Good afternoon, ladies and gentlemen. Welcome to the analyst presentation for FY 2024 interim results announcement that were made earlier today for both Hang Lung Properties, 101.HK, and Hang Lung Group, 10.HK. We welcome the audience who are at our Hong Kong headquarters here, and also the audience who are at our live webcast right now. My name is Joyce Kwok, and I'm the General Manager of Investor Relations at Hang Lung. Today, our senior management team is all here to join the presentation. They include Mr. Adriel Chan, our Chair; Mr. Weber Lo, our CEO; and Mr. Kenneth Chiu, our CFO. Our Chair, Adriel, will start with some remarks. Our CEO, Weber, will elaborate on the first few slides that highlight our results, and our CFO, Kenneth, will also walk through our financial management.
After that, we will address the questions from the audience, from both the floor and the webcast. Adriel, please. Thank you.
Thanks, Joyce. Hi, everyone online. So by now I think you've all digested, or at least mostly digested or are suffering from indigestion, from the news released this afternoon. So we announced a dividend cut, which I think in and of itself was not a surprise, but I think the magnitude, at least according to some of your reports, was a bit of a surprise. That being said, you know, I wanna just run through quickly some of the rationale and some of the thinking that the Hang Lung Properties board had before making that cut. So there was a very, very robust discussion around this. I think there's sort of no doubt in anyone's mind, that the sustainability of a dividend, prior to the cut was just not there.
I mean, it's completely unsustainable. We were paying, in some cases, over in some years, over 100% of our profits, and so that just was not something that was gonna be, was gonna last. The question then comes down to what- why the amount? Why, why 33? Obviously, there's a mathematical aspect to it, which is that, it's either 33 or it's 39, or it's, like, 27 or something like that. So, there's an aspect of that. But then, of course, more importantly, is what does it do financially for us? And, really, what this is, is a reset. Although this is just the interim, I think the intention, if the markets move the way that we expect it to, is that this would be indicative, for the rest of the year.
I think, this is sort of, one clear, and important point. It gives, properties space, a little bit of space so that we're not paying as much, in terms of, our payout ratio. So it gives us space to, in due course, start a more consistent and, appropriate, dividend policy and growth. That policy obviously is not some—it's something that we've always had, but it has been somewhat less, specific than some of our peers. And this dividend cut is a part of that. So, you know, you all know us very well.
There are some areas where I think maybe there was a little bit of miscalculation or misinterpretation of some of our figures, primarily around interest. And I think the magnitude of the interest expenses was maybe unexpected by some of you. And so really, this is a reset to make us more sustainable. And you know, I hope that on one hand you are understanding, but on another hand, you know, that this doesn't come as too much of a surprise. You know, and it comes back to being responsible as management. Part of the discussion at the board meeting was around, you know, does it have to be, you know, why 33? Why not 27 or 24, or whatever it might have been?
And I think really this is something that we started saying at year-end 2023, so six months ago. We were talking about what would finances be used for. First priority is to pay down debt. We said that already publicly. Second priority is to pay dividends. And then thirdly, only then would we consider investing further in our markets. So this is sort of a representation of what we said that we would do. Weber?
Yeah. I just want to add, not, this is really the situation that we are in, that we do not see there is any alternative. The main reason is still the very challenging environment that we are in today. I would say, I cannot say that this is in the history that what we are facing, but this is the first time that we see both China, mainland and Hong Kong, are facing the headwind. Which is, I would say, not only that we can expect, in January when we met, we see the trend starting from last year, May, which we talk about, when we, after the Labor Day, we already see the trend slowing down.
Therefore, we still managed to pay the same dividend, I think last year, because we still managed to deliver the underlying profit because of a very strong first half of last year. But we find that the second half already showing the weakness, but we do not expect that the weakness continue even until now, when we see a little bit of the low base starting from middle of May last year. Now, I'm not saying that the low base will not come, but. But it seems like a few things that actually is a little bit out of our surprise. First, I think the confidence in terms of consumption, both in mainland and Hong Kong, is quite weak. This is not only about the luxury sales, but actually general, in all sales, both mainland and Hong Kong.
Second, I think this is particularly very unique this time, is that, the weak yen situation. If you notice some of the report, from the luxury brands, overall, they have a, significant down in Greater China, but they pick up some of the sales in Japan, and mainly because of the price difference. I would say in the past, offshore spending is there, but this time around is a little bit unique because the spending actually concentrate a lot in Japan, because of the weak yen. Because the, the, the price difference is almost like 30%, for some of the mid-range to low-range kind of, luxury goods.
I think the third, which, we could not deny, but I would say we see the headwind, but you all know us, that we will tell you what we feel the next six months. But this time around, even together with the board, we discuss a lot. We just need to go back to basic. What we have discussed beforehand is, if we have capital, we have to pay down the debt because the interest stay longer than we expect. Even though right now, the interest rate, a lot of people talking about Fed will start to add in September, but no one knows, right? Even though when they start, whether the high rate will remain higher for longer, with some of the structural inflation happening in U.S. So I think this is really uncertain.
Second, when the luxury brand sales will come back, right? I would say the Chinese still buying luxury. I'm not saying that they are not, but if structurally the yen is still there, and then value exactly where we are today, is challenging. Some of our competitor do by giving extra discount to compete, which we all know that is not sustainable. But at the same time, we all understand that this kind of headwind, we don't know how long it will last. Therefore, I'm not trying to paint you a gloomy picture, but what we see is, we would like to see. Hopefully, this is the year of reset. We all know that we are very honest. We, we will not hide anything.
