Sun Hung Kai Properties Limited (16) Earnings Call Transcript & Summary

Welcome to Sun Hung Kai Properties Fiscal Year 2020 Annual Result Analyst Briefing. Thank you for joining us today. Due to the COVID-19 pandemic, we continue to have an online briefing this time. I would like to take this opportunity to wish you all good health and God bless you. At these sections, I will give you an overview of the annual results and the performance of each business segments, followed by a Q&A sections with our senior management as usual. First of all, I will go through the financial highlight. And please note that all figures are in Hong Kong dollars, unless state otherwise. For the year ended June 30, 2020, the group's underlying profit amounted to $29.4 billion, representing a year-on-year decline of 9.4%. The profit decline mostly occurred in the second half of the financial year, reflecting the severe impact from the outbreak of COVID-19 pandemic beginning in late January 2020. The reported profit dropped by 47.6% year-on-year to around $23.5 billion after taking into account the revaluation loss of investment properties of $5.5 billion due to lower open market rents as compared to a net gain of $12.9 billion in FY '19. Similarly, the underlying earnings per share was down 9.4% to $10.13, and reported earnings per share declined to $8.12. On dividend, the Board of Directors have recommended a final dividend of $3.70 per share. Together with the interim dividend of $1.25 per share, the total dividend for the full year will be $4.95 per share, the same as last year. I'd like to draw your attention to our dividend payout over the past few years. As you may have looked at that, we have increased our dividend since FY '16 for 4 consecutive financial years and maintained the payout ratio between 40% and 50% of the group's underlying earnings, which was in line with our dividend policy. And this table showed out our profit breakdown by segment. The property development profits declined slightly by 2% to around $18.4 billion. In Hong Kong, property development profit was almost the same as last financial year. On the other hand, property development profit on Mainland China dropped 11.6%, mainly due to lower recognized property sales on net GFA book. Our rental business was inevitably affected by the outbreak of COVID-19. The overall net rental income was down by 5.7% to $18.6 billion. The rental concessions granted and decreased turnover rents have more than offset the positive rental reversion from the office portfolio. In Hong Kong, net rental income dropped by 6%, while net rental income in Mainland China declined by 2.2% year-on-year in Hong Kong dollar terms, but up 1.3% in RMB term. The group's hotel business has been hit hardest by the COVID-19 pandemic. Both occupancy and room rate have dropped significantly, resulting in $330 million losses for the year under review. Profit from other business recorded 9% decline, mainly due to the decline in transport, infrastructure and telecommunications businesses. The total operating profit was down by 8.1% to $40.8 billion for the year under review. For financial position, the group balance sheet remains strong. The net gearing ratio and net debts were 14.1% and $81 billion, respectively. Interest coverage was around 11.8x and net book value per share is around $197. As a result of our prudent financial management, we maintained strong financial positions with balanced debt maturity profile, diversified funding sources, a relatively low net gearing ratio and ample undrawn banking facilities. The group continued to maintain A1 and A+ credit ratings, with stable outlooks from Moody's and S&P, respectively. We shall continue to stick to our prudent financial management discipline. Let me talk about our property business with the land bank in Hong Kong first. As at the end of June 2020, the group's total land bank in Hong Kong stood at around 57.5 million square feet of attributable GFA. It includes completed properties of around 33.4 million square feet and close to 24.1 million square feet of properties under development. Shopping malls, together with office, account for the majority of completed properties, at around 66% of the total. For the properties under development, around 74% of the total is for residential use. During the year under review, the group acquired a prime commercial site atop the High Speed Rail West Kowloon Terminus located adjacent to the ICC in West Kowloon. This mega development is well poised to create great synergy with the nearby ICC and is expected to become a major business hub in the Greater Bay Area. We have introduced 2 strategic investors, the Kwok family companies and Ping An Life, by disposal of a 50% interest of the office portion, with the aim of enhancing the value of the project. After the transaction, the group maintained a 50% interest in the office portion and 100% of interest in the retail portions of this mega project. Construction work will commence as soon as the development plan is finalized. Moving on to the property development business in Hong Kong. For the year under review, the group recognized $36.9 billion property sales in Hong Kong, up around 1%. Development profit was more or less the same as last year, with satisfactory development margins. Major contributors include Wings at Sea's Phase 1 and 2 in Tseung Kwan O; Park YOHO in Napoli and Yuen Long; St Martin Phase 1 in Pak Shek Kok; and Mount Regency in -- Phase 2 in Tuen Mun. As at the end of June 2020, around $40 billion of contracted sales were yet to be recognized. We completed a total attributable GFA of 3.5 million square feet, of which 3.1 million square feet were property for sale. For the next 3 financial years, we expect an average annual completions of around 3.3 million square feet of attributable GFA, of which around 2.3 million square feet is properties for sale. Above on this new completion, around 0.4 million square feet of completed properties, which have been sold, will be booked in the coming years. During the year, we achieved contracted sales of 30 -- 300 -- $33.6 billion in Hong Kong, despite the home sales activities, have been adversely affected by the local social incidents and the COVID-19 outbreak. The table here shows the breakdown of the major contributors. Since the group set out the average medium-term annual contract sales target of $40 billion in FY 2018 for Hong Kong, we have achieved, on average, an annual contract