Good afternoon. Thank you all for coming to Hysan Development's 2024 interim results announcement analyst briefing session. Let me introduce our panel for this afternoon. Our Chairman, Ms. Irene Lee, our Executive Director and COO, Mr. Ricky Lui, our CFO, Mr. Andy Choi. We will start with the presentation from Irene, Ricky, and Andy, and we will follow that to take questions. Now, I will invite Irene to start first. Irene, please.
Okay. Welcome to the analyst briefing of Hysan's 2024 interim results. Hysan continued to leverage the strengths of our core businesses and contributions from our strategic pillars in the first half of 2024. As retail and office trends evolve, we are reinventing our offerings, starting with the rejuvenation of Lee Gardens precinct that began two years ago, and we are now seeing the results. We have been receiving long-term support from our Club Avenue members, serving multi-generations of old and new Hong Kong. Compared with the peak of the retail market in 2018, there has been a 40% increase in our Club Avenue members' spending at Lee Gardens, despite the pandemic. To enhance the shopping experience for customers, we have strengthened collaboration with our anchor tenants and started rejuvenation of the Lee Gardens two years ago, marking a key milestone in our journey of transformation.
The rejuvenation of Lee Gardens includes the expansion of major luxury brand flagship stores. Slated for gradual completion, the rejuvenated Lee Garden One, Two, Three, and Five will welcome more than 10 newly renovated and expanded maison flagships. Lee Gardens will be firmly established as the home of luxury brands, a new absolute attraction for both locals and visitors. The completion of rejuvenation will double our luxury portfolio. Each luxury flagship will showcase its latest and best offering, designed for Lee Gardens. There will also be a full, and fuller actually, range of F&B, and much more diversity in shopping experience at our Lee Gardens. With the reshaping of Hong Kong's retail landscape, industry players must innovate and deliver a more engaging experience that resonates with the consumers' changing preferences. We have had a hundred years of working with and curating for our community.
Today, we attract over 100,000 daily traffic to the Lee Gardens area. Old and new Hong Kong, young and old, are here to experience our diverse choices. Hot after the launch of the first indoor skateboard park at Hysan Place, our Urbanhood concept made its debut last Christmas. Along with more than 200 local and international brands and over 100 marketing events held annually, we are well-positioned as a trendsetter of urban culture. The Caroline Hill Road development, we will now call Lee Garden Eight, is on track for completion in 2026. It is another strategic move to reinforce our leading position in the area.
An integrated pedestrian walkway system will also be in place in 2026, connecting the Lee Gardens area from Caroline Hill Road to the Causeway Bay MTR station, which is under Hysan Place, within an eight-minute walk, for a more seamless walk, working, shopping, dining, and leisure experience. This provides an added option to the walkable neighborhood, which we're so proud of, at street level or via air-conditioned all-weather walkways. Lee Garden Eight is a crucial part of our Lee Gardens rejuvenation. As premium Grade A commercial mixed-use buildings, the project adds a notable lifestyle element through the inclusion of a significant green community space. It features cutting-edge sustainability design, efficient floor plates, a 60,000 sq ft lifestyle park, I call it an urban oasis, and a performing arts and cultural center designed to meet the evolving needs of corporate and commercial tenants.
So in addition to our core business, we have established strategic pillars as new engines of growth to complement our core operations. Investment in these pillars have started to contribute. Lee Gardens Shanghai made good progress, securing commitments for 70% of our office space by the end of the period, with quality tenants spanning across reputable financial institutions, luxury retailers, and professional firms.... The use of workspace, and indeed, the very concept of an office, has been evolving even before the pandemic. Hysan identified flexible workspace as a fast-growing business, as a fast-growing business segment that complements our traditional office portfolio many years ago. It is simply an essential part of the office ecosystem. We entered into a joint venture with IWG, a long-established global brand that is one of the most successful flex operators in the world.
The flex office sector in the Greater Bay Area, includes Hong Kong, achieved steady growth and maintained high occupancy. Growing demand for flexible office solutions, which is now an integral part of the office ecosystem, accelerated the performance of our joint venture, IWG. We are optimistic and confident about the flex business in the Greater Bay Area. We were early in identifying market demands, and took the lead to define and formulate our strategy for the new normal, as early as the beginning of the pandemic in 2020. We did not stop during the pandemic, during 2021-2023. Instead, we actively executed our plans to secure opportunities and long-term partnerships. Now, we are in 2024. We are beginning our harvest, so we are beginning to see results, with Lee Gardens rejuvenation completing in stages and investments in strategic pillars also starting to contribute.
