Good afternoon. Welcome to the Hang Lung Group and Hang Lung Properties interim result presentation. It is my pleasure to introduce to you the speakers for today, Mr. Ronnie Chan, our Chairman; Mr. Weber Lo, Chief Executive Officer; Mr. H.C. Ho, Chief Financial Officer; and Mr. Adriel Chan, Executive Director. Can I give the floor to Mr. Ronnie Chan? Ronnie?
You all know Weber? You do not know Weber? My respect for you has gone down. Hey, Weber, why do you not talk?
Afternoon, everyone. I met some, but I may not be able to meet all of you. Welcome, all of you. This is my first 11 days as Chief Executive for Hang Lung Properties and Hang Lung Group. Although I joined the group for like two and a half months now, welcome. Just to introduce myself.
Ronnie, would you like to give an overview before I open the floor to those analysts in present?
I thought that was what Weber Lo was doing.
Okay. Why don't I start? I am sure you have read our mid-year result. Just highlight some of the key milestone, I would say, in the last six months which I am sure in the booklet we highlight that as well. First of all, if you look at the last two weeks, we issued the Panda bond, the Panda Green bond, CNY 1 billion out of our overall CNY 10 billion quota that we got the permission or approval earlier this year. Of course, the most important piece I have to say that is we purchased the Hangzhou land at CNY 10.7 billion, which happened on May 28th, which I remember it was my second week when I joined the company. Of course, the Center 66, Wuxi Office Tower 2 topping out ceremony. I was happy and delighted to be part of the team and join the ceremony.
Now, of course, when you look at our result, overall, I would say, because of less of the sales of the development of the investment properties, although the result was down, but if you look at the leasing revenue, Hong Kong grew by 3%. China, on the Hong Kong denominator perspective, actually grew by 11%. However, if you look at renminbi denominated, grew by 2%. A big chunk of it is because of the renminbi appreciation on an average basis. I am sure you know because of the reason, last two months, the renminbi actually depreciate quite a lot. Therefore, if you look at point to point from end of last year to end of June, actually renminbi depreciate by 1.2%. Overall, I would say it is a big swing from an average perspective.
If you look at the second half, although we will have no crystal ball of what exactly the currency will go, but we truly believe that it will not as high as 9% growth in first half. Therefore, if you focus on our fundamental 3% growth in retail, sorry, 3% in Hong Kong leasing and 2% renminbi growth in mainland, this is basically our core business in terms of the growth. Of course, a lot of pipeline, a lot of project will be happening in 2019 and 2020. I am sure you follow our group. You know that we will have a few projects coming up. As I mentioned, Wuxi, we just top out the office building, and by the end of the year, we will pass and we will open the podium and we will have a cinema actually be open by end of this year.
The Office Tower 2 will be open by middle of next year. If you look at other project, our Kunming project, we expect this project will be open by the middle of next year as well, and followed by our Wuhan project, hopefully by the end of next year or early 2020. A lot of things going on, but if you look at other asset enhancement initiative, we complete our upgrade of our Plaza 66 and the Grand Gateway 66 upgrade is on our way. Annex, actually the smaller building, we are just in the process of passing to our tenant. Basically, 50 tenants will be moving in, hopefully by end of August, and gradually, they will come in. The main building renovation actually are in progress.
Hopefully, we are catching up timing and we will launch and complete the whole project by end of 2019 or early 2020. In Hong Kong, if you look at our Peak Galleria, we are in the process of also upgrading our project. Hopefully, we will complete everything by next year. I think a lot of things going on, and I am excited about joining the group. I will welcome any question from you.
Thank you, Weber. Ronnie, would you like to talk about the Hangzhou land and its prospect?
I am very happy about the Hangzhou land. I think price is reasonable. We can still accomplish a 4%-5% initial yield. We have been eyeing Hangzhou since perhaps 2003. It is really 15 years in the making, although this piece only surfaced about four years ago. I think of all the cities in China, Shanghai and Beijing, of course, are the best. I think Guangzhou is very good. Shenzhen is good too, but Shenzhen is very close to Hong Kong. Beyond those, I think there is only really two cities that I would consider as the best. One of them is Hangzhou. I am very pleased that it is a simple piece. There is no complication. The land is already clear. The government is very cooperative. I expect a great project.
