The Hongkong and Shanghai Hotels, Limited (45) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to The Hongkong and Shanghai Hotels 2020 Annual Results Presentation Audio Webcast. Thank you for joining us. The results announcement was posted onto the stock exchange website this afternoon. We will begin with the presentation led by our senior management team, followed by the Q&A session. The slides will be displayed alongside the live audio for your convenience. You are invited to submit your questions at any time during the presentation by using the Q&A box on your screen. These will be read out during the Q&A session. And with that, allow us to introduce our speakers for today. We have Mr. Clement Kwok, our Chief Executive Officer; Mr. Peter Borer, Chief Operating Officer; Mr. Christopher Ip, Chief Financial Officer; and Mr. Martyn Sawyer, our Group Director of Properties. We would now like to invite our CEO, Mr. Clement Kwok, to begin the presentation.

Thank you, Judy. It's Clement here, and I believe I probably met most of you. Of course, it's rather unfortunate that we're not able to meet physically. But of course, being in the business we're in, we're hoping that restrictions will soon be lifted and that we can see each other face-to-face again. In terms of the overall summary of the key messages we have for you today, well, you don't need me to tell you what a severe impact COVID has been on our business, and of course, that has affected our businesses all around the world, particularly in Hong Kong, where we've suffered not only from COVID but also from the protest which occurred in 2019. In fact, during the year, at various times, we've had 6 of the 10 hotel properties closed for actually quite extended periods as well as the Thai Country Club and Quail Lodge being closed. Although we've opened the majority of these properties, the occupancy rates are still very low in most cases. As of today, the Peninsula New York remains closed, and the Peninsula Paris only reopened this month to really a very low level of business. On the other hand, our residential and office leasing portfolio has held up reasonably well, given the environment that we've been in. And that's helped to cushion some of the negative impact. Of course, as you would expect, we have implemented a lot of cost savings measures, but we're a caring employer. We've sought to balance the cost-saving efforts with the welfare of our staff, and of course, maintaining the quality of the Peninsula product and our service standards. So taking all of those things together and including both our hotels and our property divisions, we are reporting an EBITDA loss which we consider to be relatively modest given the environment of HKD 61 million. However, below the EBITDA line, we have had to take into account depreciation, interest, and we have a revaluation deficit on our investment properties as well as some impairment provisions, which we'll go into more detail later, but net of all of those things, our reported accounting loss is about HKD 2 billion. But I would urge people to actually focus on that EBITDA number, that minus HKD 61 million. And of course, we regard that to be probably not too bad a result given the environment and that's the number we'll be working to turn around with this year. Of course, liquidity management has been very important. We have sought to minimize our operating cash burn and arrange further financing facilities. All of our project expenditure is already financed. And in addition to that, we have financing cover for well over 2 years of operating cash burn. Given our results, it's not a surprise that the Board is not declaring a final dividend. Now besides the impact on our operations, of course, COVID has disrupted our new hotel developments. And there, we have faced challenges with the labor force being affected by COVID, supply chains being affected by COVID, and in the case of Myanmar, the political crisis also affecting there. In general, we're expecting delays to the project budgets, and therefore, potential increase in the budget numbers. Although it is too early to be specific about numbers, but I'm sort of giving that as a general alert. The Peak Tram project has also been affected. We encountered some unforeseen ground conditions, which took some time to resolve in collaboration with government. And we are still facing some challenges in terms of, for instance, importing specialist engineers from overseas given the travel restrictions right now. Nevertheless, we have made significant progress in the various projects during the year. We'll talk a little bit more about the actual progress that's been made. Of course, we are very concerned about the Myanmar situation. I think many of you will be aware that we have come to a settlement with our Thai partners. That was a rather acrimonious dispute with them. And we've agreed to part ways with us keeping the hotel and the surrounding land and then keeping the Thai Country Club, and there's some accounting adjustments in respect of that. That's the overall picture. I'll pass over to Chris for the financials.