This includes what we've just seen, the Lee Gardens Shanghai and our GBA flex business. Looking ahead for the next two years, 2025 and 2026, we will be seeing the completion of Lee Garden Eight, the integrated pedestrian walkway system, and the rejuvenation of Lee Gardens, while our strategic pillars will be more mature, leading to diversified revenue streams. Lee Gardens will continue to be a destination where people come to work, live, enjoy, now and for generations to come. This is our strength, generations. I will now ask Ricky to share with you more about Hysan's business and operations for the first half of 2024.
Thank you, Chairman. Good afternoon. Now I try to share some of our interim results. For the revenue, the first half of 2024 is HKD 1.69 billion, which represent 5% growth year-on-year. The period end occupancy for retail, 95%; office, 89%; and residential, 68%. The retail revenue, up 10.8%, is contributed by reopening of rejuvenated area and positive rental reversion. Office revenue, down 2.8%. The rental pressure prevailed. With the diversified tenant mix and the proactive restructuring, early renewal negotiations, and the broadening of our source of new tenants, it helped to retain a stable occupancy. Residential revenue and occupancy recovery, and Lee Gardens Shanghai start to contribute. On retail, the Lee Garden rejuvenation starting to bring results.
The transformed and expanded luxury flagships, along with the Hysan Avenue, together with the exciting Urbanhood concept in Hysan Place and the nearby low-rise area, were launched in the first half of twenty twenty-four. This expand our portfolio width and breadth, with 50+ new brands opened within the last year. Further key opening will continue to be launched in the next twelve months, sustaining the momentum, and as well as providing the diverse and ever-evolving customer experience for the customers. For retail sales, it's in line with the Hong Kong retail sales performance. Our tenant sales also face pressure from changing consumer consumption patterns and strong Hong Kong dollars.
When we come to our loyalty program, which is a very strong pillar of our retail business, as Chairman has mentioned, the members' spending versus the 2018 , which is at almost the peak of the retail sales, is up by 38%. And the contribution to our total retail sale is up by 13%. About the top-tier members, the average spending is 1.6 million per member. But we don't just focus on our high-tier members. We believe a more balanced contribution across all tiers is important to form a more strong base and the necessary and the needed resilience of the member sales. Recently, together with the relaunch of our Lee Gardens apps, we have generated our second membership, called hy! membership.
This is for a wider demographic spending generation and both established for both Hong Kong resident locals as well as some visitors. We get a very encouraging results by getting over 60,000 members within six weeks after launching the membership. It's now contribute additional 20% of the member spending on top of the club revenue. The unique positioning of Lee Gardens that support the resilient occupancy of office. We have put in continuous effort to diversify our tenant mix, as well retain our key tenants. As I has mentioned, our team has been proactive in all the lease renewal, as well as develop new customer resources. When we if you look at the pie chart on the right-hand side, it tells what we means about the balance and diversified tenants portfolio.
The seven categories already, which is quite evenly distributed, if we further divide it, divide the banking, wealth management, and finance into another two categories, you will see that eight categories will take up about 80% of our tenant mix. Each of them is about around 10%. So this really tells the attractiveness of Lee Gardens is very broad, and it can cover from new economy, technology, education, services, to traditional banking and finance. The new coming co-working sectors that have been empowered by our investment in IWG has really make the whole portfolio a full range offering for office solutions.
We talk about events, which in a way, not only about providing traffic for retail, it's also about building the character of the whole community for both office and retail. We have over 100 events each year, but there's one I want to mention today, which is about this Urban Jam that we hold about three months ago. This is a collaboration with the Hong Kong government, trying to boost Hong Kong economy. We make use of this collaboration to showcase the operation capability and the uniqueness of the area. Within five days, we spread over two weekends, we have generated over 600,000 traffic to the area.
And it also received very positive response from the market, from the government, and we were also invited to do more collaboration with them over the time. So this is what I want to introduce today. Andy, may I pass it to you on the financials?
