Good evening, ladies and gentlemen. Welcome to the analyst briefing of Swire Properties interim results announcement. Today's briefing will be hosted by Mr. Guy Bradley, Chief Executive of Swire Properties, and Ms. Michelle Low, Finance Director. Guy and Michelle will walk us through the interim results, followed by a Q&A session. Before we start the financial review, we would like to show you a video which provides the highlights of the company's development. Let's look at it.
Very pleasing set of awards there at the end, which is great. Probably come to expect that of Swire Properties, but obviously this is not just about getting awards. So I will end my comments on the awards there, and we will get into the numbers. I normally say at this stage, you have got the same team up here, and you have got the same team up here. But this will be the last time, certainly in Michelle's case, that she will be sat here with me doing Swire Properties analyst briefings. As you all know, she is going to step up into the Finance Director role at Swire Pacific. So she has volunteered today to answer anything difficult, being her last session, so you can start thinking about those hard questions.
I will just start with the headline comments on what I think was a pretty solid performance for all of our businesses in Swire Properties in the first half. Underlying profit up 30%, principally down to the higher trading profits from the sale of mostly the ALASSIO units in Hong Kong that were booked in the first half. Gross rental income up 4%, which is important, with increased contributions from the properties in the U.S., in Miami, and from the retail properties in Mainland China, which are going very well. And steady contributions from Hong Kong on both the office and the retail side. The big number, obviously, in the first half, driving the profits was the 176% increase versus the previous year half from property trading, as we mentioned, and that is due to the handover mostly of the pre-sold units at ALASSIO.
But that really stands out in the first half as being a big contributor. Slide five is really a detailed summary of those highlights. I will not dwell on that, but Michelle may want to pick up on a couple of the details later when she talks about financing, particularly in terms of debt and gearing. So I will move on from there. When we look at the waterfall chart on page six, again, that sort of balance there really reflects the consistency of performance in the businesses, which I think is a real positive. You can see the big number again glaringly obvious coming from the trading side of the business.
But what I find very positive in our core business, the property investment side, we've had a 10% increase in underlying profit year-on-year for the half, which reflects a very healthy position and reflects the growing business that we have on our investment side. Slide seven focuses on the change in value in the investment properties. As usually is the case here, the biggest movement here comes from an increase in the value driven here this time by office, and there's been two main factors to that. The usual rental increases that we've been reporting in the last couple of years, combined with a small reduction in the cap rates of 12.5 basis points, but those have added up to be the largest movement in the investment property value.
I'm going to spend a bit longer on this page, really, because this goes to the very heart of our business, which is the rental income side. The Hong Kong office picture has been very, very strong of late for us and continues to look pretty firm. I would say the rental income has, we say it's been stable here, but what you need to remember is that it's cycling the loss of rental income from the closures and the displacement base of earnings caused by Warwick and Cornwall House. Prior to that, Somerset was also demolished. So we're actually achieving a reasonably stable rental income level in spite of losing the rental income contributions from those two buildings while they get turned into what will become the exciting story in Taikoo Place. The rental reversions, at the same time, with occupancies being so high, have been positive.
Demand continues to be positive, too. I would say it's reasonably strong so far, and we're confident that position will continue for the rest of the year. On the retail side in Hong Kong, I think the great story to report at this point is the fact that we, rental income terms, and you can see that on the chart, we've stabilized the Hong Kong situation for Hong Kong retail income. We've still got the 100% occupancy that we've had for many a day. But at this point, you can clearly see that what we've been feeling for the last 6- 12 months in terms of a slowdown in the decline has now turned into a slight pickup in the retail situation in Hong Kong, and that's fantastic news.
It's great for the Hong Kong market, and it's good for Swire Properties, and it's specifically good for Pacific Place. The other big story is China, I think, which you can see on there has grown at 19%. That's in Hong Kong dollars. The figure's even better in RMB. I think it's 24%, which shows that the retail-led mixed-use malls and assets in China are moving in a very encouraging direction, continue to do so, and we're really excited about that. In fact, that figure there, HKD 1.5 billion in terms of attributable gross rental income, that's now 25% from China of the entire total. And that would not have been the case four or five years ago. So that's a really positive thing going on there for us, and we're delighted to see the trends heading in the way that they're doing.
