Good evening, ladies and gentlemen. Welcome to Sun Hung Kai Properties FY 2017 Annual Results Analyst Briefing. It is great to see all of you here today as we have been worrying about, in the past few days, the two typhoons in the region may interrupt or delay today announcements or events. Thank God you are here so we can still proceed as planned. Once again, thank you for joining us today. As in the past, I will walk you through key financial figures about the results, the latest business update, our views on the market, and business prospect. After my presentation, there will be a Q&A section with our senior management, and I believe that part would be more interesting. Let us kick start our presentations with the key messages. FY 2017 was an encouraging year for the group.
With a very strong residential market and our superior product quality and strong brand, we have achieved record high contract sales during the year under review. Currently, we have sufficient land bank for future development. Although competitions in the land bank in that market in Hong Kong was keen, we were able to replenish our land bank through different means, including farmland conversion. In the coming months, we have a wide range of different products, ranging from mass market to high-end residences available for sale. Besides, we have a steadily growing rental income stream, which is supported by a sizable, well-diversified rental portfolio and well-planned new additions. On top of this, our seasoned management team and strong balance sheet continue to position the group to seize opportunities when they arise. Our long-term strategy remains intact.
Last but not least, we intend to maintain sustainable dividend for our stakeholders and grow it over time. Let us look at the key financial figures of the annual result. Please note that all figures are in HKD unless stated otherwise. In this financial year, the group achieved underlying net profits of HKD 26 billion, representing a year-on-year growth of 7.4%. The healthy growth in underlying net profits reflected the decent growth in profits from property sales and rental income. Underlying earning per shares increased by 7.2% to HKD 8.97. While reported earnings per shares rose by 27.6% to HKD 14.43 on higher unrealized fair value gains of investment properties. On dividend, in view of the group's performance, the board has recommended a final dividend of HKD 3 per share, representing a year-on-year growth of 7.1%, together with an interim dividend of HKD 1.10.
The dividend for the full year will be HKD 4.10 per share, an increase of 6.5% from last financial year. Let me go through the profit breakdown by segment. Profits from property sales increased by 1.8% to HKD 11.9 billion, mainly driven by higher profit from Hong Kong property sales due to better margin. On the other hand, profit from property sales on the mainland was down slightly due to fewer bookings from high-end projects in Shanghai. Please note that the figures shown here do not include the fair value gains realized on disposal of investment properties. Our rental portfolio continued to deliver healthy performance with net rental income of HKD 17 billion, up 4% year-on-year. Hong Kong recorded year-on-year growth of 3.4%, while mainland China recorded growth of 7.9%. In CNY term, the growth would be higher at 13.7%.
Our hotel business had better performance this year amid improving operating environments in Hong Kong's hotel industry, with profits up around 5% year-on-year. Growth in profits from other business is flat comparing to last year. In total, operating profit increased to HKD 34.7 billion, around 3% higher than last financial year. With our consistent prudent financial management approach, our balance sheet remains strong, as reflected by low gearing and high liquidity. As at end of June 2017, net gearing ratio was 7.2%. Interest coverage stayed at high level of 14.2 x for the year under review. Now let's move on to the performance of our key business segments, and I will start with the property business in Hong Kong.
As at end of June 2017, our land bank in Hong Kong was over 51 million sq ft, including 29.8 million sq ft of completed investment properties, 9.6 million sq ft of property under development, + 2.4 million sq ft of completed properties pending for sale. Majority of the completed investment properties are shopping centers and offices. 81% of properties under development, or around 16 million sq ft of GFA, are for residential use. We believe that this sizable development land bank is sufficient for the group's next five-year development needs. On land acquisition. In addition to the premium residential site in Sha Tin acquired in August last year, the group add a site in Tsuen Wan through farmland conversion in May this year. With 2.3 million sq ft of GFA, this site will be developed into residential premises comprising mainly small to medium-sized unit.