Thank you, Clement. Our results this year are materially impacted by COVID and the related travel and dining restrictions. With 6 hotels closed for the majority of the year, total revenue fell by more than a half compared to last year to HKD 2.7 billion. We implemented substantial cost-saving initiatives. And including some government assistant packages that were provided to certain operations, we reduced operating costs by almost 40%. Of this reduction, regrettably, much was due to furloughing and the laying off of staff. As a result of these efforts, EBITDA turned positive for the second half of the year, bringing our full EBITDA loss to HKD 61 million, an improvement from a loss of HKD 95 million reported during the interim period. We recorded an unrealized loss and revaluation of investment properties to the tune of around HKD 732 million, largely due to Repulse Bay, Peninsula Arcades in Hong Kong, Beijing and New York as well as a Peak Tower on much softer market fundamentals. During the period, the group also recorded impairment provisions and our investment in the Peninsula Istanbul of HKD 236 million due to unforeseen delays due to COVID and an uncertain market recovery. There was also an impairment for the Peninsula Manila of HKD 93 million due to disruptions caused by COVID and its impact relative to the short remaining lease term, which expires in 2030. Including these, the group had a loss attributable to shareholders of HKD 1.9 billion. And excluding nonoperating items, the underlying loss was HKD 864 million. Breaking down revenues, we see that the COVID impact on hotels was substantial at almost HKD 3 billion less than last year. This represents a 62% reduction. EBITDA-wise, this translated to a combined loss of HKD 479 million. The impact on commercial properties and comparison was smaller with a reduction of 18% in revenues and by a similar amount in EBITDA. Martyn will elaborate more on this and clubs and services later. On cash flow, net cash used by operations for the period amounted to HKD 437 million, taking into account tax payments deferred from 2019 and changes in working capital. During the year, almost HKD 400 million was invested in existing assets, which includes a Peak Tram upgrade and the Peninsula Hong Kong Arcade. You'll see that the largest CapEx was spent on the London project at almost HKD 1.4 billion, bringing total cash before financing to HKD 2.6 billion. The net cash outflow, after taking into account all CapEx, interest and dividends paid, amounted to HKD 3.5 billion. During the period, net borrowings increased by approximately HKD 3.8 billion to HKD 10.7 billion with an average duration of 2.1 years. Net external debt to total assets was 20%. Our net debt to shareholders' equity was 29%. Our weighted average gross interest rate was under 2%, and our cash interest coverage was negative. Looking forward, our gearing levels may arise due to our capital commitments, but we expect this to come down after the London Hotel is completed. We continue to monitor our overall debt and cash flow positions and believe that the best defense against any unforeseen volatility in business levels is to maintain prudent financial headroom. I'll now hand over to Peter Borer to talk about the operations.

Thank you, Chris. Good afternoon, ladies and gentlemen. 2020 was an extremely difficult year for our industry. As always, our utmost priority is the safety of our guests and staff. And despite a disruptive operating environment, we always strive to keep the brand at a high level. As a testament to our efforts, for the second year in a row, we achieved the coveted Forbes Five-Star rating for all 10 of the Peninsula hotels in operation. We are also grateful to receive numerous accolades from prestigious travel publications and organizations recognizing our services in a year like this. Our strategy was to stay engaged with our guests. Recognizing that most of our regular guests cannot travel, we adopted a marketing strategy to our local domestic markets, and we invited Peninsula guests to experience their home destination with special promotions for staycations, local cuisine, art, fashion and culture, wellness and the local community. The Peninsula Hong Kong's operating results were severely impacted by the government's stringent travel and dining restrictions. To drive business, we developed a number of special staycation offers for the local market and marketing promotions. Food and Beverage business was heavily impacted by social distancing measures. We also temporarily closed the Spa, The Verandah, Gaddi's and Felix at various times throughout the year. As a result, the hotel posted a 73% decline in RevPAR during the year. Supported by commercial and office leasing revenues, overall revenue declined by less than 45%. The Peninsula Office Tower was 95% occupied in 2020, and the immediate outlook is stable. The Peninsula Arcade was 78% occupied throughout the year. We are taking the opportunity to renovate the Peninsula Arcade at a cost of around HKD 140 million, which includes a repositioning of the basement arcade to create a more open and attractive lifestyle retail and food and beverage area. We have already signed a number of new retail and food and beverage tenants as well as a luxury male grooming salon. In addition, a new Peninsula Boutique incorporating a café will be unveiled in 2021, designed by Conran and Partners. The Peninsula Shanghai, despite being negatively impacted in the earlier months of 2020, the hotel remained the market leader in the city. Business improved in the second half of the year, as life gradually returned to normal in China's key cities. The hotel remains the venue of choice for society events and luxury brands. The hotel posted a RevPAR decline of 48% with revenue down 38%. The Arcade was 95% occupied. We ceased management of No 1 Waitanyuan in June upon reaching the end of the management agreement. The Peninsula Beijing was also impacted by international travel restrictions and citywide lockdowns, particularly in the first half of 2020. Business improved in the second half. For the year, the hotel posted