Earnings Call: H1 2021

Jul 29, 2021

Thank you. Good afternoon, ladies and gentlemen, both in our office here and on the live webcast. Welcome to the analyst presentation for the FY 'twenty one Interim Results Announcement that was made earlier today for both Hanom Properties 101. Hk and Hanom Group 10. Hk. My name is Joyce Kwok, and I'm the Head of Investor Relations here. The speakers from our senior management today include Mr. Ronny Chang, our Chair Mr. Adriel Chang, our Vice Chair Mr. Weber Lo, our Chief Executive Officer and Mr. H. C. Ho, our Chief Financial Officer. Our CEO, Weber, will kick off the presentation with some highlights on the results. After that, we'll open the floor for questions from the analyst here and over the webcast. Weber, the floor is now yours. Please. Good afternoon and also to all the audience on the webcast. Maybe also good morning, good evening some of them. Thank you for coming and also I would like to quickly go through some of our Result highlights. Next page. First of all, we declared dividend increase in interim. I would say this is really quite a long time since 2010. The last time we raised interim dividend Was in 2010. And also hopefully from analyst, from an investor perspective, it shows our confidence of our outlook as well as our happiness of our business performance in the first half. The first half in hand loan properties, I would say maybe I'll just focus on hand loan properties here is that our operating profit up by 19%. Of course, with the Wuhan Outland 66 open because some of the interest expenses could not be capitalized anymore And that affect a little bit in terms of the interest expenses, but nonetheless if you look at the underlying EPS increased by 11% and therefore we declared $0.01 more in terms of dividend The interim for HanLoan Properties. For HanLoan Group, we declared RMB0.02 for The interim for the DPS for Hernan Group. And also I think we would like to also emphasize in the group that Whenever we receive the dividend from the properties, we would like to distribute all incremental back to the shareholders in the group and therefore because the group owned 58% of the properties and therefore it worked out to be about $0.02 of that. So I think I just want to emphasize on that. Next one. It's very pleased to declare that we have a record interim rental revenue and out of that 2 third come from Mainland China. I think it's a very strong momentum. I remember we met in January last time. A lot of us Discuss and talk about will this momentum continue and the numbers shows the momentum continues And actually it's rising even at a higher level. The 67% of Mainland, if you look at the luxury mall And the subluxury mall and overall actually they all increased in terms of revenue, but of course the subluxury mall they have a mild single digit growth, But the Luxury mall have a very, very strong growth. I would say this first half, I always want to be fair by telling you that because the base Last year first half, if you remember the V shape, when the COVID start is by the end of January. And then in China, the V shape actually quickly rebound for Luxury Mall in April. And therefore, if you recall, the first half of twenty twenty, Indeed actually performed already better than the 2019 because of the debt reshape. However, the subluxury mall actually the recovery is lower. And if you recall last year, the recovery only happened until the Q3 of last year. So I think these numbers also shows to you that It continue to get at the higher level and we actually very pleased to see this number is strong. And also if you look at the office sector, we discussed because at that time we all worry about oversupply. And if you look at our result out of All our office sector in Mainland, we grew by 12%. If you take out the new supply from Kunming, from Heartland And also from Wuxi, even Shanghai, the existing organic growth, we are resulting at 3%. So overall, the office Demand, especially in Shanghai actually come back strong in Q2 this year. And in 2nd tier city, even though the vacancy is very high, Our strategy works and therefore you can see that the occupancy, the revenue actually is growing up nicely. Hong Kong, we don't believe It's the end, but hopefully that the sign showing us that it's stabilized. Negative 12% is still not good Compared to the old days, but we believe that the numbers at least stabilized at this level. If you look at the first half of this year compared to the second half of last year, it mildly reduced by 3% only. That actually gave us some encouragement that Hong Kong will almost hit at the bottom and hopefully the sign of the stabilization and also a bit of Maybe early to say the recovery will come soon in the second half. And now Hong Kong accounts for 34% of our total rental revenue. Okay. Going into the details in Mainland. The 7 luxury malls and right now we have 10 altogether operating. Out of that we have 7 luxury malls. In terms of sales, the number is amazing. It almost actually more than doubled. Year on year 113% sales growth, Tenant sales growth and even compared to the first half of twenty nineteen, 125% growth. So this number Amazingly strong and also we believe that at least when you look at month on month, it continue to be like that. The luxury content, The leadership position and our CRM program actually, I would say all combined to drove the strength and also I'm sure later you ask, okay, when the border open will that affect you and all that. I would say I will elaborate more later, but the key is we look at our luxury anchor leasing strategy. Each of those opening require almost like 2.5 years negotiation. If we did not do all the hard work 2.5 years later, even though right now with the tailwind coming, we may not be able to maximize the benefit. So I think I can elaborate more if you are Interested, our luxury content continue to increase. Our number of luxury store in terms of C1 to C3 increased In the last 3 years by over 66%. If you look at the big 6, we call the most important one, We increased by 3 times. So with the increase of luxury numbers of store and also with our Continuous driving on the customer relationship with the customers, especially those customers we newly