sales of $45 billion. As shown in this map, over the next 9 months, the planned upcoming launches for sales spread across different regions in the city, with a wide range of products from mass to luxury residential as well as an industrial project. In addition to new launches, we will continue to sell inventories and other remaining units of previously launched projects. Now let's move on to the performance of our Hong Kong rental business. The group's diversified rental portfolio in Hong Kong continue to provide sizable recurring income, with an overall average occupancy of around 92%. Overall gross rental income reached $19 billion, down around 3.5% year-on-year. For the retail portfolio, the gross rental income decreased 7% year-on-year to $9.9 billion, mainly due to the weakening operating environments of the sector and the rental concessions and rebates over to our tenants during the year. Without the rental concession, the gross rental income of our retail portfolio would have been almost the same as last financial year's. Please note that all the rental concessions that rebates have been recognized in the year under review. The performance of the office portfolio has been resilient. It registered year-on-year growth of 3.5% to nearly $6.7 billion, accounting for 35% of the total. The group's retail portfolio has been affected by the negative impact on a sharp decline in tourist arrivals and mandatory social distancing measures, facing near-term pressures on new leases and renewals. However, our 12-million-square-foot portfolio of well-diversified retail portfolio -- properties still recorded healthy occupancy during the year. The group regional malls, serving mainly local customers, are well positioned to capture the rebound of domestic consumption when the pandemic subsides. While the full recovery of shopping malls, in particular, those in tourist districts, will be subject to the timing on the full-scale resumption of cross-borders travels. We have taken strong preventive measures to raise the hygiene standards at our shopping malls to ensure a safe and comfortable shopping environment. Apart from reducing the burdens for a majority of our retail tenants through with rental concessions for several months, the group has made considerable efforts to retain customer appetite for shoppings. The Point by SHKP, a loyalty program under the SHKP Malls App, serves as a dedicated platform to leverage the group's extensive business units and collaborate with talents and business partners to promote consumption through enriched offerings and creative initiatives. During the year, the group's 2 newly opened shopping mall, V Walk and Harbour North, have become lifestyle shopping destination for their respective neighborhood. Other retail portfolio, let's move on to talk about the performance of our office portfolio. During the year, the group's office portfolio continued to deliver stable performance, with overall average occupancy between 94%. Hong Kong IFC and Hong Kong ICC remain the preferred choices for renowned cooperations and achieved healthy performance in terms of occupancy and rental income. Even though facing fierce competitions in the midst of abundant supply in Kowloon East, the Millennium City office cluster continue to attract tenants who seek high specification of large floor place, attentive management services and close proximity to MTR stations. A joint venture development at 98 How Ming Street in Kowloon East, scheduled for completion in the first half of 2023, will create further synergy with the Millennium City cluster. With direct linkage to MTR Kai Tak Station, a 200,000 square foot-plus mall, believe the group's premium residential development in Kai Tak city center is under construction. This concludes my discussions on the property business in Hong Kong. Now let me turn to our property business in Mainland China. As of the end of June 2020, the group had a total land bank of around 68 million square feet of attributable GFA on the Mainland. Completed property stood at around 14.5 million square feet, of which 50% were shopping centers and 34% were office. For properties under development, over half of the total of 53.6 million square feet will be developed into high-end residence for sale. The acquisition of the mixed-use Jianghehui project in Hangzhou last year has further strengthened the group's presence in Yangtze River Delta. The mega joint venture project will provide high-end offices, retail space, residential apartments and hotel facilities, with a total above-ground GFA of about 9 million square feet. It is scheduled to be completed in phases, starting from 2024. Site formation is underway. Next, let's turn to the property development business on the Mainland. During the year, the group recognized close to $4.4 billion property sales on the Mainland, down around 8.7% year-on-year on less GFA book. Development profit was down 11.6% year-on-year to around $2 billion. Major contribution came from Forest Hill and Park Royale, both in Guangzhou, and Grand Waterfront in Dongguan with satisfactory development margins. As at the end of June 2020, around $9.8 billion contracted sales were yet to be recognized. During the year, encouraging attributable contract sales of RMB 9.5 billion were achieved on the Mainland, exceeding full year sales target. The table here shows the breakdown of individual projects. The table in this slide shows the major new launches on the Mainland in the next 9 months, including brand new phases of Grand Waterfront in Dongguan. Turning to the performance of our rental portfolio in Mainland China. During the year, the group Mainland rental portfolio generated gross rental income of around $4.6 billion, slightly down by 1% year-on-year in Hong Kong dollar term, but up 2.4% in RMB term. The mild growth was registered despite the temporary impact of rent concessions granted to retail tenants during the outbreak of COVID-19. For the retail portfolio, the gross rental income increased 1.1% year-on-year to $2.7 billion. Without the rental concession, the gross rental income of our retail portfolio would have recorded an increase of 7% year-on-year. As discussed, all the rental concession have been recognized in the year under review. Gross rental income of office portfolio slightly dropped 1.9% year-on-year to around $1.7 billion during the year, mainly due to the relocation of major tenants from Shanghai ICC to Shanghai -- to ITC and RMB