Good afternoon. Welcome to Hang Lung Group and Hang Lung Properties final result, full year result announcements. Let me introduce the speaker today. Mr. Ronnie Chan, the Chairman. Mr. Weber Lo, the Chief Executive Officer. Mr. H.C. Ho, the Chief Financial Officer. And Mr. Adriel Chan, Executive Director. Can I leave the floor to the Chairman first? Or Weber?
Okay. I think all of you have the information. Hello, everyone. All of you have the information, so I just maybe briefly talk about the highlight and then maybe we'll open up for Q&A. If you look at the page, I would say talking about the financial position, I think the financial position is intact and strong. Although if you look at the net debt, seems like it jumped. However, when you look at the debt ratio, it's more or less at 17%-19%. But the net debt is because the deposit, because we have to pay the land premium for Hangzhou, and that's why the deposit actually came down. But if you look at the financial results, overall, again, leasing revenue is strong, intact, and according to our expectation. The revenue down 16%, majority come from the property sales.
We have much less property to sell last year, therefore, led into the underlying net profit down. However, with the revaluation of the existing properties, our net profit basically almost flat to 2017. One thing we would like to highlight is in terms of our core business, which is almost 90% of our business, the core leasing business. Hong Kong is quite steady, 3% in first half, 3% in second half, and that's why overall growth is talking about 3% in line with the GDP growth in Hong Kong. However, when you look at China, if you look at our renminbi denominated growth is talking about 4%, translate into Hong Kong dollar growth 7%. If you take into account excluding those renovation area, also 7%. So I think overall, the China leasing business growing faster than Hong Kong.
Even better news if you look at the second half, because a lot of people have a question. Seems like the overall China retail spending is slowing down in the second half of the year. However, in our case, if you look at our actual numbers, renminbi denominated growth in first half is 2%, but it went up to 6% in second half. And that's why overall, the average is 4% growth, including the renovation area. But in excluding the renovation area, will be 7%. That means you can see the acceleration in the second half of the leasing revenue in Mainland China. Not only in Shanghai. If you look at Shanghai, it's from 1% - 5%. Outside Shanghai is from 5% - 9%.
Across the board, not only in Shanghai we see this growth in second half, but across the board in most of our portfolio, our second half growth is accelerating. When we look at even in January, the momentum is still very strong. Actually, the second half growth momentum continued to carry into the first month of the year. After Chinese New Year, we would like to closely monitor. I think overall, we are cautiously optimistic about our leasing business, both in Mainland as well as in Hong Kong. This is our core business. I am sure I have a lot of chat with some of you, and this is really the proxy for us to decide in the future our ability to pay more dividend.
Property sales, as you all know, left behind inventory, we have one more duplex in Kowloon, and then we have 12 more in Blue Pool Road, houses. I think the future development, as I mentioned before, we still have 26.4 million square feet to be built in China. Out of that 26.4 million square foot, one-third is the service apartment, one-third is the mall, and about one-third is the office building. So we still have opportunity to sell, especially the service apartment, because we plan to build for sale. However, the office and the mall and the hotel that we are going to build is for the investment business. I think overall, I want to just give you the overview, and of course, we are more than happy to discuss more.
Can I let the Chairman add a few comments, if any?
I just point to an apparent discrepancy of what is the generally accepted facts, and they are facts, and what we are observing in the market firsthand. If you were to look at the outside, our environment is pretty bad. U.S.-China trade and trade war, and you have the consumption numbers going down in Mainland China. People even worry about their jobs and this and that. You have some pretty negative headline news. Did you notice that the LV this morning, LVMH, announced very strong sales numbers, in particular in China, and growing it very well. Then we had the Kering Chairman here just not long ago, and they are doing gangbuster business in the Mainland of China.
That is very much in line with our experience. How on earth do I convince my shareholders or potential shareholders that the market is really, really bad, but we are doing really quite good? It is a little bit difficult. But the fact is, and I have to be honest with you guys, the numbers are really not bad. For example, just in the last couple of months and in the next couple of months, we are signing 30-some contracts, lease agreements with top brands in the world. Two-thirds of them are outside of Shanghai. The ones in Shanghai, mostly in Grand Gateway. Okay? But then two-thirds are outside, spread over Dalian, Forum in Shenyang, Wuxi, and Kunming, and even Wuhan, we signed one already, a top brand, world top brand. Okay? Now, these guys are not dumb.