Of course, the exciting part on that this year will be in Shanghai when we open the—w ell, it is open, but it is starting to develop and contribute finally in HKRI Taikoo Hui, Shanghai. I will come onto that in a little bit more detail a bit later on, but that is the new news in the revenue picture for 2017 coming from Shanghai. Just turning the page. This is a more detailed look at the Hong Kong office situation. Obviously, good occupancy and good reversions, good rental reversions. I think the theme of decentralization is the important watch word here. We mentioned it in March. It is here to stay. I think it is very exciting, and it plays well for what is going on and the repositioning down in Quarry Bay in Taikoo Place.
We are extremely positive about that, and I think that decentralization trend will gather steam as we go forward. On the retail side, as we mentioned, it is very encouraging. I think the signs, they are early signs, I think, in terms of the numbers, but they are encouraging. And the enhancements that we have made and will continue to make in terms of re-tenanting and some minor capital investment at our malls in Hong Kong have clearly put us on a stronger footing for the recovery. And the consumer, I think, thinks so, too, and you can probably observe in our malls that footfall is in a much better shape than it was certainly two years ago. We are excited about that.
I could say what the figures here show is retail sales growth, and if you look at the Pacific Place number at 1.5% increase for the first half, I can actually tell you that trend has continued into July, and we expect that it will continue for the rest of the year. It is starting to look much more exciting down there in Pacific Place, which is great. This chart is very familiar to everybody who comes to these things because it does not really change a whole lot. We do, I think, a very good job of balancing our lease expiries, both in terms of timing and across sectors, and I think that is well demonstrated here again.
If we look at page 13, that just demonstrates the exciting story of the predominantly office growth in our portfolio that is going on in the, what I can now sort of talk about as two decentralized locations, obviously the main one for us being Quarry Bay. There is also an emerging story in Wong Chuk Hang, I think, which has been accelerated by the opening of the South Island Line, and it is something that we are playing in.
We have got an office building that is opening there next year, and it is another play on decentralization, and that is clearly the theme of the moment in the market. But that pipeline for us, with the extra 2 million square feet down in Quarry Bay, will be extremely exciting and strong and will become a very important contributor to the results in the next three to four years.
Here's a sort of rendering, really, if you like, of what I mean by exciting. The building of those 2 million square fee t into One and Two Taikoo Place is evident there on the diagram. As is, of course, the extensive provision of open space down there, and as you know, with Swire Properties and what we're trying to do in Taikoo Place, it's building a community. It's been a really successful neighborhood for a long, long time, and we want to make it even more successful. We're starting to get some really, really good traction in terms of major names choosing Quarry Bay as a place to go down and decentralize their operations. That's a real game changer for the market and a real game changer, I think, for Swire Properties. Watch this space on that.
That's what it's going to look like by about 2021 when we finish the second building. I mentioned that that's not the only game in town for us, but it's the biggest game. This chart on page 15 shows that the Wong Chuk Hang development that we've got 50% owned with our partners at CMB. We're also extending the shape and size of the retail mall predominantly out at Tung Chung in our five-way consortium over at Citygate. Of course, continue to build out the building in East Kowloon, which we've conditionally sold and which was the subject of an announcement late last year. Just moving on to the Mainland. I touched on the point that there's been really strong growth in retail sales. I think the thing to note on here really is that that strength in growth is across the board at our malls.
We're in the major cities, but we're basically represented north, south, east, and west in China. So, tremendous growth in Chengdu, 47% in terms of retail sales. INDIGO, 69%. Taikoo Hui, Guangzhou, 30%. Over there in Beijing at Sanlitun, Taikoo Li, we can see a 7% growth. Those are really encouraging figures. I think they represent the fact that we've targeted these malls at one of the most exciting trends in the world right now, which is the growth of middle-class consumption in China. I think these figures support the fact that that's a good trend, and it's a trend that will continue to grow. We're really happy with the locations that we've chosen and the product and the type of shopping malls that we've built and the experience that we're now providing. They've really become destination malls in those four cases.