depreciation. The gross rental income from Mainland China already accounted for 19% of the group's total gross rental income. Similar to containment measures introduced in Hong Kong, we have made extra efforts to ensure the health and safety of our shoppers, tenants and our employees. The performance of group's property investment portfolio on the Mainland vary according to different cities' specific quarantine and social distancing measures since the outbreak of pandemic early this year. As a result of resumption of work and governmental initiatives to boost local spending in various cities, tenant sales at Shanghai IFC Mall and IAPM as well as Park Central and IGC in Guangzhou have recovered considerably. For offices, the performance of the group's premium space at Shanghai IFC and Shanghai ICC stayed resilient amid keen competition in the city, supported by their comprehensive amenities within the integrated complex and convenient transport network. Over the next 4 financial years, the group is expected to complete around 12 million square feet of properties for investment purpose, in terms of attributable GFA, including the remaining phases of ITC in Shanghai and Nanjing IFC. Covering a total area of 7.6 million square feet, ITC in Shanghai marked the latest milestone of the project, with opening of the One ITC mall during the year. The premium offices in the first 2 phase of ITC were fully let. Pre-leasing activity have commenced for the 220-meter grade-A office tower in the remaining phase. The whole project is expected to compete by 2023. Nanjing On IFC, consisting of about 500,000 square feet, has recorded a committed occupancy of around 70%. The soon-to-be completed Nanjing Two IFC will provide about 1.5 million square feet of office space. The leasing work has started. Scheduled for opening in late 2022, the luxury Nanjing IFC Mall of over 1 million square feet has received positive preliminary marketing response. That's all for the group's Mainland rental business. Now I'll go through the hotel business performance in the next slide. During the year under review, Hong Kong's hospitality sector faced unprecedented challenges due to local social incidents, along with paralyzed cross-border travels amidst the COVID-19 pandemic. Accordingly, the occupancy and RevPAR of the group's hotel portfolio in Hong Kong saw adjusted decline. To mitigate such impacts, we have taken proactive measures such as improvement of operational efficiency and the introductions of dining promotions and staycation programs to attract local customers. The performance of Ritz-Carlton Shanghai, Pudong was also negatively affected by the pandemic, but there have been signs of recovery as domestic business and leisure travel on the Mainland gradually resumed, following the easing of most anti-pandemic measures. That covers our business update. Let me talk about the market prospects. In Hong Kong, the operating environment is likely to remain tough and challenging. For the primary residential market, activities will be subject to the state of the pandemic and economic recovery, while low interest rate environment and solid end-user demand for small- to medium-sized units will support the market. For retail sector, the timing of full-scale reopening of cross-border travel is crucial to the recovery. Near-term pressures on new leases and renewals, especially street shop and malls in tourist location, will remain. Yes. The local-focused regional mall will be less affected, driven by relatively resilient domestic consumption. On grade-A office markets, deteriorated economic situation are expected to weight on new leasing demand and drag on rents in the near term. However, premium office, with trusted brand and quality management, should be able to draw demand from the growing industries. In key cities on the Mainland, domestic economic activity is on track to recovery. Solid domestic demand and positive stimulus measures should help support a reasonable growth in its economy. For primary residential market, sales will remain robust, with relatively stable home price, supported by solid end-user demand and the easing of credit conditions. For the retail sector, a quick rebound in consumer spending, as the impact of pandemic fades. Luxury shopping malls in prime location will continue to do well, in particular, when the outbound travel restriction remain. On grade-A office, softened leasing demand from both international and domestic companies is expected to linger over the near-term amid a subdued world economy. Amid keen competitions, premium office buildings at prime location, with quality management services should remain more competitive. Turning to our business prospects. We believe the state of pandemic will highly affect the group's business in the short to medium term. However, we continue to launch projects for sales when market is ready, and we continue to collaborate with our tenants and business partners to promote consumption, and we shall continue to promote staycation and take measures to control costs. Of course, the timing on the full-scale reopening of cross-border travel is crucial to our business in Hong Kong. In the longer term, we remain highly confident that Hong Kong will once again be able to turn adversity into opportunity. We shall continue to seek land acquisition in both Hong Kong and major cities Mainland -- on the Mainland, with strict financial discipline when opportunities arise. The growth in rental income will be supported by strong pipeline of properties for rent and investments in the next full financial year. We shall complete around 12 million square feet of properties for investment purposes on the Mainland. Finally, I would like to wrap up my presentation with a message extract from the Chairman's statements as follows, "Likewise, guided by an indomitable spirit of our late founder, Mr. Kwok Tak-Seng, the group has gone -- also gone through ups and downs since its public listing about 50 years ago, during which the management team has accumulate a valuable experience in dealing with various kinds of uncertainties, difficulties and challenges. Together with a strong financial position, a time-tested business strategy as well as solid and proactive corporate culture, the group is confident of being able to once again excel by overcoming the challenges in times ahead and emerge as a better and more caring company." This concludes my presentation. Thank you very much for your attention.