When you add in the basement commercial space, which is not counted in the plot ratio, you have 245,000 sq m, roughly 2.6 million square feet. Roughly a million plus of retail, the rest being office. If you go onto the office in Hangzhou, it is very good. Shanghai is obviously a supermarket. If you were to go to Shanghai, the top rent is only about $10, $11. Even Plaza 66 may be only getting what, $11 .5 , and Grand Gateway 66 $9.5 , and Hangzhou, you can get $9 +. So really Hangzhou, both in shopping centers as well as office, is very good.
The government has, before auctioning the land, was able to release the height limitation such that one tower can be 150 m, which will make it rather stand out in that region because we are far enough from the West Lake. If it is too close, you cannot. But we are far enough, so you can do. As you all know Wulin Square, is probably one of the top few shang quan, the commercial centers of any city in China. It is truly amazing how wealthy the Hangzhou people are. I was there twice in the last one month. It is truly amazing how many entrepreneurs, and Zhejiang is known for its entrepreneurs. Many of them from Wenzhou, Taizhou, Jinhua, Yiwu, Dongyang, any of that whole area, Shaoxing. When they make money, they move the headquarters to Hangzhou.
I have been mentoring a group of second-generation wealthy business people in mainly three cities, and Hangzhou was one of them, for several years now. Many of them, hardly any of them are originally from Hangzhou. They all come from the neighboring towns. So no wonder Hangzhou is so powerful. Because of the relationship with Hangzhou city and the province, some of them do not want to move to Shanghai. Of course, some did move as well, but a lot of them really like to congregate in Hangzhou. Not to mention that Hangzhou, as you all know, is really one of the top two or three high-tech cities. Right? Shenzhen, Hangzhou, Beijing. So I think it is really as good as it comes. So I am very happy. 2024 onward, hopefully we can open the first phase, 2024, 2025.
If you were to look at the pipeline that Weber just mentioned to you, much of our properties were open in 2019 and 2020, but there are also a few that are for 2021, maybe even 2022. For example, Wuxi phase two. The serviced apartments there will probably finish in 2012, latest 2013.
2022.
Yeah, 2022. Well, five years from 2017. So it is 2022. It more or less runs right into 2024, when we will open Hangzhou. As you all know, in the last eight years, from 2010 to 2017, we opened a lot of space in the mainland of China. Average about 2.5 million square feet of class A commercial space. That is equivalent, as I have said before, to one Empire State Building, New York Empire State Building per year, over eight years. So every year you finish one Empire State Building. In the years starting 2018, sorry, 2019, until 2024, in those couple of years, the average square footage completed is expected to exceed the last eight years. So we may have 2.8 million square feet, something like that, 2.9 million square feet each year completing. That is a lot of space.
Of course, at the end, it is not the growth of the top line that is the most important. It is really the growth of the bottom line. On the one hand, I am happy that all the new space will bring growth in top line in the next couple of years. But what excites me even the more is really what has happened in the last eight years, that all those properties are now, I think, beginning to see growth in bottom line. Allow me to analyze it for you this way. There are very few cities that we or anybody else these days can find a first-mover advantage. Of course, it is wonderful if you have it, right? We examined the eight properties that were already completed and the next three that are being built. Only one we really have first-mover advantage, and that is Plaza 66.
That was the only one. There was just nothing there, in Shanghai. Beyond that, there is one other that is a little unique, and frankly, we have no one to blame but ourselves. That is the place that there is already a very good leader in that city, and we have to play second fiddle to them. That is Forum 66 in Shenyang. The reason I say that it is our own fault is because we could have finished before they did. But we were not so knowledgeable at that time, and so we did not, and we became denied. We have to play second fiddle to somebody. Moreover, the fact that we did not open our Office Tower soon enough really dragged on things. Then we have, as you all know, internal management issues and construction issues. All those things combined to make Forum our most difficult property.
But I think even there, when we opened, there were basically two major players. I do not want to mention their name. You know what they are. One is the leader, always have been. Then there is another one. If you say it, I will tell you whether you are right or not. There is another one that is actually the hottest for quite a while. That property today has been marginalized by the market leader and ourselves. We were number three, and we are number two. So we managed to dislodge one of the two earlier ones. So we will be number two for a while, but I think that we are within striking distance. In time, we should be open to do better for many reasons. We have second Office Tower. We have the hotel. We have some service apartments that are yet to be built.
We just added a theater. We have a wedding, what do you call it? A ballroom in this. A lot of things have been done to improve it. In time, I think that should be an okay property. When you call Plaza 66 category one, first mover. You call Forum 66 class three, category three, where we bump into an existing strong player. All the rest belong to category two. What is category two? That is where we are not the first one. We may be the third, fourth, fifth. But we are the first world-class property. By world-class, as some of you may have read my letter in 2014 to Hang Lung Properties, I talk about the real estate genetics. The location, the size, and the developmental brief that is allowed for each piece, the design, and then the construction.