These guys are smart, and they do really good market research. These guys are signing all kinds of stuff with us. In fact, Weber, Adriel, and two of our other colleagues just came back from Europe, and when you are there, the big brands that we talked to, not a single word about the trade war. Nobody talk about it. In other words, for these guys in China, at least, it is not even an issue. Surely, that has been our experience. We know that it is not going to affect our top line that much this year, because if they are signing now, they are moving in the next couple of months, and there is only a few months left for the year. Kunming is not opening until the second half of this year.
Grand Gateway 66 in Shanghai will not open until the end of this year. It will not affect our numbers in this year too much. But what about next year? It seems to me that barring outright war, some really bad things, in the economic scene, otherwise, our top-line growth from here on out, especially beginning next year, will be very, very strong. Not to mention that we have a lot of space coming on stream. I counted, we have about 8 million square feet, about 750,000 sq m, that will all be come to fruition within the next, call it 18 months. These are all Class A stuff. That does not even include the Conrad Hotel in Shenyang. None of these are the service apartments. These are all offices and shopping centers.
I think, for me to tell the investment community that, yeah, our future is bright in today's stock environment, it is a pretty hard sell, huh? But nonetheless, that is just the facts. Of course, we are also building out some of the service apartments, and every one of them is sellable. We negotiate the land deal that way, so every one of them, it is basically for sale, just to have faster cash inflow. Yeah, maybe I say enough. You want to add anything?
No, you speak and speak on it.
Thank you, Ronnie. Welcome any question from the floor. Just raise your hand, let us know your name and your organization name. Thank you. Please.
Hi, this is Phil from Morningstar. Just a quick question. What account for the 51% increase in properties for sale? I assume the Blue Pool Road has already completed construction, so there won't be additional costs going into that.
We bought some properties for future development in Hong Kong. According to the reporting standard, those got to be treated as property for sales for future development. Obviously, they are not properties that we won in auctions. So it's private deals.
Yeah.
Yeah.
Hey, hi. This is Andy So from HTI. As the Hong Kong government is going to impose the vacancy tax very soon, may we know if you are going to sort of try to speed up the sales of that site, so as by cutting the price there? Thank you.
Hello. I think we will not rush to cut the price in order to rush to sell out our inventory. As I mentioned, we have 12 + 1. I would rather look at all alternatives and see what we can do, on one hand to protect our shareholder values, at the same time to pace, in order to look at the market situation. Generally, if you look at 2019, especially, the Happy Valley or the East side, the high-end products, there will be some new inventory coming up for sale into the market from other developers. I truly believe that unless the market turn very south, the overall atmosphere of buying high-end luxury segment in that part of Hong Kong Island will be much higher than last two years. Having said that, we also prepare all the alternatives.
For example, we will renovate some of our existing properties and be ready even for rent or for sale. Because we want to look for all the alternative and make sure that we are flexible enough. That's why we will not be rushed. At the same time, we will look for alternative and therefore we will be more flexible for us to decide when the market actually come to the situation that if we believe that it's better for sale, we sell. If it's better for rent, and if we can rent with a good price, we rent.
Given the relatively small amounts of inventory, either way, the vacancy tax, the financial impact would not be significant to us at all.
Thank you.
Thanks. Fan Tso from Merrill Lynch. A couple of questions. On Grand Gateway, I remember last time you mentioned about the AEI will mostly complete by the middle of this year. Now we are talking about by phases late this year. Can you share a little bit more about the causes for the delay? At this point, do you see any further risk of it delaying to next year? Then, sorry, one more question on the new assets. On Kunming, the retail, very encouraging 75% pre-let, but any color on the office side? For Wuhan, just on the completion, you talk about by phases in 2020. Is it more front-end loaded or back-end loaded? Just for modeling purpose, but that may also impact our dividend outlook. Thank you.
