Hang Lung Group Limited (HLU.F) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, both in our office here and on the live webcast. Welcome to the analyst presentation for the FY '21 interim results announcement that was made earlier today for both Hang Lung Properties, 101.HK, and Hang Lung Group, 10.HK. My name is Joyce Kwock, and I'm the Head of Investor Relations here. The speakers from our senior management today include Mr. Ronnie Chan, our Chair; Mr. Adriel Chan, 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 will open the floor for questions from the analysts here and over the webcast. Weber, the floor is now yours, please.

Okay. Thank you. 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 analysts, from 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 Hang Lung Properties, I would say maybe I'll just focus on Hang Lung Properties here, is that our operating profit, up by 19%. Of course, with Wuhan Heartland 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, it increased by 11%. And therefore, we declared $0.01 more in terms of dividend in the interim for Hang Lung Properties. For Hang Lung Group, we declared $0.02 for the interim for the DPS for Hang Lung 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 owns 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, 2/3 come from Mainland China. I think it's a very strong momentum. I remember we met in January last time. A lot of us discussed and talked about will this momentum continue, and the numbers show that the momentum continues. And actually, it's rising even at a high level. The 67% of Mainland, if you look at the luxury mall and the sub-luxury mall and overall actually, they all increased in terms of revenue. But of course, the sub-luxury 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 of 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 2020 indeed actually performed already better than the '19 because of [ that V-shape ]. However, the sub-luxury mall, actually, the recovery is slower. And if you recall last year, the recovery only happened until the third quarter of last year. So I think these numbers also shows to you that it continue to get at the higher level, and we're 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 second quarter this year. And in second-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 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 to the details in Mainland. The 7 luxury malls -- and right now we have 10 all together 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 '19, 125% growth. So this number is amazingly strong. And also, we believe that at least when you look at month-on-month, it continues to be like that. The luxury content, the leadership position and our CRM program actually, I would say, all combined to drive the strength. And also, I'm sure later you will ask, okay, will -- 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 increase in the last 3 years by over 66%. If you look at the big 6, we call the most important one, we increased by 3x. 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 helped us to deliver the result. Very happy to declare now the Olympia 66 will be classified as a luxury mall this year because a lot of the luxury brands has been open and more will come in the second half. And the good news also is the 3 sub-luxury mall, Palace 66, Riverside 66 as well as our Parc 66, they have a mild increase. The sales also increased. However, the impact will be still lagging because their footfall still were 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 Parc 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, is already our second best mall 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 fifth month of the opening. What is 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 time 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 it's 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 third 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 pledge ], we're very confident that the Heartland 66 will 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 recovered 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 discuss a lot this rental revenue, including the rent relief amortization impact. And therefore, we gave more last year that we are [ accumulating ]. 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 trough. 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 Mongkok 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 needs, but at the same time to protect some of our tenants that we believe they will have a long-term future with us. For, I think, the service apartment and residential, mainly because of the Kornhill, 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 affect 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&A session. [Operator Instructions] Raymond Lee from HSBC first.

First of all, very great to see you in person again. And also, congratulations for the good results. So I have 3 questions. The first question is about the tenant sales performance in Mainland China. So very impressive growth on the year-over-year growth, like it's almost doubled. So definitely, the management has spent a lot of effort to upgrade your luxury malls. And also, like there's also structural change, repatriations in Mainland China. Of course, like what Weber just mentioned is about the base effect. So I would like to gauge more about the tenant sales performance in the 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 -- 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 year 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 numbers showing to us that, first of all, the sales continue to be strong. Second, 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 mall from maybe 3 years ago, we can only say we may have only Forum 66 and Plaza 66 or Center 66 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 border is open. However, in terms of our own efforts from Hang Lung, we increased a lot more store. As I mentioned, the big 6, almost 3x, 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 store, they just opened in the last 1 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, I -- we are very confident that the luxury mall will continue. When the border opens, when the people start to travel, will that change structurally? I still -- we believe that structural change has been happened. 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 that product for me, then 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 questions?

So very quickly on the last 2 questions. The second question is actually about the upcoming tenants. So based on [ order ] contract that you have already signed, can you give us more guidance about [ order ] -- like the percentage of luxury retailers that will come to your shopping malls in the next 6 to 12 months to get rough ideas? And the last question is about like thank you management for share -- rewarding shareholders of more dividends. So can you remind us the future dividend policy?