We want to make sure that hopefully, with this cut, with things go along our expectation, the chance of having another cut will be less. Now, we do not have guarantee, right? But this is the reset for 2024. So I think what we see, which somehow the stock price reflect that, based on the 33% cut, even if you apply the same principle for the full year, today is still 9.3% yield, which is, I would say, is extraordinarily cheap, right? So I think fundamentally, we all believe we have to do adjustment, and the adjustment has to be long-term and protect, and try to reserve as much cash as we can.
Now, if of course, the situation improve, if we see the light of the tunnel, but of course, we will have opportunities to adjust. But this is hopefully a one time of reset. Sorry, one year of reset. But we can't say anything to guarantee you, but what we see, the market is still very uncertain. Today, Hong Kong and mainland are facing headwind, but we see also the positive side of our business. But the negatives somehow outweighs a little bit of the positive at this moment, and that's why we have a long discussion with the board, and make a very conscious decision, and also, be responsible for the long-term, health of the business.
And therefore, because of this discipline, in terms of financial discipline, and that's why we make this kind of decision. So I think I will stop here, and then of course, I can elaborate a little bit more from the business perspective, then we open up for Q&A. I think the number I will not elaborate, although we increased 17% of revenue, but actually, that increase could not translate much into the operating profit, which I think Kenneth can elaborate a little bit later, what's going on there. But the core business, actually, operating profit down by 11%. The underlying profit down to 22%, mainly because of the interest cost increase. Not only the cost on the borrowing rate, but also the balance.
If you look at our interest rate, as of today is 4.3. Seems like it's exactly the same as last year, but the first half of last year is 3.9. Therefore, the 3.9 jump to 4.3, there is an increase on cost, and that's why that tracked the underlying profit. Next? So if you look at the revenue contribution, I think, I just want to highlight the top two, the property sales contribution in terms of revenue. I think the main chunk will be the mainland rental. From a RMB point of view, we are down by 3%, but because of the 2.8% RMB depreciation in the first six months, and then there will be a 6% impact. Hong Kong is down by eight.
We can explain a little bit more about what exactly happening and why it cause about 8%. Mainland China rental revenue, the split is more or less the same, 80% retail, 18%-19% office, about 1% or 2% is about hotel and others. So I think the split doesn't change. The only thing is really, in terms of absolute level, it's still at a very high level, and most of the job, which is in the next page, coming from retail, and that 3%, I can upfront and talk about it. Our fixed rent actually increased. Our fixed rent increased, single-digit, and the drag is mainly coming from the variable rent because of the sales drop.
Which is, I would say, if you look at the rental reversion, most of the shopping mall, we got a positive rental reversion for the fixed. But actually the sales, when it come down, it translate directly into the effective rent. Next one. So I think this is really, the numbers that actually not up to our expectation when we met, in January. When we met in January, we already expect a negative reversion in first half, but the magnitude is higher than we expect. We expect a single digit, mid-single digit to high single digit sales drop, in first half when we start off, but now actually it's about 13. And I think the challenge especially is in the Tier One city. For us, it's in Shanghai.
I think we can elaborate a little bit more, but I think for the first tier cities, competition is more severe on one hand, but at the same time, the chance of first tier city customers traveling is even higher than the second tier city. So you can see that, the outside Shanghai is less, and the sub-luxury actually have a gain. Good thing about if you look at our CRM highlight, which we want to give a little bit of the confidence to ourselves first. If the market or us dropping by 13, but our member actually sales only dropped by 8, that means they are really our pillar to support the business. And the sales penetration now is already increased to 67%.
So that means, once we acquire the customers, and then we have more valid customers, because ironically, they actually become more active by spending less. However, they spend... Their, their drop is less than the overall sales of the total portfolio. That means we really actually lucky to have this group of customers. They continue to really support, and also they continue to be active, and then really contribute significant chunk of our total sales, both in mainland and in Hong Kong. And I would like to elaborate a little bit more, is that if you look at the top end of the customers, the active ratio, in terms of customer with spending, actually is increasing. The only problem is the ticket size.
The reason why is because of the confidence and also because of the chance of not having them onshore, I think is the main reason. I think the main drop is coming from the middle part, because customer now, they can travel. Luxury is not necessity. They don't need to buy every day, so if they only buy two times or three times a year, they can time it when they travel, right? So that group are the main drop part, which we need to arrest that, and hopefully we will find some way to activate and some of those we can compete, and therefore they can retain and purchase in onshore. And for Hong Kong, I think the member sales increased, the sales penetration increased, and therefore, I think the program itself really a positive to us. Okay, China office.
I'm sure you all know about the supply. We outperform the market all the time, and primary reason is that our location is the best, the quality is the best. Even though we see there is a drop of 4%, but they still provide a very stable income to our business. Our strategy basically is to really ramp up the occupancy and try to make sure that the best companies stay with us, and this is really something we can maintain, and hopefully that will really give us a stable source of income. Hong Kong, there is a drop of 8%, I think mainly coming from three reasons. First, we have two anchor tenant. They are big tenant, just renew this year.
That's why we have a huge impact into the P&L, but because of that, we can renew them with longer period, so therefore, that impact hopefully will be one-off. These two, basically one is retail, one is in the office, and therefore, that anchor tenant renewal is finished, and hopefully that impact will be less compared to the last next time, the summit we renovate and there is a little bit of the impact of that. And if you exclude these three items, Hong Kong business are more or less flat compared to the last period of 2023. So property sales, maybe I give it to Kenneth, and then Kenneth can talk a little bit more together with the financial page.