[Operator Instructions] Now I would like to introduce to you the panel for today's Q&A session. From your left, Mr. Brian Sum, who you've just met. Mr. Christopher Kwok, Executive Director; Mr. Allen Fung, Executive Director; Mr. Victor Lui, Deputy Managing Director; the center is Mr. Raymond Kwok, Chairman and Managing Director; Mr. Mike Wong, Deputy Managing Director; Mr. Adam Kwok, Managing -- Executive Director; Mr. Eric Tung, Executive Director; and Mr. Frederick Li, Group Chief Accountant. Before we start, I would like to invite our Chairman and Managing Director. Mr. Raymond Kwok, to share with us some key messages. Mr. Kwok, please.

Thank you. Good afternoon, everyone. Thanks for joining our virtual conference. As you all know, Hong Kong has been facing unprecedented challenges brought by local social incidents and the COVID-19 pandemic. Our group inevitably was affected during the year, yet history shows that pandemics would eventually end. Hong Kong has a solid foundation, and we remain very confident on its long-term prospects based on the unique One Country, Two Systems strengths. In time, our economy will regain its strength and prosper again. This is backed by its favorable international competitiveness, its role as an international financial and business center, and continued support from the central government. We believe Hong Kong and our group will benefit from the Mainland's good long-term prospects, especially with the vast opportunities in the Greater Bay Area. Over the years, the group has weathered many ups and downs together with Hong Kong, with nearly 50 years of experience and a strong financial position. Our group is confident. In working with people Hong Kong, we will overcome the challenges of COVID-19 and emerge as a better and more caring company. During the year, the group's different businesses were affected by the social incidents and the pandemic to varying degrees. The hotel business recorded the most serious impact. Property sales were also affected. While the rental portfolio faced challenges in general, shopping malls were hit the most, with intense downward pressure on new leases and renewals. In the face of the pandemic, the group stands firm with the community and does its best to protect employment. Not only has the group not laid off anyone, we have hired additional staff to carry out extra hygiene and cleansing measures. We offered rent concessions to affected malls tenants to ease their operating pressure. We launched a variety of marketing campaigns with online and off-line promotions through our loyalty program, The Point by SHKP, to increase footfall and boost sales. Our property management implemented many extra anti-pandemic measures to ensure a safe and clean environment for residents, for our customers, tenants and employees. As infections via contact has been a great health concern, our malls introduced many contactless facilities to reassure shoppers. The group also offered timely support, including the anti-pandemic products to the underprivileged in the society. In the short to medium term, the group's businesses and the market at large will critically hinge on how the pandemic evolves, especially how quickly the economy recovers. This, in turn, depends to a large extent on the relaxation of social distancing measures. Most importantly, with full resumption of dine-in services at our restaurants as well as cross-border travel with the Mainland and nearby destinations, these are crucial for social and economic revival of Hong Kong. Despite the pandemic, the group will continue to invest and acquire new land for development. We are committed to building quality properties, including residential, office and malls and providing excellent customer services. The group will continue to do our best to contribute to Hong Kong's society and economy. And we are confident that as soon as the operating environment returns to normal, our businesses will be back on track in no time. Thank you.

