Okay. Good afternoon, ladies and gentlemen. Welcome to the analyst presentation for FY 2023 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 on the floor at Conrad Hong Kong here in Hong Kong, and also those who are on our live webcast 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 on the stage here to join the presentation. They include Mr. Ronnie Chan, our Chair, Mr. Adriel Chan, our Vice Chair, Mr. Weber Lo, our Chief Executive Officer, and Mr. Kenneth Chiu, our Chief Financial Officer.
Our CEO, Weber, will talk about some highlights on our results, and our Vice Chair, Adriel, will go through some of the key milestones at our sustainability side. After that, we will address the questions from the audience, from both the floor and the webcast. This time we go paperless, and therefore, you don't see any hard copy of our presentation anymore. Instead, please scan this QR code to get the soft copy, which can also be obtained from our company website. Weber, the stage is now yours. Thank you.
Good afternoon, ladies and gentlemen, welcome, and also welcome anyone on the webcast. Just go through a few pages. I'm sure you read all of them already, just want to highlight a few things which worth for you to look at.
I think you look at the result, our core business, the rental business, went up by 5% in revenue and 6% in underlying profit, even though our total number was almost flat, minus 1%, and underlying profit was flat because of the absence of property sales in this first 1/2 of the year.
Hang Lung Group, I think more or less the business in line, except that we have 1 one-timer last year that actually because of that, otherwise, our underlying profit actually went up by 4% in Hang Lung Group as well.
We declared the same dividend of the first 1/2 of the year, both HLP and HLG. I think this is the page we want to upfront and talk about our financial management. Our average borrowing costs in this first 1/2 of the year stood at 3.9%, went up from 3.5% of the year-end of 2022. We believe that this is a mild increase, given the market rate jump up quite a lot in the last 6 months.
I think due to a lot of activities and initiatives the team has done. If you look at also the mix, we always would like to keep both the Hong Kong dollar floating and the fixed almost close to 50/50, so we have 38% of fixed and 35% of the Hong Kong floating.
Because Renminbi floating, somehow now the interest rate is quite benign, so therefore, the 27% actually give us a little bit of the benefit of the borrowing costs. Our sustainable finance now stood at 49%, up from 46% 6 months ago. A few metrics I want to highlight. Gearing went up a little bit to 30%. Interest cover, which is, I think this time we want to highlight, it still stood over 4 times.
Our average debt maturity, same as 3.2 years, and also, I think, the net debt and all that went up a little bit in the last 6 months. Just focus on the revenue in Hong Kong dollar terms. I think I just want to highlight, I'm sure you all know, the renminbi depreciated by 6.3% on average, year-on-year in the first 1/2, and therefore, that actually impact our revenue growth.
Otherwise, our revenue growth will be double digit. Because of this, therefore, our core business actually went up only by 5% instead of double digit. In renminbi terms, if you look at our Mainland China rental revenue, it went up by 13% year-on-year in renminbi, and 14% compared to 2021 first 1/2.
We always use 2 years comparison, because I think last year, because of the COVID, the lockdown in Shanghai, therefore, we want to give you both 2022 and 2021 comparison. Hong Kong, very delighted to report to you that this is the first time we report 4% growth since COVID. This is, this is the first time in 3 years. Also, the revenue now come back to the 2021 level, back to 2 years ago. Mainland China rental revenue, as I mentioned in RMB terms, this is historic high in 6 months' time, and also historic high in the first 1/2 of the year.
If you look at 11% growth versus first 1/2 2022, and 11% growth versus first 1/2 2021. Our mix, more or less the same, 80% retail, 11% office, and 2% hotel and residential. Retail, again, also record high, 11% growth versus last year and 11% growth versus two years ago. This is the chart I want to spend a little bit more time because it's a lot of data here. If you compare first 1/2 sales, tenant sales... we were up by 42%, which is understandable, because last year, Shanghai was locked down by two months, right? If you compare 2021 first 1/2, it's up by 20%.
If you recall, 2021 was one of the peak in Mainland China. Overall tenant sale, we are still up by 20%. Now, even though you can argue that, oh, we have a Heartland open in 2021, end of March, if we exclude that, there's a note below the chart.
We are still growing by 11% versus first 1/2, and also 11% in the luxury mall. I think overall, organically and inorganically, we are still deliver a double-digit growth. In luxury mall, first 1/2, 42% compared to last year and 22% compared to two years ago. But sub-luxury mall, big increase, 36% versus last year, but just back to 2021 level.