acquired in the last 2 years That help us to deliver the result. Very happy to declare now the Olympias 66 We'll be classified as a luxury mall this year because a lot of the luxury brands has been opened and more will come in the second half. And the good news also is the free subluxury mall, Palace 66, Riverside 66 as well as our Park 66, They have amount increased, the sales also increased. However, the impact will be still lagging because their footfall Still impacted by the COVID. And if you look at our malls in general, car traffic actually has increased a lot, But the food traffic actually decreased because of the COVID still affecting some of the behavior of our customers. And occupancy rates also moving into the right direction for Palace and Park in the last 6 months. A little bit of the details here, but I think I want to give you a bit of the details. Spring City In 2 years' time, no matter you look at the sales and revenue, it's already our 2nd best More performance outside Shanghai, just behind Wuxi. So within 2 years' time with this kind of Genetics means the size, the brands, the way how we open and also the commit Opening rate, we actually breakeven at the 5th month of the opening. What does that mean is In Spring City, in 5 months' time, our operating revenue in that particular month Already higher than the operating expenses. That actually is very meaningful because When we open something, it will be a drag because you need to take times to absorb all the fixed costs and all that. But in 5 months, We can turn that into positive and therefore the margin for Spring City right now after 1.5 years actually is very decent. Look at Heartland, we opened just for 3.5 months. We get that breakeven point in 3 months. So that means our revenue ability As well as the way how we manage the expenses. Actually, we can meet this breakeven point in the 3rd month. This is I would say very encouraging. That means we truly believe and also we are confident that the Heartland Will be a repeat of success like Spring City or even better because of their size and also of the pace of the luxury brands coming in and also because of the size of the market. That's why I think this page we very confident that the Heartland 66 We'll repeat the success of Spring City or even better than the Spring City in years to come. Hong Kong. We will never forget Hong Kong and Hong Kong is one of our very important location and also the opportunities. As I mentioned 12% down. However, if you look at half year versus half year, we recover from minus 9% to minus 3%. So we see the sign of stabilization and we are confident that hopefully in the second half We will see some mild growth. I'm sure we discussed a lot. This rental revenue including the rent relief amortization impact. And therefore, we gave more last year that will accumulate. Therefore, the accumulation actually has been more and more in the second half of last year. And now you see that we are already coming out from the 12. And so this curve can show you that hopefully we will be able to revert the trend and hopefully in the second half It will be better. On occupancy, I think we defend quite well. In terms of retail, we are at 97%, Which is very difficult, especially in those districts like Mont Coc and Causeway Bay, they are tourist centric. And today the border is still closed, not many tourists coming. And therefore we have to adjust our trade mix and hopefully to meet the local need, but at the same time to protect some of our tenant that we believe they will have a long term future with us. For I think the service apartment and residential mainly because of the corn hill because a lot of our Occupancy in the past is those people traveling from outside and have a short stay with us. And with the border is closed, it's affected quite significantly. So that's what I want to walk you through first, then of course, I welcome any questions from all of you. Thank you. Thank you, Weber. We now start the Q and A session. Please feel free to raise your hand for questions or by typing your questions in the box on the live webcast page. Raymond Liu from HSBC First. Hi, management. First of all, very great to see you in person again. And also congratulations for the good results. So I have like three questions. The first question is about tenant sales performance in Mainland China. So very impressive growth on the year over year growth, like it's almost doubled. So definitely management has spent a lot of effort to upgrade to your luxury malls And also like there's also structural change repatriation in Mainland China. Of course, like what Robert just mentioned is about the base effect. So we would like to gauge more about the tenant sales performance in second half because like if you look at the first half on a half over half basis, The tenant sales increased improved by 10%. So how should we do what would be the expectation about like tenant sales improvement on the half over half basis in the second half? That will be the first question. Let me answer first. You're right. The sales number compared to the second half show a very good double digit growth. We believe that the absolute number will continue. However, as a percentage growth, it may not be as high as last Yeah, first half. The reason why is that first half last year you have the V shape. You have the very low February. You have a very low March And it rebound very sharply in April. But if you recall last year since April, the number Climb up also every single month. So that means we have a very high base in second half of last year. So we believe we will still show growth Because our number showing to us that, 1st of all, the sales continue to be strong. 