If you have those four things right, and if other people do not have those four things, then you can dislodge them. You can be a latecomer and be the market leader eventually. Of the six, we have eight already. One Plaza, one Forum, and then we have six left. Out of those six, I would say four of them we are already the clear leader. We were not the first mover, but we are the best, and we have managed to overtake everybody in that city or in that district. Grand Gateway 66 in Xujiahui. When we first opened up, there were at least four major retail players there. Shanghai Sixth Department Store, Yaohan. What do you call Yaohan in English? Pacific. Pacific? No. Yaohan. Anyway, you know what I am talking about. Then you have Oriental. Then you have Metro. Metro. So you have four major players there.
All got there before we did and all pretty big. It took us about five years to become the undisputed leader in that area. Some even went bust since that time. The tactics that they use would be considered in many Western countries to be not so legit. We had to really fight hard and it took us about five years to really gain the leadership position in that district. Second one is Palace 66. Palace 66, you remember we had all kinds of problems. The government forced us last minute to cut off the top floor. We had the road all dug up in front of us right after we opened, and then we ourselves did the marketing program wrong. We overpacked the whole place, and there were management issues. So we had a terrible time. But it took us about three years.
That was opened in 2010. It took us three to four years for us to become the undisputed market leader in the whole Zhongjie, the whole pedestrian street there. Today, Xinglong Dajiating, which is across the street, the hottest thing five years ago, seven years ago, is now closing shop. One more, I hate to mention these names, but anyway, they are nowhere. So those two have been out of it, gone, or on the way out. Only two are left. One at the beginning of the street, and the one on our end, ourselves. Two other people opened up after we did. One closed down right next to us. It is from a Hong Kong developer, a reputable developer, and good architect. Well, you know where it is. You know where it is, right next to us. Hey, that closed down.
As far as I know, only one store is open in that whole crazy, huge complex. The mall behind us is also having a hell of a hard time. In the whole street, we went from also-ran, the most problematic one, to now become the leader. I can assure you that our unit rent is the highest in that whole street. We have basically won the battle. Am I happy? Of course, I am happy. I am also worried because I like to have a few other people there. Not having them there is actually not good business for the whole street. Anyway, that is a good problem to have. You look at Parc 66. Parc 66 in Jinan. We were certainly not the first. There was Kuailebao already there. There was Yintai and The Peninsula.
You have other big players there before we did. Again, because of real estate genetics, real estate size, development conditions, design, and construction. Today, I think you ask anybody. You get on a taxi or DiDi or something, and ask, "Take me to the best shopping center in Jinan." I think the likelihood is very high that he would take you to Parc 66. We have not been able to get some of the top brands there yet because they were not expanding until this year. In time, as long as those top brands stay around in Jinan City, I think we have a good chance. I think Parc is another successful case. Finally, Center 66 in Wuxi. There were quite a number of major players. Yaohan was there. Da Dong Fang was there. There are very sizable players when we opened up.
It took us what? We opened that in 2013, I think.
By last year, 2017. Again, in about four years time, we are able to dislodge or even dispense with some of our competitors, well, all of our competitors, and establish ourselves as the leader in the city. You all know that we already have a lot of big brands in Center 66. I guarantee you, just like in Grand Gateway 66, in the next two years, you will see a lot more major top world fashion brand names enter into Grand Gateway and enter into Center 66. Of course, that should lead to rise in rent. Center 66, we are the undisputed leader. In those four cases, we are already done. Riverside 66 in Tianjin and Olympia 66 in Dalian will take a little bit more time.
But even Dalian, which many of you have asked me about it because you are worried about the situation. I am happy to tell you that we are 97% leased up now in phase one, and we are opening up phase two, which is 13% of the total space. Part of it is now leased. Rents have not been great, frankly. But it is just a matter of time. There is also very little doubt on my mind that in time, some, if not a lot of the top brand names in the world will enter into Olympia 66 in Dalian. In other words, the category two, that is not being the first mover, but being the best ones, we have again and again been able to win. As we all know, a lot of that happened all in the last two years.
