We just announced the full year results. As you know, this presentation is also being live broadcast to all the investors around the world. Without further ado, I will pass on the time to Ronnie.
I'd like to hear what you have to say. I think we are so transparent, we're so simple a company that is easiest to understand. I suppose there may be some questions, but why don't you ask? Unless Philip has something or actually have something that you want to say.
You're welcome to raise any question. Before you do that, please raise your hand and let us know your name and the organization. We'll take the first one. Sarah.
Just to break the ice. Sarah Cooper, Merrill Lynch. Can you give us an update on trading at Wuxi?
Philip?
Generally very good. Wuxi is actually doing quite well, I would say. As you know, when we opened the mall on September 16 last year, there are one or two spaces that are still yet to be let. We had actually either let them or in the final stages of discussion. It is still in the mid-1990s, I would say. That is the figure we announced for the entire mall that is being let. That is pretty decent and the general sales figures are okay. Footfall is very satisfactory. I always loved that story on the opening day, which I keep telling everybody, which is this. Just before the opening day, one brand name came to us and they say, "Well, I am very sorry, but we cannot open a store," and da da da da da.
We decided, "Well, if that is the case, we do not want you around here." We probably will have an empty store. What do we do then? If you have been there, you remember we put The management team has a very good idea, and they put two Ferraris in there. It looks a display of two very prestigious cars and to occupy that space. By the end of the opening day, those two cars were sold. So much so that actually Ferrari and Maserati, they are now negotiating a permanent space in that mall, and obviously we will not give them that first store prime space. We will actually put them into a corner somewhere, and that deal is being done.
Wuxi is a very good city. You like the design? How many of you have been to Wuxi? Center 66, right? No more? Only three? Oh, I am disappointed by you all. You should come take a look. It is really very nice place. Well-designed.
Second question?
The journalists have a lot of questions, but they are, for the most part, not that—
Macquarie?
—informed questions. The analysts have no question.
Hi, my name is Kai Tan from Macquarie. Just a couple of questions. Number one, just ask you the occupancy cost at the couple of projects, particularly the new projects. Could you update us what is the occupancy cost for these projects, as usual? Number two is, what is your strategies for the China IP market, particularly the office parts of your portfolio?
IP mark—
The investment property market, particularly for the office towers. Last time you talked about you could potentially sell them and what's your latest view, given half year has gone. Number three, just back on Hong Kong. Just want to ask—
Oh, can you wait?
Yeah, sure.
I didn't sleep much, as is always the case, because I have to write the chairman's letter for the board meeting in the morning. By the time you get to the second question, I forgot the first. How about I take the occupational cost, occupancy cost, and you take the other one. How about that?
Okay.
The occupancy, obviously, if it is a new shopping center. Well, first of all, it is a reflection of the relative bargaining power between the landlord and the tenant.
Right.
Number two, the beginning part of a shopping center, if you have sufficient bargaining power, occupancy cost will be on the high side. I think that to simply say that occupancy cost is too high, is not sustainable, it cannot raise rent. I think there's a Chinese saying, "Too abrupt a conclusion." You have to take many things into consideration.
Then, of course, I take an extreme case such as Apple. Apple stores are not meant to sell. Apple stores are meant for customer experience and learning of new products. Apple stores always have base rent, but basically no sales rent because it's not there for sales. So the occupancy cost can be very high. An e-commerce expert told us in the mainland recently that 80% of the customers that go into an Apple store, they don't expect them to buy a single thing, or they go home and then get on the internet and buy from another source, such as online. So that is an extreme case where occupancy cost doesn't mean anything. Now, then there are something that is in the middle that we don't like, and that is people use it as an advertising place.
Right.
Now, there's a lot of landlords, as you know, in the mainland of China, where they pay the tenant to move in.
Right.
Or they have no base rent and just sales rent. So that's basically an advertising space, if you will. Then it comes out of a different budget. It comes out of the marketing budget.
Right.