2nd, if you look at the number of luxury store as well as our portfolio mix now. I think I just want to give an example. If you recall, We didn't drive our number of store opening in Luxury and also the number of more from Maybe 3 years ago, we can only say we may have only 4 Ram 66 and Plaza 66 or Sandler 66 are Luxury. From 3, now we have 7. And therefore, if we didn't do that, we will worry about A little bit of the repatriation of purchase when the order is open. However, in terms of our own efforts from HanLONG, we increased a lot more store. As I mentioned, the Big 6 almost three times and the Luxury store from C1 to C3 increased by 66%. So that means even though there will be some volatility from 1 or 2, but the continuous opening of the new store in different time Will pay us quite well because a lot of stores they just opened in the last one year. They don't even enjoy the full year effect yet. And therefore, not to mention those opening in Dalian this year and Heartland in Wuhan this year. So we believe that our total sales will continue to grow and the absolute numbers continue to be strong. And there's no reason why for us to worry about suddenly it will drop significantly because Whatever customer we acquire through CRM, we will treasure their experience, we will take care of them. And therefore, We know that exactly what they like. We can tailor make products working with the brands and hopefully the brand can source more stock, hopefully from Paris, from London, from anywhere in the world and sell more in China. So therefore, We are very confident that the luxury mall will continue. Now when the border opens, when the people Start to travel, will that change structurally? I still will believe that structural change has been happen. The product will be available locally. If the price is not that big difference and I don't need to queue up in Paris, I can basically get to the RM in that particular store and then they will reserve their product for me and why I need to bother by Traveling around, traveling this and that. So, of course, number we will tell later in the near future, but we believe that Structurally with the effort that we are building the luxury leading leasing strategy and also the way how we serve the customers. We believe the number will continue. Raymond, do you have a second and third question? Thank you, Robert. So very quickly on the last two questions. The second question is actually about The upcoming tenants, so based on the order contract that you have already signed, can you give us more guidance about order The percentage of luxury retailers that will be come to your shopping malls in this 6th to Thomas to get a rough ideas. And the last question is about like thank you management for sharing rewarding the shareholders for more dividends. So can you remind us the future dividend policy? Thank you. Maybe I answer your last question first. Our dividend policy never change. Hopefully, we walk the talk. This time we do well. We Do it and walk the talk. And therefore, I don't think we have ever changed our way. Maybe you can argue that this time we do it in the interim, which is the first time in 11 years' time. So Hopefully subtly to tell you that we are a bit bullish. So I think that I can say. The second point go back to The brand, as I mentioned already, the luxury brands, the power is that they maybe only account for your LFA By 14%, but their sales is over 50% and their rent is over 50 So therefore, if you can get the big six, the big six can influence the rest and the rest can make your more even better. So I think we are not saying that this is like a magic, but what we know is that the way how we look at The differentiation of our mall versus e commerce versus the mass mall, that is the differentiation why the people have I'm sure Chairman in the past always said Human being is also animal and now the middle class is rising in China and then they love to enjoy their weekend and they Look up to the lifestyle and hopefully they can have a group of friends together somewhere. And we hope our mall will be Somewhere that as our strategy said, it's a unique place to give them unique experience. We give them the best customer experience And therefore, hopefully, the trade mix, the product and also the segment that we own will serve as well. Any more remarks from the chair maybe? Okay, thank you. Maybe the next question. Tian Yuan from Citi. Thank you. Hi. Yes, fans, Ronnie, Robert, AGO, HC for delivering such rental growth. I haven't seen such a strong rental growth for a long time. So this is something that I would say Your investment in luxury starts to pay off. I think when I look at the revenue probably such a strong growth is somewhat driven by Tenant sales. So I think a couple of the clients are quite interested. 1st of all is, you firstly reflect our tenant sales growth, what is left on the rental reversion side. On the another side to ask on this question is, for example, a couple of the chemo after reflecting this Revenue growth, what kind of occupancy costs already achieved on this level versus what will be that you can fully reflect This is the first question. And secondly is, I also would like to see your Given the couple of the projects you have already start to turn to luxury, can we see Future you said that is part. And can we see what kind of additional things that can be done On the mall side for adding even more luxury content, making it one of the unique in the cities for either on the existing malls or in the later mall on the subluxury to turn everything or basically even epic mall on the luxury mall. Yes, thanks. So thank you, Ken. First, we never Close except occupancy cost per mall, but I can tell you that now all the tenants are quite comfortable at a very low level. Doesn't mean that we give too much to them. I would say some of our established mall they have to pay. But some of the baby they are starting to do well. I want to give opportunities for every one of us to do well together. And therefore definitely the rental reversion opportunities is immense. If you look at Center 66, we just Turn into a better luxury. We used to have luxury, but now we consolidate the whole market and now everyone coming into our mall And every one of them has to pay. And therefore with those top brand comp, You will expect the L2 will the C2 has to pay more because you want to be together with those big guys. And therefore, I think the rental reversion is something we really look into and hopefully we will not give up any opportunities. But at the same time, It's a partnership. We want both of us enjoy together and but of course we have to have a fair share. So I think this is the first one I would like to answer. The second one is, of course, maybe