The last couple of years have been very, very difficult times. The whole market condition is bad, so we have not been able to have all these good things happen, reflect in rent yet. But if you agree with my analysis of our own condition, I think you will come to the same conclusion as I do, that in time, in the next one, two years, rent should flow through very, very nicely. That means the top line that we built in the last eight years will increasingly fall through to the bottom line. I think that the future is quite good. I always say that Weber is a lucky guy. The unluckiest guy is Philip. Philip came at the height of the market because we needed his expertise. He did a great job, and I hope he will continue to do well health-wise.
But, if you use Western standard, where you just look at some CEO's compensation is tied to stock price. If that is the case, Philip is the greatest loser in town. But the reality is, I think he did a very good job preparing the company. Now, Weber comes along. Weber, you are a really lucky guy. Oh, gosh. Not to mention your stock option, we are getting at the very bottom of it. But whatever it is, you do not care about that. You just care about how healthy the company is and eventually reflected in share price. I think that if you think my analysis just now is reasonable, then invariably you will have to come to the conclusion that the next couple of years should be very good years for the company.
Thank you, Ronnie.
Sorry about the long-winded explanation.
I just want to.
Yeah.
Hello?
It is okay.
Hello. I just want to add a few more points, which to complement what Ronnie Chan just mentioned. In old days, I think, or not in old days, I think genetic of properties, Ronnie Chan mentioned the four, I think is really important. But I would say in the next phase, in my mind, something we can do even better. To me, I would say client centricity is the most important elements which we have to add value to the customers. A lot of people talking about, in the future, whether offline will win online or online will win offline. I would say at the end of the day, basically, we have to collaborate.
I think first of all, client centricity, we have to do a better job, or we have to raise the game to make sure the client will really know exactly what we want and what the customer want, at the end of the day, what we can provide. Second, I think the brand experience. I think now the people come to the mall not only for shopping, but they are looking for an experience. So basically, what we can offer, what unique experience we can offer. The third, I would say how we can embrace technology and making sure that we will have an omni-channel or we basically have a collaboration. I recall I read an article, basically, not we eat their lunch or they eat our lunch. How we can serve our client better together with online and offline, I think is the key.
Therefore, I would say on top of what the four genetic, which Ronnie just mentioned, I think how we can really win the battle from the client, I think is really the next game that we have to grasp. I think that is what I would like to add.
I add to what Weber said. That is, you say, "Hey, Ronnie, where do you put management?" Management is obviously very important, but the assumption I make is that so do other people have good management. You may have it, so do other people. So it becomes not a competitive advantage per se. But moving forward, if those four points that I mentioned on genetics, which are hardwired, it has to be hardwired into your shopping mall. If they are not hardwired from the beginning, you are over, you're gone, game over. But if you are, then you have to add management to it, and that's where Weber comes in. I think Weber's job is really to run the ship in the best way possible that will maximize long-term profit for the company.
Thank you, Ronnie and Weber. Welcome. Question from the floor. Would you mind raise your hand and let us know your name and the organization you represent? Who'll be the first? J.P.
Thanks,
Just speak.
Ben Cho from Merrill Lynch. Couple of questions. Chairman, you briefly mentioned about the situation at Forum 66, but you also mentioned in the announcement that the tenant reshuffling efforts have started to bear fruit. Can you elaborate a little bit more what you guys are seeing on the ground, and how long should we expect the-
Oh, Forum 66?
Forum 66, yeah.
Forum.
How long should we expect the ongoing tenant reshuffling could affect our revenue until we see a stabilization in rental revenue there? The second question is that you mentioned about all the tier two city malls except for Kunming. The pre-leasing progress is pretty good at 50%. Could you talk a little bit more what are the positives or negatives, if any, you are seeing on the ground? What share of tenants you have locked in so far? Thanks.
I'll let Adriel answer the first question. Let me answer your second question first. You take those six cities that are in category two, so to speak. I ask the question, are the next three in that same category? That is Kunming, Wuhan, and Hangzhou. The answer is yes, they are all in that category. Take, for example, Kunming. Kunming has one major player, where all the major brands that are in the city are in that one department store. I took the board to Kunming, what, two months ago?
Last two months, yeah.
Yeah. We went to see all the major shopping centers in that city once again. Of course, I've seen all of them before. I assure you that all the best brands, eventually, we have such a good possibility of attracting those top brands. I don't want to mention the names yet to you, but it is now 53% leased up. In particular, some of the biggest name in the fashion world that you and I can think of, are either signed up already or in the process of signing up. I think that it is a category two, but it is one that is, we almost can win from day one. I think that if the market difficulty of the last six years did not happen, we had the chance in Wuxi , Center 66 to win from day one.