So what I'm saying is that there are many, many reasons different stores have different relationship with the landlord. So it is a little bit complicated. I think you should congratulate me for being able to have so much power over the tenant to the extent I do, that I'm able to negotiate a higher occupancy cost. Obviously, at the end of the day, you have to be able to generate sales. There's no question about it.
But here is another point that is worth noticing, and that is from day one, not today, not last year, 10 years ago, 12 years ago, we always insisted on a strong, healthy, solid base rent. At that time, you don't have all those obscenities such as landlord paying RMB 30 million or whatever for Gucci or whatever to move in. We didn't have those things in those days, but still, already, we insisted on having a solid base rent. And that is precisely to prevent that kind of possibilities. And now we still do, and we still negotiate a solid base rent. I would dare to say that our base rent is probably higher than most people in the city in which we compete in.
The beginning stage of a shopping center, it's obviously a break-in period, where the citizenry of the city has to get used to the fact that there is a new shopping center there and so forth. So before sales goes up, occupancy cost will be high, such as 30%. It's possible. But as the property matures, say towards the end of the first term, that number certainly will come down.
If I may supplement, actually, from the retail sales of various malls, especially outside Shanghai, we see a growing trend. In other words, the occupancy costs for most of the malls actually are coming down. Your second question, Kai?
Oh, yes.
Sorry, can I talk about the offices first?
Yeah, that is my second question.
Okay. Sorry.
The strategies on China Investment Property Offices.
Offices. I think at the moment, as you know, we source a lot of office revenue, mainly from Shanghai. In the main, Plaza 66 has got two office towers commanding very good rent. The occupancy rate at this point in time is, of course, high 90s. Obviously, with a little bit of change of tenant and renovation, that sort of thing. High 90s, I think, is a very good situation. Grand Gateway, maybe about mid to high 90s. I think that's roughly the occupancy rate at this point in time, taking a snapshot as of December 31st. The growth in revenue is about 7% year-on-year, and that is higher than the same year-on-year comparison a year ago.
That's pretty good, I think, because if you look at the Shanghai total market, the occupancy rate is about 92%, 93%-ish, and there's a lot of supply. Obviously, you can argue that in Shanghai, the absorption rate is very high. Yet, Plaza 66 is still a premium address in Shanghai, and Grand Gateway is a very convenient, very popular space for people covering that side of East China and Shanghai. All in all, I think they are still doing very satisfactorily. Outside of Shanghai, as you know, we are building an office tower in Wuxi and an even bigger office tower in Shenyang, Forum 66. They are still being built. In our plans, there will be office buildings in Kunming as well as in Wuhan.
What are you going to do with those? Are you planning to sell any of them?
No plans right now to sell. One possibility, which we have been working on, is actually put the hotel and the office in the same building, which is nothing new. A lot of people have done that. That is one possibility, because when you have about 4.5- 5 million sq ft, such as Kunming has about 4.5 million sq ft, and Wuhan has about 5 million sq ft. Having a hotel is something that should be considered. If you are as big as Shenyang, then you basically have no choice, which is a 9-million-sq-ft property. We may do that.
Just one last question, back to Hong Kong. Looking at your margins for your Hong Kong investment properties, it seems that there is a bigger seasonality this year between first half and second half. Half-on-half , you see some margin contractions. I am just wondering, anything particular happened or it is just normal seasonality? Or particular?
You mean the investment property?
Investment property.
Investment property.
Not residential.
I didn't notice. Was it that big of a difference between the first half and the second half?
[inaudible].
Okay. All right.
Hong Kong figure is a little bit misleading because you have got to really compare like with like. Because last year we disposed of some non-core older buildings, and actually got some cash in, of course. But if you compare like with like, actually the growth is 9%, which is a very hefty, nearly 10%, nearly a very good increase, I think, year on year. I am not really aware of huge fluctuations in terms of margin. Can you, H.C.?
From memory, I think the Hong Kong property margins actually edged up by one point from 84% in 2012 to 85% in 2013.
Yeah. I agree with you. Just half on half, there is a little bit difference. No worries.