You can see that the mass market and also the overall economy still really have some little bit of the difficulties. This is another dimension if you look at our sales. 42, same as 42% and 20% growth versus 2022 and 2021 respectively.
This time we break Shanghai and ex-Shanghai. You can see that our Shanghai plus 64% growth compared to last year, due to the lockdown of last year. However, we still registered 4% growth compared to the historic high in 2021. However, really worth to mention, our ex-Shanghai compared to last year, 23% growth, and compared to 2 years ago, 47% growth. We are building up our ex-Shanghai now.
The contribution is getting bigger, and therefore, in the past, we always talk about Shanghai. We rely so much on Shanghai. Now, you can see our ex-Shanghai, both compared to last year and also compared to 2 years ago, actually, they grow nicely. Office.
We always talk about the challenge in the office market. We registered 6% growth compared to last year, and compared to 2 years ago, 23% growth. It is a solid growth momentum, but of course, the, the revenue pace, the growth rate, slowed down a bit due to the economic sentiment, which we will explain a little bit later. This is really the first time we disclose more information about the customer CRM, the customer relationship management.
A lot of people ask why you can still deliver 42% growth versus last year. I think there is one number I want to draw your attention. Our member sales, which is our own member, also grew by the similar amount, 41%. Our penetration of the member sales in Mainland is about 64%. That means out of $100 of the total sales, 64% of the $100 is coming from our members.
That means it's a highly correlated. If we can continue to encourage and improve our loyalty of the customers, the member sales will be able to translate into the total sales. This is, I think, very encouraging, and also, I'm sure you will ask me later about the leakage, about the overseas spending and all that.
The good thing about our House 66 in Mainland nowadays, if you look at the total member increase, new member increase, member sales increase, and sales penetration are all moving into the right direction. On the right-hand side, about hello, we call hello in Hong Kong, but HOUSE 66 in Mainland also registers similar growth in terms of member sales, as well as the new members and total members.
The sales penetration is a bit different, because in Hong Kong, a lot of our mall are community mall, and therefore, the penetration will tends to be lower compared to the luxury mall. We will continue to build experience, exclusiveness, as well as the engagement with our customer, and therefore, hopefully, we can control what we can control in our shopping center.
Hong Kong rental revenue, as I mentioned, first time in 3 years, registered 4% positive growth, and flat to 2 years ago. You can see the chart. If you just look at these 3 years, it's a little bit depressing, because if you still recall, 2019, is because of the, I would say social unrest. Starting from 2020, it's because of the 3 years of COVID. Now we finally come out with a little bit of improvement overall from the revenue. If I break down the 4%, retail is 6%, office is 1% growth.
Overall, we still believe that retail recover better than office, and office, we still think the sentiment is quite weak, and therefore, we believe that the growth may not be continue to be positive all the time, but we believe that the retail have been fully recovered. Of course, it takes time for them to go back to where we were 3 years ago. Now I would like to pass to Adriel to talk about some of the key milestones that we achieved in the sustainability.
... Thanks, Weber. You're all aware that we partnered with LVMH last year. We announced in October the collaboration. This year we've taken that even further. We've now signed a common charter. This includes 20 actions that were actually generated between about 200 staff of ours and LVMH's together. We have 20 innovative ideas that we'll be applying this year to engage stakeholders.
I mean, this is everything from sharing data to collaborating on indoor air quality and biodiversity and stuff in our malls with LVMH brands. That's, that's a big one. That, that's exciting. That happened in March. Another one that I'm excited about, in May, we announced an a collaboration with CLEANCO2.
This is a low carbon brick company, so it's construction material, which for us is Scope 3. That's quite unique. We're, I think, one of the earlier ones to really explore ways of reducing our embodied carbon in the construction projects. We'll be applying this in Hangzhou as we construct that right now. That's a company that's was spun out of Zhejiang University, so Zheda.
That's, that's a very cool one. In June, just last month or almost two months ago, we graduated our first class of the Hang Lung Future Women Leaders Program, and I think that's a very, very good event, led by Maggie, actually, who's actually not in the room right now.
This is something that helps young college age women, you know, to help develop their career and, and plan for their futures. There's been a lot that we've been doing. Obviously, you see in January, we also did. We received LEED and WELL Platinum rating for Plaza and had our net zero targets approved, both long term and short term. That's a first. There's a lot going on, and we hope to continue to push the envelope into the second 1/2. With that, I'll give it back to Weber.
Thank you. Thank you, Adriel and also Weber. We now start the Q&A session. Please feel free to raise your hands to raise your questions here, or by typing the questions in the box on the webcast page. Qiran from CICC. Thank you.
