NOTES TO THE FINANCIAL STATEMENTS 16. Investment Properties (continued) Geographical Analysis of Investment Properties 2023 2022 HK$M HK$M Held in Hong Kong On medium-term leases (10 to 50 years) 30,994 30,688 On long-term leases (over 50 years) 189,043 194,283 220,037 224,971 Held in the Chinese Mainland On short-term leases (less than 10 years) 975 49 On medium-term leases (10 to 50 years) 54,989 41,122 55,964 41,171 Held in the U.S.A. Freehold 5,270 5,049 281,271 271,191 At 31st December 2023, investment properties of HK$14,948 million (2022: nil) are pledged as security for secured loans and other borrowings. On 17th November 2023, the Group and the Securities and Futures Commission entered into sale and purchase agreements for the sale of the Group’s interest in the 42nd to 54th floors (excluding the 49th floor) of the One Island East office tower in Hong Kong, for a total cash consideration of HK$5,400 million. Sale of the 45th to 54th floors (excluding the 49th floor) was completed in December 2023 and a loss on disposal was recognised in the consolidated statement of profit or loss during the year. The 42nd to 44th floors of One Island East with a total fair value of HK$1,342 million, are included in the investment properties at 31st December 2023. The sale of each of these floors will be completed in accordance with the terms specified in the sale and purchase agreements before the end of 2028. Additions include capital expenditure in response to climate change. Such expenditure is intended to reduce carbon emission and energy use, with a view to mitigating climate-related risks and to meet carbon reduction targets. For further details, refer to the Sustainable Development section on pages 127 to 135. Refer to the table with heading “Audited Financial Information” on page 86 for details of the Group’s capitalised interest rates and the amount of interest capitalised. Valuation processes and techniques underlying management’s estimate of fair value The Group’s investment properties were valued at their fair values at 31st December 2023. 96% by value were valued by Cushman & Wakefield Limited and 2% by value were valued by another independent valuer, in each case on the basis of market value. The independent professionally qualified valuers hold recognised relevant professional qualifications in the jurisdictions in which they valued the Group’s investment properties and have recent experience in the locations and types of investment properties valued. The remaining properties were valued by management. The current use of the investment properties equates to the highest and best use. The valuation of the Group’s completed investment property portfolio is derived by capitalising the rental income derived from existing tenancies with due provision for reversionary income potential and by making reference to recent comparable sales transactions available in the relevant property market. The valuation of the Group’s investment properties under development is derived by making reference to market capitalisation rates and recent comparable sales transactions in the relevant property market (on the assumption that the properties had already been completed at the valuation date). It also takes into account the construction cost already incurred and the estimated cost to be incurred to complete the project plus the developer’s estimated profit and a margin for risk. 166