Okay, we got a question here regarding the performance of Shanghai retail portion. One question was whether we would sort of reposition Plaza 66, given the increased competition from newer malls, like from other players in the market. Whether we have any plans to change the positioning of Plaza?
I think that would be insane. Plaza already has established itself as the top luxury mall in Shanghai, if not in the country. Obviously, the market is growing and there's room for other people to play. Now there are one or two others, very, very good world-class luxury malls in Shanghai. Shanghai certainly can sustain two to three, if not four, really high-end, well-designed luxury malls. For us to react just because recently, anti-corruption, anti-opulence for the government officials and what have you. Just because of that, then you reposition it. What do you reposition it to? You cannot reposition any higher, because all the top brands are already there. I assume that question can only reposition downward. Why should we? There's plenty of other so-called four-star malls in Shanghai. Moreover, Plaza 66 is a very small facility, only 600,000 sq ft. It's not that big.
I see no reason whatsoever to reposition and overreact just because for now, the luxury sector is a little bit underperforming the others.
Right. One question was, how was the Shanghai Mall performance compared to previous year under the new competition, as well as the cold wind of luxury goods sales?
The cold wind? The what?
Well, slow down.
Oh, slow down.
Yeah.
Oh.
Winter.
Winter cold.
No, we're up about 6% in Shanghai. Given today's very difficult position, I think it's acceptable. Of course, I'd much rather have a warm winter and up 20%, but it is impossible under today's environment. Frankly, I really don't know when the winter will be over. I think that my personal hope is that the government will not let off the brake of anti-corruption, anti-opulence. It's good that they do that, because otherwise, in the long run, if they don't deal with corruption, you can destroy the economy, then it's not to anybody's benefit. I would much rather that they deal with it now. After all, not all consumption in the luxury sector is from government gifting. A lot of that is really people who have a lot of money. Let me tell you something.
Just in the last month or two, several mainland people told me what they heard when they heard about Blue Pool Road. They all want to buy. I said, they asked me what's the price. I said, "I can't tell you the price. We haven't listed the price, so I can't say it. It's against the law for me to say it." You know how big it is, close to 5,000 sq ft. You know what the analysts say what it has cost. You multiply that, and you know how much roughly each of the units may be. I have a gentleman tell me, he said, "Can you reserve two for me?" Until I see the money, I'm not going to be overly excited about it. Nonetheless, I think I made my point.
Thank you. Justin from Goldman Sachs. Two questions. Actually, on the margins for the China rental side. I just want to get a sense or understand more in the second half. Is there any one-off related to, say, the Palace 66 tenancy shuffle, or is it how much of the effect was coming from the Wuxi new opening and for the mature portfolio, what was the margins in the second half? Because we saw some deterioration. This is first question. The second question is, can you share a bit more on what you're seeing in Tianjin and what you're achieving right now in the preceding—
Wait. Let's finish your first one. The rental margin in Shanghai basically stayed where it is. Basically, overall, in all our shopping centers, basically, it did not improve, which is already something new to us. Right? I don't think that there are many places that deteriorated. It's just a very tough operating environment right now for our type of business. So be it. Winter has come; winter will go. It will go back to a more normalcy. My point earlier was really there's a lot of money in the system that people make money properly, legally, and these guys will still be buying luxury goods for a long time to come. Sorry, second question.
What are you seeing in Tianjin, and what is the progress, which you see the next opening?
Tianjin is interesting city. I do not know if there is any Tianjinese here in this room besides myself. No? I am the only Tianjinese here? I can say something, right? Without offending anybody. Tianjin, the government is a very difficult place to work. Just consider the fact that we bought land there earlier than anywhere else outside of Shanghai. That was the first piece of land. Four shopping centers have already opened, that the land was purchased later, and yet we are completed already. Only now is Tianjin ready to go to the market, probably toward the end of the third quarter this year. Right? We are also learning another thing. That is, the fame of a city is not necessarily correct, that reality may be quite different from what people think of certain city. Some cities, you think that they are very good cities.