Thanks, Weber. In the first half, this year, we have recognized sales in three projects. So first of all is The Aperture in Kowloon East, 114 units. And also we have sold one Blue Pool Road House. In mainland, we have handover four units of Heartland Residences in Wuhan. So altogether, we generate about HKD 1.2 billion revenue, you know, from the property sales. And on the book, we have contract sales of around HKD 385 million, mainly come from the pre-sold unit at the Apertures, but not yet handover to buyers.
And also, one unit of Blue Pool Road Houses, which we have disposed of as HKD 230 million, as you may see in the newspaper, and one more unit at Heartland Residences. For next page. For financial management, in the past six months, our net gearing increased by 1% to 32.9%, and our borrowing costs stay flat at 4.3% compared to the second half last year. Our debt portfolio, I think the key highlight is that we increased our renminbi borrowing portions from 29% last year to 35% in the first half this year.
We deliberately to increase our renminbi borrowing exposure so as to manage, you know, our financing costs, because as you may know, in mainland, for onshore renminbi loan, we benefit from the lower LPR, you know, these days, after the two cuts, this, in the first six months. Also, overall, the CNH market, offshore, financing renminbi borrowing actually is cheaper than HKD and USD. And lastly, by the scrip dividend arrangement at HLP, we managed to reserve around HKD 1.7 billion cash for the first half, and improve our gearing by 157 basis points.
Last page. I think this is important, that's why we still put here. We continue the journey. Now five out of 10 mainland operating properties are powered by renewable energy. This exceed our 2025 target, but at the same time, we continue to work with tenant to be the influencer in the market and really try to, on one hand, collaborate with them and save energy, but at the same time, come with collaborative actions, and then to really how to really make progress in the sustainability part. All the others, I will not bore you on that.
And then we also expand this LVMH collaboration with 16 more tenants, which we continue to hopefully be a change makers together with the tenant, and therefore we can make a difference on this sustainability journey. So, I will stop here, and then of course, open up for any Q&A.
Thank you, Weber, Adriel, Kenneth. We now start the Q&A session. Please feel free to raise your hand. Indicate your names and the company that you represent, and I'll call your name, or I'll call the questions from the webcast. Thank you. Can I have the first question from Raymond, from HSBC, please?
Thank you, management, for giving me the chance to ask questions. So maybe I just have two questions. Number one is also regarding the key topics that many investors have been asking about the dividends. So, like, can the management share with us the dividend policy for both Hang Lung Properties and Hang Lung Group going forward? This will be the key question that a lot of the investors have been asking. And the second question is about your upcoming landmark projects, which is the Westlake 66 project in Hangzhou. Can management share with us the pre-leasing status, as well as the timing of operating the mall? Thank you.
So maybe I start first, and then, of course, please, supplement. I think first, we always have a policy by paying according to our core rental revenue. We do not have a percentage per se. I would say the overall in the past, both... I think HLP, we always pay at a very high level in terms of payout ratio, partly because, this is something which we have been doing it for quite a long time, and also our underlying profit can support that. Therefore, I think this is really something we continue to do. HLG, our payout ratio, always actually been lower. Therefore, the room for us, even though we have challenges, we will be able to continue to pay the same level, yes, is higher.
I would say the key for us this time, especially in a very challenging time, is will be difficult for us to set a percentage per se, because at the end of the day, our whole objective of this time, the cut, is to preserve cash. You can argue that one cent doesn't mean anything, it's only represent certain amount of money. But I think the uncertainty, the macroeconomic challenge, and also the unclear path of recovery, is something really concern the board, as well as concerning the management. So I think overall, we would like to have a year of reset. I, of course, you guys are expert.
I cannot guarantee, but if the situation could be contained or could be something aligned with our expectation, the chance of us having another cut hopefully will be less, right? So I think this is really the concept of us. I'm not trying to say this is really, something we determine by having this cut and therefore move on. We don't know, right? But the key is, we believe that once we have done this, together with a lot of other actions, such as scrip dividend, slow down some of the investment, or even optimize some of our investment, some of those, hopefully we can bring down our gearing ratio, which is our number one priority, which we always talk about, number one.
And second, hopefully, renminbi will not depreciate more, even though right now it seems like there's no other way. They have to continue to do monetary policy. And also really hope that the interest rate will start to going down, and therefore, a lot of things still very uncertain. That's why I would say the policy is really according to our underlying profit, and therefore, we can, we can adjust accordingly. Hopefully with that, we have more room, and therefore we can, preserve more cash for the company. About Westlake, I think at the very start of this year, we believe that maybe two office building we can start, by end of this year, but it seems like have to be now after Chinese New Year.
Because of all the challenges, some of the shortage of cash from the developers, the contractors, this and that, I think the launch, the opening, we will start to get in the first half, and hopefully the opening will be in the second half of 2025. So I think hopefully this will be a good catalyst for us. But I think the challenges that we see in the rest of the portfolio is still there, and therefore, we will continue to speed up the opening. But at the same time, just go back to your question, the pre-leasing on the retail actually is very promising. But, we also know that the conservatism of some of our tenant today, right?
Because of the macroeconomic environments, even though they signed a contract, they commit with us, they always want to see, "Okay, how about the others, when they can come?" And all that kind of stuff. So we want to be more conservative, and therefore, I think in terms of promising, pre-leasing is there, but the key is, we also want to take a very conservative approach, for the opening, and therefore, 2025, second half, will be the opening of the mall.