Thank you, good afternoon. I'm Qiran from CICC, I have 2 questions for you. The first one is about how do you expect the trend of retail sales in the second 1/2 of 2023? Yeah, just as you mentioned, Weber, there are some concerns around the overseas spending. Also, this is just one concern which already may be more significant in the second 1/4.
Also, we see some maybe competitions from other competitors, like Taikoo in Shanghai and maybe SKP in Kunming and Wuhan. How do you expect this trend in the second 1/2? How do you remain your advantages? This is the first question. The second is about the dividend policy. This is a very simple question.
I would like to know, what's your policy in 2023 and in the years to come, maybe especially in 2025, when you finish your project in Hangzhou, will you raise your DPS? The two questions.
Yeah.
Thanks.
Thank you. Why don't I comment on the environment and macro of the sentiment about the retail first? We see slowdown of the retail may be evident after national holiday in May, middle of May. Similar trend in June, and also similar in July. The good thing is, there's still growth. The growth might be single digit, not high double digit anymore.
Part of it, I think, maybe Adriel can supplement afterwards, because he just come back from Shanghai, Shenyang, and the other places. People are more conservative because of the uncertainty. They want to save more than spend. Maybe in the past, they spend 100, now they spend 80, 70, depends on the situation of that individual. I think it's more about the sentiment and confidence issue.
It's not because they don't have money, but because they would rather wait and see a little bit, right? Therefore, we see the trend, slow down a little bit. Our belief that, you know, we achieved 42% in first 1/2, I don't think it will be the same in second 1/2.
I believe that it will be single digit because if you think about the third 1/4 last year, it was quite robust. Therefore, third 1/4 might be slight positive or even flat, but second 1/2, which is Q4, I think it will be much positive because if you remember, the December of last year is the finale of COVID open up. Therefore, I think the base of Q4 of last year was low.
Given the fact that even though it's a slowdown, but if I look at both Shanghai and the rest of Shanghai, outside Shanghai, they are still achieving record high sales as of today. I, I think if we can continue to control our customer base, continue to recruit them, I think the market is big enough for us.
I think this is first. Second, yes, more competition coming into Mainland, that, that is for sure. We don't see the impact as of now, to be honest. If we can control what we can do by offering the best to the customers, by keep opening a good relevant brands and store to the customers, I think the people will keep, keep coming.
One, one of the fact that which I would like to explain, which is quite counterintuitive. If you look at our different tiers of our CRM program, we have, we have the highest Emerald, Sapphire, Ruby, Amber, and Crystals. A lot of people say, "Oh, maybe the, the richest guy now go to overseas, and therefore they will spend less." Actually, it's in contrast.
The Sapphire, Emerald, and Ruby guys, F&B spending actually going up. And the frequency of them coming to our mall actually is high. Which part of that actually drag down a little bit is the Crystal and the Ruby. They spend less, they come less, because they have more choices, right? Therefore, this data also prove to you that, you know, we are the leader of this market if we continue to do what we can control.
I think customer will continue to come. However, for F&B, for other entertainment, they have a lot more choices after COVID reopen. Therefore, they can go to other mall or other places, or even overseas spending. I think if that is the case, we need to continue to handhold our best customer and make sure that the merchandise from those brands will be continued to be delivered.
I think this is really one of the things I would like to emphasize. Overseas spending, some of the brand told us, they, they travel to Europe, to US, is still not much. In Asia, basically, almost back to normal, compared to Pre-COVID. I think you can see a lot more mainland tourists coming to Hong Kong.
On the other hand, people in Hong Kong complaining they are not the same. I think the travel pattern and also the way how they spend money might be a little bit different compared to Pre-COVID. One places which they are really going back and spend a lot of money overseas, are in Japan, right? Because of the currency level, which yen is so cheap right now. Some brands told us that their, their mainland Chinese customer traveling in Japan and spend money in Japan, is already back to Pre-COVID level. What they announced also is they are going to raise the price in Japan because of the currency devaluation.
I think those we can't control, but what I said, last time, remember, 6 months ago, when you asked me, keep asking me about the overseas spending, I said, hopefully, 6 months later, you will see the result. Continuously, we can see the result, but I worry more about the slowdown of economy rather than overseas spending, because that is more fundamental than really purely the leakage.
As I told you, the highest spending customers actually spend more with us in the last 6 months with us. I think this is first part of your question. Second part of your question is about the dividend policy. We never change our policy. We always want to align the dividend payout versus our underlying profit.