In commercial terms, not that good. I have several in mind right now. There are a few others that people do not think much of, but actually is a very vibrant place as far as retail sale is concerned. Tianjin is not an easy one. On the other hand, in the long run, a lot of people say, "Well, that is a lot of oversupply in Tianjin." I was in Tianjin recently and I visited many shopping centers. Frankly, I do not see many that are really anywhere close to the quality that we have. Now, obviously, we are not open yet, but basically, I know what it is going to be. In the long run, I think that we can still become the, at least one of the leading malls in the city. But we will have to work at it. In some places, a lot easier.
Perhaps Wuxi, perhaps Jinan. Jinan is not extraordinarily strong retail-wise. It is okay. It is strong, but it is not extraordinarily strong. But we are the only one. There is no competition. In Tianjin, we will have to work at it. Now, some people ask me, what kind of initial yield are you expecting? I am just asking a question that perhaps it may be on your mind. We still tell people 4%-5%. We stick to our line. But the reality, of course, is that in the last three that we opened, like Wuxi. Wuxi is going to be very similar to Jinan. Jinan end up our first year at 7.9%, very close to 8%. Forum 66 opened 9% or better. So we tell people 4%-5%, but the reality, we have been able to do a lot better. But I really hesitate to overpromise for Tianjin.
I think that Tianjin, we have to work at it to earn our keep.
Thank you.
You just mentioned that the occupancy cost for the projects outside Shanghai has come down from last year. I just want to know where we are now and how much it dropped from last year.
Still pretty high. Still roughly 30%.
For all four projects?
Sorry?
For all the four projects.
Basically. Because they are all new.
Okay.
The average age is about two years outside of Shanghai, the four that we have. Of course, Palace 66, the oldest of the four, as you all know is the difficult one for the last three years. You really cannot even count that. The reality is Palace 66, I am very comfortable about Palace 66. I think Palace 66, it is going to be a winner. We had to fix a lot of problems, as you all know, and we fixed them. We have a very strong team there. The problems are now fixed. How do you know? Well, the sales volume. No, there are two things. One is footfall, the other is sales, retail sales numbers. The retail sales in Palace 66 in the last year or so, in spite of tenant turnover, which means some vacancy.
You shrink the number of square footage that is actually doing business. But the total sales for the shopping center has been growing by double digit. The same thing with Parc also, has a very similar situation, where the sales vacancy went up because of the changing of tenants. But 10%-20% growth in sales. That's a good sign.
Actually, in terms of retail sales, both like Parc, as Chairman said, the growth was about 15%, 15%-17% last year. And even Forum, up 15% in terms of retail sales. And Palace, Chairman said, about 10% in terms of retail sales growth year-on-year.
But also the second half of last year was far better than the first year for Palace 66.
Praveen?
Hi, this is Praveen Choudhary from Morgan Stanley. Henry, can you talk about the Hong Kong residential outlook? What do you think about the regulation, interest rate, and affordability here? Also, what's your plan for Blue Pool project? Do you want to keep it for rental or do you want to sell it? Thank you so much.
I'll take the macro question. I'll leave the Blue Pool Road to Philip. Although, I may be the first if we ever sell them. Too bad I don't get a brokerage anyway. Otherwise, I'll buy you lunch. I think the residential market in Hong Kong is in the right direction. There's a Chinese saying, if you have 3 ft of ice on the road, it's not because it suddenly turned cold yesterday. Right? It is a long history of not selling land for about what? 10 years. Worse yet, there's no land bank the government can use when they need to sell land more to adjust prices. I think this government is absolutely doing all the right things to address that problem. Once people are convinced that supply is really coming, then we'll begin to see price moderate. Well, moderate maybe the right word.
Also, one of these days, I certainly expect all those Double Stamp Duty and all that extraordinary measures to be removed. I fully expect that. Then there's a question that people ask me, they say, "Hey, 470,000 units for the next 10 years. Can they achieve it?" Well, my answer to me, that question is pretty dumb. Okay. On average, 47,000 a year.
Right.