Quick comment on the Grand Gateway. There must have been some kind of miscommunication because we have already delivered Phase 1 of the renovation, and Phase 2 originally was slated to be delivered next year. We have actually pulled up the progress, and we are accelerating that. So we are delivering that before Christmas to catch two things. One is to widen the time gap between us and IFC. The second one is to catch the Christmas sales this year. So actually, we pulled the construction phase forward. It is not delayed. Then, I guess the second question is on Kunming, the office leasing. So the office leasing or Kunming, the retail leasing is still doing very well. 75% actually. There are quite a few deals that are very close, but have not fallen into the 75% signed.
We hope that that number should actually increase quite significantly within the next couple of weeks and months. Those would be some of the big brands that many of you, I am sure, are wearing today. The office tower in second-tier cities is always harder to pre-lease. The nature of the market is very different from Shanghai, Beijing. In Shanghai, Beijing, you can open an office pre-leased 50%, 60%. But in second-tier cities, the nature of the tenants is very different. We do not expect to pre-lease quite as well. That being said, what we have done so far in Wuxi has been very promising. We are delivering that second office tower in second half of this year. We are already about 10% pre-leased, with quite a few good prospects and good tenants too.
I will supplement a few things. Number one, in the Grand Gateway. When we opened Plaza 66, we finished in 2017. The rent went up 20%+ the first year. Then again, it went up 12% this year. The retail sales went up even higher, 26% versus 13% this year. In the Phase 1 of Grand Gateway, which is already open. Again, the rent went up 10%, 20% already. We think that these AEIs really works. Our tenants are very happy with it, including the biggest of fashion brand names you can name. For those of you who visited, there is an LV pop-up store in Grand Gateway already, ahead of their full line store to come on stream. The business that they do in the pop-up store of LV is very good.
The pop-up store is in the middle of the construction zone as well, which they were very happy to take and are doing very good business.
I think the issue to LV's pop-up store now is they are running out of inventory to sell at the store.
I think that's one. On the Kunming question, I think it is very likely that the day we open Kunming, you will have a, shall I call it, a small Plaza 66, hopefully. Meaning that it will be a HOME TO LUXURY as we have been using that phrase, HOME TO LUXURY, for that city. Just like Center 66 in Wuxi. There used to be two guys that has all the major brands. During the tough years between 2011 and 2017, of course, they are not moving. Basically, they are now moving to our place, migrating to us in a drove. I think that Center 66 is for sure the Plaza 66 of Wuxi, if you will, the HOME TO LUXURY. We will open the office tower in Kunming basically the same time as our shopping center. For Wuxi, basically the same thing.
Wuxi actually, even the service apartment will be not too much after the opening of the shopping center and the office. In the case of Kunming, we are still studying because there is a lot of demand for hotel, for example. There are many things. We are going to open the shopping center and the office basically in one go towards the end of this year. Say Q3, Q4. I think I answered your question.
Thank you.
Just very quickly, you mentioned the timing of office towers. In both Kunming and Wuhan, the office towers should be opening virtually at the same time as the mall. They may be plus or minus just a couple of months. There should not be an impact of construction on either of them.
Also you would add daytime population to the mall very quickly. With form. Any further questions? There must be some. Nomura.
Thank you, C.F. Thank you, guys.
Nomura, the only one that said we're going to give HKD 0.77.
No, not anymore.
That is what the newspaper said.
Can I hear more from you on service department? You kind of emphasize it is built for sale. Can I hear more about the rationale behind it? Say the pace, say the sellable resources, how big is that, et cetera. Thank you.
Out of the 26.4 million square foot to be built, about one third, about close to 7.8 million-8 million square foot are service apartment. The service apartment are in Wuhan, which the first one will be coming up will be Wuhan. The second one will be Wuxi. The third one and the fourth will be Kunming and Shenyang. Overall, what we plan, because this is our commercial land that we bought. You cannot do pure residential. At the same time, this is the center of the cities. Think about it. Will you be allowed to do a residential in central? It is difficult. Therefore, I think when we bought the piece of land, we basically got a good view that those service apartment that we build, we can be able to sell. I think that is really a good plus.
