little just in a pure number sense. I think the positive to take away from this is not per se that non-discretionary lags slightly, but more that this trend of retail sales data points does start to resemble a trend as opposed to an individual set.

I'm not going to make any forward predictions, but let's all hope that that continues because that will be good for us, it will be good for Hong Kong. I suppose e-commerce, yes, you get individual data points or individual announcements, but e-commerce is something that's been on our radar for a very, very long time.

It's not something we've suddenly started reacting to because of one particular reseller saying they're getting out of bricks and mortar. I guess balanced against that, there have also been lots of reports, not so much in Hong Kong in the near term, but they've been lots of reports of retailers saying actually we've realized we need to have a combination of physical and online.

As I say, it's something we've been reacting to for quite some time, which is why you see the constant evolution of our portfolio to deal with that, whether it be the fact that on the plus side, when people come and do collections, they may be actually coming into the mall to do collections. How do we activate those people into doing a collection plus maybe staying a little longer and frequenting some of our tenant shops?

It's not all a one-way street, but it's something we're hyper-vigilant on, and we've been working on for quite some time. On the occupancy cost side, I think our occupancy costs are very very good, around about 13%.

Again, it's something that the team, Emmanuel, the team, they focus on constantly, and the level of detail that they go into and the level of partnership that they have with our tenants in respect of things like this is phenomenal. Yes, there are still some headwinds out there in terms of minimum wage and other things, but I would say again, I think we feel fairly confident that a number around 13% is a good result, and I think we feel fairly confident that we should be able to keep that number roughly where it is.

In terms of car parks, I think you have seen a reduction in the number of car registrations in Hong Kong. I think that reduction has flattened out to some degree.

Yes, we've seen a reduction in the number of ticket sales, but we've also seen some of that reduction added back in terms of the fact that we were able to push through some higher pricing, partly in terms of the fixed-term contracts, the monthlies and the longer terms, but also through the dynamic pricing that we've pushed into the malls as well. I think if you, again, not looking to give you any sort of forward forecast, but more if you look back at the history of this business, it is broadly a relatively flattish business.

I don't think you expect to see there being big negatives, and I don't think you expect equally there to be big positives. It's a good, stabilizing income and cash flow that does an awful lot of the heavy lifting without taking much glamour when it comes to having a resilient DPU.

KS?

What you have read in the media, I think there's some element of truth that we are looking at it. From where we are in terms of gearing at 22%, 23%, I think we have the capacity to buy this and put this on balance sheet using our debt headroom.

At the same time, I think there's no deal certainty at this stage, but we have already prepared pre-financing for the next financial year. We have available liquidity if we need to act fast.

I think that's where we are at this stage of the game. Can

Sorry, Simon Chong from Goldman Sachs. Just follow up on the retail questions.

John, you mentioned that you have seen some improvement or green shoots across your different malls. Is there anything that you can call out?

Secondly, I think on your point about rent being lagging the retail sales performance, can you give us a sense in how long the lagging typically would be? We understand that it's a 3-year cycle, but if you can share with us some color, that would be helpful.

Also on the cost, I think the annualized cost saving is HK$200 million. Whether you have any maybe longer-term target for the cost saving?

Thank you.

Look, I'd say the bright spots, the things that are encouraging, are supermarkets and F&B, which have both been sectors that have had some challenging times over the last few years. Seeing those actually sort of flatten out and even show in the supermarket sense a little bit of growth, I think, is really encouraging.

At the end of the day, I think the simple thing to always remember is that very roughly, we work on a 3-year leasing cycle, we're dealing in a third, a third, a third, and that should give you good clues as to how to deal with the reversionary lag. We've been very defensive in nature during the difficult times, and we will have recovery, but it takes time to wash through all of those leases.

Again, it comes back to the point about retail sales hopefully becoming a continuing trend. You can't do anything about the math.

It is a third, a third, a third. What will change the trajectory, and I can't predict it, is how much growth you continue to get in the overall retail sales.

Does it accelerate? Does it stay the same?

Does it taper off? The bigger the growth, the quicker you get out of the tail end of your reversionary lag cycle.

I think you know how to calculate that cleverer than I do. I think just on the cost saving point, it's worth just mentioning there are two elements.

One is cost savings and the annualized figure that we've mentioned, which is often infrastructure, headcount-related. The other is working more efficiently, and whilst we don't have hard cost for further savings next year, we do have aspirations to increase productivity through use of technology, adaption of AI, etc., to increase productivity, which has a net positive impact on reducing costs as a percentage.