The last couple of years, there was almost zero. So if they don't get 47,000, if they only get 37,000, goddammit, it's 37,000. Right? It's still a lot. It surely will go a long way. Let's not be like the journalists who a little sometimes don't want to think. They just want to move the hand and write, and say, "Oh, you didn't make the 47,000." If it is 37,000, it's very useful to the market.
I think that the government is absolutely doing the right thing. Blue Pool Road?
Thanks for that pass. I think this is a difficult and dangerous one because with the new (First-hand Sales) Ordinance, if I say the wrong thing, I'll get free accommodation and free meals and free medical service provided by the Hong Kong government.
I'll come visit.
Thank you. Everybody knows our Blue Pool Road project. If you go up Blue Pool Road in Happy Valley, these are the 18 houses on your left-hand side when you're driving up the road. They are, I think, really diamonds in Hong Kong. They are really the best houses you can see. They're the only houses in town, and they are within three- minutes walk to the tramway. Obviously, the residents in those houses probably will never take the tram, but it's that close to the city, I mean, it is to the tramway. So these are the only houses you have inside the city. Of course, we have two car parking lots for each house, so that if you don't take a tram, you can have your own car.
I can't answer you, therefore, having said all that, whether we are planning to sell or lease because of first-hand sales ordinance. I can only say diplomatically and legally that we're very open-minded.
Also, one other thing. I think that project is the first residential project in the world to have received the gold certification of the U.S. Green Building Council, the LEED Gold. The very first residential project, so we're happy with them about that.
There is a question here regarding the share price. How do you see the company share price over the last two years? Is it undervalued now? Will the company consider buybacks? It didn't say whether Hang Lung Group to buy back or whether Hang Lung Properties.
My first answer is, you pay me to manage a company, not the share price. Let's get it right first. We don't manage our share price. That's not our first and foremost responsibility. We manage a company. That said, it is also common knowledge that Hang Lung Group has been buying Hang Lung Property shares. We were down to below 50, about what, two years ago, maybe? Well, after we last paid shares, but we were locked up for almost a year and a half, two years. We start buying, and we're now at what? 22 and a half, roughly. I'm so happy this afternoon that the market was down. At least our share was down. Hey, you guys don't want it? We were just talking right before this.
I said, "Hey, let's go to town." Hang Lung Group will Hang Lung Group has been buying back our shares whenever we're not in the lockup period. As I told many of you before, I'll make it brief since most of you have heard it, that Hang Lung Property has no intention to buy back Hang Lung Property shares. Hang Lung Group has all intention to buy back Hang Lung Property shares. Reason is because, the market that we are looking at is the biggest market length I've ever seen. It is the best market I've ever seen, where size matters because nobody is anybody. The market is so much bigger than any of us. You want to grow your balance sheet, not shrink your balance sheet.
Hang Lung Group buying Hang Lung Property doesn't hurt the size of the balance sheet of Hang Lung Property. But if Hang Lung Property buy back its own shares, it shrinks the balance sheet. It's a wrong direction. So, what is my opinion about the share price? I have no opinion about our share price. But just take a look at what we've been doing. Also, there's one other thing on my mind on this point. Who knows about the underlying value of the company more than the three people sitting in front of you here today? I think some of you might have heard me say this, but some of you have not. How many of you have heard me talk about our balance sheet, my criticism of our own balance sheet? How many have heard? No? You have not heard? Okay.
Actually, don't worry. Just scream so I cannot speak anymore if I step on dangerous territory. There is four basic businesses to Hang Lung. Property for sale in Hong Kong, property for lease in Hong Kong, property for lease in mainland China, and property for sale in the mainland. Four parts. Let us take them one at a time. Just no more than two sentences on each point. The property for sale in Hong Kong. On the book, HKD 6.3 billion. Market value, given what we have done in the 272 unit, when you add The HarbourSide and so forth to it. At that price, it is upward of HKD 20 billion instead of HKD 6.3 billion. That is one line on the balance sheet. The second line is, we sold HKD 5.3 billion of matured non-core investment property in Hong Kong in 2012.