Recently, the group has settled the land premium for converting farmland in Sai Kung into residential use. Total GFA of this project is around 4.8 million sq ft and will be developed into a large residential cluster in phases. Substantial additional infrastructure expenditure is required, and the development period of this project will be over eight years. After this conversion, the group holds over 28 million sq ft of farmland in terms of site area, and they are in various stages of land use conversion. Coming to Hong Kong property development business. The recognized property sales in Hong Kong were HKD 30 billion, 17% lower than last year. The drop is mainly due to fewer GFA booked this year. On the other hand, development margin was better than last year, leading to higher operating profits.
Major contributors of the property sales include Grand YOHO, PARK YOHO, both in Yuen Long, The Wings IIIB in Tseung Kwan O South, and some of the remaining units from luxury projects, as well as non-residential projects such as W668. In terms of property completion, the group completed 4.1 million sq ft of attributable GFA, in which over 3 million sq ft were residential properties for sales and 0.8 million sq ft were non-residential properties retained for rental purpose. Going forward, we expect to complete on average 3 million sq ft of residential GFA per annum in the next three years. Contract sales reached a record high of HKD 44.7 billion, which far exceeded our original target. Thanks to the overwhelming responses to our major projects such as Kowloon West and Grand YOHO.
Contract sales for the first two months in the current financial year was around HKD 5.6 billion, mainly attributable to the sale of PARK YOHO Genova in Yuen Long. This map shows the upcoming launches over the next nine months. They comprise a diverse mix of products targeting various market segments with different flat mix. Moving on to our rental business in Hong Kong. Our rental portfolio delivered healthy performance during this financial year with positive rental reversion and high occupancy. The total gross rental income was over HKD 17 billion, up 3.8% year-on-year. By sector, our retail portfolio achieved gross rental income of about HKD 9.3 billion, up 3.4% year-on-year, representing 53% of the total. Our office portfolio generated gross rental income of over HKD 5.8 billion, up 4.8% year-on-year, representing 34% of the total.
During the year, our retail portfolio continued to see rental income growth and enjoy positive rental reversion and high occupancy rates. We have been taking proactive approach to manage our shopping malls so as to enhance our shoppers' experience and strengthen rental and brand value of the portfolio over time. On top of the tenant mix refinement and AEI, we also leverage new technologies such as mobile apps to create more refreshing shopping experience and synergies among malls. Here are some photos showing some of the marketing and promotional events in our malls. On asset enhancement initiatives. Three of our malls are now under major renovation, namely Metroplaza in Kwai Fong, New Town Plaza in Sha Tin, and apm in Kwun Tong. The renovation works are progressing well, and we expect high traffic and better retail sales upon the completions.
Representing one of the Group's latest developments, the 1.1 million sq f t YOHO Mall in Yuen Long comprise YOHO Mall I and extension, and YOHO Mall II, plus the future retail space at Yuen Long Station development. During the year, both YOHO Mall I and II delivered encouraging performance. With the opening of YOHO Mall I extension in July this year, we have seen stronger traffic in the mall. Together with its broad range of trade mix and direct connection to a major transport network, it has become a leading retail hotspot in Northwest New Territories. The Group's rental income will be further strengthened upon completion of new shopping malls in the future.
The new shopping malls in the pipeline include Ocean PopWalk, the last phase of the PopWalk retail cluster in Tseung Kwan O South, an upscale mall at Nam Cheong Station development, and Harbour North in North Point. Moving on to the Group's office portfolio in Hong Kong. During the year, the Group's office portfolio continued to deliver promising results. Major office clusters, namely ifc in Central, ICC in West Kowloon, and the Millennium City cluster in Kowloon East, maintained high occupancy with positive rental reversion. As mentioned in the interim results, we are redeveloping the site in 98 How Ming Street in Kwun Tong, which will have about 1.2 million sq ft of GFA. The project will be linked to Millennium City 6 by a footbridge, and is expected to generate much synergy with the Millennium City cluster. Now, let's move on to the property business in mainland China.