Okay. Well, before we move on to the Q&A, which everyone is looking forward to, just a quick recap on the financial numbers. So, on the key metrics, shareholders' funds stood at HKD 66.8 billion, which is largely stable from the previous year end. And NAV per share is at HKD 65, and the board has proposed to keep the first interim dividend flat at HKD 0.27. Okay, and on capital management, again, the group has a very strong liquidity and cash position, and our cash as of the reporting date is around HKD 3 billion. We, together with the undrawn committed facility, have HKD 14 billion of liquidity resources as of the reporting date.
We also signed a syndication loan with 20 banks in July. This provides additional buffer in liquidity, and which will help us to strengthen our capital base. So a bit of the key financial metrics, I, I'm sure everyone is familiar with it, so I won't dive into the details. Just one key note, we will continue our principle of prudent capital management. As mentioned before, all the major capital project CapEx have been secured and provided for. So we are moving into a harvesting phase with LG rejuvenation starting to come into contribution, and also the Lee Garden project coming in two years' time. So I think that pretty much summarize our capital management. And over, yeah.
To conclude, if I seek your indulgence, I'm leveraging on the history book of the family that was recently launched. It's [Foreign language] , for our Chinese friends here. With a long-standing legacy spanning a century, spanning one hundred years, Hysan has been an integral part of Hong Kong's growth story, and a major contributor to its prosperity. My grandfather bought Lee Gardens one hundred years ago. After generations of efforts, we just kept going. It was eventually developed into one of the primest locations in Hong Kong. This shows commitment and conviction. Hysan has demonstrated continuous reinventions and creativity in how it curates the place, with contrast and diversity. We believe in that. We believe in inclusion, because we are a community operator.
The Lee Gardens precinct leads as a trendy, vibrant, and upmarket integrated shopping and commercial neighborhood in Hong Kong, and that has been a result of our strong and disciplined execution, driven by our unwavering vision. As we remain prudent, steering our way through the ongoing market complexities, we are confident that our multi-pronged development and enhancement will not only future-proof our portfolio, but will open a new chapter in our growth story, which will reinforce and sustain our long-term prospects... Looking ahead with optimism and determination, we will continue to shape the future of Lee Gardens and contribute to the sustainable development of Hong Kong. Thank you.
Thank you, management. It is the Q&A session now. We will take questions from the analysts on site, and then we will take questions from the online platform.
Thank you, management. First of all, congratulations on the result. This is Mark Leung from UBS. I got maybe two or three questions. I think first of all is, really appreciate that we maintain the, dividend, remain constant. I recorded, Irene, previously, you mentioned we have a steady and progressive, dividend policy. Not sure if you would still like to, reiterate, the statement. I think that's the first questions. And second question, I think, is more on, Andy's side. So, I think, is there any bank covenant or bond covenants, or metrics we need to keep an eye on in order to maintain the credit rating or bank refinancing, et cetera? And lastly, I think it's more on the Lee Garden Eight.
I saw we got a pretty balanced tenants portfolio for office, but what is your ideal tenant mix for Lee Garden Eight? Yeah. Thank you very much.
So maybe I will answer the dividend question, and Andy answer the metrics, and Ricky can talk a little bit about the Lee Garden Eight. Thank you for your questions. Dividend, yes. We always have our shareholders, our stakeholders' interest first, the primary consideration. And of course, we always have to consider the company's own development in terms of our operating performance, our CapEx commitment, and our long-term business growth. So these are the capital management that we have to look at and juggle with. We remain cautiously optimistic. The board is committed to our long-term commitment to provide a stable income for our shareholders. But of course, we have to be prudent, and we have to be sensible.
So without having to commit to anything, Mark, I think the key is we will be prudent. We have committed to and have executed our rejuvenation, our developments, so as Andy said, our CapEx has been committed. It has been, and we have plenty liquidity, so in terms of financial prudent financial management, I think we feel very comfortable with that.
Okay. Thank you for the questions. As to the covenant, I think, apart from those customary undertakings, one of the key covenant definitely would be the gearing ratio. Depends on how you calculate it. Our gearing ratio is around one third at the moment, so I think that's of course, each loan has different gearing ratio, but we still have a very comfortable buffer, I would say, so there is no major hurdle in refinancing those steps in terms of covenants.