I would say we are unfortunate, or actually, I would say, because of the devaluation of RMB of 6.3%, we are flat, underlying profit. The good thing is about the core business, our rental profit actually is going up single digits.
Hope, we will see more and have a much better view about this full year in the rest of the year. Our dividend always, we only pay 23% of our dividend in first 1/2, and most of the dividend actually will be in the full year. We will still have almost 6 months to watch. Hopefully, if we can deliver better profit, so then the dividend policy will align accordingly.
I would add a couple of points. I don't know if you're all analysts, so you may look at numbers in the last 2, 3, 5 years. If you were to look at numbers, say, 20 years, it is quite amazing that our rental portfolio in RMB terms for the Mainland, not counting Hong Kong, just the Mainland, has never decreased in any 1 year for the last 20 years.
If you were to add in the Hong Kong rental, same thing. I would like to think that it is quite a feat that a company should, for maybe 20 years, never see a down year in its rental portfolio, either taking only Mainland in RMB terms or together with Hong Kong.
During that, you know, 11, 20 years, there's a lot of really serious stuff happening. For example, 2011, second 1/2, I wrote in the interim report that year that I can sense the chill coming, right? The bear market coming, sure enough, it came. It lasted all the way till the beginning of 2018. It's a six, seven-year bear market. When you would take the last 11, 20 years, six of those, six to seven years of those are really in a big bear market for luxury retail in China, and then the last three years, of course.
In spite of those 9 or 10 years of two big bear markets, we managed to keep every year producing a little more or a lot more rental for our shareholders. I think that's a pretty amazing feat. Even the last 3 years of COVID, I don't know, because we are always the first to report, so I don't know what other people are doing. I don't think too many people will be able to claim that in the last 3 years of COVID, that their total rental revenue in local currency terms keep going up, and that's what happened to us.
What Weber said just now, I'll interpret it for you, is that because we grew so well in the first 1/2, the second 1/2, even if it slows down, and it, it will slow down, it's already slowed down, but it's still growth. That means it is possible, very possible, that this year we'll again break records. 2019 was a fantastic year for us in the mainland. 2020, with the COVID, we did even better. 2021, even better. 2022, even better. This year, probably still even better. I think that it, it, it says something about both our strategy as well as our operations, right?
If you were to look at, say, just the Shanghai properties, which so many of you focus a lot on, the only down years basically for the last 11, 20 years, was when we did the AEI. When you do the AEI, of course, you have to close down some of the shopping center, and hence you have a smaller space to rent, but you have a down year. But apart from that, there were hardly any down year.
Then the last... I'll give you another set of numbers. The last year, when Shanghai was really bad, right? Locked down 2, 2 months totally, and then the other 10 months in various degrees of closing. Restaurant cannot open, and this and that, right?
Last year was really hell for Shanghai, and we did drop, both in Plaza and, and Grand Gateway, especially in Plaza. Even then, because of the rise in non-Shanghai luxury shopping centers performing so well, and that's Wuxi Center 66, that is, Spring City 66 in Kunming, and Dalian Olympia 66, and Wuhan Heartland 66.
Because those other properties were doing so well, that the growth, together with some growth in the office, were able to cover the shortfall in Shanghai. Our dependence on Shanghai is definitely coming down. We want to make sure that we keep our leading position in Shanghai. That said, I think that you should all perhaps look at some of the other shopping center as well.
For example, this year, Center 66 is catching up with Grand Gateway. Grand Gateway has grown very well because we have upgraded it, you know, to a five-star property. Wuhan is catching up. I think this year, I don't know, Grand Gateway will be somewhere between $5 billion-$6 billion of sales. Wuhan, Wuhan will be somewhere between $4.5 billion-$5 billion, maybe. The other luxury shopping center will be at $3 billion-$3.5 billion sales each year. You know, our portfolio is very resilient in the way it was designed and in the way that it was managed. Repeat one fact as a little bit of bragging.
During the tough years, I mentioned 2002, you know, 2012 to 2017, we did AEI. Who would spend more money when the market is that down? The big tenants of ours were really appreciative of that, and it really helped build long-term relationship with, you know, the C1, so to speak, C1, C2 customers of ours. I think that. Then another point is that most people are having a hell of a hard time with offices. We all know that the vacancy rate of Chinese office is infamous, right? I mean, 30%-40% is a regular thing in many, many cities. Yet in all of our cities, outside of Shanghai, Shanghai, we're doing very well.