Because of the market condition, all the major brands stopped expanding. We can no longer have dynamic change. I think that now with the market going up, with all the fashion brand names, the major ones, and we have been in constant contact with these people, the top people. We know that they are expanding, and we know that Kunming is a city that they are very interested in. Wuhan, I think same, category two, if you will. There are already, what, three major players? The competition there is much stronger than those in Kunming. It will be a little while, so we need to probably fight a little harder in Wuhan. Again, given the physical asset that we have and the location and the design and so forth, there's just no reason why in time we will not win.
Hangzhou, on the other hand, is an interesting situation. We all know Hangzhou, the highest sales is in the Wulin Square. We have two players there that are very profitable right now. But again, you look at the physical design, location, and so forth. One cannot but come to the conclusion that what we saw in those six cities or four cities where we won, I think the same thing should happen in Hangzhou in due course. So category two is going to be the name of the game in the future. We can't find category one anymore, and we will try our best to avoid category three. So really, category two is really the norm for us.
Questions? Goldman?
Just very quickly on Forum 66. So you have foot traffic increase, you have sales increase. What all you see is what we show you, which is a minor decline in the rental. The new GM came on board early last year. Generally, these cycles are about two to three years. So you can imagine, we've made some big changes, starting from the fourth floor, going down to the third and then the second. Now we're on the second. Thankfully, not much has changed on the first floor. So we still have almost all the luxury brands, and we're still working on getting more in. So the basement has done fantastically well, and is continuing to drive traffic. The Office Tower tenancy is up to over 90%, if I remember correctly. That's still driving a lot of traffic. So my take is we have a good GM.
Give her these two to three years, and I think that we will see the results accordingly. But basically, I think the general health, given the foot traffic and the sales revenue are going up, is on an upward trend. We just need a little bit of time to translate that into rental.
The hotel as well.
The hotel, which will be opening mid next year, hopefully.
Thank you, Adriel. Goldman?
Thanks. Hello. Justin Kwok with Goldman Sachs. Thanks, Ronnie Chan and Weber Lo. Perhaps I just pick one early comment on Hangzhou first. Ronnie Chan mentioned that Hangzhou is one of the two important cities outside of the tier one cities that is material and that worth you going. What is the other one? Are you already there? In fact, in conjunction, you share a lot on the category two kind of cities. From what we are seeing, it seems that we can find a pretty wide spectrum of geography in China with these kind of cities. You are now getting into some maturity for the completion for some of the projects in the next two, three years. From the investor point of view, should they assume, or should they expect you guys resume another round of heavy investment cycle in the next few years? I guess that is what people look at Hangzhou.
Should they think it's one of its kind? You waited for so long, you get on, or if you move on to category two, then you will have two, three every year? Or what are you expecting? Thanks.
Unfortunately, Justin, there's some of the things I cannot talk. Let me assure you, this morning at the board meeting, we had long discussions on the future of the company. Suffice to say that we will continue to look for good cities to invest in. That includes Shanghai, Beijing, even Hangzhou. We actually, I think some of you may have heard, that we gave up on a city about two years ago, a year and a half ago. We were given the best piece of land in a city. Eventually we gave it up because we felt that that city is not the top tier two city. Within the tier two, it's not the top. We don't want to tie up our capital or psychologically, because we're already eyeing Hangzhou. There's no assurance at the time that we'll win.
That's a judgment we have to make. We decided not to touch that piece, and it was eventually sold to somebody else at 50% higher than the price that was offered to us, right? Moving forward, we are still looking at good properties. May not necessarily be in many new cities. It may. As to your first question, let me put it this way. I know the city very well. I wrote about it without naming the name, but I think you guys can figure out. You guys are smart, I know that. The city, I think, was not as wise as the leaders in Hangzhou. In Hangzhou, the plot ratio was 4.33x. You can really do some world-class stuff, and maximize profit. In the other city, if I remember correctly, the plot ratio was 7x - 8x. Very high.
It's no fault of the developer who eventually bought the piece. I think they will do well. They're doing very well, but only in part of the project and not in other part. It's not their fault. I went back to look at that place. It's really the city which is at fault. They have really sold off a piece of land. Because of their own, perhaps need for money at the time, have make the developmental brief in such a way that you just cannot have world-class stuff. Having lost it, do I regret? I have asked that question many a times of myself and discussed it with my colleagues. I must say that I'm not overly sad because you really cannot develop something that is world-class there. It's a good city. We'll see.
Thank you, Ronnie. There is a question from the webcast. Hang Lung has four projects with service apartment elements. Can you elaborate on your strategy and timeline? The service apartment for sale.