I'll mention the fifth one in a couple of slides' time, which is the HKRI Taikoo Hui Shanghai, which is the newest and final of our five investments in China. Next slide on 17 essentially talks to a point I made earlier, which is really just please note the growth in attributable gross rental income that China is providing for Swire Properties. It's growing at a really good clip, and that's contributing very, very significantly financially now, which is fantastic. Also buried up there in the top right-hand corner is a pipeline chart, a comment there. You know from me from previous sessions that we've got a framework agreement in Shanghai for a second project in Pudong. That's with Lujiazui, and that's in the fully master- planned location that they call Qiantan. It's still in framework agreement form, but we're negotiating hard and subject to various things happening.
We hope that within the next few months, we'll be able to turn that into our sixth investment in China. We'll come back to you on that. There is a pipeline, and beyond that, there's lots of things that we're currently exploring and looking at doing, none of which are solid enough at this point to turn themselves into a framework agreement. There's an appetite there from Swire Properties to do more in China. I would say that it's mostly going to be aimed at the Tier 1 cities where we're currently in, because we've got a great track record there. We've got a good understanding of those cities, and it makes really good sense to play to our strengths on that. It doesn't mean we won't look outside there, but we'll certainly be focused and continue to focus on Tier 1. Talked about Shanghai.
The situation now on the leasing side is that the mall is now, well, it says here 91% leased. I think I can tell you that it's a little bit more than that now. This was for the first half. We've increased, added a couple of notches. It says 40% of the shops are open. Well, I can tell you that 60% of the shops are now open as we speak. That's 142 shops. Looks fantastic. I was up there quite recently. We're really excited. The largest city'super has just opened in the basement there, the largest city'super in China. Fantastically well fitted out. The consumers love it. We're really excited about that. Some of the bigger anchor excitements are still to open. You know about the Starbucks Reserve Roastery, the first one outside the U.S. The Tesla flagship store is going to be fantastic.
We've got this really exciting SpaceCycle concept out of Taiwan, which we've got coming into the mall, and that's still to open. Over the next two months, you're going to see some more pull coming from the major anchor stores that we've got still to get going. As you know, there's 45 F&B outlets in there, which Nanjing West Road has needed for a long, long time. The consumers like those and we're excited about that. The other category, I think, which differentiates this mall and makes it stand out from the normal, kind of very luxury skewed offer that you get up there is the cosmetics category. We've gone out there and targeted to get a fantastic range of cosmetics as a sort of really good niche in the overall lifestyle mix of the brand.
Sounds like I'm doing a sales job, and I think we're very proud about this. It's taken a long time to get open, as you all know. Too long, really, but it is open now, and we're proud of it. It's sitting on or close to three metro lines in Shanghai, which is fantastic. It's near the North-South Expressway that cuts through it. It's near Yan'an's cutting east- west. In terms of connectivity and accessibility, it's in a great place, and it's pitched at lifestyle. It's pitched not too high, and it's in an area where I think that we're really going after sort of that Shanghai middle-class consumption, again, that I mentioned is common to all of our malls. I think some exciting things between now and the end of the year to come in Shanghai, as we start getting the rest of those stores open.
On the office side there, again, it is a really encouraging story. We have got 76% of the two towers leased and committed, with about another 12% under pretty serious negotiation, and that is a great story. We have got a fantastically diverse mix of office tenants up there, which makes me feel we have continued that balancing approach that we have shown you in Hong Kong. The office team up there have done a really great job in what is a very competitive market in Shanghai. I think, again, we mentioned this comment before about Guangzhou and Taikoo Hui. The mixed-use nature of these developments is really strong and really important to both office tenants, consumers for the mall, people who want to stay in hotels. Everybody likes convenience, and if you can do these things and connect them well, then you create a really compelling story.
I think the latest version of that for us will be Taikoo Hui in Shanghai. Last but not least, we have got a great new hotel opening there at the end of the year called The Middle House, which will be the fourth house in The House Collective, and it really will be a knockout addition to its sister hotels in Beijing, in Hong Kong, and in Chengdu. Watch this space for that. I hope you will all be staying there when it does open, but it really will be a fantastic new House hotel when it comes in December. Enough on China, I think, because the other great story that we have been talking about for the last year really is what is going on in Miami. Again, I mentioned Taikoo Place as being a game changer.