Outside of Shanghai, you know, we are roughly at 90% occupancy and often rising. to be fair, rents are not high, $4 or whatever, but still, it is a steady kind of income, and we've been growing at, you know, 5%, 10%, 11% in the last few years. I think it will slow down in the growth, 'cause the overall economy, but nonetheless, we are already at a very high base. so I like to think that in terms of
... commercial real estate rental, I think we did pretty okay.
Mark from UBS, please. Thank you.
Thank you, Weber, and thank you, Ronnie. This is Mark from UBS. I think that the questions, first of all, is regarding to Wuhan, Heartland 66. I saw in the announcement that we are doing some reposition.
Mm.
Could you elaborate us, what kind of actions we are targeting? I think the mall just recently opened. I think that's the first questions. Second one, I think is the LVMH chairman, he just visits maybe in Mainland for spending a day in-
Mm
a week in Mainland. Could you share with us what's the feedback from him, et cetera? Thank you very much.
I think, in terms of Heartland, I think if you notice, the sales went up by 25%, but rental income more or less flat, partly due to the occupancy drop. In Mainland China, it's quite a different circumstances when if you have a new mall open, some of the brands, they will support you and open another store. If you recall, due to the-
They will fight to get into your mall.
Yeah. Yeah. They, they-- Because of the COVID, I would say final finale in last year, December, a lot of, especially F&B and some other, mass market kind of products, they could not survive. Some of those basically give back the key to us, and then, of course, we continue to replace them, but the sudden debt we call, more than offset, some of the new, leasing that we have done. You see that there is a drag of 5% of occupancy in Mainland, in Heartland 66. Our, our floor, our basement, I would say the L1 and L2 are doing well in the luxury. But, the rest, I think we need another time to readjust, based on a lot of other things.
For example, the supermarket may not be doing well, especially in this kind of current environment. People can order supermarket and food from online. Therefore, we want to adjust some of those trade mix. It takes a little bit of the time.
Therefore, I think that means we would like to readjust some of the trade mix in Heartland. The sales and the brand and some of those productivities are doing in the right direction. Now, of course, competition there is very keen. Therefore, we would like to continue to support this by having more marketing activities and all that. They are one of the biggest contributor for our CRM customer growth in Heartland.
Hopefully, given time, we will continue to get this asset more mature, and therefore, we can actually get the best out of Heartland 66. For Bernard Arnault, they in our cities, he visit Shanghai only. Actually, he visit Plaza 66 together with his management team.
However, he himself didn't come to Grand Gateway, but the rest came to Grand Gateway and gave us very good comment, very supportive. I was told by their colleagues that he is so happy there, he would like to spend more time in mainland rather than go back to Europe and worry about some of the fight and protests in Paris. He is quite happy, and surprisingly, he see the positivity in the Mainland China. That is a good news.
That means hopefully, he will continue to invest and support Mainland China growth.
Looked at the report that they came up with last week, right? Fantastic. 47%, Asia, ex-Japan, and much of it is China. They are making a lot of money there, and we're very happy that they are in our shopping center in a big way. As they say, they, they now have, what, 90-some stores, the whole group, LVMH Group. It's not bad.
Ken, from Citi.
Hi. I have a question for Ronnie.
Mm.
Because, you know, I keep track of your comments and everything, and you do have done a very good, timing in terms of everything. You.
In terms of what?
In terms of the upmarket outlooks. I still recall you was very bearish in June results last year. During our talk, then you, which is around October, you said that you turned bullish, which is likely the bottom, and you have been very upbeat in January. I'm sure that now it's not as upbeat as that moment, given that we have a lot of variable parameters. How should we be seeing your view now, given that, is there what is the % of down versus your upbeat level versus the January, that you used the word upbeat, but I didn't see you writing this upbeat now. Can I get a sense of your latest view on that?
I'm not as up right now. You're right. You know, in January, the COVID was over. By the way, I bumped into... Oh, no, I didn't bump into, I invited him to breakfast, a Nobel laureate, Michael Levitt from Stanford. We were together in New York, and the guy told me, he said, "Remember what I wrote 3 years ago?" My first teacher to learn about COVID was him.
... and he said, "If China were to open up, within six weeks, it'll be herd immunity." He reminded me of what he told me three years ago, and bingo, that's exactly what happened between December sixth and roughly, right, the first week of January. First and second week of January, that's exactly what happened. After COVID, I think that China would do a lot to pump the market, the economy, and so I was quite bullish. I was right for about 4.5 months. Because by the middle of June... mid of May, you can feel a little bit of a slowdown.