The four projects would be Kunming and Wuhan, which are coming up. Shenyang and Wuxi. Actually, in reality, we have five. They missed out Grand Gateway. Because it has been there for so long, people kind of forget about it. We have five SA projects in China. Of course, Grand Gateway, we are renting, and it is doing decently. Out of the four that were mentioned, these are intended for sale. We have the ability to sell them, if and when we like. That generally, when it comes to Hang Lung means, if and when we feel that the market is ripe. We are not in any squeeze for cash. We do not need the quick cash return. We will wait until the market is ripe, before we part with these truly first-class assets. Of course, we will develop them in due course.
It takes a couple of years to develop them. You have to try to look ahead. We expect the first one to come up to be Wuhan.
Thank you.
But then there's one other that the timeline is also pretty fixed because the government forced us to complete it five years after taking possession of the land. That's Wuxi. So Wuxi, we have no choice but to finish it. We took possession of the land last year.
And Wuhan has the same type of conditions.
Thank you. Eddie?
This is Raymond Cheng from CIMB. I have a question on the commission. The overall development cycle, it seems that it take a long time for most of your project, at least six-seven years, or some it could be 10 years to complete, right? Versus the some mainland peers, right? They only spend some could be three years only. So why? If you take into account obvious time, our IRR could be quite low. You only say the initial yield will be 5%, 6% something, right? So if, say, for 10 years or eight years, that would be very low IRR. So what can you convince investor that we make us to continue our investment in China given such a low IRR? Thank you.
Thank you.
Well, the reality is, we're not the only one from Hong Kong that spends more time in the preparatory phase. I can name you one or two others who also took their time to do it right. To compare to mainland ones, I don't know what to say.
Not fair.
It's like comparing Brad Pitt with Ronnie Chan. There's no comparison.
But investor generally want you guys to move your speed up faster.
Well, it's hard to say. In the last couple of years, if you had sped up, it wouldn't have helped because the market was so bad. But the reality is we do spend a lot more time designing a property. We spend inordinate amount of time because it's real estate genetics. You get it wrong, you're wrong forever. So you've got to hardwire the proper design into it, and that's why it usually take us longer. But compared to certain other good Hong Kong developers, we're about the same.
Adriel, you want to supplement?
Just on top of that, actually what takes the most time in construction is the basement. And so we always have enough car parking spaces. That's one of the main differentiators, you can say, between our projects and others. As well as wider spans and things like that. So the complexity of construction is actually more difficult as well. So that's just a fundamental challenge on speed.
Okay, we have a question from Morgan Stanley on the back.
Hi, this is Praveen from Morgan Stanley. My question is related to dividend, and I remember last time you answered the question such that nobody will ask ever about dividend.
Nobody what?
But I am going to try it anyway. This is not about-
You don't need to ask, I can answer.
My dividend question is not related to this half yearly or annual. I'm looking at the next five years, for example. When I look at your GFA increase in the last eight years, it has gone from 4 million - 24 million in China, and then you're expecting it to go again, double to 48 million. But in the last eight years, the dividend has not grown in proportion. Some of that is because of the slower returns. We try to understand when you embark on the next journey of doubling it, should we expect dividend to proportionately or at least directionally go up? That's all. Thank you.
Let's see, you want to answer or you want me to answer? I'll go ahead first, okay. I'm trying to get rid of the question. No. No. Okay. The last couple of years, I can make two points. Number one, we ourselves are learning. We have never done anything outside of Shanghai, and we need to learn, and we make plenty of mistakes, frankly, and we have to fix it. That's number one. Number two, the economy also turned out to be very tough. When your top line is only growing very slowly and your bottom line is not yet reflecting, and the amount of CapEx that is foreseeable was huge. That's why we did not increase the dividend. As I said six months ago, that as the top line fall through to bottom line, there's no reason why we cannot increase the dividend.
If you were to look at our track record in the 2000s, we increased dividend tremendously. The amount of dividend that increase that we had, I would say is probably almost unmatched in the industry. That was throughout the 1990s. The reason there was, one of the two main reason was because we know that our rent is going to be very good, both in Shanghai and in Hong Kong. We increased the dividend. For now, I'm surprised that at least two of the houses, your report that I read, still expect us to up the dividend by one penny. Frankly, my dear. Frankly- Number one, I told you I won't do it six months ago. If you don't believe me, what can I say?