after that Ronny and AC, you can talk about it as well. Yes, AEI serve us well. If you recall, again, 2015, 2016, we Refurbish our PLASER 66. If you look at the actual now, our revenue doubled in 5 years in PLASER 66. So the compound growth is quite decent in the last 5 years and of course all the expenses we put into this AEI pay off in a very short period of time. In Grand Gateway, we opened the atrium, if you still recall in 2019 December to catch Christmas. And now some of the brands I will not be able to disclose except they want to expand. They want to even have more space with us. And therefore, we look for another opportunities in the years to come. And they delivered 25% this first half and last year we have a double digit growth as well. So the AEI is one of, I would say, our secret formula. On one hand, we would like to listen to the customers, The today customer behavior, what we can do to make them even more attractive to be the place, to be So called the social place to be seen to be they will come. And of course, we have to upgrade the train mix, restaurant and everything to really make them feel home when they come in the weekend. However, we will look at also I would say the train mix Enhancement, not only the luxury, luxury is the leading part. But once you have the luxury, what F and B you need to put in? What kind of affordable brands you need to put in? What kind of brand you have to put in the L2, L3 and L4? Should we mix the F and B used to be we always put at the top of the shopping mall now you have to mix it because to make the Walking journey even more enjoyable. There's a lot of things we are working together with the brands, working with getting their feedback and even bring some of the best brands from the world to China. And hopefully then to make the customers More enjoyable, the journey much more happy. This is something actually China is a very tough The customers' demand is very high. And therefore, we have to continue to use our CRM program to learn from them. We have focus group. We look at their numbers. We even look at how many of the customer from Process 66, they will spend money in Grand Gateway And also they will spend money in Wuxi and what kind of brands are they doing. That actually give us some hints to fine tune our trade mix And therefore, we can make our leasing strategy even more complete. So this is something I think we are very proud of And now we embark our journey into PAS 66. We just start our AEI in June in PAS. And hopefully, In a very short period of time, we can declare to all of you that Pass 66 will be upgraded from a subluxury to the luxury. That We are quite confident. But of course, the CRM program, the customer data, we now need to really treat this as a gold mine Understand them and therefore we know exactly what to do, what marketing program we have to do and what kind of enhancement we have to work on. So I think the net promoter score we always promote is something we want to learn from the customer on an everyday basis. And therefore, they will feedback to us what they want, What they need and therefore we can fine tune. Any supplement? So I'll just I mean I love talking about the topic about occupancy cost. It's a bit unusual because we've had such a good growth in within just a year or even this half. So I remember last time we met, There's always somebody who asks, is your occupancy cost too high? Can customer can your tenants not bear it? Oh, you're above 25% or, oh, you're getting close to 30%. And suddenly it's turned around because our growth has our sales have gone up so much. Suddenly the occupancy costs, oh, now there Are they still too low? Should they be higher? So in some ways, like which one is it? Do you want it to be higher? Do you want it to be low? And I've always come back to the point that I think this should be in our malls higher than they should be in any other mall. That's my goal. I think Weber is very kind and obviously we want our partners to do well. We want them to make money. If they don't We won't make money at least not sustainably. And so it has to be at a reasonable rate. But that being said all things being equal I would prefer for our occupancy costs To be on the high side. And so the hope there is that we can continue to raise rents to reflect the growth in their sales. And I think that that's something that we'll be pushing our tenants to do at a sustainable level. Obviously, some of the malls are still very young as Weber said and so We have to be flexible and understanding there. But when they come to the maturity, I think that we can the hope is that we can squeeze that as much as possible in a sustainable way. Thank you. Perhaps there's 2 points I would like to echo on and expand upon it. Firstly, I think some years ago, our growth driver was very much concentrated on 2 malls in Shanghai. Now as Baba mentioned earlier on, within our so called the luxury mall segment, Altogether, we have 7. And even among these 7, the 5 outside Shanghai, for example, some The luxury tenant luxury brand tenants move into Wuxi. They have not yet been there for more than 12 months. So I mean With the annualizations of the presence there, there will be a source of growth. And for Kuanmeng, again, relatively little more And with a phenomenal sales growth, okay, almost 2x compared to the last year. Again, Many of the top tenants there have not yet been there for the full year, okay? And the next one is the one in Dailian. Many of those will be opening in the Q4 of this year, and that will be another source of growth to us, okay? Wuhan is Only for 3 months and with many, many luxury brands that we'll be opening soon, okay. All this now that means that Our base of future revenue growth will be a lot more balanced compared to before, okay. The other aspect is With the launch of our CRM program, we now discover the stickiness of our customers. It's really beyond our expectations, Okay. Many of the repeat businesses are actually coming from the members of our CRM program, House 66. Do you want to disclose the latest membership number? It's over 1,000,000, okay. Now we launched the program less than 2 years ago, okay. And over 50% of the sales are actually generated by these CRM members, whole 