Okay, thank you. There's quite a line of, a queue of questions over the webcast as well. So, a number of investors is asking, "We've been, t he management have been mentioning repeatedly about the cash preservation, lowering the gearing, et cetera. Can you indicate, the CapEx plan going forward? When will be the peak gearing ratio at level, and what would, and what would that be?" Thank you.
Okay, maybe I share with you guys some of our target. For the CapEx this year, I think it's around HKD 6 billion, mostly because of our purchase in Mainland China, and substantially Westlake 66 in Hangzhou is the major one. But after this year, our CapEx actually, this year is the peak. Coming next 3 years altogether, the CapEx is around HKD 5 billion, you know, for next 3 years, so for both Hong Kong and mainland. And based on our internal latest forecast, I think the gearing, you know, will peak, you know, in this 2 years' time.
Previously, I indicate earlier days, but because of, you know, the slower progress in the construction as well as, you know, the slow progress of some of the asset disposal, the gearing peak actually would delay to, you know, two years' time, 2026.
Okay, there's some follow-up question on the webcast over, you know, the gearing projection. Has your projection been including asset disposal or the proceeds from the project launches? Thank you.
For asset disposal, I think, mainly in Hong Kong, I think the Aperture's sales, we have done, I think more than 40% in terms of unit. We will continue to dispose it, you know, after, you know, the completion. Actually, we just complete the construction for the Aperture. Remaining houses at Blue Pool Road houses, we will continue to sell. As you may see, we have already sold two houses in the past nine months. We will continue to do that, based on the latest market. For the serviced apartment in mainland, I think the progress is slower than what we expected. Our team worked very hard, you know, to launch our three residential, sorry, not residential, serviced apartment in mainland.
But because of the commercial title under the current market environment, actually, it's not easy to sell. But nonetheless, we still managed to dispose, you know, some in Wuhan.
Thank you. Okay, back to the floor. Karl from J.P. Morgan.
Thank you very much. My name is Karl Chan from J.P. Morgan. I have a few questions about the tenant sales in Mainland China. Year-to-date, I think the tenant sales dropped by around 13%, right, year-on-year. Just wondering if you can share a bit more colors on the differential of performances by category. Any type of category may outperform a little bit more, which one might underperform a bit more? And then, as the second question, we observed that in terms of tenant sales, the sub-luxury malls actually outperformed the luxury malls. Do you expect that will to continue in the second half?
And then, so just now we talk a lot about the headwinds that we are facing around the Mainland China retail sales. So, what are we doing to offset some of these, you know, challenges going forward? For example, are we actively changing the trade mix? So can you share a bit more on that? And finally, just now you mentioned that the rental reversion for the base rent is still positive year-to-date, right? Going forward, do you expect that to stay positive in Mainland China? Thank you very much.
Thank you for your question. I think, I will sum up like this, exactly maybe you already pick up the sales difference between the sub-luxury and luxury mall. I think in my chart already show our main headwind in the last 6 months was in Shanghai. But I just want to provide the fact to all of you that our Shanghai sales is still at double of the sales before COVID, right? So therefore, there's some normalization. I have to say that what level this normalization will stop really also depends on the trade mix that we have, and also compared to 2019, what kind of store at that time that we have. Because in 2019, we only have Plaza 66, basically. Right?
But now we have 5, 6 luxury mall, which they will be able to contribute more sales compared to 2019, right? So I think overall, I will expect in second half, sub-luxury will continue to grow, because they are very sensitive to traffic. And traffic, actually, both luxury and sub-luxury mall, they are mildly up, both luxury and sub-luxury mall. However, luxury mall, they are more sensitive, not about the traffic, but more sensitive about the ticket size, right? Because, in the past, maybe out of the 10 people coming in, 7 of them will buy, and their ticket size will be higher. Now, even though they buy, but the ticket size is less, right?
So I think what we have done, of course, working with the tenant, not only by ourselves, working with tenant, is to really improve the trade mix by having the wide range of affordability of price range, right? Because, say, for example, F&B. Nowadays, if you're charging over HKD 300 per meal, very difficult. But if you are charging below HKD 100, the business are still doing well, right? So therefore, the mix has been tuned. The trade mix between the sub-luxury and luxury has been tuned. The percentage of cosmetic and sub-luxury, jewelry and watches has been tuned, because given the fact that right now it's so uncertain, the gold price keep going up, the people going to buy gold actually is more.
So there's a lot of adjustment in the last six months going in, and therefore, we have to work with the tenant and adjust our tenant mix and try to really optimize what the customer really want right now. This is one. Secondly, I think we are also adjusting our CRM program. I think in the past, the top end maybe account for 20%, the lower end account for 80%. Now, basically, you need to have more tiers to attract and make them more relevant, and therefore they can be engaged, and therefore they could find the value when they come to shopping with you, right? So therefore, we have to adjust, our CRM program, to activate or to engage our customer in different way.
By giving out F&B, by giving out a lot of different activities, and make them have more reasons to come to our mall. I think this is another thing we are doing. The third, we are leveraging on our portfolio by cross-selling our office tenant into retail, by cross-selling our IT supplier into our office, by cross-selling. We do all that, right? So I think the whole objective is to—because if there's no new fish outside, we have to optimize what we have under our control. This is what exactly we are doing. So therefore, you see our occupancy, no matter in Hong Kong and mainland, are improving in the last six months.