That is about 74% higher than the last balance sheet date, which is by definition, no more than six months. So it is 70%- some , 70%-80% higher. So what does it tell you about that line in the balance sheet? Then go to mainland China. In the mainland of China, the land we buy is always the cheapest, as you know. We bought a piece in February of last year. Within six months, seven months, another piece was so far inferior to ours, similar size, not far away from our place, location-wise. And almost doubling, 97%, 197% our price, our unit cost. So you know that whatever we have has appreciated a lot in value, and the ones that we are already leasing for doing business, be it Shanghai, Shenyang, Wuxi, or wherever, the cap rate is still at what, 7.25, roughly.
There was one company that went public, I think we talked about it, several of times. Much inferior to our asset, and they went public at 1/2 cap. And we are still at 7.25. And what reason is there under the sun for that kind of a thing, right? So if they are four and a half, I argue that we should be three and a half. If so, then you tell me what is the balance sheet, that line. Then finally, we do have many millions of square feet of residential in China that can be sold. The office, I am not so sure. But the residential? Sure, sell them. Why not? The only one that we are not presently contemplating selling in terms of residential in the mainland is Shanghai, in Grand Gateway. Everything else, Shenyang, Wuxi, Wuhan, Kunming, all sold, ought to be sold.
If you just use market numbers and do a little simple math, and you can quickly come to the conclusion that the after-tax profit of, I don't know, HKD 10 billion, easy. So, that is a lot of. And by the way, very few of you have written about it. Very few sell-side analysts have even talked about it. One of you did, and so we went on a roadshow together with you guys. Because I respect you guys. You read what I said, and you believe what I said, and you did your own research and decided, hmm, wow, there is something there. Right? A lot of residential there can be for sale that is worth tens of billions. And so, as what I have described, for better or for worse, I am buying. On behalf, speaking as the Chairman of Hang Lung Group.
I think we have a question there.
Excuse me. I have a question on the Shanghai portfolio. What is the lease expiry profile looks like in this year and next year? Do you see any pressure that you need, given that there are more supply coming up in the market? The second question is, as some of the lease gets renewed in the second-tier city shopping malls, what is the rental reversion rate that you are achieving? Thank you.
Okay. How about I take the first and then you take the second? Shanghai, if on average, say, like in Hong Kong. Hong Kong has been, we grew something like 10% roughly. If we grow at 10% per year, which in the long haul, I think it is reasonable, I suppose. Which, if the average term is three years, then you are talking about 30% renewal because only 1/3 on average is up for renewal every year. So really, you are talking about 30% higher rent than the last time, which is pretty good, right? Then, there are some that are four to six years. Very rare cases. One that I know of that is seven years, and that is because they are really high-end. They have two stories and four stories, whatever. Hence, a longer lease.
There, I think you have less reason to worry about what happened at renewal, right? Moreover, those guys, we get a percentage rent anyway. If we continue to do the things right, then they are more afraid of moving out than we. Or they are more afraid that we will kick them out, than we are afraid that they would want to move out. Right? At least that has been the case so far. But of course, I was just in Shanghai recently. We realized that our shopping center there is now 12 year old. So we need to upgrade. We need to freshen up. We need to make changes. That we are doing. You will see us do more of it, and some pretty substantive upgrading and refurbishment and so forth.
The whole idea, of course, is to make sure that our tenants are happy, so we have a long-term relations. Philip?
I think to answer your question quantitatively, about a quarter to a third renews, but this year probably high 20s, I think, for 2014. Do you want to say something about the figures?
On the reversion side, I think despite all the talking about oversupply of office space in Shanghai and the pressure on the office rental, et cetera. In our own case, in the second half of 2013, the reversion of our office lease renewal is around 4%-5%. + 4%-5%.
4%-5%?
Yeah. Rental reversions for new lease that we sign up for office tenants in Shanghai, in our Shanghai portfolio. One thing we have started doing is on Plaza 66, changing the tenant mix. In fact, we started moving some of the tenants who used to occupy our second floor to a higher level. Level three and level four. That would also help our rental reversions in our Shanghai properties.