Thank you, Mr. Kwok. [Operator Instructions]

It's Ken from Citi. I have a question on Hong Kong sales, and the second question is on Hong Kong land banking. So given last financial year, your sales was being affected by COVID-19 and social unrest. So it's slightly below your last year's sales target. So the easier part of the question is how do you see your sales target for FY '21? And especially, we see that the market seems to be recovering slightly recently, but the overall sentiment has remained soft over the luxury segment. Given that your upcoming pipeline, including the Victoria Harbour Central Peak or either Sha Tin, the Pak Shek project seems to be quite on the high end side. What will be your sales strategy on those luxury products? So this is the first question. And secondly, I would like to ask regarding -- given that the overall market seems to be soft, how do you see -- will you be more aggressive in terms of acquiring land? Especially upcoming, we do see some of the -- maybe there is some -- and other matter of commercial site coming in Central promenade. So I would like to see management interest on the land banking in Hong Kong.

Maybe Victor can answer that?

To answer you the first question. In the past 12 months, our sales was a bit affected by the social incidents and the pandemic. But recently, our projects like Wetland Seasons Park and Regency Bay, are still well received. Now the social incidents resolved, and from past experience, we all know that pandemic will not last long. We shall always have the windows and opportunity to launch our new projects. But given the uncertainty, in the near term, our sales target in this financial year would be $35 billion, but we should be able to catch up when the pandemic is more under control. In fact, we have ample marketing resources and a high level of projects under redevelopment. We are confident to achieve an average annual sales of $40 billion in Hong Kong. As for the luxury market, we all know that sentiment have been quite subdued for a while. But recently, we have seen quite a lot of luxury buyers are coming back amid an improving political stability. And we all know that luxury projects, in traditional location, we're in the market. If you still remember, earlier this year, they are -- there were 25 bidders bidding for the Tai Hing site. And the site was transacted ultimately at the high end of market expectation. As for our luxury projects, like Central Peak in Stubbs Road and Victoria Harbour and also our high-class residential project in Sha Tin Mid-levels, they are in good progress. And especially for Central Peak, we have got the OP, and we expect to market the project in the next 2 months. And for sure, the project will be the highlight of the property market at the year-end. Thank you.