a RevPAR decline of 58% with overall revenue down by 41%. In the Peninsula Arcade, business remained healthy with anchor tenants performing very well. We secured a new luxury lifestyle tenant that will lease the entire lower level 2 of the hotel. We expect that this lifestyle living space, which will open in the summer of 2021, will further position the Peninsula Arcade as the best luxury shopping destination in Beijing and will also significantly enhance our retail occupancy in 2021. The Peninsula Tokyo had a strong start to the year but experienced a sharp drop as the pandemic hit just before the traditional peak Sakura season, which was worsened by the cancellation of the Tokyo Olympics. We closed the hotel in late March and reopened in June amidst strict global travel restrictions, which resulted in a shift in our business mix from 90% into national guests to an almost entirely domestic market. We continue to find opportunities to improve our overall food and beverage offerings to guests by utilizing newly created spaces in the hotel. In addition to Sushi Wakon, which opened in 2019, we have opened a new teppanyaki fine dining restaurant, HIBIYA mon cher ton ton, on the 1st of October 2020. The business was supported to a degree by Japan's government subsidies for furloughed staff as well as the go-to travel campaign. Overall, the hotel posted a revenue decline of 66%. The Peninsula Bangkok was closed in late March, following the guidance of the Thai government. The hotel reopened in November. Revenue was down 79% for the full year. We are currently focusing on building up our MICE business from the local domestic market as well as encouraging wellness and health packages, which we believe will be increasingly important in the future as we move toward a post-COVID environment. We're actively driving staycations and spa packages. In August 2020, we reached an agreement with our Thai partners to assume full ownership of the Peninsula Bangkok and its surrounding land. We remain deeply committed to the Peninsula Bangkok as a long-term investment. The Peninsula Manila achieved higher average room rates following the completion of its guestroom renovation in early 2020. The hotel was temporarily closed from March and reopened in November under the government's enhanced community quarantine. The land lease originally expiring in 2026 has been extended by 4 years. The Peninsula New York started 2020 in a strong position as a RevPAR market leader in January. The hotel has been closed since March 2020. Efforts have been made to reduce the losses by hiring out venues to generate some revenue. Chicago is traditionally heavily reliant on the conventions business. The effects of COVID were devastating for the city. The Peninsula Chicago had a strong start to the year with the best results in its history before being hit by COVID and was temporarily closed from March to July. The hotel posted a revenue decline of 75%. In early 2021, we saw a mild recovery at the Peninsula Chicago, and we are hoping for a continued recovery in the coming months. For the majority of the year, the Peninsula Beverly Hills was impacted by shelter-in-place restrictions. All food and beverage outlets were temporarily closed from March to May 2020 and again from November onwards. The spa also had to be closed several times throughout the year according to government restrictions. Revenue declined by 61%. The Peninsula Paris closed in March 2020 due to French government directives. We reopened La Terrasse Kléber and L’Oiseau Blanc in the second half and reopened the hotel for rooms business just this month. I now hand over to Martyn to discuss our commercial properties and clubs and services division.

Thank you, Peter, and good afternoon, everyone. Starting with Repulse Bay. The Repulse Bay Complex reported weaker revenue by about 11% compared to the previous year. Residential occupancy declined 6% and rents softened, although the results were satisfactory given the circumstances. Food and beverage and banqueting revenue also decreased due to the social distancing measures. The shopping arcade was 95% occupied for the year. At the Peak Tower, we experienced a 59% drop in revenue due to the substantial decline in visitor arrivals to Hong Kong and the rental concessions given to affected tenants. We've implemented a number of sales and marketing strategies to continue to drive business and encourage local residents to visit the Peak. At St John's Building, it was 97% occupied in 2020, and the revenue, whilst down by about 3%, remained relatively stable. Moving to The Landmark in Vietnam, revenues fell some 6% as a result of lower residential occupancy due to the overall poor business environment but maintained its profitability levels. 21 avenue Kléber in Paris revenue was modestly impacted by about 5% due to rental concessions given to one retail tenant. Moving to our clubs and services division. Overall revenue of the Peak Tram decreased by 73% due to significant reduction in tourist arrivals in Hong Kong. The upgrade project has been negatively impacted by unforeseen ground conditions and the pandemic in terms of sourcing materials, and production delays in Asia and Europe, which has affected the manufacturing of our new trams and equipment. This will affect the project in terms of its scheduled completion date, and we have postponed the second phase of service suspension until the end of June 2021. The entire upgrade project is now planned to be completed by December 2021. The original budget was estimated to be HKD 684 million, but despite various value engineering measures, the delays have resulted in an increase in the project budget by HKD 50 million to HK 734 million. Moving to Thailand. The Thai Country Club was temporarily closed due to the government shutdown of all sports and entertainment facilities from March to May 2020. In August 2020, we reached an agreement with our Thai partners, and HSH ceased to have any responsibility for the ownership and operations of the Thai Country Club from October 2020. I will now hand back to Peter to discuss Peninsula Merchandising and Quail Lodge.