I had a discussion with Weber and Adriel about this, and we think that, well, you should- I don't even want to mention, we just had- you guys just met with LVMH just a few days ago. I think our view and theirs are quite much similar, that as Weber explained, third 1/4 may be a little bit difficult because last year's third 1/4 was very... After the first 1/2, a lot of people jump out to buy. Maybe it'll be flattish, third 1/4, fourth 1/4 last year was bad. This year, you know, the growth will be good. I think that we can probably maintain a positive outlook for the rest of the year.
That said, the overall economy is concerning because it doesn't seem that the government's stimulation policies have been that working that well. They will try new things, perhaps. Whatever it is, you bet they will try. Sooner or later, we'll get it right. I just don't know how long it will take. For now, I'm not going to bet on, you know, double-digit growth for the rest of this year. Single-digit growth, very possible. My worry, frankly, again, is that I don't have much visibility for 2024. I just don't know how to see it.
I, I told my colleague, I said, "Seldom has there been a time when I am totally blind, it seems, just 6 months out." What will happen January, come January, come 2024, what will it be like? I have no idea. I'm not saying it's necessarily going to be bad, I just don't know.
The government may hit on some stimulation policies that will work. Because at issue is really trust on the personal side and confidence on the side of the businesses to do reinvestment, right? We just have to see. I'm living month to month, but for the rest of this year, I think that the visibility is quite good. It's okay.
Can I have a follow-up on this? I'm just thinking of, how should we be seeing... Given that we are focusing on a very good segment, China luxury, and we have been seeing a lot of the overseas spending already repatriate back to China.
The most common questions being asked by clients, that we are already at a high base, already repatriate already, and China consumption is slowing down. Although this is the things that you already answered before, but I just want to think of a shopping mall operator. We need to plan for more years. How much more upside should we be seeing on the China luxury sales on this outlook?
I will begin, maybe Weber and Adriel can chime in, huh? You're right. 30%, roughly, of the sales has been leaked out. When I said, when I wrote, a year ago that I don't believe that there will be too much leakage, that was based on equalization of prices, which was being done at the time. Then currency movement in the last year or so has been crazy.
So, you know, the 11%, according to LV, last week announced, huh? Joyce, you sent me that, those information. 11% of the total Japan sales come from Chinese shoppers. So there are leakages, 30%-35%, because of the price differential. LV also stated publicly that they are now taking measures to address the gap difference, the price difference.
In, in other words, I think the leakage is already maxed out or very soon to be maxed out. If there's price equalization, then those 30% or 35% may indeed come back to China. That's the more macro picture. Let me give you a micro picture. Our variable sales has been quite high for our luxury malls. Do we-
Variable rents.
Yeah, yeah. Variable rent.
Yeah. I think, which is in the annual report we already report. First 1/2, now, variable rent is 29%, fixed rent is 71%.
The 29% is strapped down by one shopping center and 11%, the rest are more 40%+.
Mm.
That can easily be translated the next time when lease renewal comes, right? Some of that will, can be con-.
Yeah
... hopefully converted to fixed rent. That's another impetus for rental rise, right?
Sorry, may, may, may I, may I supplement, Ronnie? Ken, I think, if you look at the second 1/2-... People said, "Oh, I told you already, overseas leakage, and that's why you slow down." To be honest, I don't believe it's the leakage itself causing the slowdown.
I think it's the general markets, causing the slowdown, because, according to some of the brands told us, some of the brands already said, they are already 30% of the sales coming from-- actually, repatriation now a little bit rebase back, especially like Japan. They are already actually come back to the Pre-COVID level.
People may not travel to Europe yet, may not travel to U.S., but Southeast Asia, like Singapore, like for example, even Vietnam, or Japan, they are already back to 2019 level. Hong Kong, you see a lot more traffic, and you see a lot more tourists. They are a lot already spending. As I mentioned, it's not because of that, luxury sales come down.
Even though, to be honest, if you look at July, summer, a lot of people travel, we still see growth. The key is, I would like to mention again, is that, yes, this may be a rebase year, but if we talk to all the luxury brands, they believe that the last 3 years is like a, all of a sudden, a special, COVID time, right?
You will not see double 60% growth anymore, right? Luxury sales, normally, everyone expect will be like 5% to 10% growth, right? I believe that now we are in a much better position compared to, let's say, 5, 6 years ago. If the market, let's say, slow down, right? The opening of new store might be cut store.
I think for those we are leading the market might get even more benefit by having people consolidating to our shopping center. I think the benefit going forward will not be a people just buy more. I think the market share gain, the customer experience, and really what we can deliver to the customers other than shopping, because, other than shopping, people want to spend more time with you.