There is a question regarding H&M signing up Hang Lung Center in Causeway Bay. Can you elaborate a bit on your asset enhancement initiatives for Hong Kong assets? That is more than just Causeway Bay, but other projects like Mong Kok?
Let me address Causeway Bay first. I think it is now announced that H&M will take up four stories of Hang Lung Center, which currently is occupied by likes of Mannings and Starbucks and Fancl and Sa Sa. Fancl has already got new space in the same location, in the same area, and is doing very good business. But we think we need a very good shining tenant to be at Hang Lung Center to bring the whole thing up. I think really we deserve a very good tenant there. That is a prime location in Causeway Bay. We are only doing that justice by really upgrading it.
H&M actually fits our bill extremely well. It was announced a while ago that they will come in in 2015. Closer to the date, we will even issue more news about this new tenant, and I am very happy to see that happen. There has been a rumored report, a rumor about how much rent they are paying, and I can only say the only difference between rumor and truth is time. It can be even more than that. Anyway, I am not going to confirm the exact figures. But that actually helps to upgrade the entire Causeway Bay location because a lot of potential tenants are now coming to us and say, "Well, what about the other locations? Opposite corner, what about that street down the road there? We want to have a shop there." We are now talking to a lot of people.
At the same time, we are also looking at changing the landscape, the streetscape a bit, and already accommodating new tenants. For example, you have not tried a German pub, King Ludwig. Do try it. It is actually doing very well. COS, C-O-S, that is an H&M outfit, and they are actually doing very good business now. As I said, Fancl is opening a new store. We have had quite a lot of new shops and new brands, and that place is becoming, I think, along the right directions, becoming much more lively. I hope to bring a new look, new feel, and obviously with much more income to that area in about two years time. There is a bank right next to the H&M location that is on our radar screen as well. I personally do not like banks in the retail area.
Have you ever seen a bank on the Fifth Avenue? I do not think so. The real dislike of banks, even though it is HSBC, is because of the fact that they are closed in the evenings when people are coming out. They are closed on weekends when people are coming out. There is a lease, which we of course have to respect, so we will give it a bit of time and look at it at the right appropriate moment. That thinking of really upgrading our Hong Kong portfolio actually is applicable all across Hong Kong. If you look at Mong Kok, where we have Grand Plaza, we actually upgraded Grand Plaza, Nathan Road Central. If you go in there now, you can see a whole list of new tenants and renovations inside.
As a result, the rent for the last two years have gone up by about 75%, 75%, which is quite significant. There are a whole lot of other things we can do and a whole lot of things we are doing, and we will keep doing it. By the way, just to echo the base rent. Above the future H&M location, that building is very famous for doctors. There is a whole lot of good medical clinics. The top doctors in Causeway Bay are really located there. That is a good location. They love it, and they are very close to the three hospitals, Adventist, Sanatorium, and St. Paul's in Hong Kong, the top three private hospitals. That is a great location. Doctors never want to pay sales rent. They do not want you to know how much business they are doing.
We are able to charge even higher base rent now. That is the base rent theory, and I am sure we can continue to do that when H&M open. I am announcing it through you to the doctors right now.
I think in conclusion, in one word, I think Philip and his team have been working our assets very hard, not by drawing blood out of stone. There are just so many things that we can just be more creative and take that extra step, and you can have a lot of money to be made there, such as in the Mong Kok, Nathan Road Central, 75% increase in rent just by the use of a little creativity and some hard work, and it happens. I think that our assets, in as much as some assets, we have worked them very hard already.
To the extent that we do not think we can draw blood out of stone anymore, we sell them. That is why we sold HKD 5.3 billion of property a year and a half ago. But the others, hey, there is a lot of potential there. A 74% premium, if I may add. Chairman, can I just do one quick commercial? Even if you look at this building, Escada has just soft-opened , which used to be a space that offers spectacles and cheap tailors. They have just opened Escada shop right downstairs. I think by March, I hope they can do it earlier, there will be a new bar restaurant downstairs, and I expect to see a lot of you after work there.
Okay, we can take two more questions. Amy?