I think Brickell City Centre over in the city of Miami is another game changer. It is built on 9 acres. It is huge. It is actually pulling the city south of the river. If the old CBD was deemed at one stage to be north of the Miami River, it is not going to be anymore because this has really drawn and attracted a huge cluster of people, a lot of movements residentially into Brickell from the beach.
The office market there is looking quite strong, with 75% occupied in one tower, completely full in another. Lots of negotiations underway to fill that remaining office space in Miami, so that is positive. On the shopping side, look, we all know that U.S. retail is having a tough time at the moment. It is clearly the case in the U.S. that the market has been oversupplied with retail, and so there is some shakeout going on.
Department stores pretty badly hit nationally. That is all common news. I think we are seeing a little bit of softness in particularly our apparel, our fashion categories in Brickell City Centre. The mall itself, it is already 88% leased out. I would say a large part of the risk in terms of getting those leases fixed is behind us. There is a little bit of caution out there, particularly on the fashion side of retail. Again, I would stress that we still got quite a lot of F&B still to open in the mall as this year goes on, and that will continue to build traffic for us. Apple have just opened a store there in the last six months, that is going really well. There is a fantastic new CMX cinema there.
Again, all these big anchors starting to open and bring traffic into Brickell City Centre are helping the overall there. Just very quickly moving on to the trading side. ALASSIO all sold. Profits recognized in the first half. That is fantastic. We are left with WHITESANDS, which is in South Lantau. It is also a great product, very different product than what we have been selling in the Mid-Levels.
We sold nine units out of 28 so far, so about 1/3 of those have been sold, and we hope to sell a few more between now and the end of the year. Over in the U.S., again, a slight note of caution, which is not new. We have got two towers over there to sell, Reach and Rise. Reach is almost fully sold, and Rise, as you can see, is 51% sold. So we do not have much left to go there.
But the market, the cautionary note I want to point out really is that the market for condominium sales in Miami has slowed down significantly, and that has been mostly caused by the strength of the U.S. dollar relative to the major market for buying flats in Miami, which is down in South and Latin America. We are still selling units. We are probably the only guys selling any stock, and we are not cutting prices to do that so that prices are okay.
We are just selling at a lower rate and a slower rate than we have been selling before. Approximately 2/3 of that condominium development is already sold, which is good news, and we are pretty comfortable with the overall position at the moment. I will just pause there and ask Michelle if she would not mind talking about the financing side for a few minutes, and I will come back and cover the prospects.
Yeah. Thank you, Guy. As Guy had just mentioned, we have the ALASSIO sale in the first half. So this, in fact, helped our net debt. We have a HKD 1.5 billion reduction in debts from HKD 35.3 billion down to HKD 33.8 billion. Other than the stable rental income, the proceeds from trading amounted to HKD 4.5 billion. We continue to spend on CapEx and also investment properties. For the investment property, as Guy mentioned, is the One and Two Taikoo Place. In fact, the lift lobby of the various offices in Pacific Place are also undergoing renovation, and these are also adding to our CapEx. For development expenditure, in fact, we come to the tail end of our expenditure because the Hong Kong property had all been sold. So these are the remaining construction costs that we are paying out.
What is worth noting is the equity number has increased. As we mentioned, it is partly because of the rental increases, which amount to [sell-off] close to 50% of the increase and the reduction in the cap rate. In fact, another 50% of the valuation gain. With that help, the gearing had reduced to 14.1% compared to last year, 15.6%. In fact, this is [inaudible] the lowest since we had our IPO back to early 2012. In terms of the interest cover, again, this is also historical high. We have a cash interest cover of 8.6x. Normally, we look at cash interest cover, which is including the capitalized interest as well. On this page, in fact, you will be noting that the maturity profile of our debt or committed facilities are pretty widespread.
We have in total HKD 46 billion committed facilities, and of which, in fact, HKD 11.5 billion still remain undrawn, or they are [inaudible] committed undrawn. Of the total committed facilities, out of the HKD 46 billion, HKD 17 billion are bonds or private placement. These are [inaudible] the pinkish blocks, and that is a pretty good spread. One thing which is worth noting is, despite the proportion of the fixed- rate notes that we have, the average interest cost for the first half reduced down to 3.5% because some more expensive notes have been repaid over the course of time. We have, in the first half, arranged to replace some loan facilities and also we had issued some medium-term notes, which are of private placement nature and of very good interest rate.