Hopefully because of that, they don't need to worry about going to Paris and buy this stuff. I think there's a combination of everything. I will not be saying, "Oh, no more gain," so because repatriation back to normal. I believe that the rebase will be happening already now. Look forward, we will look for a sustainable growth.
This is what we begin with, but so happened suddenly in the last few years, because of the COVID, because of whatever, there is a sudden jump. I don't believe that suddenly it will drop big time, because the customer base has been acquired, and also the brand are very positive about Mainland China growth as well, because they see...
If you look at the LVMH, Kering, and Hermès result, the slowdown actually happening already in America, right? Europe, they are also seeing a slowdown, and therefore, where they, they will put effort, this part of the world. Hopefully, Mainland China will continue to be the place that they will push for.
Yeah.
Mm-hmm.
I think what we've seen over COVID as, as Weber said, is, is really a windfall. This is like a COVID windfall, which for us is both in sales-.
Okay
... and customer acquisition. We, we do have a really, a really nice base now, actually, upon which to grow future VIC sales. I just spent 4 days in the Mainland, and, yeah, you know, if you talk to people, everybody sounds conservative, very reserved. There's concern, there's lack of confidence, as Ronnie said. You know, if you try to tune that out and you just look at the malls, you look at the foot traffic, it's actually still quite strong.
Of course, it's summer holidays, so kids are out, right? Hotel bookings. I had to go to 3 different hotels in Shanghai before I found one with rooms. I eventually stayed at the W, and I asked them what their occupancy was.
They said they were at 95% consistently over the past few weeks. In Shenyang, I stayed at our own Conrad, and just 3 days before I arrived, they had 100% occupancy at Conrad Shenyang, including the Presidential Suite, and no rooms were comped.
It was all paid-for rooms. You know, this, this travel, this internal travel is, is coming back. There is a concern on confidence. You know, when you talk to colleagues, and they say, "Oh, you know, you know, I'll, I'll think about buying a new house or a new car." When it comes to luxury shopping, it seems like they are still happy to spend.
I think one of the things that I've heard is, people are choosing to spend less on sort of daily discretionaries, but they're spending more on quality, and then less on the low quality. In some way, they're shifting their spending patterns as well. I think that's one area for additional or, or continued, customer acquisition and, and growth.
You know, the, the base is actually changing as well. We are still acquiring new customers. At the same time, you know, there's this level of concern in the economy, which are causing people to be somewhat more conservative in some areas of their spending. We just hope that that won't trickle into luxury.
Yeah, you probably think I'm a little schizo. I see, I see no visibility. I'm worried about what happened in 2014, and then, and I come up with good numbers, right?
Twenty-four.
24, yeah. one number that we watch is-
how much is LVMH and Kering and Hermès, how much do they grow in Asia Pacific or how they, how much they grow in China, right? We try to figure out how much they grow in China, because they may not tell you. But, you know, we, we have a way to reasonably guess what their growth rate is.
I'm happy to say that the growth rate of their stores in our shopping centers outpace by, sometimes by quite a margin, their growth in China. That goes to something that I have always said, and that is the win-winner takes all. The, the, the best mall in a city will cream off much of the sales dollars, and that's exactly what is playing out in front of our eyes.
You know, we're doing terribly in Shenyang, you know that, Forum 66. Somebody is creaming off all the profit, just like we are doing in Wuxi, in Dalian, in Kunming, and hopefully in Wuhan, in time. Then Hangzhou, of course, which I'm very, very excited about.
There's a lot of things I can't tell you right now, but you know, I'm really looking forward to the opening of Hangzhou, West Lake 66. It won't be easy. It'll be a fight, no question, but I like to fight, and I think that we can win. That one, if you win, it's a big one. It's a big win, right? Hangzhou being such a great city, it won't be a 2-shop city.
It's a 4-shop city, 4-store city, right? For many of these top brands. So our gaining doesn't mean that other people will lose money, but just that they may make a little less. So I think that there are things that are quite encouraging in the short term, but also, looking down the road, whatever 2024 may hold, as long as the market is reasonable, I think that we should be able to outperform.
Okay, thank you. Let's give a chance to those on the webcast. I've got some questions from from webcast. The first question is likely for Adriel. I'm impressed with how Hang Lung Sustainability Partnership goes with LVMH and how that turns into execution.
Can you remind us what, what's the few action ideas in the charter that, that you are most proud of? What's the impact you're making on the industry overall? The second question is on the Hong Kong operations. Can the management give a few words of comments on the Hong Kong operations? Thank you.