At the same time, with the whole mixed use of more office, hotel, and service apartment, that will basically support each other and create ecosystem, which will be the highest end of that particular city and at the best location on that particular city. I think our strategy are quite different from other developers. Some of the other developers, when they bought a piece of land, they sell the service apartment or residential first and to get the capital in, and therefore they build the shopping mall and the office later. Our way is harder because we have to get the money from mall and office first, but once you get the center of the city and become the ground jewel of the city, the service apartment, the added value actually will be much higher.
What we are trying to do like Wuxi, now we are already taking the leadership role of Wuxi by having all the brands coming in in the next 12- 18 months. With the tower one almost close to 90%, and with tower two coming up, basically we corner the market. With this position and with the service apartment coming up, this is the best location of that particular city. I would say, we will have an estimation, but I do not want to forecast too long because it takes time. The good news for our service apartment is the construction time is shorter than the office building because it is not that tall. At the same time, we can pre-sell 18 months before the completion. Even though some of those we target to complete by end of 2022, we can sell in 2021.
I think it takes a few years for us to get to fruition of those construction. At least those pipeline will actually have the seamless kind of sequence after we sold all our inventory in Hong Kong. Therefore, we will have a lot of, hopefully, the good pipeline for sale of inventory of the development properties.
There may be also a small hotel. Sometimes it is necessary because our office clients, when you have enough office there, they want one. It can be very small, it can be 50 rooms. It can be 315 like in Shenyang. Also, a land lease has a limit. For example, this morning I was checking again, Center 66 Phase 2, it is a 60-year lease. Hey, do not wait too long. Because you asked about the rationale.
Just to supplement the point by Weber about the pre-sales of apartments in the Mainland. If we started the pre-sale program in 2021, cash will start coming in in 2021. Then we will start recognizing the income in 2022 upon completion.
Thank you. Goldman.
Thanks. Justin Kwok with Goldman. Perhaps I want to focus on the two malls, Tianjin and Shenyang Forum. I think for the Forum site seems to be further stabilization being seen in the second half of the year, where Tianjin we are seeing some falling off because I guess you wrote in the statement that you're entering in the second lease term. Want to hear your thoughts on where into 2019 are all these being settled or do you think we still have some disruption further before we are seeing some growth back on that? Perhaps the second question is on the margin. You have some uplift this year. Is it now a new normal or do you think with a lot of these and new opening coming in, we'll have another few years of lower margins again? Thanks.
You mean low margin?
Lower.
Lower.
NPM margins in China.
Oh, okay. I think to answer your question, Tianjin and most of the Dongbei, I'm sure you guys follow us for a long time, we work very hard. As you mentioned, Forum, we basically bottomed out. We have spent quite a few months, or even a year to reshuffle the tenant mix, and now really come to the point that at least the retail sales coming back, and hopefully with those top brands joining us, and then also with the Conrad Hotel 315 rooms coming in, the ecosystem or the whole atmosphere will be quite different. Okay? Tianjin, tough market. Overall, the city itself, very tough. Especially, I think unfortunately, at our mall outside, they have a road construction in front of our main entrance for seven months out of the 12 months last year.
Therefore, you see the second half drop off a little bit versus the first half. However, you see our occupancy driving up the sales. We hope to really maintain. We do promotion and try to drive people coming in. At the same time, of course, you know Joy City quite close to us, and there is competition. I think we are facing both the competition as well as some, I would say, short-term disruption because of the construction. But we are working very hard and try to continue to upgrade ourselves. And we are bringing in some of the good brands which will be able to drive traffic to our L1. We just opened LEGO, the flagship store in Tianjin, the first one. The footfall is quite good, and then they are making good sales. We are continuing to introduce some other lifestyle brands.
According to what the Chairman said, they are not luxury brands, but they are lifestyle brands. They will be able to drive traffic for us, and therefore, hopefully, we can do what we have done for Shenyang on Tianjin. But other than these two, I would say, all the other malls outside Shanghai are, at least according to our plan, quite satisfactory in terms of footfall, in terms of retail sales, and in terms of rental increase.