Thank you. Amy Luk from JP Morgan. Got two questions. First of all, it is going back to Jinan. Ronnie, you have mentioned that there is some change in tenant mix, and then we can see that in terms of occupancy, comparing with the interim, it is a bit of drop to 85% in terms of occupancy. Could you share more with us what is going on in that one, and then what kind of tenants are leaving, and then what are you targeting to bring in after the tenant mix change? Second question is about going back to—
Amy, save the second one.
Okay.
Yeah. First of all, Parc 66 is a very big shopping center. It is about 1.6 million sq ft, 1.7 million sq ft. And it is a city that has no shopping center whatsoever before. So nobody know what sell, what doesn't sell in a shopping center in Jinan. We are the pioneer. So we learn, and over the last two and a half years, we have found that not quite two and a half years. But anyway, we have found that some things works and are doing very well, and hence the increase retail sales number that I just gave you earlier. Then other things don't. Other things don't work. So we just have to change tenants. Keep the good ones, let go of the others.
I think that for the most part, in most malls, by the end of the second year, by the beginning of the third year, you will see inevitably, unless we luck out. I don't believe that we are that smart to figure it out from day one. So I don't tell shareholders, and potential shareholders what I'm not happy about. But there are always things we are not internally are not happy about. So what do you do when you are not happy about something? Change it. Figure out the right thing to do and do it. So every shopping center has to go through that as a natural progression of things. So Parc 66 is undergoing that, and I'm pretty sure that in a year or so's time, you will see a very, very uplifted shopping center, that hopefully will do a lot better.
Not that it was doing bad. It is already doing well over HKD 1 billion sales in that shopping center, to my knowledge. If I'm wrong, correct me. I think we are doing more than HKD 1.1 billion business there already. That is roughly what 1/3 of what Grand Gateway is doing. Grand Gateway, being in Shanghai, it is really one of the top shopping malls of that ilk. In a bit over two years, in Jinan Parc 66, we are already doing good business there. But we need to maximize. We need to optimize the tenant mix and hopefully maximize rent.
Okay. Second question is also about retail, in China. It is about Shanghai. Regarding rental, it is up around 6%. How about the retail sales of Plaza and—
Pretty flat. Pretty flat.
Thank you.
Okay, we got a question here probably for Wuxi. What cap rates are we using for this year-end? Were there any changes versus end June?
All the cap rates are virtually the same as last June and the year before. There is no change whatsoever.
Okay. Any last questions here? Greg.
Hi. A question on Hong Kong residential. I know the units we sold last year still enjoy very high margin. Just to confirm that it is not as high as what we saw in the previous batch. Just to confirm this one. Also in terms of ASP, it is also quite similar to previous batch. Would you agree that it is better to sell it earlier than to sit on inventory like your other friendly competitors are doing?
As I wrote two years ago that at the then price, which by the way, two years ago with the latest sales is, I believe, higher than two years ago. Just a tad, just a hair below what we sold last time, the 108 units last year. So the last three major sales that we have had basically have very similar margins. The question is how much would the market bear? I do not mean price-wise, I mean volume-wise. Is there that much demand and how much do you have to lower prices in order to attract? Unless you are pretty sure that you can move the goods by lowering prices. Otherwise, I am not sure if it is a good idea to try. There is no need. As you know, we still are cash-rich.
I think that we will continue to sell when there is a buyer willing to pay the price, which roughly similar to what we have been doing.
Ron, if I may supplement on that residential sales margin. On the surface, you may find that the development profit margin in 2013 is lower than 2012. The reason being the mix is different. In 2012, we sold 108 units of The Long Beach and nine units of The HarbourSide. The HarbourSide got a higher profit margin than The Long Beach. Now, in the 2013 property sales, over 99% of that is The Long Beach. Only one unit of The HarbourSide. So the mix is different. The profit margin of the mix is also different. So when you average all this together, on the surface, it seems that the profit margin for property sales in 2013 has dropped a lot compared to 2012. That is not the case, because the mix is different.
Okay. Thank you very much for coming.