As at end of June 2017, total land bank in mainland China was 66.5 million sq ft, mainly comprising 12.8 million sq ft of completed investment properties and around 53 million sq ft of properties under development. Majority of the completed investment properties were shopping centers and office. For the land bank under development, 61% is residential for sale. During the year, the group recognized HKD 8.3 billion property sales on the mainland, up 21% year-on-year due to booking more GFA. However, margin was lower as fewer sales from luxury project in Shanghai were recognized in this financial year. Majority of the property sales mainly came from several residential and commercial projects located in Shanghai, Guangzhou, Dongguan, Zhongshan and Chengdu. We completed 5.2 million sq ft of aggregate GFA, of which 4.4 million sq ft were residential.
In terms of contract sales, the group achieved CNY 6.8 billion, mainly from projects such as Shanghai Arch and Forest Hills phase IIb. In the next couple of months, we plan to launch new branches of Grand Waterfront, phase IIa in Dongguan, The Arch Suites in Chengdu, and phase I of TODTOWN in Shanghai. Going to property rental business in mainland China. Gross rental income in mainland China grew 6.3% year-on-year to about HKD 3.8 billion, accounting for 17% of the group's total gross rental income. In CNY terms, gross rental income reached CNY 3.3 billion and achieved a growth of 12%. This respectable growth was driven by a positive rental reversions and additional contribution from new investment properties. In the next few slides, I shall provide you with an update on the latest development of our major investment properties on the mainland, including those on the pipeline.
Let's begin with our portfolio in Shanghai. For Shanghai ifc in Pudong, the office space remained almost fully leased with positive rental reversions. The shopping mall continued to do well with notable rental reversions and robust growth in tenant sales. More traffic has been drawn after the opening of the pedestrian tunnels linking nearby buildings early this year. For Shanghai ICC in Puxi, One ICC office tower was virtually fully let with positive rental reversions. Two ICC is now 90% leased, and we expect its occupancy to increase further. Its retail portions, the iapm mall, also recorded healthy growth in tenant sales and attract much traffic following the opening of the Podium Garden on Nanjing Road. As you all know, the ITC will be the group's next mega integrated project in Shanghai.
One ITC, the phase I of the project, was completed during the year with office tenants gradually moving in. Pre-marketing of its retail portion is well underway with encouraging response. Phase II, which mainly comprise office space, is planned for completions next year, and we are receiving positive response from potential tenants. Construction works of the remaining phase is underway. The entire project is expected to be completed by 2023. Another future new addition will be the Nanjing ifc. It is located in the core of Nanjing CBD and right above an interchange stations of two metros lines. This 3.4 million sq ft integrated project comprises both office and retail portions and is expected to be completed in 2020. In Guangzhou, Parc Central and ITC are the group's two premier malls opened in 2016. Over 80% of their retail space have been leased.
Tenant sales and traffic of both malls have been ramping up steadily. Next, let me go through the performance of our hotel operations. As for our hotel business, with a rebound in tourist arrivals, Hong Kong hotel industry saw signs of improvement during the year. Our hotel portfolio in Hong Kong achieved satisfactory performance with increase in room rates and high occupancy. Solid consumer spending also helped the F&B business. On the mainland, The Ritz-Carlton Shanghai, Pudong continued to do well with notable growth in profit during the year. In the next few years, we will be opening several new hotels in Hong Kong and mainland China. In Hong Kong, Hotel VIC in North Point is expected to open in the first half of 2018. It is part of the group's developments at North Point Waterfront, providing about 670 rooms.
Another premium hotel in Sha Tin, which is a sister project of Royal Park Hotel, is scheduled to open in the first half of 2019. On the mainland, the construction work of Four Seasons Hotel Suzhou is well underway and is scheduled for completion in 2020. Before ending my presentation, let me share our views on the market and talk about our business prospects. Against the backdrop of continued global expansion and low interest rate environment, the economy of Hong Kong and mainland China is expected to grow healthily, giving support to the property market. For Hong Kong, primary residential market activity will remain active, while office leasing market will be well supported by positive local fundamentals and cross-borders initiatives such as Bond Connect. However, office leasing performance is likely to be diverse among districts.