Even subsequent to their mid-year, we also raised another HKD 200 million. There is also more to come. They are of the rate which are very good, as the sub- 3 percentage. The refinancing of their term loan facility of $500 million relates to the Brickell City Centre development in Miami, and they raised their own financing. The financing in the various regions, Hong Kong and China, other than equity investment, is mostly substantially project financed. I just mentioned the fixed to floating. We have quite high proportion of fixed- rate borrowing, which is 68% fixed rate. If we net after renminbi borrowing, which are floating nature, the number would increase to 73%, and this is [inaudible] higher than what we normally have been working on.
With this low- interest- rate environment, it is just a good thing to raise some more notes, I would say, at this point of time. The credit rating had not changed. Still in the investment grade A rating area. The green bar is just showing sort of dissect the various currency and substantially is Hong Kong dollar currency. Capital commitment. At the end of the mid-year, we have HKD 16 billion capital commitment, and Hong Kong is the usual story. It is One Taikoo Place, Two Taikoo Place, and also our attributable share of the Tung Chung and also the Wong Chuk Hang development. Mainland China, substantially is relating to the Shanghai projects. The one project which Guy had mentioned, we are still working on to close the deal, is not yet included here, the Qiantan project.
The remaining numbers are relating to U.S.A., which are relatively small at this point of time. That is all relating to financing. I will just pass back to Guy to update you on the outlook.
Thanks, Michelle. Well, look, prospects are there. I am not going to go through line by line there other than to say that the trends that we have highlighted, for the first half, we largely expect to continue on the investment property side into the second half. Namely, the Hong Kong market is still looking robust. China is still growing nicely. And Miami is picking up well as well, again, on the investment side.
So prospects for the second half continue trending well, I think, from the first half. I would just like to, when you are all thinking about how we are going to do in the second half, just make two footnote comments here. One is on the trading side. Please remember that the first half was skewed very much by this ALASSIO booking, and that was a first- half phenomenon. The second half is not going to look like that.
The second point is, on the hotel side, the business you have seen already is actually having a better year than it did last year. But we are going to start seeing, as we get towards the opening of The Middle House, some pre-opening expenses associated with that opening. As you all know, in the hotel business, those pre-opening expenses are a necessary evil to get the thing up and running. But they do tend to distort the picture on a one-off basis whenever you open a new hotel. With that, I think it is probably much more productive if we take questions. So fire away.
Thank you, Guy and Michelle. We will now open the floor for questions. Just to remind that today's Q&A session is being webcast, so please wait for the microphone and state your name and organization name, and keep no more than two questions at a time. We will take the first question. The gentleman on the left.
Hi. Karl Choi from Merrill Lynch. Two questions. First, Guy, can you talk a little bit about the pre-leasing talks you have regarding One Taikoo Place, the types of tenants that you are speaking to, and what sort of pre-lease percentage you do think you can get to by the time the project is open? Second, for China rental income, I think it was up 24% in renminbi terms. If you exclude the Shanghai project, what the same store increase would have been, if you have that figure?
You can do the second one. On the One Taikoo Place, great question. Very relevant. Obviously, there has only been one deal so far that is out in the public domain. But I can tell you that there is a lot of very serious negotiation taking place at the moment, which, if it all comes to fruition, Karl, will end up looking like we could have had about 1/3 of the building leased out by the end of the year. As you all know, the OP is still over 12 months away, which means that at this point in time, this is an entirely normal situation in Hong Kong office. But there is some real interest, again, driven by that combination of decentralized themes, and just having the latest, greatest specification out there on the market. We are pretty excited by the prospects. Michelle?
With respect to their PRC attributable rental income, in fact, the Shanghai portion is still pretty immaterial because, let us say, the retail just opened in May. For the office, they are progressively moving in. So I would say at most, you just take off 1% from that.
We will take the next question. The gentleman in the middle.