66 members. So it's not simply based on one single number, the so called occupancy cost. It's various factors that become the impetus of our future growth for now on More than just Shanghai. Okay. Can I pick up a question from online? So there's a question on Since there's been much discussion on your China Retail business, can we discuss a little bit about the China office business because it's been strong. And also can you shed some light on your hotel businesses since some big Hotel's names has been mentioned in your announcement. Thank you. Okay. Thank you for the question. We are back to the Mainland office As I mentioned, we have presently surprised to look into the demand Actually came back strong in the Q2 of this year, especially in Shanghai. And therefore, if you look at the Shanghai, Our business with the Plaza 60 62 towers, we actually show a very decent 3%, 4% growth, which I think this is a mild rental reversion positive from the existing tenants. And because the occupancy is already very high that shows to you the strength of that particular market. However, in Tier 2 city, as I always mentioned, the fact of the matter is the vacancy level is very high across the city. But why we could do well, because We have launched different, I would say, product offerings to the customer. This is not creative, but You just need to understand the customer. For example, in a very tough post COVID time, a lot of the company, they would not like to Spend money on the CapEx. And therefore, even though they love to move into your place, but they could not spend that huge amount of money to do the renovation. Therefore, we launched our modular office. Our modular office basically we will provide a basic amenities that's and all the basic renovation. However, when you come in, you can choose your size and also but you have to pay premium to the unit price. And for those company to pay a little bit more, they don't have any problem, but they just don't want to spend a lump sum to do the renovation. And therefore, in a Tier 2 city, this offer really help us to speed up the leasing pace for the Spring City as well as for our Heartland 66. Think about it in a 3 50 meter tall In all days, if we just do our traditional leasing, it takes about 4 years to fill it up. And now, I'm happy to tell you that Spring City within a short period of time, we are already achieving 50%. And the breakeven as I mentioned Earlier, we actually achieved our breakeven point in the office in 19 months in Spring City. And Heartland, we believe that we can even achieve this breakeven point earlier. So the fundamental change of us Getting the 2nd tier city click is to really meet the customer need. In the Wuxi, we launched our Hangout, which is The WeWork Life, but it's our own brand. Also we charge almost like 60% premium to sell a desk. And there is a demand. Some customers they want to downsize. They don't want to commit a big space. They want to come into the hangout. So I think the comprehensive office leasing strategy together with, of course, our team's strong capability Really can capture the growth of this segment. And therefore, if you exclude the new bill, we are delivering 3%, 4% growth Organic growth, but with the new bill, we are actually delivered 12% growth in terms of revenue. I add to one point. What we have been able to achieve in the office may not be achievable with many other Office towers. It's not magic. It is location, it's branding, It is quality of construction, quality of management that attracts sufficient Permanent other type of regular tenants. Then you add on top of it these innovations that My colleagues have initiated, be it Hangout or be it the modular, then it works. If you don't have the base, I doubt if it will work. If the whole building is ghost town, I doubt if you try something like because overall, let's face it, all over Mainland China, The supply of office space in all the good cities are humongous. And so the natural vacancy rate is very high, but we are very confident that we can bring it anyway, Shenyang, we are already at what 97%. So I said to them, I said, hey, are we going to do a hangout? And then I don't ask because there's no room. Right. But hey, if somebody move out, we may yet do it because it got higher rent, right? So it really depends on A lot of the fundamentals of your project, including location, quality of construction, quality of design management, Right. That kind of stuff. One more point I want to add is used to be if we only have 2 tower in Shanghai in HLP, but We have one more tower in Grand Gateway in HLG. The portfolio effect is limited because you could not Sell or have a sales pitch to the same tenant by having multiple location. But now you have Kunming, You have Wuhan, you have Wuxi. And therefore, we actually successfully bring some of our existing Huenmin client to Wuhan, Wuhan client to Wuxi and Shanghai client to the 2nd tier city. So now with more portfolio, The team can serve the same customer more. For example, some banks, some insurance company, they have multiple office with us. And therefore, we talk to one Leasing Director in that particular bank we can actually successfully lease a few space in different cities. Every city, our property is the best so far, is are the best. Thank you. I would like Praveen Choudhary from Morgan Stanley to raise the question first. Thank you. Thank you. Thanks for great presentation and also congratulations for great numbers. Most of the questions I answered, I have a Few small ones. The first one is on margin. I've seen that both Hong Kong and China have seen margin improvement year over year. Hong Kong is minor. I wanted to understand what's the driver. But in China, let's assume you're running at 68% or so. In general, Shanghai or Hong Kong can go as high as 80%, 85%. I'm trying to understand what's the path of the 68% towards 85%. What do you need to get to? How would you reach And how many years so to say? That's the first question. The second question was about the gearing, which is Reaching to a level which is different from last 5, 7 years when U. S. Net cash. And so tomorrow if you have a land Available in a great place. Would you go ahead and extend this one because the