On retail, solid local consumption and improved tourist arrival is expected to underpin retail sales performance. For mainland China, we see quality office space in key cities will attract strong demand, given a stable economic growth and infrastructure improvements. Demand for prime retail space in key cities will be supported by the rising spending power of middle-income class. We anticipate first home sales in key cities will continue to be constrained by regulatory measures. As for the prospect of our property development business, we will continue to provide a wide range of products, ranging from mass market to high-end, with diverse flat mix and launch project as soon as they are ready. Solid development margin is expected. Besides, we have sufficient land bank, providing a strong support for our development needs in the next five years.
As I have mentioned earlier in this presentation, we will continue to follow prudent financial discipline and seek opportunities to acquire new site, particularly in Hong Kong, through various channels, including public tenders and farmland conversion. As for the prospect of our rental business, a good sizable rental portfolio will continue to generate rental growth with positive rental reversions and high occupancies. This growing rental income stream also provides strong cash flow to support our dividend. Our strong pipeline of new investment properties coming on stream will further drive rental income growth. Over the next five to six years, a total of about 15 million sq ft of GFA of investment properties will be completed, in which about 12 million sq ft are located in Tier 1 cities in mainland China, which will almost double the size of existing investment property portfolio on the mainland in terms of GFA.
Besides, we will continue to review and monitor opportunities for non-core properties disposals. Before concluding my presentation, just to remind, we kept on our strong fundamentals will help us to create sustainable growth and value for all stakeholders. This conclude my presentation. Thank you for your attention, and please join me to welcome our senior management to come up on stage for the Q&A session. Thank you.
Before we continue, I would like to introduce the panel to you. From your left, Mr. Brian Sum, whom you have already met. Mr. Christopher Kwok, Executive Director. Mr. Allen Fung, Executive Director. Mr. Victor Lui, Deputy Managing Director. The center is Mr. Raymond Kwok, Chairman and Managing Director. Mr. Mike Wong, Deputy Managing Director. Mr. Adam Kwok, Executive Director. Mr. Eric Tung, Executive Director. And Mr. Frederick Li, Group Chief Accountant. The question and answer session will now begin. Please signal for the microphone before you ask a question. Also, please identify yourself and the name of your company before starting your question. Videos of today's briefing will be uploaded on our corporate website. May I now invite the first question, please. Gentlemen in the second row, please.
Thank you. I am [Eugene] from UBS. I got two questions. Both is actually related to land replenishment. My first question is on farmland conversion. The group has completed another one. Could the management provide a bit more details on, for example, the land premium paid for the project? The group has actually converted two sites within a few months. Has the government actually really start to speed up the pace of conversion? Does the company see more opportunities to convert further sites from conversions? My second question is on the industrial building revitalization. The company actually has 13% of IPs in industrial buildings. Is there also any potential of converting some of those into commercial or residential usage? Thank you.
Okay. Maybe I can handle these two questions. The first one, farmland conversion. As you rightly pointed out, we have just completed the farmland conversion for, and we have just paid the premium and pending for some certain formalities to be executed.
The exact amount of premium will be announced jointly with government, probably in a month or two time. The question whether there is more opportunity to arrive more conclusions. You have appreciate, apart from the two main deals, that one in Tuen Mun and Sham Shui Po for us, there are a couple of other deals which have been concluded in the industry for the past couple of months. They indicated that there is urge, both from government and the community and the industry to conclude more land deals to produce more land and housing supply. I would think that there is a desire and there is good execution result that we have seen results. We hope the results or the good results will continue in the year or two to come, or probably for the term of the new government.
I'm sure they have the will and the ability to execute, to provide more housing in the years to come. I'm sure you can expect a lot from the new sort of policy address very soon from the Chief Executive, Carrie Lam. The second issue on industrial buildings, in fact, you are aware that certain, so to speak, the gate had been closed for the industrial modification, what they call the wholesale conversion of the industrial building, has been closed except for certain kind of uses. I'm sure government has announced that they're going to review the whole policy, to open the gate or open the door for the industry to apply for further projects to include it in the list. I think this is a good move that government is going to release more opportunity to release the locked-up assets and leaving less buildings idle.
They will probably do a commercial or for offices use. People are arguing there might be opportunity for residential use. We can see the chance is very slim, particularly for fire regulations or fire risk issues.