Thank you. Eugene from UBS. So two questions. First question is on dividend. There is a very decent hike of 9% in dividends in the first half. How should we think about the dividend policy going forward? Especially we see, going in the next few years, there is quite a significant expansion of your recurring income given the completion of the investment properties. My second question is on Cityplaza. Just want to hear from management what has been going on there with the— It has actually underperformed the Hong Kong retail market. Thanks.
You go first.
Yes. With respect to the dividend policy, we have explicitly stated that that would be around 50% of our underlying profit, subject to review of our CapEx forecast, and also subject to the consideration of the quality of the income. In this case, in fact, we are expecting that the full year will be taking that into consideration as well. For future, in fact, it's not one year that we've just considered a dividend, and in the past few years, in fact, we have been distributing more than 50% of what we have publicly stated, close to 60%. That would be sort of the guideline you should be taking.
Part two on Cityplaza. Yeah, look, the mall itself, we did a makeover beginning in 2014, as you know. I think we spent HKD 100 million in a capital expenditure program. But part of that makeover was involving lots of tenancy changes. That's still ongoing. One of the most recent ones that's impacted these figures has been the closure of the cinema, and that's about to reopen in new and very exciting form imminently. But that does affect traffic and it does affect sales and income. The other thing, as you know, we closed the food court and reopened it in a different form, and the new F&B tenants are proving very popular with the clientele down there.
I think it's really what you're seeing in the figures for Cityplaza is, it's not the end yet because there's more re-tenanting to do, but it's that process of just changing tenants that we think have had better days with new ideas. The bookstore is another one, which again is picking up. It's not a tourist location, isn't Taik oo Shing, as you all know, and therefore, you've got to reset somewhat expectations on things like bookstores when you're comparing them with somewhere like Causeway Bay. So we're still growing into the new anchors, I'd say, but it looks promising.
We'll take the next question. Gentleman.
Thanks. Justin Kwok with Goldman. Perhaps a question on your M&As or your use of cash in future. Guy, you mentioned in detail on your appetite in China. Can you also share a bit of your thoughts on what you're seeing in Hong Kong, aside from your CapEx commitment already in Island East? Will you be willing to take on more projects? In addition, back in the early nice video that you showed, you showed Singapore as well. We know that there's a small project there. Do you think that's just an opportunistic investment, or actually do you see more opportunities in the city where it seems that things are picking up and some of your peers actually step up the investment in the last few months in the city? Thanks.
Taking Hong Kong first. Yes. The short answer is yes, we would love to do more in Hong Kong. We'd love to do more in the office sector. We'd love to do more in the retail sector. We'd love to do more residential. This is our home base. It's 2/3 of our business. We understand it well, and we love it here. I think there's more potential to come. We are quite selective, obviously, in terms of what parts of the market we want to operate in. We've got a very large capital redevelopment program going on already in Hong Kong, so a lot of our attention and funds are directed towards Taikoo Place at the moment. But we're certainly actively investigating opportunities elsewhere outside Quarry Bay in Hong Kong and keen to do some more stuff.
Outside Hong Kong, that's not in China, yes, we've got a small project underway in Singapore, which was really our initial foray into a new market there. It's a small residential project and it hopefully is the start of more things going on in Singapore for us. But there's nothing else that I can report at the moment beyond that project. As you know, we've also got an office down in Jakarta, and we're keen to explore that market as well. We've been looking at all sorts of things down in Jakarta. It's very likely that the first thing we do down there will be residential. Again, true to Swire Properties brand, it's going to be at the sort of mid- to high-end part of that market.
But we see potential down in Indonesia, and we see potential in Singapore, and we see a lot of things in Singapore that we like because they resemble what we like about Hong Kong. So, yeah, the answer's yes to all of those. But again, it's timing and discipline, and as you know, we're very strict about the sort of criteria that we look at before we make an investment because we're not chasing sort of volume targets. We're trying to build absolutely iconic developments in great locations, and those aren't always easy to find.
We have time to take more questions. So this gentleman at the left.