Any Tianjin in here? Anybody from Tianjin here? I am the only one? I can say honestly, I am very disappointed with Tianjin as a city. We are treading water. But who is winning? Answer. Nobody. There is not a Joy City, but just a block from us. That is very low end. Really one star, two star type of thing, huh? Whereas we are four. And they have a lot of people. But things are so crazily cheap that even if you sell a lot, you are not going to make a lot of money. And so they are the only one that is doing well. You look at Galaxy, you look at the other guys, nobody is doing well. And so, in fact, we may be taking market share from somebody, but it is a market that is really pretty meager.
For now, we are not too happy about the city rather than just ourselves. But anyway, we do our best.
If you have the opportunities to go down, it is actually, I think, still worth visiting. I think the quality of the foot traffic and the quality of the tenants, and so therefore the quality of the sales is actually increasing. The brands that we have brought in, especially on the first floor, but including the cinema, are keeping people longer. It is actually qualitatively, it is actually a fair bit better. But on paper, it is still very tough. I mean, in reality, it is tough.
One thing actually, I think is the public information already. We are renovating the entrance, because it is the old bank properties attached to our mall. Basically, we will renovate it to put Starbucks in, and they have the best Reserve store inside that places. They will invest a lot of money. If they are in, which is in the middle of this year, that will be able to attract traffic through them into our mall. So they invest a lot of money. This is their second project after their Shanghai [Taikoo Hui]. What is the name? Reserve or?
Yes. Starbucks Reserve.
Starbucks Reserve. With the historic buildings. I think they put a lot of money in, which we share the vision with them, and then they are happy with our vision. Hopefully with all this, we are continuing to upgrade the mall, upgrade the quality of the traffic. At the same time, we will take ourself to the next level.
Thank you.
Coming back to your point about margin, if I may just supplement with one or two points. Rather than giving you a specific forecast or projections, this is an overall trend I see. There is room for us to enhance the margin out of our Mainland business further. For example, Grand Gateway's reopening after renovations. Taking experience from the North building after refurbishment, the rental reversions there, we will expect to see higher rental reversions when the South building reopen later on this year. For Wuxi, together with other non-Shanghai, outside Shanghai Mall, Ronnie talked about over 30 odd new contracts that we have been signing, many of those with major brands, top brands. The rental rate of these new leases will be much higher than existing ones. So they would give us rooms to enhance margin in Wuxi, Jinan, and other cities.
Based on the pre-lease situation of our mall in Kunming, about 75% leased already. Even before we talk about some really top brands leases that we are still negotiating, the average unit rents that commit so far in Kunming Mall is better than what we expected outside some of our Shanghai mall, outside Shanghai Mall. So putting all this together, personally, I see that there is room for us to enhance the margin further.
The actual fact, at least Mainland China this year, the margin we have 3 point increase. If you exclude Shanghai, we have 5 point increase. So we are focusing on project profit margin, rental margin improvement. This is exactly the focus of the team for our existing project. At the same time, with all those Chairman and H.C. mentioned, those will be on top and above on the whole effort that we are putting together.
But you're right. Because we're opening Kunming later this year, there will be some opening costs as there have been with all of our malls. Those are inevitable. But at the same time, the opening rate of this mall will be higher, and as H.C. just said, at a higher rent as well. So we're hopeful that there will be some offset. Then, as I mentioned earlier, the office towers for both Kunming and Wuhan will be opening in very close time proximity to the mall, which means there should be minimal disruption, and also income coming from the offices as well.
Okay. There's a question from HSBC.
This is Raymond Liu from HSBC. So congratulations for the great result for the in terms of retail sales growth and other things. So three questions from me. The first question actually also about the service apartment. One thing is, I would like to know, does Hang Lung Properties need to pay any Land Appreciation Tax if you dispose the projects? This is the first question. And actually, for timing for launches, how do you decide the time of launch? Do you consider it from the cash flow perspective or the timing of the when the property price is really nice or the profitability is really good that that's the best time to dispose? So this is the first question. And the second question is something related.
Actually, after the acquisition of Hangzhou project last year, the net gearing for the company should continue to go up in the next two, three years, based on my projections. So what would be the optimum net gearing in the coming future?
What would go up?
Net gearing.
Oh, net gearing.