Yes. To add to what Victor said, there was an announcement today that Hang Lung paid $2.5 billion for Shouson Hill site.

Yes. Also at the high end of the market expectation.

Yes. So therefore, I think the developers are -- the strong developers are still bullish in the long-term regarding the market. On your question about increasing land bank, at the right price for the right location, we would be keen to -- still keen to add on to our land bank in Hong Kong. And if any prime sites are available for tenders, for sure, we would be bidding. But of course, we have to be more forward-looking and look beyond this -- the slow market at the moment. Yes. Definitely be bidding. Yes. Maybe, Mike, can you add more?

Could I supplement? On the score of conversion of farmland in NT, which we consider as a major source of land supply, I think we have to go back to our history. For the past couple of years, stay back to -- since '17, 2017, we have converted 9 million square feet of agriculture land into 8 million square feet GFA. A single company has converted, since the year 2017, the amount of 9 million square feet land area into 8 million GFA floor area. In terms of our land holding, of our farmland holding, 2 sets of those are actually under active, sort of processing into government areas, mainly the planning and lands department for their processing. And I can say that within the next year, we should be able -- we anticipate at least 2 or 3 cases can be concluded. And probably 2 and -- 2 or 3 cases there the year thereafter, should be -- we see a high chance of conclusion. So that we do see a positive reaction from government departments. They have built up a special team with the [ lands ] department to coordinate government departments to produce more supply. But in this call, I must add, we have been very active pursuing conversion. But we take this time to probably to urge government to advance more quickly the infrastructure as promulgated by the CE in their -- in her policy address. Build more infrastructure, build such as roads and railway, and [ fluid ] treatments plants and so on and so forth to create the capacity, not just for projects, we have to balance as they -- we have to -- I mean, with shortage of land supply, particularly housing, both for public and private housing. And we look forward to seeing government positive response in this regard. And I may take this time to say our possible potential case for land sharing scheme. When more information available, we will probably disclose more.

Okay. Thank you, Mike.

Okay.

Our next question is from Karl Choi of Bank of America.

I have 2 questions, and then a 1 quick housekeeping question. First is on retail. Management mentioned, you face very severe pressure. Can you give a little bit more color or quantify what sort of rent -- negative rental reversions presumably that you will see in the second half of the fiscal year, where occupancy costs stood? And second is, following up on the land banking question, there's that big commercials coming up with tender. From a funding perspective, is there any chance that Sun Hung Kai would actually use a right issue to fund some of these large purchases? Or would they stick to -- would you stick to debt financing only? And the last question is just on the HKD 40 billion offer on book revenue in Hong Kong. Can you give us a sense how much would be booked in fiscal '21, based on your schedule?

Christopher, are you ready to answer the first question?

Sure. Yes, I think for -- I think 2020 has been a very difficult year for the retail market in Hong Kong. And I think Brian has covered this in detail in the analyst presentation. I think a few things I would add. I think, in terms of rental reversions, last year, the second half of 2019, it was still satisfactory for us. But definitely, in the first half of 2020, they were negatively impacted because of the outbreak of COVID-19. I think right now, there's new term pressure on new leases and renewal for the retail sector. So our priority right now is actually -- is to first maintain occupancy. We think, at this point, I think -- at this point, it's not too meaningful to talk about occupancy costs because of the severe nature of COVID-19, but we have been trying to -- in addition to giving out rental concessions, right, I think we've been trying to be more flexible, right, in terms of going for shorter-term leases or restructuring of leases, to stabilize occupancy before we will go into more long-term -- discussions on long-term renewals. I think at the same -- and at the same time, as our Chairman has mentioned, we have also been very proactive in terms of making the shopping environment safe and welcoming for shoppers, right? We put a lot of effort into raising hygiene at all our malls to safeguard health of our customers and tenants and employees, on hand. And then on the other hand, in terms of the -- on the promotion side, we've also collaborated with tenant and partner -- and business partners in joint promotions, right? And in particular, we make use of our -- The Point by SHKP, the loyalty program, to attract our loyalty shoppers to visit our shopping malls. And then we also use that as a platform to introduce some of the -- some more creative promotional initiatives. For example, we have self-service stations for gift redemptions. We introduced a cardless parking with digital payment. And we also, recently, just in the last week, we introduced an online pre-order function for SMB tenants. I think -- going forward, I think we expect the retail market, and we have been seeing this gradually improve in terms of traffic and sales, with the gradual relaxation of the social distancing measures. But I think full recovery is still contingent on the timing of the full-scale reopening of the cross-border travels, in particular with Mainland China.