Maybe I answer your last question first. Our dividend policy never changed. 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 may be 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 6, the big 6 can influence the rest and the rest can make your mall even better. So I think we are not saying that this is like 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 to come into the physical mall to do. I'm sure Chairman, in the past, always said, human being is social animal. And now the middle class is rising in China, and then they love to enjoy their weekend and they look up to their lifestyle and hopefully they can have a group of friends together somewhere. And we hope our mall will be somewhere that, as our strategy [ set ], is 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 us well.

Any more remarks from the Chair maybe? Okay. Thank you. Maybe the next question. Ken Yeung from Citi.

Yes, thanks, Ronnie, Weber, Adriel, H.C. for delivering such rental growth. I haven't seen such 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 interesting ]. First of all, is you [ firstly reflected ] 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 [ key mall ], after [ reflecting ] this revenue growth, what kind of occupancy cost already achieved on this level versus what will be that you can fully [ reflect ] on the occupancy. This is the first question. And secondly is I also would like to see your -- given the couple of the project you have already start to turn to luxury, can we see -- future, you said that [ it's Parc ]. 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 and the sub-luxury to turn everything or basically even adding more on the luxury mall.

So thank you, Ken. First, we never disclosed 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 malls, 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 turned 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 come, you will expect, the L2 -- 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, Ronnie and H.C., you can talk about it as well. Yes, AEI serve us well. If you recall, Ken, 2015, '16, we refurbished our Plaza 66. If you look at the actual now, our revenue doubled in 5 years in Plaza 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 the Christmas. And now some of the brands, I will not be able to disclose exact, they want to expand. They want to even have more space with us. And therefore, we look for another opportunities for 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 that today customer behavior, what we can do to make the mall 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 trade 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 trade mix enhancement, not only the luxury. Luxury is the leading part. But once you have the luxury, what F&B you need to put in? What kind of affordable brands you need to put in? What kind of brand you have to put it in the L2, L3 and L4? Should we mix the F&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 place. The customer's 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 customers from Plaza 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 Parc 66. We just start our AEI in June in Parc. And hopefully, in a very short period of time, we can declare to all of you that Parc 66 will be upgraded from a sub-luxury 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 to 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 every day basis. And therefore, they will feedback to us what they want, what they need and therefore, we can fine-tune. Any supplement?

Yes. 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 -- now 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 they're -- are they still too low? Should they be higher? So in some ways, like which one is it? Do you want it to be high? Or do you want it to be low? And I've always come back to the point that I think they 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 make money, then 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. [indiscernible] Sure.

Perhaps the 2 points I would like to echo on and expand upon, firstly, I think some years ago, our growth driver was very much concentrated on 2 malls in Shanghai, right? Now as Weber mentioned earlier on, within our so-called luxury mall segment, all together, we have 7. And even among these 7, the 5 outside Shanghai, for example, some of 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 annualization of their presence there, they will be a source of growth. And for Kunming, again, a relatively new mall 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 Dalian. Many of those will be opening in the fourth quarter of this year, and they 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 is 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 million, okay? Now we launched that program less than 2 years ago, okay? And over 50%, over 50% of the sales are actually generated by these CRM members, HOUSE 66 members. So it's not simply based on one single number, the so-called occupancy cost. It's the various factors that become the impetus of our future growth from 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? So can you shed some light on your hotel businesses since some big hotel names has been mentioned in your announcement?"

Okay. Thank you for the question. We -- back to the Mainland office segment, as I mentioned, we have pleasantly surprised to look into the demand actually came back strong in the second quarter of this year, especially in Shanghai. And therefore, if you look at the Shanghai, our business with the Plaza 66 two 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 mention, 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 will 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, desk and all the basic renovation. However, when you come in, you can choose your size and also -- but you have to pay a 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 helped us to speed up the leasing pace for the Spring City as well as for our Heartland 66. Think about it, in a 350-meter-tall office, in old 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 second tier city click is to really meet the customer need. In the Wuxi, we launched our HANGOUT, which is WeWork like, but is 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 build, we are delivering 3%, 4% growth, organic growth. But with the new build, we actually are delivering 12% growth in terms of revenue.