Thank you, Mr. Wong. Second question. Gentleman in the front row, please.
Thanks, management. This is Fan Tso from Merrill Lynch. I have three questions. First, the Hong Kong residential market is obviously still very strong here today. Does the company have any concern about further policy tightening to be introduced by the government, especially on the mortgage side, provided by developers? If that is the case, do you have any plans to work around that? My second question is, given the increased control by the central government on China firms' outbound investments and based on your observations, do you think Chinese developers will be less aggressive in land acquisition in Hong Kong and the land market will become less competitive going forward? My third question is regarding the office market in Hong Kong, and given the large supply in Kowloon East, do you have any concern on the rental level there? Thank you.
Yes. On the first question, regarding the mortgages that we are providing to our buyers, they are mainly sort of short-term financing that is helping our buyers to have a more relaxed and flexible financial arrangement upon the purchase. According to our past experience, we find out that most of the buyers tend to repay the mortgages very soon, normally within one or two years, by their own means or transferring their loans to the banks on lower interest rate. Given that it is very effective that our financial provision to them on the purchase, we shall continue to provide these kind of bridging loans to them in our future new projects. Regarding your third question. It is true that we have seen some increase on office supply in Kowloon East, and there are some competitions among the new buildings recently.
We have also seen one or two owners may have a more flexible stance on rental negotiation to new tenants. But that does not affect our buildings in our Millennium City portfolio at all. Because most of our tenants are belonging to large size respected tenants in various sectors. They have a very long-term relationship with us, very stable, and at the same time, very demanding on project quality and also management. Although we have seen some movements backed by cost savings, some activities in the area, but high CapEx on relocation remain a hurdle to them. So again, most of our buildings in Kowloon East are well positioned to be benefited with high occupancy and solid rental.
On the second question, I think there are still a lot of non-SOE developers like Country Garden or R&F that seem very active. So I presume the rules are only restricting the SOE companies. The private sector companies are not restrained as to whether they invest overseas, yeah. In any case, in Hong Kong, there is so much competition from the small and medium-sized developers. In a way, this is a perfect market, yeah. But I think for the land prices, as reflected by the tender yesterday on Tai Po, I think it is getting more reasonable, yeah. The tender won by James Tin, but yeah. Seems the land price is getting more reasonable now, yeah. At last, yeah. Thank you.
Thank you, Mr. Kwok. Next question, please. Gentleman in the second row.
Hello. It's Ken Yeung from Citi. Two questions. First on sales. Can you provide us your FY 2018 sales target for Hong Kong and China respectively? Basically, I've observed that some projects such as St. Barths, St. Moritz, Victoria Harbour, which you have already received pre-sale consent for quite some time, but still yet to launch the project. Is it because the management want to time the market or any specific reason for that type of delay on the launch versus the pre-sale consent? This is the first question. Secondly, is on strategy. Previously, management said that you want to have around 50/50 split between development profit and rental profits. Are you seeing any changes on that? Also, regarding such low gearing level, are you consider to move your payout ratio, which have been 40%-50%?
Is it possible to move to 50%-60% on such a low gearing ratio or do some share buyback?
I answer you on the first question. Our sales target in Hong Kong is HKD 36 billion and HKD 5 billion in the mainland. The projects you mentioned above, they are all on our marketing list, which is to be marketed very soon. In the upcoming nine months, we have a lot of projects to be launched, namely the LOHAS Park phase IV, which we are marketing now, and Victoria Harbour in next month, together with St. Barths end of the year, and also Kowloon West phase II. In first half of next year, that would be St. Moritz at the Peak of Kau To. Our two residential project, one in Tai Po and the other in Tuen Mun, together with Babington Hill in Mid-Levels in Hong Kong Island.
I want to point out that for project like St. Moritz at the Peak of Kau To, we intend to market it after its completion because we want our buyers to truly visualize the beauty of the project, including its environment, the fantastic view over the Tolo Harbour, together with its superb quality. Overall, we are very confident on the sales of all the projects I mentioned above.