Net gearing. What would be the optimum level that you are very comfortable with? The last question is actually about the guidance on dividends. I believe all the shareholders and the potential shareholders would love to know our Chairman's and all the management's expectation that will reward us in the coming future. Thanks.
If I may just take the first and the third question, I leave for Weber or others to answer the others. As far as I know, nobody can escape from Land Appreciation Tax in China legally. I do not think Hang Lung can escape from that either. In terms of the gearing, it is all planned with our capital commitments and construction activities in China. We expect to see our gearing would go up to something like 30%. Now, in the meantime, if there are good opportunities, good investment opportunities or land banking opportunities come along, gearing could go up or beyond 30% for a while. But with our high quality and recurring income and cash flow, we will not feel too uncomfortable with it.
Is that the net or-
Well, actually, moving forward, both net and growth will be quite similar. Unless we will continue maintaining a high amount of cash balance, which will not be the case.
But right now-
Right.
It is representative.
Right now it is. Yes, 10% difference. Okay. Around 25%-30% gearing is what we already planned out for our current projects.
I think to answer your question about whether we want to sell when the price is right. To be honest, today, look at the market like Wuhan. The current price today, I want to sell now, even if I have that completed. I think we have to kickstart the project because today the price is favorable. If we can sell at the price that we project, we would want to sell as soon as possible. However, we have three tower. Normally, that incurs strategy. You will not put all 515 to sell in one go, right? You want to test the market, you want to try. I think different strategy will be employed in different cities. But I think this is one of the very good opportunities for us to earn profit, at the same time to recycle capital.
I will not be shy if the price is right to sell.
Let me just add on that. Actually, if you look at the ordering in which these cities are coming up for completion for the SA, service apartments, it is not a surprise that the most expensive market, Wuhan, is the first to be completed, and will be, for us, the first to hit the market. I think the average price. Some of the top prices in Wuhan right now, I think, are like 40,000 per square meter. Our intention is to be top, top of the market. We are not coming online for a few years. The next city would be Wuxi. They are already hitting 30,000 per square meter, and we intend to be the best in that market as well, followed later by Shenyang and Kunming, which are closer to the 20,000 mark.
Those projects, we do not intend to complete those service departments also for quite a few years. There is a reason to why the stacking is what it is.
Follow the question about.
She is a very good accountant. I am not an accountant, I am a business guy. I take risks. 30% debt, not that it bothers anyone. It does not take into consideration what are we selling? We are selling a lot of stuff, right? Mature properties can always be sold, and indeed, there are all kinds of possibilities that we are looking at. It is a lot of cash inflow. Plus, what I said earlier, that I surely expect top line to grow very well, starting next year. If you just look at one side of the equation, sure. I think that there are compensating factors, and I will be happy to bet that we will not reach too high of a debt level.
There is a question from the webcast. Do you have an appetite for any more big projects in China? You want to buy new land?
Let me say this. In as much as our future looks pretty bright in the next one to two years, as I indicated earlier, let us not forget that the market out there and the overall economic situation, even in a geopolitical and geoeconomic level, are not something that make anybody very comfortable. I am not sure if this is a time to really dial in and go big time. Rather, I think that we need to be very defensive in things that we do. You see that we have increased our debt capacity. We have not drawn anything, but we surely have a lot of facilities. We did the panda bond, the first green panda bond ever last year. Then we are looking at selling mature properties in Hong Kong. There are many things that we are doing to be precautionary.
If we are buying anything at this stage, it would be really, really strategic. I do not think that we are ever as cautious in buying new stuff as we are today, because let us face it, the world out there is not beautiful. The fact that our numbers probably will be quite favorable in the next one to two or three years does not mean that we should let our guards down.
Thank you. We can accommodate one more question. You want to have a last say.
Thanks to management. Alvin from CLSA. Coming back to the accelerating rental growth across the China portfolio. Is the meaning driven by increase in base rents, turnover rents or occupancy, and how do you see this in coming figures? Also, how does this compare to the rental growth? How is the occupancy cost right now? Thank you.