And number two, if we were to do it, we're going to do it at year end, not in the interim. I'm not saying that I would do it at the coming year and I don't know. The board has to decide. So, to me, it's rather ridiculous to expect upping the dividend by a penny. People who have other objectives or have other circumstances which company is under different circumstances may have no problem doing that. But given our situation, given what I've already told the market six months ago, I'm just very surprised that two houses still said that we will up the dividend. If you think that you are just trying to put pressure on me, then I'll say try again. You know me by now well, or most of you know me very well by now.
One last point, the world is a very uncertain place right now. We are not in a very peaceful time. We still have a lot of CapEx to come as well. The net debt to equity in the next couple of years is going to increase. So all those reasons I gave six months ago. We're going to stick to our gun, and the board decided this morning that we're not doing anything. We'll review the situation six months from now. No guarantee what we'll do at that time. But as a matter of principle, just like what we have done in the late 2000s, in the second half of the 2000s, when we see rent rise being strong, I think that would be the time to look at dividend growth. We have no psychological barrier against raising dividend.
It just have to be the right convergence of circumstance.
Ronnie, you touched on the macro environment. There's a question about the trade wars currently. Would that have a negative impact on the outlook of the Chinese economy, and in turn affect Hang Lung?
I encourage you to read my chairman's letter, which I completed last night at 4:00 A.M. in the morning. My board reminded me, "Hey, Ronnie, you better write about that," so I did. Obviously, this kind of trade war, nobody's going to win. Everybody's going to lose. China will lose, America will lose, everybody will lose. In particular, I would say that probably in terms of tariff, China will lose a little bit more, but America will lose as well. Look at the $12 billion subsidy to the farmers in the United States. I really doubt if the United States have enough refrigerated warehouses for its pork and beef when the Chinese are not buying. I'm serious. Everybody's going to get hurt.
I think China rely on international trade more than the United States, so China have more to lose, so China probably is more willing to give in terms of tariff. Frankly, there are, from what I can tell, plenty of room for negotiation. That said, there's a lot of non-tariff stuff. Non-tariff barrier, you can still identify. As a bundled deal, as we all know, international relations is always a bundled deal. It's not just trade, and trade. No. Trade, trade, plus whatever. Plus politics, plus human rights, or whatever. I think that the Chinese will no doubt get a lot out of whatever concession that they may give in terms of tariff and non-tariff barriers. I've read some studies that it may affect half a point to a point in the GDP, perhaps, if the worst come to worst.
In terms of its impact on Hong Kong, I think it's minimal. If it is one-fifth to one-tenth of mainland China, I'll be surprised. That said, I think there are several more serious issues. One of them is that I think the United States will increasingly retreat to itself. It's not new. It's not Trump that started it. America, frankly, is a country that is founded in isolationism rather than internationalization. We all know that. Monroe Doctrine of 1823, exceptionalism, Roosevelt Corollary, all those stuff. United States never joined League of Nations after First World War, by the way. A lot of people forget that only in the last 70-some years, after Second World War, that is in your lifetime and that of mine, or in the lifetime of your father and mother, that America is internationalist. So for them to go back to isolationism is nothing new.
When that happens, America is also losing moral credibility. Going back on this and that, going back on NAFTA, going back on TPP, going back on the Iran deal. Many things will cause America to lose moral leadership and moral authority. When that happens, on top of that, Americans are very happy to use politics to slap on businesses, on economic commercial deals. That really scare a lot of people, foreigners, in doing business with the United States. So I won't be surprised if a lot more companies, instead of listing in the United States. Oh, by the way, I told Jack Ma when he first listed in America. I know the government was involved, Morgan Stanley was involved. Because I hosted Jack, and both of you guys have representative there that day in New York City.
I said, "Hey, are you sure you really want to be listed in America?" It was hot a couple of years ago. Hey, I'm listed in NASDAQ on NYSE, and I just had lunch, by the way, within the last two weeks at the headquarters of NYSE, New York Stock Exchange. A lot of companies will instead go somewhere else to go listed. Where is the first choice if you don't list in the United States? Where did Xiaomi last list? I think that, actually, Hong Kong may benefit in some way. Mainland China will benefit in terms of consumer spending. Hong Kong may benefit in terms of financial service. I think that situation whereas I prefer not to have the trade war, but I think it's not all lost in the long haul. For example, look at it.