On the gearing strategy, at the moment now, I think we have low gearing. At the same time, we are building a lot of investment properties, 12 million in the mainland and 3 million in Hong Kong. Secondly, I think the government is going to proactively release more land in the future. So we need to have a strong balance sheet to be able to buy land at the right time. Regarding the dividend payout ratio, I would always be between 40%-50%. Regarding the ratio between rental over development profits, it is now 60/40. Rental 60%, 40% is from development profit. I think our target is to maintain the 60/40 ratio. Thank you.
Thank you, Mr. Kwok. Any other questions? Gentleman on the front row, please.
Hi. This is Raymond Liu from HSBC. I got two questions. The first question is on the land supply side. Just you mentioned that the government is more willing to provide more land supplies. Assuming there will more land supply than purchase, like continuous abundance supplies, will you consider to double or triple your annual residential completions in Hong Kong next few years? Or will you consider any constraints here or there anything that will restrict you from doing so? The second question is more on the bigger picture, which is about the retail sales. In coming few years, there will a lot of completion in China. Can you share with us the impact of e-commerce to your retail business in Hong Kong and China at the moment, and what's your thought in future? Thanks.
On the issue of the land supply, I'm sure everybody is expecting the new administration. The government is going to launch more land supply in the years to come. The question is how soon and how fast the development cycle. We hope they can be able to execute their strategy. But the question is whether they can do it as much as you said, double the volume. I really doubt it. Back to our Sun Hung Kai side, as probably you have seen the booklet, we have been doing pretty steady around 3 million sq ft per annum or slightly more than 3 million sq ft, gradually increasing in the years to come. But we have record to do 4 million to 5 million sq ft 20 years ago before the change of sovereignty. We have the capability.
The question is whether we can get the land resources to do it. There is no constraint on our production capability. It's a question of whether we got the land resources to do it. I'll hand over to my colleagues to answer the retail issues.
I think regarding the e-commerce, especially in China, I think the latest data is around nationwide, around 15% of retail sales is e-commerce. But we know in major cities which we're in, it's approaching 20%. I think, it's always the same story about how we combat it. I really think it's coming down to a few things. As you can see what we're doing in our malls. As we say, we're making it more one-stop shop for everything, more experiential. Things that will get people to get off the computer, to come and learn. For example, in Guangzhou, for example, in our Parc Central, we opened the one and only Starbucks Reserve Plus.
We opened a shop called ABC Cooking Studio, which is two very famous brands in our mall that will get people there to hang out, to buy things, to learn to cook and so on. As Eric can talk about more later, ITC and our mega project, we're putting a lot of effort into making it very experiential and something different that you'll see. I also comment that you see that the e-commerce is really merging with traditional retail sales as well. There's O2O that really everyone is doing now. You see it in Apple, you see it in Tesla. You even see it in China in Xiaomi. A lot of these shops are becoming flagship showcase stores where you could choose items and buy online. But that just means the need for anchor store in very key prime malls and location is even more necessary than before.
Even in Alibaba, you see they opened up a shopping supermarket now, a physical supermarket. I think the O2O trend is definitely the way to go. Not pure e-commerce or not pure traditional sales. This is where hopefully our flagship stores will have an edge in.
I think the situation in Hong Kong is similar, but slightly different. While we see that e-commerce sales are growing rapidly in Hong Kong, I think compared with China, the penetration in terms of on e-commerce sales as percentage of overall retail sales is still probably in low single digits. You could say it's less of a threat to us. But then I think we still adopt a similar strategy in Hong Kong in terms of enhancing the overall shopping experience for our shoppers. I think this includes everything from fine-tuning our trade mix, attracting unique brands, first time in Hong Kong brands to our malls. Continuously improving our aged malls through alteration works. Kind of introducing new digital marketing initiatives such as apps and social media engagement with our shoppers. Putting up pop-up stores. Organizing talk of town events.