Lee Garden Eight,
So about Lee Garden Eight, we kept up our balanced portfolio. With such a big development, of course, the first thing we want to do is to find an anchor. And if you look at the balanced portfolio from financial institution, wealth management, medical and health, all this become a very natural targets for Hysan. Because the popularity within the existing portfolio means that this is a good place for them to stay, and it will be a good testimonial for other similar trade headquarters to be situated at Lee Gardens. So for Lee Garden Eight, so I think that really tells the direction that we are heading to.
I think, I might add a little bit. You have to differentiate-
Mm.
Because there is supply, and demand is not, you know, pushing the door down. So we feel very, very strongly that we are differentiated because nobody has this bulk. Nobody has a curated community which offers the widest... I mean, I challenge anyone to not want to be in the Lee Gardens area.
Mm.
Because you have everything, have a good luck, right? Everything that you want to do in your daily life and more for your family later on. Also, with our greenery, with our urban oasis, we, you - I don't know that you can find a place which has so much greenery around you, and I think that is really important for wellness. Our floor plate will probably be the most efficient in Hong Kong, because we have two buildings which can be joined together, or it can be split into two, or it can be split into four. Of course, the most efficient, and what I would like, is to have people take my whole floor, and that's 30,000 sq ft.
Forty.
40,000 sq ft.
Mm-hmm.
Quite big, but you can imagine the efficiency. It will sit on the most amazing retail F&B platform.
Mm.
It's not the hugest part. The retail is only, what? 15% or so of our overall development-
Yes
... of LG8.
Mm-hmm.
And don't forget the convenience. It is, with the walkway, eight minutes to Hysan Place MTR, plus we will have some still bargain.
Minibus
... minibus relocated. And our curation for people for the bus stop will be, will not be the normal bus stop you see. So it's very thoughtful. It really will attract... So when I sell to potential tenants, I will challenge them, "Ask your staff."... Who wants to be here? It's very important, particularly nowadays, people seem to have a choice to work at home. So I would like to make sure that your staff are happy. We always have the same thing. You know, when Goldman Sachs came, when KPMG came, they don't dare bring their staff from somewhere else to come because they feel that they are disadvantaged because they want to be here. So I think you have to create a place where people want to be here. We all know the office sentiment these days.
You have to convince staff to come to work. That's a bit new for my generation, but that is really important, to have a place where people want to be, at Lee Gardens.
Question from the back.
Thank you, Irene, Ricky, and Andy. Fan Tso from Bank of America. A couple of questions on your retail portfolio. First of all, can you let us know your latest occupancy costs? And based on your lease negotiation with your tenants, are you confident that base rent reversion will be predominantly positive for the rest of the year? And secondly, if you can break it down, the performance of your three retail hub, that would be great. And lastly, we saw that the Hong Kong retail sales actually weakened in the second quarter, mainly from the luxury items, and that coincide with a depreciating Japanese yen.
So when you talk to your VIC clients, do you have a feel that currency is the major reason, or is there any genuine more cautious spending? Thank you.
I might get Andy to answer some of the technical stuff first, and I'll give some color.
Sure.
Thank you very much for the questions. So in terms of occupancy cost ratio, yes, because our tenant sales is in line with Hong Kong retail sales, those sales are a bit of a kind in the first half. Our occupancy cost ratio is around high teens percentage. That's comparable to the previous year, I would say. So in terms of rental reversion, of course, we have seen a positive rental reversion for the first half of the year. There's a range of it, probably about mid-single-digit to low-teens range. In terms of... Yes, there's a different performance between those hubs, but I think more characterized is the actually the impact of our rejuvenation project.
I would say majority of the rental improvement come from the reopened space, which we have enhanced the offering and create a new tenant mix for them.
I think two words on the rejuvenated space. Right now, we are looking at the luxury boulevard, the Hysan Avenue boulevard. When we decided to press the button on the rejuvenation, basically, it was a top-down and a bottom-up approach. So every single deal has to make sense, and our numbers were very, very solidly and conservatively calculated because it's a long-term generational change. So in terms of making sure that we don't go naked, right? We actually have our anchor tenants committed, and we can actually calculate the uplift on the rent and on the. So I'm very keen on productivity per sq ft. I look at that very, very keenly.