The RMB went down, what? 9%, 8.5% - 9% in the last three months, right? You up the tariff to automobile from 15% - 25%, 10 points. Currency dropped 9%. So it's a wash. Moreover, the currency drop benefits Chinese exports to the rest of the world as well, to EU, to Japan, to wherever. So when you take the whole lot and consider as a whole, China may be actually ahead. Not to mention that I think America, well, Donald Trump, really, is very mercantilistic. As a senior American former government official said to me recently, he said, "Morally, you have a problem with what America is doing today, because on the one hand, you're lowering taxes somewhere. But on the other hand, you are raising tariff. What does that mean?" Eventually, who's going to pay for it?
Part of it will be paid for by the consumer in America, and it will be paid for by companies in America who deals with these foreign goods. You're really hurting yourself, raising taxes for your own people. I don't know if you know this, how many American companies are there in China, do you know? Anybody know? 68,000. The profit they make is about $250 billion - $260 billion a year. 60% - 70% of the first $34 billion or $50 billion of trade dispute with China actually affect those companies and those are American companies. So, is the consequence on China really that great? May not be as great as you think. Now, if you are Chinese leaders, you have no choice.
When somebody slap a $34 billion U.S. tariff on you have to react and say, "Okay, I give you my $34 billion." They do $50 billion, you do $50 billion. They do $200 billion, China cannot do $200 billion because they don't have that much excess trade, but they will do something else, right? I think that history may show the trade war today to be a rather ill-founded idea, and that will eventually hurt America as much as it hurts somebody else. In fact, I'm pretty sure it will hurt America more than it will hurt China or anybody else.
Thank you, Ronnie. In view of the time, we can still accommodate one more question. Right here.
Thank you. It is David from Macquarie. Maybe I split my question into three. I think two housekeeping questions. The CapEx spend in the first six months actually accelerated. If we look at on the balance sheet, the IP and the development, that is about a difference of around 4.5. Is it a trend or is it just like a one-off that you have a couple of things that are peaking out in the CapEx? Could you remind us what will be the CapEx expectation in coming years? Second question on the margin for the China shopping mall. It does improve by around 1.5 percentage points. Thanks to the very good disclosure, you do show which mall is doing better than the others, and obviously, Plaza is the one that is doing significantly better.
Can you give us some guidance on, for example, how we should expect the Chinese shopping malls, especially if some of the underperforming one may start to break even or even start to contribute, or how should we expect the MPI margin for the Chinese shopping mall going forward? Last question more on the overall strategy. You mentioned category one, two, three. I guess with the experience and the expertise of the team, can the company accommodate more different category of properties? For example, acquiring secondhand. It does not necessarily need to be the world-class architecture, but just generating much faster return. Or maybe even some other neighborhood shopping mall. Are there other categories that you guys may have considered and may entertain? Thank you.
I will answer the third question and leave the rest to HC. I will answer the third question on behalf of Weber. Weber has already asked a lot of those same questions, and the senior management have to study all those and come to some conclusion. Either he convinces us or we convince him. Not that he has set ideas, but it is good to have some fresh ideas, right? We never were closed to other ideas. For example, you probably do not know this, during the last financial crisis, we almost bought quite a few crazy stuff. We had a whole building that we almost bought. Last minute, something happened to the bank and we lost the deal. Another one, we bought with a whole building, with a plan to tear it down. To blow it up. Right.
We are open to many things and you only hear about the successful ones, you don't hear about the one that did not come through. We are looking at various things. H.C.?
In terms of CapEx, it would be quite high this year and next year because of the payment for the Hangzhou land. It will be running at HKD 12 billion this year and next year. Thereafter, it will be around HKD 6 billion, which is back to a pretty normal amount a year. Okay. In summary, between now and 2023, altogether, we expect that the total CapEx will be around HKD 48 billion. If nothing else happened, nothing else changed, the net debt gearing by 2023, it would be around 23%-25%. It's all planned out for a long time. I think you may recall it on different occasions of a briefing like this, when you get asked about the CapEx over the next few years, net debt gearing situation. That's the kind of indications. Right.
Your other question about when would some of the other malls be in break-even situations. I think all of them, with the exception of Dalian , because it's still pretty new and we still have yet to open phase two, which we will start doing that later on this year. The other one would be the Forum 66 mall. However, if you put that together with the Office Tower, which has been doing quite well for the first six months, we do expect Forum as a whole to move into a positive arena pretty soon.
Thank you, H.C. With that, we conclude the presentation today. Thank you very much for coming. Thank you.
Just a thought for your dessert. The RMB fell in the last three months, and we paid for our Hangzhou piece of land in the last three months. I will let you fill in the blank.
Thank you, Ronnie. That concludes today. Thank you.