opportunity arise or That's good. And the third one was dividend, which totally understandable. First of all, it was a pleasant surprise, so thank you, in interim to raise it. But the quantum is different. EPS is up 11%, Dividend is up 6%. I think you are thinking from cent perspective rather than a percentage perspective. But for the full year, assuming that earnings is up a certain number, Are we saying that dividend can be similarly growing at the same rate? Thank you. First of all, Talk about the dividend first, because the interim and the final dividend is not asymmetric. So you could not look at, oh, this time it's 6%, if I deliver 10%, are you assuming The end you also can. So I don't want to get into this game first. We want to send a message. We want to show To the analyst and to the investor that actually we are confident, I think that is the message we want to deliver. Our policy never changed, but also I remember we have different conversation Pavin. We also need to look at our payout ratio, Right. And therefore, of course, we earn more. We are happy to do more. But I just don't want to do more than our means. And therefore, we could not do something else, which when opportunity arise. So I think this is your first question, Your last question. And then of course the first one, sorry I Margin. Oh, margin. This is really hard work, I have to say. There's no magic. If your revenue go up, definitely it will improve. However, I always tell our team that which we really know. If you are a subluxury mall, even though you are doing really well, the margin will have a ceiling, Because you don't have that kind of strong sales to carry you over, right? Because to maintain all this basic Service delivery work, it requires human being, it requires works, it require a lot of time, Right. That has a base. We all know that per square foot how to manage in different cities, right? But in order to get yourself into 70 plus, You have to have luxury, no matter how you look at it in Mainland. In Mainland, once you get there, you will see Every top line you go down into the bottom line, right? It's as simple as that, right? Because If you are subluxury, you will be competing with all the giants like Alibaba, WeChat sorry, Alipay and all that kind of Taobao and all that kind of e commerce. But if you get yourself into different positioning and You will get extra reward because of that. So I think if you look at our group properties overall margin, we maintain, But actually we have to increase a lot for both sides in order to maintain because think about it. Last time when we present Hong Kong still represent 46 And China is 55%. At that time, Hong Kong is 85% margin And China at that time is 60 something percent. So if you have 60%, 50% And 80%, 50% annual average is 68%. But this time our China is 66%. Therefore, we have to increase our China by 3.5 percent in order to even though Hong Kong maintain in order to maintain the same And also to carry some of the new property that we just bought in. Think about it. If you take our Wuhan, All the new properties, our margin will be even more impressive. Therefore, to come back to your question, it's about hard work, it's about The daily management about how we spend money, how we can make ourselves more efficient by Having essential procurement across all portfolio, how to standardize things, how to outsource some of Those work that we believe we cannot add more value and therefore we can outsource to someone that they can do really well for us. So I think it's a combination of all the hard work together. Therefore, I remember 2 years ago, we talked about operating leverage. I always want to deliver the top revenue Faster than the cost expense growth and therefore we can deliver the profit more, right, and which we've shown Our revenue, our EBIT grow faster than our revenue because of our expense growth is lower than our revenue growth. So this is our aim, but of course we cannot do every single month because sometime we have marketing program, we have some one time program this and that. However, in general, we would like to continue to make ourselves more efficient to make ourselves much more Easy to replicate and therefore our cost base could be controlled and therefore all the top line can come into the bottom line. Sorry, I missed your little question. You asked already. So there's an interesting question from online. So I'll get back to John and Catherine later. But the question online says, okay, I'm an investment fund with ESG mandate. So I'll be interested in knowing more about the new initiatives on your ESG side. And separately, you've mentioned in your announcement on the sustainable expenditures and sustainable financing. Would you like to explain more about that? Thank you. Sure. Thanks. I'll let H. C. Take the sustainable finance side, but I think we've done a lot on that as well. I mean internally we have a lot of programs in terms of ESG. We have a new Head of Sustainability or at least Relatively new, which has really allowed us to get into the details a lot more. So we have all sorts of programs. The 2 big buckets where we're spending, 1 is on carbon reducing our carbon footprint and the other one is on wellness and well-being. So down to specific projects, I'm not going to go into too much detail, but we have a lot on energy efficiency. So this is both in our new builds and in our existing buildings. Almost no property is being untouched here. So we're looking at how we can improve our efficiency, but all of that starts with measurement and management. And then carbon reduction and so back on to the wellness side, we're spending a lot for employees, But also for customers and tenants and other stakeholders, but that includes things like topping up on insurance or employee Workplace wellness environment, both physical and also our policies. So all of these things are contributing to our what I think is a pretty substantial ESG spend. And these are the priorities that we've identified. We have our 2,030 goals and these are very aggressive and we're very serious about doing what we can to meet them. I encourage those of you who are interested to look at our sustainability report because we have quite a lot of that in quite a