I think the whole purpose of this is really to make sure that our shopping malls in Hong Kong are not just places to shop and eat, but also that they become a part of the lifestyle of our shoppers in Hong Kong. If I may add, our malls in China, I think right now, I think it's a fact that e-commerce is still growing and probably taking share from traditional retail in China. But so far, we have seen the impact on offlines as in on shopping malls, most severe in kind of those secondary, tertiary regional malls. I think what we see right now in mainland China is that it's more of a winner-takes-all market. I think malls in good locations with good transportation access, right positioning and good tenant mix will continue to outperform in the market.
This is what we have been striving for and what we'll continue to strive for our retail portfolio in China.
I think our view actually is very simple. It is going to be a winner-takes-all situation. E-commerce will take over the traditional business of the regional malls. Basically, I think in a big city like Shanghai or in Hong Kong, there are few big mega center with very well connections with the MTR and with experienced shopping, they will fly, and they will actually eventually be the winner. You can see our strategy. We only buy land in the best part of city and also we only buy land with a very good MTR connection. Like our Suzhou sites and other sites. We all have the three lines connecting and forming a hub. All this shopping trend is very different from before. It is going to be a more experience things.
Like all these brand shops, they still open, but possibly before they open 10 shops in the city, and then use sales per unit store type of concepts to run their business. But now it is basically a big store. Then they sell online or whatever, but the big store is for demonstration, for experience, for their styles. So it is very different experience and it is very different trend. But basically, we recognize that the big mall will really win and at the end of day, it is winner takes all.
Thank you. This is Praveen Choudhary from Morgan Stanley. I have one question only. Recently, one of your competitors sold a land parcel in Chengdu at a very high margin. My question is that assuming that you have 61% of your land bank in China in residential portion, would you mind thinking about or would you tell us your strategy just in case would you selling it at the current stage rather than developing it? Because when you develop it, you have to pay LAT, eventually the net margin is never higher than, I would assume 20%. But if you sell it like this, you could actually make 50%-60% margin. Thank you.
I think we have an execution team there. They have done a good job. We are not traders, we are builders. I cannot say, oh, tomorrow
I can make more money by selling. But two points, right? I am a builder. I need to build a team. Even though the profit margin may be not that great after tax, over time, we can build a team, then we can be strong in that area. My point is, we are builder. We are not traders. If the management has done a lousy job, okay, of course, we will say withdraw. But the management has done a good job, and I think I see no reason of selling unless the management has en bloc quit, yeah, to our mainland competitors. Thank you.
Thanks. Justin Kwok with Goldman. Perhaps just two quick question and one on the strategy. The quick question is actually a follow-up on the retail side in Hong Kong. Do you mind if you just share a bit on how you are seeing in the tenants in Hong Kong, what is the tenant sales for the past year? What is the occupancy cost ratio? The other quick number question is, you did have a good revaluation gain this round. Is there any change in the cap rates? On the strategy side, the last question, you mentioned that you are not going to sell things in one go in China. But in your prospect session, you mentioned that there is a opportunities for you to monitor for non-core property disposal.
Could I check, what are you seeing, what is your criteria, and how are you going to see this market where we are already in the cap rates good enough for you to sell, and what kind of things would you consider non-core in your portfolio to put up? Thanks.
Yeah, I think for our Hong Kong portfolio, in terms of our occupancy costs, it is still in the mid-teens, so we think it is still a healthy level for us to continue with rent increases. Actually, we have seen retail sales also stabilizing, and we are recording so far better than market sales figures, and continue to have positive rental reversions . I am sure all of you know that the government data have shown that there is a recovery in retail sales and in bound tourist numbers. So we think this is a good sign, and we expect the retail sales recovery to continue in 2018.
Yeah. On whether we will trade our investment property, if our local team is busy with new projects and they cannot add value to the older properties, we will consider selling the older properties. My point is, if there is a good project that we can concentrate on and devote all our best people there, we can then consider selling the marginal properties, yeah. But in Hong Kong, our retail leasing is our core business. We would only consider selling some of the non-core, two points, when our management cannot devote the time, and secondly, when they cannot add too much value because they are too busy, yeah.
Thank you.
Thank you, Mr. Kwok. This is the final question, and the briefing is coming to a close. Ladies and gentlemen, thank you for coming. There is some refreshment outside. Please stay and enjoy. Thank you very much. See you next time.