I add to 1 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 [Audio Gap] 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 that it will work. If the whole building is -- it goes down, I doubt if you try something like [Audio Gap] 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. I mean Shenyang, we're already at, what, 97%. So I said to them, I say, "Hey, are we going to do a HANGOUT?" They say, "No, no. Don't ask. Because there's no room. It's full, right?" But hey, if somebody move out, we may yet do it because it got a 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 1 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 Kunming client to Wuhan, Wuhan client to Wuxi and Shanghai client to the second 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 1 leasing director in that particular bank, we can actually successfully lease a few space in different cities.

Because in 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.

Congratulations for great numbers. Most of the questions are 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. But 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 there? 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 you have 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...

[indiscernible]

That's good. 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 were thinking from a 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?

First of all, I'll 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 annual also 10%? So I don't want to get into this game first. We want to send a message. We want to show to the analysts and to the investor that actually, we are confident. I think that is the message we want to deliver. Our policy never change. But also, I remember, we have different conversation, Praveen. 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, I'm sorry, I forgot.

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 these 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 will go down into the bottom line, right? It's as simple as that, right? Because if you are a subluxury, you will be competing with all the giant, like Alibaba, WeChat -- I'm sorry, Alipay and all that -- Taobao and all that kind of e-commerce. But if you get yourself into a different positioning, 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 side 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 a 60%, 50% and 80%, 50%, then your average is 68%. But this time, our China is 66%. Therefore, we have to increase our China by 3.5% in order to -- even though Hong Kong maintain, in order to maintain the same for that and also to carry some of the new property that we just bought in. Think about it. If you take out 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 portfolios, 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 show. 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 onetime 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 middle question.

Oh, you answered already.

[indiscernible]

So there's an interesting question from online. So I will get back to you John and [indiscernible] later. But the question online says, "Okay, I'm an investment fund with ESG mandate. So are we 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?"

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, one 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. And 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 have identified. We have our 2030 goals. I think 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. 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 bond, 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, which we work closely together with our sustainable department because they're responsible for those. It's all well articulated within the company. And as I say, we hope to increase that further. So that form 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 pay our first [ MOM ] 7 years ago in April. And the sustainability finance drive is something we will continue to try to hopefully, we can drive down our borrowing costs, which 50 -- 0.5% in a 6-month 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 cost. And hopefully, that we will provide even more dry powder for us in the future.

Just a side story. Many of you know that I Chair the Asia Society globally until few years -- 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 their 30s. Without my knowing it -- each one of those guys are all leaders in their field, right? Without my knowing it, Adriel hired one of those guys who became Asia 21 fellow, as we called it at the Asia Society in sustainability. Canadian or American? Canadian, right? Who was chosen as a young leader for Asia Pacific in sustainability. And without my knowing it, my colleague hired 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.

Okay. In view of time, we can take 2 last batches of questions from the floor. Maybe John first and then followed by [indiscernible]. John, please, from UBS.

Congratulation on the results. I want to ask 1 question regarding on the land market. So I also agree with that luxury market is a very big 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 a good land being supplied on the market for this new shopping mall for the company to acquire? And also given that we have a very distressed liquidity for the -- some of the Chinese developers, will you also consider to acquire some of the project to convert to do the shopping mall?

Yes, I'll start and my colleagues 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 first Mainland residential serviced 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 4 projects, we have about 5 million square feet to sell. And average selling price in these cities going anywhere between CNY 30,000 to CNY 50,000 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 malls. 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 distressed in price, but not distressed 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 will look. But convert? Maybe not. But if there's some good land, let me know. Can you let me know? Thank you. Any one of us.

Thank you. Last question from [indiscernible] of JPMorgan, please.

I just also want to focus on -- you talk about interest in land banking in China. Just want to understand a little bit more how you think about the whole capital allocation. I mean would there actually be a redeployment of the Hong Kong asset, the capital into China? Would possibility of packaging the Hong Kong asset and spinning off -- recycle the 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 the 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-point-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 H.C. 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 thing. 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 Adriel mentioned, we -- altogether in Hang Lung Property, we have 58-million-square-foot land bank anyway. Out of that, we only have completed 46 million, 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 say to people that, "Come. If you have any good idea, we are open."