Not because we are dropping rent, but because we are welcoming and making more relevant trade to be in the mall, and therefore they will be well-received by the customer, and therefore they can do business. For example, a few more, you see the sub-luxury improve, like Riverside, like Palace, because we increased the occupancy in a much more satisfactory level. So I think overall, given the headwind we see, I always said to the team that, "Go back to the basic. We have the best location, we have the best tenant, we have the best customers." If we can do things by consolidating, that after the headwind, we still have these three line up, I think the bounce back will be very fast first. Right, so I think fundamentally, we still believe on our quality of the portfolio.
Of course, I'm sure in your mind, you may say, "Okay, some brands might close down their store. They have done it before, so will you be at risk?" At least, I would say the chance of us consolidate others will be a little bit higher than them consolidate us, based on the location, based on our leadership in different cities. Of course, I can't say that we may have some at risk, but I have to say that we have more in a position that we can consolidate. So I think overall, in a tough market, I do not have a crystal ball and tell you exactly what kind of numbers will be. But as I said in the media, I still see the third quarter will be continue to be tough.
Based on what we hear from the tenant, hopefully there will be some light of the tunnel starting from Q4 or maybe early next year. Because of the low base, because of hopefully the confidence getting a little bit better, because the property market stabilize in Hong Kong, and also the rates actually dropping. But, I cannot paint you a picture that I know everything. Actually, it's because we don't know and we are uncertain, and that's why we have to make this bold decision, to have this dividend cut to preserve cash. So I just want to answer you in this way.
Praveen from Morgan Stanley. Thank you.
Hello. Yeah, hi. This is Praveen from Morgan Stanley. Couple of questions. The first one is on dividend. If you really want to conserve cash, why not... Again, this is a hypothetical question, but why not cut dividend to zero? Cut it by 60%. Cut it to a level which replenishes your cash or leverage level to a very, very good in next couple of years. Basically, you just say, "We prioritize this over everything else. And then when we come out of the shadow, we'll be stronger, and then we can do other things." So that's one question. The second question is about retail sales that you just mentioned, 13% down. Would you give us a little bit of qualitative directionally between Q1, Q2, and June?
Because the China number for June was really just fell off the cliff, and just want to understand from your perspective, how was it. And then maybe the last question, numerical question. Sorry, not numerical question. The last question is Hongkong Land and ten top luxury brands in Hong Kong spending a lot of money. Clearly, they are seeing something that I'm not seeing, but the question is more about Hong Kong versus China. Are these big brands trying to spend money in Hong Kong at the expense of China, or they're spending both in Hong Kong and China, and they're very bullish, but we are obviously uncertain? Thank you.
I just want to address your question, the last one first. I could not comment why competitor do it this way, but I can guarantee you that they still treat mainland onshore as their main market. Otherwise, they will not continue to upgrade their store in Plaza 66 in the last one year or two, not because of this six months. Because they believe that if worse come to worse, I can consolidate in one store, that is the store can provide the best experience. I think what the luxury goods looking for today is about not only the purchase, it's about the customer experience. So I think what Hongkong Land announced is exactly what we have done in Plaza 66 in the last two years.
By elevating the experience, by having a dedicated car park, by going vertical, therefore, they have VIP rooms and all that, is to really make sure that they can retain the top customers of those brands, and also consolidate their leadership of the market. So therefore, I can really say it's not because they have seen something in Hong Kong and therefore they give up China. No, definitely no. We also need to think about how we can improve the experience, and that's why we announced last year that we will have a phase two of Plaza 66. Not a big area, but that will add varieties, that will add experience, that will add outdoor, indoor kind of journey to the customer in Plaza 66.
Therefore, we would like to walk away from a journey of purchase, instead of moving into an experiential customer experience, both younger generation and older generation. Go back to your first question. I think this is very interesting. But unfortunately, in the real world, there's no black and white. You are right. If I can cut more, but also, I need to balance between shareholders, the way how the market look at us, and also the justification. So I think we already know that even we cut 5%, in our history, we cut HK$0.01, the people already go after us. So whether we are 33 or 25 or even more, does it matter? I think we just need to really strike the balance, both financially, but at the same time also, we are not losing all hopes.
Right? We, we believe that the market is still there. I don't think this is the end of luxury in China. I don't think so, right? And I also do not believe suddenly Hang Lung could not master the leadership position in those cities? We don't think so. But we believe that there will be discussion, headwinds, discussion about sales and all that will happen in the next few years. And that's why we have done this. And the second question, sorry, I, I forgot.
It was Q1, Q2.
Yeah, yeah. Apparently, Q1 dropped exactly like Q2. They are not getting worse or they are not getting. I think in June, maybe the whole market fell off, but because the base of June last year already lower, therefore, the fell off is not extraordinarily high. Right, so I think fundamentally, I think this is more about the seasonality, right? Because when starting off the summer, people start to travel again. I don't know whether you look at some of the numbers, which actually we look at very carefully. Global Blue, the tax refund company, we track in June, the refund from mainland Chinese is 122% of June 2019. So that means people spending more, and mostly actually in Japan. But somehow the spend already meet the pre-COVID time.
But when you look at the Japan arrival from mainland, it's only 66% of pre-COVID, but per customer spend is 50% more, right? So I think there's a lot of dynamics changing, and this new normal is different from pre-COVID, right? And this Japan unique situation because they are so close. I don't know whether you know, you can buy a 700 RMB tickets to go from Shanghai to Tokyo right now. So basically, if you can spend a weekend, you can basically spend a few thousand RMB, then you can go there. And then if you want to buy there, it's quite convenient for now because there's no visa restriction or whatsoever from local, local, right? So I think overall, I don't see the first quarter drop less compared to Q2, and therefore it continue to worsen.