lot of detail. Of course, if there's any specific questions, we're happy to take those as well. And I'll pass that on to H. C. On the Sustainable finance, which is part and parcel of our sustainability focus. Last December, Sustainable finance accounted for about 13% of our total borrowing portfolio. At the end of June this year, it rose to 24 And we have plans to increase that further, okay. Now within our portfolio of sustainable finance, which comprises of Green loans, green bonds, sustainability linked loans, green loan that kind of products, okay. It's not just the name of it. Within each one of those, there are certain parameters that we have to meet In order to lower the borrowing cost of those type of sustainable finance And which we work closely together with our sustainable department, the colleagues that are responsible for those is all Well articulated within the company. And as I say, we hope to increase that further. So that form the entire component the entire component of our overall sustainability program within this company. I just want to add One point is that if you look at our borrowing costs, just versus the second half of last year, we bring down from 4.1%, 4.2% Now to 3.6%, partly because we paid our first MLM 7 years ago in April. And The sustainability finance drive is something we will continue to drive to hopefully we can drive down our borrowing costs, which 50 0.5 percent in 6 months drop is quite a big drop, but we will continue to do that. And hopefully, We can not only meet the ESG requirement, but also we can lower the finance costs and hopefully that we will provide even more dry powder for us in the future. It's a side story. Many of you know that I chaired Asia Society globally Until recently. And I initiated a program there about 12, 15 years ago To bring a group of thought leaders in Asia and that Group is really a very impressive and very high power group, young people, mostly in the 30s. Without my knowing it, each one of those guys are all leaders in their field, right? Without my knowing it, Pedro, hire one of those guys who became an Asia 21 Fellow as we call it at Asia Society in sustainability. Canadian or American? Canadian. Canadian, right. Who was chosen As a young leader for Asia Pacific in sustainability. And without my knowing yet, my colleague Hire him and now he has been heading that team for a few years. So you can tell that we're really at the forefront of thinking. In view of time, we can take 2 last batches of questions from the floor, maybe John first and then followed by Cason. John, please, from UBS. Thank you, management, and also congratulations on the results. I want to ask one question regarding on the land market. So I also agree with that luxury market is a very great market, I expect for the next 5 years. But looking at the pipeline for the company, we have Hangzhou for the next pipeline. So I'm not sure if it is do you see that there is a lack of good land being supplied or the market for the new shopping mall for the company acquire? And also given that we have a very distressed liquidity for the some of the Chinese developers, would you also consider to acquire some of the project to convert to do the shopping mall. Thank you. Yes, I'll start and my colleagues can add on. So I just spent 4 months in the mainland and Besides the cities in which we have existing properties, I also visited about 10 other cities. And so you can tell that there's a lot to look at. I think that there's I would say in our sector, which is the top end of luxury and we have very high requirements for our land. There's never been a huge supply. That being said, there's also no shortage. So it's kind of somewhere in between. I think that the way things are in the market Right now, there could definitely be more opportunity and we're keeping a very close ear on the potential for new supply, both Greenfield and also potentially from other distressed developers. So that's something that we've always been doing. It's not that we're doing something new now. It's just So there may be some more supply coming. So we're always looking at that and we hope that we can continue to Develop our pipeline. That being said, actually our pipeline is still we still have a lot of construction to do. Obviously, with Heartland Residences, that's our 1st Mainland residential Service apartment project, but we have 3 more in the pipeline. So we have Wuxi, Shenyang and Kunming sorry, Wuxi, Kunming and then Shenyang. So Between these four projects we have about 5,000,000 square feet to sell. And the average selling price in these cities going anywhere between 30000 to 50000 per square meter that is so keep in mind I'm changing here. It's that's a potential yes RMB. There's actually a lot for us to do in the next few years, not to mention Shenyang, which is which we've restarted Construction on the site immediately next to ours which is adjacent to our existing mall. So there's still a lot to be done and I think that we will we have plenty to keep us busy notwithstanding, of course, our continuous search for new projects. As far as buying from distressed real estate companies, Sure. Anything that is good is fine. Hopefully, it's really distress in price, but not distress in location, which cannot be changed. As far as converting them, if I understood you correctly, the chances are very slim. When we tear it down, we just Buy the land and tear it down, if it makes economic sense, why not? Because I don't think that too many people Certainly those guys who are in economic distress today, I really doubt if they know how to design it properly. So yes, we'll look, but Convergent, maybe not. But if you have some good land, let me know. Can you let me know? Thank you. Any one of us. Thank you. Last question from Carson Ng of JPMorgan, please. Hi. Just also want to focus on you talked about interest in NAND banking in China. Just want to understand a little bit more how you think about the whole capital allocation. I Would there actually be a redeployment of the Hong Kong asset, the capital into China? What possibility of Packaging the Hong Kong asset and spending off recycled capital into new land in China, one of the options? Or will you actually be just using