On the allocation side, obviously, something that we've repeated many times. Our Hong Kong properties, especially the noncore properties, we're always open to selling some of those off. And our stated use of those funds have always been in the past as 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 million square foot of serviced apartment for sale in China. I remember we talked about the range of CNY 30,000 to CNY 50,000 kind of square foot -- square meter -- per square meter. You can quickly do the math. That is CNY 15 billion to CNY 16 billion, right? But if we successfully can sell it, let's say, in the next 10 years, okay, 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 Road, and also [indiscernible], right? I just roughly say, CNY 10 billion there, right? If we start off with the AIC this year and also our serviced apartment sale in Wuhan early next year, we are back to a leasing only, back to -- with some development sales. And then you calculate CNY 15 billion, plus 10 billion, let's say, divide it into 10 years. Then you know the capability of recycling of capital for us. And therefore, when time is right, when opportunity comes, we will be able to do something. But of course, we want to kickstart. 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 Hang Lung resident in Mainland in early next year to define the brand well. Once in Wuhan, if 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 Kunming, because we are working with Grand Hyatt, we now actually will brand as a Grand Hyatt Residence in Kunming. And hopefully, by then, our Shenyang 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 will come back strong. And at the same time, [indiscernible], we just sold one in June, and we will actually book that revenue early first quarter next year. 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 [indiscernible]. That will give us some support as well. So I think altogether, I do not worry about our dry powder. I worry more about whether there's good opportunity comes along. And when there is a good opportunity, management is responsible and be 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 first quarter of 2025 to finish the mall and a few office towers. And the reason is because the city delayed their giving us the land, handing over the land by 9 months, 8 months, whatever -- 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 and Wuhan and then also Central -- Center 66 in Wuxi, in all cases, we took over the #1 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 us doing that in Hangzhou is very good because -- anyway, enough said. If we sell anything in Hong Kong, it would not be because we need the capital for Mainland China. But as Adriel says, we are always looking to sell, in fact, pardon the Cantonese. [Foreign Language] 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 Hang Lung 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 platforms from right here. And I just haven't seen that much office supply in downtown Hong Kong in a long, long, long time. And so am I bothered? 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 do very well. I don't even worry too much about Hong Kong. That's Weber's problem. As long as somebody is senior and the company is worrying about it, it's good enough for me. It went down from 40-some percent to now 34%, right? And I bet you, it's going to go down further. And so there's nothing you and I can do about it. Nothing I can do about it, right? So let it be. And if we sell down because we will sell down, but we are not in a great hurry. But we'll get the pound -- the flesh of pound or the pound of flesh. But Mainland's growth is -- I'm really quite comfortable with the prospect of continued really good growth. Plaza 66 already growing very well. Consider Grand Gateway in Shanghai, right? That property just finished AEI last November. And a lot of the tenants are just now beginning to make money in the last 6 months. And so think about the potential of it. Center 66 is amazing. Most -- I don't know if you guys know this, but Wuxi is ranked, in terms of per capita wealth in China, #1 or #2. From year-to-year, it's either #1 or #2. That amount of money is just tremendous. And all those -- draw a line between Shanghai and us, draw a line between Nanjing and us, all those catchment, and as you all know, Changan, the southern part of Changzhou province, is very, very prosperous. So they all come to Wuxi to shop. And so the number there, it's almost $4 billion -- RMB 4 billion sales and it's growing at a good rate, and it will continue. And then Spring City is going to continue to rise. And then Heartland is just brand new, but you can smell it. You can see that from the initial numbers, the breakeven time that is being so short. And so the future in Heartland is very, very good. And then Parc will take a little bit of time. Parc will take a little bit of time because of AEI and also because it takes time to attract the really top brands. We have already a few, but we're not going to announce it. I'm not going to say too much right now. But we already have a few, okay? And so I think we have turned around. And even Hong Kong, the worst is over. And then with Mainland, the way it is, I'm quite confident. So my last statement is this, sorry, guys. In the 2000s, we were the best-performing real estate stock in the whole of Hong Kong, if you were to take a 10-year period. The last 10 years, we were terrible. We all know that. What about from here on out for the next 3, 5 years? I'm a happy man, shall I say.

Thank you very much for the wrap-up by Ronnie. And that indeed concludes the analyst presentation for FY '21 interim results announcement. Thank you very much for your participation, and we'll see you next time.