What I see is they did not rebound, even though with a low base. And therefore, hopefully we can monitor more. And Q4, the reason why both the brand and us have a little bit of the hope is because we have more activities, and normally when activities come, because they want to be our core member, they will continue to shop onshore. And also because of the seasonality, less travel is in Q4, except Christmas. And therefore, I think, this a little bit of the light, but I cannot guarantee because I don't know, right? That's why we have to continue to monitor closely at the situation. But the portfolio effect that bring us a little bit of the prosperity. For example, Dalian, we are moving up.
Wuxi, even with the very high base, we are more or less there or even increase a little bit. And a few cities, we are consolidating and seeing the impact, but the sheer size is still coming from Shanghai, therefore, we're still feeling the pain. So therefore, I would say overall, it's a bit challenging and very difficult to forecast. We don't want to be ahead of us, ourselves too much, therefore, we just try to do what we can right now and try to optimize the trade mix chart, try to make it more relevant, try to make our CRM program more attractive, and therefore, we can really make our customer engage together with us.
Just add a quick comment on the dividend cut. I mean, it's not arbitrary, 33%. I mean, it looks like a very round number, but it's not arbitrary at all. There's a lot of bottom-up work that's been done, looking at internal factors, looking at our gearing, looking at our payout ratio, and all of that, the sustainability. And then, of course, as you know, we had our scrip dividend last half, and then we have it again now. And, you know, so looking at the dilution that that might bring. So all of these factors, it's not arbitrary at all. And then, just Hong Kong versus China luxury brands. When I was in Paris, a couple of months ago, the brands were asking.
They were suggesting that they will not be opening further in Hong Kong. You know, so I think if anything, Hong Kong is probably going to consolidate, i.e., the number of stores may reduce. And if I were Landmark, I mean, if I were Hongkong Land, that's what I'd be doing. I'd be defending my position, making sure that, you know, you are the one that they keep rather than one that they cut.
Okay. Mark from UBS. Thank you.
Thank you, management. This is Mark from UBS. I have two questions. I think the first one is regarding on some maintenance and numbers. In first half, what is the turnover rents in mainland as accounts for our total percentage of retail rents? And second question, I think, is more like on the Hong Kong side. So you mentioned we got a anchor tenant renew the leases, that's why the retail rents was down by 7%. But in general, what is the rental reversion for our Hong Kong retail malls, and break it down into maybe tourist district or neighborhood mall, what's the rental reversion trend, as well as the tenant sales? Lastly, I think, is regarding on the refinancing.
I think, in 2025, we probably got about maybe 5.7 billion HKD bond to mature. Coupon rate is 2.2%-2.9%. What's our refinancing plan for this chunk of bond? Thank you.
Maybe I talk about the refinancing part first, and then I leave it the rest to Weber to answer your questions. Actually, for refinancing, if you look at our debt to be due in the coming two years-
11% of the debt, will will be due within 12 months, and the other 24% will be due in 2 years. So altogether is around 35%, so you can think about one third. And our existing banking facilities actually can well cover, you know, the debt to be due in the coming 18 months. So far, our refinancing in both mainland and Hong Kong are very smooth. I cannot tell you too much details, but at the project level, basically for this years, we have already done all the refinancing onshore. Offshore, we have plenty of facilities to be used, so I don't have much concern about the refinancing. Yeah.
I think in terms of Hong Kong, just answer your questions. I do not want to name that isolated case, but that is the biggest store which we enjoy very high rent for six years, and they come to the end. So therefore, I hope that we now renew with them short-term, and hopefully we can find a better tenant or even renew with them with a higher rent going forward. Overall, I think the rental reversion for Hong Kong is high single to close to double digit negative in those a big big one, right? So but I think in general, the others are very minor.
So I think that's why except this and except some of the big tenant on the office, I would say that the most of the rental reversion is more or less... and rental revenue is more or less flat. In mainland, I still see the fixed rent will maintain at a very high level. I can only say that our variable rent is from twenty plus down to twenty plus. Still at the 20% range, in terms of, sales rents. But that magnitude is big because of the sales is big, right? Our fixed rent have a single-digit growth. Actually, in the last eight years, we have... Seven years. No, sorry, in the last five years, our fixed rent has a CAGR growth of single digit, right?
So we always said that when our sales doing better, we always take the chance to turn that into fixed rent, and we are doing that. The key is, there's still a room of sales rents, which is up to really the market and also up to the sales level that we can achieve. That unavoidably, when the sales come down, it will have an impact to us. So overall, I still confident that our fixed rent will be there, will be more or less maintained or even still have the positive rent. But the sales, variable rents really, really up to the sales level that we can achieve.
Just also add one more thing. The brands are very smart. They always negotiate variable rent when markets are bad, because they want to pay less rent. So I think what you can expect coming out of the brands and out of other landlords, luxury landlords, going forward in the next couple of years, if it is going to be as uncertain as we think, is that you'll probably see more brands pushing for variable rent. But of course, the total rent's coming down because they're not doing the sales, or the rates are actually being negotiated lower.
Thank you. In view of the time, I can take one or two more questions from the floor. Maybe Cindy from Citi. And then, Sarah, it's going to be your turn next. Thank you.