And of course, we always make sure our clients don't just calculate if they are doing HKD 2 per sq ft and they now have 2 sq ft, it's actually not HKD 4 per sq ft. It has to actually optimize because of the halo effect of their own bigger and better store, and then the next door and the rest of the area. I think we feel very, very confident that, and that is a very large part of our business, of course, the luxury sector. But of course, we're very, we work very hard to ensure that we maximize, optimize the spending for our, you know, beautifully rejuvenated space. But at the same time, we keep an eye on, if you can look at Hysan Place, we have not stopped re-curating Hysan Place.
Hysan Place, for it to be at the forefront of, of, you know, trendiness, you have to constantly change, and you have to make some courageous decisions. I mean, for instance, you know, our skateboard park, I think, is a little bit courageous, but it's actually become a landmark-
Mm.
-for Hong Kong. And then, of course, you have to follow through. If you put level four skate park, skateboard park, you need to have other related, you know, trades, and F&B so that it becomes a destination, because with vertical transportation, you need to actually drive people. There has to be a reason to go from level two to level six. People don't just go on the escalator and just-
Mm-hmm.
wander around. So I think, you know, I think you have to accept, you have to be inventive, you have to be brave, and you really need to use your imagination. So I think we do that quite well. We're very, very conscious on behavior. We're very conscious to make sure we understand what people want. People want a story, people want purpose.
Mm.
People want excitement, people want change. So that means a little bit more pop-ups. Pop-ups are a real pain because it's a lot of work, but that refreshes, and that actually allows us to try new ideas, and if they don't work, we'll push them out. If they... You know, so on. So I think it's very, very dynamic. It's so again, every time I think about that, I think about my team. Must be hard work.
Mm-hmm.
Hi, Sarah.
Thank you, and congratulations on the result. I'm just curious if you've got any comments on construction costs for Lee Garden Eight, if there's been any changes there. You kind of touched on it earlier, but just what you're seeing. Second, I'd be interested in the timing of the income from that 70% pre-commitment that you've got in-
Shanghai.
-Shanghai, and I guess, as we think about the dividend, and then also with the CapEx, just when we should expect the gearing to peak?
Yep.
Okay, to talk about Shanghai contribution-
Yeah
... and Andy on the gearing.
The CapEx.
The CapEx, yeah.
Yeah. I think the Lee Garden Eight good thing is that we,
Most of the contract has been awarded, and this is well within our budget, and we've got some little saving as a buffer for the coming construction period. And then, timing-wise, we are, yeah, as you know, that we are using the top-down method. So basically, even with rainy days recently, we are really on time, on track. So today, Irene has just mentioned about completion by mid of 2036 is still our target, and which we don't really see any deviation from it for now.
We're very committed, Sarah, to completing on time, if not ahead of time, because every day, and that's our mantra-
Yes.
Every day it costs us X dollars, and we talk, we shout that out every day.
Yes.
So we have to remind people, every day costs us more, and it squeezes my margin.
And the Shanghai, basically, all the commitment will start at least by the end of the year. And also, we haven't mentioned about our retail. As of today, our retail, which already we lease, we start leasing about a few months ago, now we have about a commitment rate, about 50%, and we will do our soft launch around September or October. And we hope by the end of this year, we hope that we can get around 70% of the commitment rate as well.
In a challenging market. Yeah.
As to gearing, majority of the group's gearing is incurred for the CHL project, actually. So, I think, the gearing goes up as we deploy more CapEx. So, that will be pretty much in line with the completion timing of Caroline Hill project-
So it will be peaking.
In 2026 and 2027. Yeah.
Due to the time constraint, we'll take one question from the online platform. It is from Simon from Goldman. He is asking for the pre-leasing status of the Lee Garden of the Caroline Hill project, and would like the management to share some color on that.
We are in discussions. This is still early days. We have target demographics in terms of our. Of course, we are focusing on our office first, because that is the majority and probably the harder. So both retail and office, we are circling what areas of interest and what clients within those areas of interest. So it's early days, and we will report when we can.
Thank you, management. Today's briefing session is completed, and we sincerely invite all of you to enjoy our Lee Gardens.
No one can leave without shopping at our new Hermès and Dior stores. I will keep track of all of you. And Kevin, look at your Club Avenue status.
Yes. Yes.
Thank you.
Thank you very much.
Thank you very much.
Thank you. Thank you.