Thank you. It's David from Macquarie. Just one more question on Taikoo Place. In terms of the potential tenants and the negotiation, can you give us some hints on whether these are brand-new tenants, especially from Mainland China, or are these mostly relocation from other districts? And would any particular districts be your key focus area for relocation from? The second question on Pacific Place Mall. Has the retail sales recovery driven by the new tenant mix, or is it the organic growth from the existing luxury brand? And maybe along that line of thought, for the long-term sustainable future of this mall, any thoughts of changing some of the high-end mix to be more lifestyle mix that would result in some one-off negative reversion in the upcoming years? And I guess the final question also on China retail mall.
Very strong growth, including some which have been in operation for a couple of years. Are these strong retail sales growth from a one-off or any one-off event or any structural changes that result in these type of things? And what kind of more stable growth in the upcoming years that we should be expecting? Thank you.
Well, look, I will try and remember all that. If I miss anything, come back to me. The first one was on Taikoo Place and the One Taikoo Place sort of tenant profile discussions. The answer is, for that part of town, not particularly Mainland China interest at this stage. I think you are all aware that a lot of that interest is centered around the Central Business District. That is point one. Point two is that where is the interest coming from? It is coming from relocations, mostly in Central, hence the decentralization theme. It is for obvious reasons.
Rents are really high in Central, and there is a rental gain to be made by moving to sometimes really great new space, new quality space down in Quarry Bay, especially when the distance to get there is so short, and we make it so easy to live and operate down there.
You are seeing this drift, I think, east. The second question was about Pacific Place, and I think what we are seeing, the answer is a little bit of everything, the turnaround. There is some pickup in luxury. I do not know if you have noticed, but we launched a program called above, which is a loyalty program for our VIP, our big spenders, this year, and that is going really well. I think it is creating stickiness to Pacific Place, which we want. That is going to go from strength to strength, I think. That has clearly had an impact on footfall and spend. The final answer on that question is that we are not seeing the need to sacrifice any more of the third floor, which is the luxury floor. I think we are very comfortable that that will stay luxury.
You mentioned the word lifestyle, and I think, the changes that you are seeing on Levels 1 and 2 are very much lifestyle- oriented, and they are good, but there are more of those to come. Again, on Pacific Place, I think there is still some exciting changes we want to make. I would like to sort of emphasize that that re-tenanting exercise is clearly not over either. As some of the major anchor leases come up, we will be taking a good look at those and trying to do something that is really exciting, which I think you can sort of feel is already happening now down there.
Well, I think the strength is very sustainable, because again, it's real demand. It's real consumption. There's no sort of [fun is in] there. The people are spending money, and yes, they're spending online, but they're also spending offline. Obviously, we're very focused on what's going on on the online space, because in China it's growing extremely rapidly. A lot of the retailers who are online are wanting to get offline and do both. A lot of the offline guys are wanting to do better online. As long as we continue to have a dialogue with those and a partnership with those types of retailers, I think we're in a good place. We also need to continue to create places that people want to come out of their homes and spend time in.
I think you can see in places like Chengdu, the footfall figures are just phenomenal. Sanlitun, where people can just be outside and sort of shop without having to go too vertical or that sort of thing. I think you're starting to see some real interest and traction in the malls. So I think the sales growth situation is pretty sustainable, actually, in China. Certainly in the malls that we're in.
Okay. We will take one last question. Any question from the floor?
Thank you. Eva Lee from UBS. I just got two questions. First question is on Hong Kong office. On your presentation, you mentioned that it's stable rental. If we take away all the lost spaces, what does the rental growth or positive rental reversion looks like? Second question is related to the retail. You talk about that the re-tenanting is going to continue. We understand that some tenants pay higher rent, some of the lifestyle tenants pay slightly lower rents. How should we think about going forward in terms of the retail rental revenue?
I think the answer to the first question is 5%-ish, isn't it? Approximately.
Yeah.
If you take out the closures, comparing the real growth without that is about 5%.
Yeah. It's close to sort of HKD 100 million range.
On the office side. On the retail side, the question is where are rents sort of moving in. I think in Hong Kong, certainly for the rest of the year, given all the sort of re-tenanting going on and the changes, I think we're looking at a reasonably flat situation in terms of rent. In terms of overall rental income from retail in Hong Kong, I don't think we're going to see any major change from just flat.
Thank you. I think that concludes our briefing today. Thank you for joining us.
Thank you.