I think, in short, this is not a good time to renew. Therefore, we'll just arrange short-term extension. I guess, the good news is, clearly, in Shanghai, the shopping mall sales are very healthy. In fact, in July this year, sales in most of our malls in -- on the Mainland exceed that of last year July. So as we can look at this -- as with the Shanghai situation for our Shanghai IFC, the sales are very strong compared with July last year. So what we are anticipating is when the virus recedes and when the border opens up, there'll be -- the mainlanders would come back to Hong Kong to do their shopping, especially on the -- for luxury goods. So judging from what's happening in Shanghai, we are optimistic that when the COVID-19 recedes, the Mainland travelers would come to Hong Kong because I would -- I'm quite sure that the first place for mainlanders to be able to leave, they mainly will be coming to Hong Kong, yes, and Hong Kong will benefit. In fact, actually, in Shanghai, they -- the hotel occupancy in July was very healthy, comparable to July last year. And on your question about the -- of our commercial site in Central, I think we are -- the project is quite close to our Hong Kong IFC, and we will not be using our rights issue, because I think we would be doing it with possibly with a partner. And also, I think the project is only 1-point-something square feet, 1-point-million square feet, 1-point. That's what I think.

Yes. 1.8 million.

1.8 million. So we can do it with a strong partner. Then there's absolutely no need for right issues, so you don't need to worry. And by the way, also the -- raising money through debt is not expensive at all here, especially for -- on when our debt equity ratio is only 14% at the moment. Yes. For your third question, regarding how -- above profit, but -- right. Can -- Frederick, can you cover that? Yes.

Let me add that, well, the $40 billion unrecognized sales in Hong Kong, some 80% -- around 80%, around $30 billion, $31 billion will be forked in the next upcoming year.

Our next question is from Justin Kwok of Goldman Sachs.

I'll have 3 questions. The first one on office, second one on China, and then the third one on some recent capital market transactions. So for the first one, on the Hong Kong office side. We saw weakness in the CBD area for the obvious reason. What about the non-CBD area that you have like, Kowloon East? What's the demand? What's the rental trend? What are you seeing post-COVID in a way? The second question, on China side, can you update a bit more on the -- on new Shanghai project development and also the leasing progress, and also the potential contribution, as a whole, to the company when fully ramped up? And I guess, perhaps it will be also helpful if you give more guidance on the level of rental reversions for the rest of the China portfolio and the outlook? The last one is we've noticed some family trust level, the increase in the stock, in the past couple of months. How should investor read into this? And how should they expect further on that front?

Yes. I'll answer the first one and the third question, Eric will answer the second question. On the office front, we are still seeing a slight increase in reversion -- in reversionally -- in reversal rental. Even in Kowloon East -- because I think for our -- for Kowloon East, at the moment now, we don't have any new building to be completed, right, until the Kwun Tong TMB one, right? So actually, the office renewal situation is very healthy. I think most of our tenants are the multinational and the larger tenants. And they would want the security of renting from a landlord that will not subdivide and sell their floors. Yes. So on the office front, we are very comfortable. In fact, we're seeing rising rental over time for our office portfolio in Hong Kong. Can I ask Eric to answer the second question?