Thanks for the opportunity. This is Cindy from Citi. I have two questions. The first one is on luxury tax on Mainland China. Do you have any initial thoughts on luxury tax, and what would be, say, impact for your tenants and customers? And how are tenants initially responding to that? Second question is on the phase two of Plaza 66. So obviously, first half, Plaza 66, faces quite some headwind. How do we reconcile the investment as of the time being, with, say, tenant sales outlook? And what's our, let's say, expected return on this CapEx going forward? And in terms of tenant commitment to this expansion, is there any change to their interest over the past six months? Thank you.
Okay, so I'll start then. So luxury tax, I don't have any clarity on that yet. Obviously, I don't think it would be good if it gets implemented. That being said, this would sort of be reversing some of the reduction that they made, was it a couple of years ago? So we have to wait and see. And the thing is, the brands are very dynamic in their pricing. They take all this into account when they set their own pricing. And so, they will try to normalize a little bit too, I'm sure, so that the pricing cross-border is not too... It's not too-- the gap is not too big. Plaza 66 actually, I mean, phase two, we're pushing that ASAP. No intentions to slow that down.
If anything, we'd speed it up, despite the drop in Plaza 66 sales. I think this really adds more than just additional square footage. It's, additional service, ex-additional experience. It's a different type of experience. You know, we're bringing in that out- more outdoor element that, didn't use to exist, in Plaza. So, so... And, and the numbers, you know, I think it's a couple hundred million, but it's, you know, it's... While it's not negligible, the return would be very fast based on the Plaza rents, so, so we're, we're not worried about that at all.
I think the interest has not been changed. Effectively, it's fully leased already. The key is, when we open, we believe that we can pay back the whole thing in a few years. So, so in terms of return on investment, because we are just adding areas to fulfill some of the long queue coming into Plaza 66. So I think that one, even though we have a very challenging environment, I'm not too worried about it. We add more value to make the whole product better. That should give us more opportunities to retain clients, to consolidate store from the rest, and that, I think, is the key for us.
To supplement, the additional floors are all retail floors. It will be 13% more retail areas for, we call Pavilion or for phase two of, Plaza 66. So, the, as, Weber mentioned, because for Plaza 66, actually, there's a long queue for a lot of tenants. So I think the payback is quite, I would say, very, very lucrative. We don't need to worry about much about that. Yeah.
Maybe I'll try to extrapolate another important point from your first question on luxury tax. So obviously, in the Third Plenum, there was an announcement about trying to control the over-wealthy or over-disparity of income. Obviously, that's something that would make investors of ours nervous as well. You know, that being said, obviously, those people, the super, super rich, they, they have more money than they can spend, right? Let's face it, like, it's t hey're not talking about handbags anymore, right? They're well beyond that. So to them, buying another handbag, it makes no difference at all whether or not they have to give up some of their wealth, you know, however large a percentage that might be.
I think the key point is for us, you know, we're in the luxury space, but we're not talking about, you know, mansions on the sea. We're talking about, you know, 50,000, 100,000 RMB handbags, which is a lot for a handbag, but it's not a lot if you're that wealthy. And the demand, the pipeline for that demand is still there. I mean, the Chinese people still wanna live better lives. They want higher quality products, and it's very difficult to downgrade. You know, once you have nice things, it's hard to go back to using not nice things. And so, you know, I think that there's a little bit of that stickiness, even though they may purchase less frequently or more selectively.
I think that, you know, structurally in Mainland China, the demand is still gonna be there.
I just want to add one point I think is very important to clarify. Even though we call them a luxury mall, we are not only selling luxury in those mall. Those luxury brands only account for 15%-16% of GFA. So the sub-luxury elements of those luxury mall are still very important. So luxury sales now facing a headwind doesn't mean that everything will drop on the floor, right? Because you still have a very good cosmetics, you still have a very good, F&B, you still have, a lot of other varieties in the mall. I think the key for us is how we can be the leading shopping center in that respective city, I think is the key.
Even though we call ourselves luxury, is because we can be commanding five-star kind of positioning, but doesn't mean that we will not serve the rest well.
Sarah, your last question. Thank you.
Thanks. I have three questions. My first question is why anyone would own this stock? My second is why this stock should be listed? And my third is, if it is listed, what are you gonna do to close the discount to NAV? And I mean, if I... I like this company, I like your assets, I like your approach, I like your people, but the reality is the stock price has gone from HKD 22 to HKD 5, right? And we all know what the macro climate is, but, you know, I'm hearing from Adriel, we've been very disciplined in the approach to this dividend cut, and I'm hearing you say sustainable a few times. Weber, I'm hearing you say, hopefully, we don't have to cut a second time, which makes me think, well, maybe we do cut a second time.
So I guess I'd just like a little bit of clarity around, you know, if things don't get materially worse, and of course, we don't have a crystal ball, is the board's view that this is as bad as it gets, and you can grow from this level, and that's why you cut 33%? And then on the other two questions, I guess, you know, why stay listed? You don't tap the capital markets. Meeting with us is a pain. You know, if you do-
It's a pleasure.
I'm sure. If you do wanna stay listed, then is there gonna be a different approach to IR or a different focus so that we can close that discount to NAV? Thanks.