Well, let me answer the first half and then Weber will continue. It is really a combination of many sources of rent growth that we can see. Number one, as I mentioned, all the big brands that are coming in. Surely they pay a lot more rent than the regular stuff, right? Just tenant changes, upgrading, that is very, very important to us. Number two, we have a lot of space. I just mentioned already 750,000 sq m coming on stream within the next 18 months, right? Yeah, 18 - 24 months, say. Then, usually tenant mix in itself should be able to bear some fruit. Number four, all the AEIs that we are doing are now bearing fruit that will flow in the next one to two, one to three years. So there are many sources for our rent growth.
It is organic as well as new space. Weber, you want to?
Yeah. I am new to this industry. I learned so much in the last eight months. But a few example in our portfolio actually prove that when you get the critical mass, especially the luxury cluster, that acceleration should not be underestimated. But when you start off your mall, when you do not have that at the first place, you need a few years to make sure that you get the basic right. So I think our Parc 66, our Wuxi Center 66, prove to us that once you get into that point, your margin growth are quite steady and sustainable because you get the traffic, you get the right quality of customers, and then they continue to buy the brand, notice that, and then they would like to get it together.
For some other mall which mentioned we are still putting our execution in place and trying to get the basic right, those we need to make sure we put those elements in at the Phase 1 or the first lease or the second lease. I would say, as Chairman mentioned, the combination of positive rent reversion, of course, occupancy rate increase. If you look at our occupancy rate increase this year across the board, our occupancy actually growing up. That means the mall is getting more shops than before, and you get a lot more traffic than before, the retail sales will income. That is why our occupancy costs actually year-on-year, all the mall, except the disruption in Grand Gateway and the Riverside, which we just mentioned, all are actually coming down in terms of occupancy cost.
That means the retailer are happier because they sell more, and at the same time, our rent is reasonable, and therefore we will have a chance to have a rental reversion next cycle. Right. I think overall, I think this is the strategy. We want to get the economy of scale, the critical mass quicker. Hopefully, Spring City will get that critical mass on day one, and therefore that will have the acceleration on day one. If you couldn't get on day one, you have to get the basic right and get all the elements right, and therefore all the other mall shows to us that it will come because we occupy the best location in the city, we have the best hardware, and then we are implementing the best software, and then we are confident that we will continue to attract those brand.
Those luxury brand will have a kicker, and therefore those rents and unit rents will improve.
Thank you. Probably the last question.
Very last question. Riding on what you have learned, what do you think of Kunming opening? By opening, would that critical mass be reached already?
Overall, today we already have 75% leased, not counting on those top brands. In the next couple of weeks, hopefully, we will conclude most of those, and by, I think two more months, we are pretty much there. I think we have quite a good chance to start off on day one, to have all the luxury. Now, we don't have all, we have most, but we want to have all. We just need a few more months to confirm and finalize. I think this is really day in, day out, we have to work hard and why we were in Europe two weeks ago, and we want to make sure that we share our vision, we share what we have built. We also tell them that today we already complete most of those construction.
We are in the process of getting all the preparation work before we open and give them confidence and tell them what exactly we would like to build on the SA, on the hotel, potentially. All adds up together. I think hopefully in the next one month or two, we have more good news to share.
I don't know if you can tell, but I think management are actually quite positive. The only thing is because the market is so troubled outside, it's hard to be too positive. Otherwise, we seem like bucking the trend too much, too dramatically. But I have to say, based on the health of all of our malls and the leasing progress that we've managed in the past few months, I am as positive, or I should say more positive even, than I've ever been about the operating prospects of this company. Plus, we have so much in the pipeline now with Hangzhou. I think that we're really positioned very strongly for growth.
Thank you very much. That concludes today's presentation. Thank you very much for coming.
C.F., can I just add one thing because nobody asked about Hangzhou. Just to let you know that there's going to be five office towers, one hotel, so six blocks, plus a podium. A little over 1 million square feet of shops, and then the rest will be offices and hotels. Including the tallest building in that whole region, which has a beautiful view of West Lake.
Thank you very much.
I expect Goldman and CLSA and HSBC and Merrill Lynch and Deutsche. Oh, forget about Deutsche, they don't. Everybody else, CLSA, should all be our tenants in West Lake sometime.
Thank you.