Very quickly on the LV partnership. Y- you're right, the closeness of our groups is even a little bit surprising to me. H- LVMH had a 2-day sustainability summit for their own internal staff, and they allowed our head of sustainability, John Haffner, to attend the full 2 days.
You know, so that- that's an internal program that Antoine Arnault kicks off, and then, you know, they talk about all the different issues that they're facing. To have that level of access, I think is quite unusual, and that's something I'm particularly proud of. When it comes down to the actual actions, I mean, th- this one, it, it is, it sounds benign, but I think it's quite powerful. It's actually sharing data.
Between LVMH and us, we've agreed to share data on, you know, things like electricity consumption, water consumption, energy intensity, and things like that, of our malls and of their stores. To me, this is sort of the fundamentals of the future, you know, even deeper partnership.
Obviously, there are specific, you know, items on biodiversity, on water, on waste. I think waste management is an interesting one. We're talking about having a embodied carbon materials library. Which products do they use to fit out their stores? What do we use to build our malls? What does the carbon footprint of those materials look like?
I mean, it's, it's all quite technical, but it's, it's actually quite exciting in, in the world of sustainability.
Is that Scope 3?
That's Scope 3. Yeah. Scope 3 is, again, it's an emerging area, which I think a lot of our peers have not yet really delved into. The fact that we're already looking at that with LVMH, I think is quite powerful. You know, not just, it's not just LVMH. We're trying to find ways to increase the impact across industries or sectors this year. We're still working on things beyond only LVMH, I think that's something that's really exciting on the sustainability side. Then, sorry, the Hong Kong... What was the question on Hong Kong?
Can you give a few words of comments on the Hong Kong operations at this time?
Hong Kong is in January, I think, we called the bottom of the market, and that was pretty accurate, I think. We've seen the first growth in our Hong Kong portfolio since Pre-COVID. We're at 4%-
Yeah.
this, this 1/2, which is very nice, you know, mid-single digit. We hope to continue that. I think, our positioning as, more mid-market, propositions here in Hong Kong has helped us. so Hong Kong feels, decent, and I think that there's -
... confidence that it will continue to grow. Weber? Yeah.
That said, I think our confidence in the retail exceeds our confidence in the office, right? I think if the if we have any growth, it will come from the retail side rather than the office side. We still grew at 1% or whatever the last 6 months in the office, but, hey, that's neither here nor there. The retail side is recovering gradually, but office, it will take some time to digest all the inventory. Also people, some people are leaving and hence leaving empty more empty space, so.
In view of the time, I will just fetch the last questions, maybe from the webcast. Okay, I've got a question on balance sheet management. What's the key reasons for the net gearing increase, and how are we going to manage the whole uncertainty out there, whether it's in terms of FX or in terms of interest rate? Thank you.
For our gearing, as I mentioned before, the increase of that is mainly because of the new projects that we are building, particularly Westlake 66 in Hangzhou. For in terms of risk management, first of all, I talk about FX. Since we have, like, RMB 100 billion asset in China, for such huge amount, it is not feasible to do any balance sheet hedge.
However, we try to borrow more, you know, in renminbi so as to partially mitigate the exchange rate with this first. In terms of interest rate risk, actually, if you look at our debt portfolio, 38% of our debt is under fixed rate, another 27 is under floating rate renminbi.
That said, the exposures, you know, because we, we have noticed that Renminbi interest rate is quite stable or even going down. The remaining floating rate Hong Kong dollar borrowing was only 35% as of June. Going forward, we aim to borrow more in Renminbi terms. If you look at, you can go back to your office and check the Bloomberg.
Actually, this in the past, in the first 1/2 of this year, we have printed RMB 400 million dim sum bonds, and actually, in the past few days, we also print another RMB 600 million. All together is like RMB one billion dim sum bond we have printed.
The rate is, the coupon rate is around 3.2%, which is much lower than the Hong Kong dollar financing. I think and, at the same time, we also, we view our CapEx deployment carefully so as to, we prioritize all the CapEx. During the high interest rate, interest rate environment, we try to, you know, minimize the capital outlay, you know, for those item which are not urgent. I think, given that Westlake 66 will be completed in one or two years' time, afterwards, our, our gearing will pick up.
Thank you. This wrap up the analyst presentation for our FY 23 interim results. There are still some unaddressed questions for over the webcast. Our team will contact these investors. Thank you very much for the participation. We'll see you next time. Thank you.
Thank you, everyone.
Thank you very much. Thank you.