continue to use debt or equity to fund expansion in China? I'm open to any idea, if they are good idea. So we are open. I'm not saying that we have a so called ceiling. Today, yes, we are at net 24. Something percent gearing, But still I would say it's still a very acceptable level, especially with our strong recurring not developing Property revenue, our revenue prediction should be easy for us to predict and also to know What kind of cash flow we will be able to bring in? So I will not worry about Whether we will be able to raise fund, I'm sure Xe can talk about we have a lot of line Available for us to do different things. But I'm just open to any ideas because We look into distress, of course. We look into every single things, but our standard is high. At the same time, on the other hand, we have a lot on our hand in order to hopefully to prioritize ourselves. But As Adrian mentioned, we all together in hand loan property, we have 58,000,000 Square Foot Land bank anyway. Out of that we only have complete 46, right? So we still have a lot to do. And I would say I remember a few years ago some of you asked, hey, you have too many things to do, don't buy more. But now some of you now ask buy more, right? But we just need to optimize it. We are not reacting to your question. We have our own pace. We know how much we can afford. At the same time, if the opportunity comes, of course, we will do it. Even though we need to borrow a little bit more, but we are confident that we will be able to pay back. So This is really a strategy that I always said to people that come if you have any good idea, we are open. On the allocation side, obviously, it's something that we've repeated many times. Our Hong Kong properties, especially the non core properties, We're always open to selling some of those off and what our stated use of those funds have always been in the past is We see more opportunity generally in the mainland. So we'd be happy to do that if the opportunities arise. And one more thing I want to add especially you are analysts you will know What does that mean? We talk about 5,000,000 square foot of service apartment for sale in China. I remember we talked about the range of 30,000 to 50,000 kind of Square foot square meter per square meter. You can quickly do the math. That is RMB15 1,000,000,000 to RMB16 1,000,000,000 Renminbi, right? If we successfully can sell it, let's say in the next 10 years, okay? And that is quite a big sum. At the same time, we have 3 redevelopment properties in Hong Kong, name it AIC, Name it our electric role and also associate Hugh, right? I just roughly say RMB10 1,000,000,000 there, right? If we start off with the AIC this year and also our service apartment sale In Wuhan early next year. We are back to a leasing only, back to with some development sales. And then you calculate $15,000,000,000 plus $10,000,000,000 let's say divided into 10 years. Then you know the Capability of recycling of capital for us and therefore when times is right, when opportunity comes, We will be able to do something. But of course, we want to kick start. Action is more important than talk. And how we can really walk the talk by selling our AIC well in Hong Kong. How we can really define our positioning of Hanglong resident in Mainland in early next year to define the brand well. Once in Wuhan, we can sell well. We will be more confident to tell you in Wuxi, we will sell well and we will be more confident to tell you in Kuanming because we are working with Grand Hyatt. We now actually will brand as a Grand Hyatt Residence in Kuanming. And hopefully by then our Sanyang will sell well too. So hopefully this will also will be another catalyst for something in the last few years you have not seen, but now we come back strong. And at the same time, Bubu Road, we just sold 1 in June and we will actually book that revenue early Q1 And Hong Kong market looks like the high end market continue to be strong. So hopefully, we can continue to sell Down some of our inventory in Bubu Row. That will give us some support as well. So I think altogether, I do not worry about Our dry powder. I will read more about whether there is good opportunity comes along. And when there is good opportunities, Management is responsible and we are accountable to pick them. Hopefully, we will pick the right one. Maybe I'll Just wrap up a couple of points. Hangzhou is really I'm very happy about the land in Hangzhou that we bought. Perhaps I'm a little bit more careful than Adriel. I think that maybe we may Have to run over to the Q1 of 2025 to finish the mall and a few office tiles. And the reason is because The city delayed their giving us the land, handing over the land by 9 months, 8 months, whatever it is. It's really because of the city's problem. But nonetheless, I think I'm really excited because the experience of Springfield Spring City in Kunming and Heartland in Wuxi sorry, Heartland in Wuhan and then also Central Section 16, which in all cases, we took over the number one position from somebody else. And we migrated all those top brands into our shopping centers. And we think I personally think that the chance of As doing that in Hangzhou is very good because anyway enough said. If we sell anything in Hong Kong, it will not be because we need the capital for Mainland China. But as Idril says, we are always looking to sell. In fact, pardon the Cantonese. We were selling some and we could have sold another building, which we didn't. This is about 1.5 years ago. But we did sell some as you can tell. We it happened to be owned by Hong Kong Group and so we gave a special dividend last year. So Hong Kong, our portfolio is aging. So we don't mind Refreshing our overall portfolio, my view about Hong Kong's economy is I'm a little cautious. Consider this, not only is the economic situation not that favorable in my opinion, There's a lot of office supply coming up also, right here in Central within 3 blocks from right here. And I just haven't seen that much office supply in Downtown Hong Kong in a long, long, long, long time. And so and why bother? And if we can find good land in Mainland China, Yes, we'll be very happy to do that. So I think that I believe that in the coming 1, 3, 5 years, we should