I'll just offer a few thoughts first. So why own it? I mean, it depends on every investor, right? What are you looking for? Are you looking for exposure to the China retail? Are you looking for exposure to China? Are you looking for exposure to Hong Kong real estate? I mean, what is it that we're in your portfolio for? And that's not up to us to decide, you know. So we fill a niche. I think we fill a very relevant niche, which is China high-end retail. The share price obviously does not always reflect what we think the health of the business is, because there's so many other factors. I mean, if,
We talked about this a little bit last time, but really, I think the biggest hits to or the biggest impact on our share price is U.S., China. If you're talking about, you know, institutionals not being allowed to buy China or buy Hong Kong listed stocks, I mean, what does that have to do with Chinese retail? Nothing. But that has a material impact on our share price. And so, you know, these are the things that, you know, we have absolutely no say in. Obviously, what we'll do as a management team is we have to do the best IR that we can to communicate our story and explain exactly what it is that we're offering, which is what I think mostly what I described. So why are we listed?
I mean, of course, the hope is that the markets return and that, you know, the, this is a cycle and not too much of a structure, and that when opportunities arise, we can tap the capital market. We've been saying this for years as well. I mean, the markets have worked against us for the past sort of 15 years, and, that's, I think, not a function of our individual or our corporate performance, because, you know, in the past 15 years, we've basically doubled both our balance sheet and our P&L. Yet, the share price is where it is today, which is like, what is it? One-eighth of, what it was in 2010 or 2011. Does the share price reflect our operating, business? Probably not. But does it reflect the market? Now, of course.
I mean, it is the market. And so, you know, to be listed, we have access to capital in that way, should we need it, and I think that that is still an important value. Of course, you know, it may or may not be. The market may or may not facilitate what we want to do with the capital markets. And, you know, so if it's disfavorable for us, then we're not gonna do it. But I think that there are still very good reasons to be listed. And then closing the discount, obviously, I think the biggest thing that would close the discount is really for U.S.-China policy to change. You know, again, that's the biggest factor, I think, in why our share price is where it is.
That being said, I think, you know, management, we're working extra hard. It's hard for analysts or bankers to understand, but I think the strength of the team has gone, you know, through the roof since 2010, frankly. You know, between... I shouldn't say between the three of us, but between all of us. The team is different, the structure is different, governance is different, the board is different and changing. And you know, there's just so much more good about this company, which, you know, I think maybe you understand, we clearly understand, but the markets don't really care about. And it's not because the mark- well, I mean, in a way, it's because the market has no heart, because it's affected by all these other things.
So, to me, I mean, that's what we offer. We offer access to Mainland China luxury in a way which is not either through the luxury brands, or through other channels.
Just the dividend message yours?
Sorry, what was the, what was that question again?
You're saying sustainable, and you're saying you hope you don't have to set-
Oh, yeah, yeah. Oh, yeah, of course, of course.
Does the board genuinely think this is-
No. So, okay, so-
I hope I-
This is a mid-year dividend, which only-
We assume that this-
Right. If you assume that, yes, the. Of course, nobody wants to cut the dividend. You know, and we're. I'm a shareholder. Weber is a shareholder. You know, we're. Nobody wants to cut the dividends, but I think the board decided that it was the best for the company at this point in time. Hopefully, the markets are robust or at least don't get worse, and if they don't get worse, then we hope that we don't have to cut again. You know, that's the best I can say right now. The intention. I mean, we could have cut 10%, 5%, you know, for 3 years in a row. I mean, is that gonna be better for our share price? Probably not.
You know, so to do a one-off, I think is more of a reset and just sends a clearer message.
So you think this is a one-off?
We would like for this
'Cause to Kevin's point, like, I agree, why not cut it to a point-
Yeah, exactly
... issue? I-
We do not like to cut the dividend this year, and so, naturally, like I said, we don't wanna cut it again.
No, I think I just want to supplement. Even though I set a message that is one-off, but you know, I can't guarantee because of the market, right? So the key why I said this is a year of reset is because we believe that if we apply that principle and do a reset, and hopefully, unless if there is a war, nothing we can do about it. If there is something uncontrollable, nothing we can do about it. But if based on what we see, now, of course, it's still very limited because the crystal ball in front of us is only, like, maybe 12 months. So what we see is, hopefully, the chance of us having another cut hopefully will be less. That is the message that I can say right now. The reason why is that no one want to cut.
We discussed about more, less, all this kind of scenario. But we believe that we still believe our core business is sound. We believe our financial management is strong. Our pipeline is still there. Our chance of consolidate others will be more. Therefore, we believe that hopefully, this will be a reset. But I can't stamp it now and say-
In blood
In blood, and this is really the word one-off. I can't. But I hope that if the headwind will be there for a period of time when our operation in Westlake will be in full operation in two years' time, we have more bullets. By then, hopefully, the market improve a little bit. We can sell a lot more of the disposable income, disposable asset. We have more bullets, right? So I think it's a bit of buying time, but at the same time, hopefully, with all the measure that we work together, and then we can really bring down the gearing.
Yeah. Part of the question is, I mean, who knows what opportunities are gonna arise, if not today, then tomorrow. But I do like this question. I mean, on a philosophical level, you know, what, why should we be listed? I think we offer, so I'm gonna wax philosophical a little bit. I think we're a very high-quality company. I think that governance-wise, operational-wise, management team-wise, executional-wise, I dare say we're better than a lot of our friends and peers. And if you're an investor, you know, obviously you would like to own a high-quality name. You know, you want somebody who's reliable, who's trustworthy, who's transparent, who's honest, and who doesn't play games. And I think that that's something that we offer that should not be taken for granted, because not everybody offers it.
So philosophically, I think it's good for, you know, the market, the stock market, to have somebody like Hang Lung representing China high-end real estate.
Thank you. Okay, in view of the time, we would like to conclude this analyst briefing, for our FY 2024 interim results. Thank you very much for your participation. We will see you next time. Thank you.