Thank you, Martyn. Revenue at Peninsula Merchandising was lower by 29% from a softer retail sales and a temporary closure of the Hong Kong International Airport boutique. Peninsula Merchandising Mooncakes business affected but remained robust. We opened 2 Peninsula boutiques and cafés in Tokyo during the year, and we're planning to expand in the Chinese Mainland by opening new boutiques in key cities and drive online sales, widened distribution channels and increase brand awareness to customers in the Greater China region. Quail Lodge & Golf Club revenue decreased by 59% due to shelter-in-place restrictions in California. The hotel and club facilities temporarily closed in March 2020, although the golf course reopened in May 2020 and the hotel in mid-June 2020. We unfortunately had to cancel both the Quail Motorcycle Gathering and The Quail, A Motorsports Gathering events due to the pandemic. I will now hand back to Clement to talk about our development projects and our company outlook.

Thanks, Peter. Peninsula London, of course, all of you know that this is by far our most important project, and by far, the largest investment that we're making. And I would have to say that there have been a number of difficult challenges associated with this project, firstly, of course, the pandemic. We had to temporarily close the construction site, and that was to ensure the safety of our employees, contractors and suppliers. And even after the site reopened in May, we have had to deal with workforce impact because of social distancing requirements. I would have to say that we've also encountered project management challenges on the London project as well. However, we have made progress. We have concluded the basement excavation. We formed the swimming pools and the entry courtyard. The building as of today is virtually almost entirely closed up already with windows and superstructure in place. And the fit-out works continue to progress within the hotel guestrooms, the residences, the apartments and the restaurant and areas such as the hotel lobby, boardrooms and spas, their fit-out will be commencing shortly. So there has been good construction progress, albeit the overall project continues to be very challenging. Of course, we're working hard to mitigate the impact of the delays and managing the budget as well. The revised opening date is now expected to be in 2022. Going on to Istanbul. Again, they have been affected because of COVID. We had to close the construction site in April. And since the reopening of the site, they have also had to deal with additional social distancing requirements and an impact on the workforce. However, I would say that the overall project in Istanbul is progressing as well as can be. I think the project management situation there is better than London, and we have made good progress on construction. 2 of the 4 buildings have almost been entirely handed over for fit-out now and progress is actually quite good on the remaining 2 buildings so that their fit-out will follow in a few months' time. Completion of the project is also targeted for 2022. Yangon, Well, first of all, before the military coup replaced, we had actually been making quite good progress, although they were also affected by the pandemic in their case. The supply chain was quite badly affected because they rely a lot on overseas procurement for their project. Nevertheless, the shell and core works proceeded, and the fit-out of the benchmark room was underway. All of this came to a halt on the 1st of February after the military took control, and we have noted the recent violence and chaos with great concern. Now our primary consideration at the moment is the safety of our employees and workers. The site was closed for almost 6 weeks in order to safeguard both the property and the workforce. And we continue to evaluate both the immediate actions required and the long-term decisions that need to be made in respect of this project. But obviously, it's been very negative to have the situation that we have in Yangon. Just a word on corporate responsibility and sustainability. I think most of you are aware that we had been following what we had called the Vision 2020 for a number of years. And I'm pleased that by the time we came to the end of 2020, about 91% of our goals have been met. And of course, that's quite a good result because we set out to be quite aspirational in our vision, and we're able to achieve pretty much a very high proportion of the objectives. So what we did during the year was we did a lot of work to get views from different stakeholders and to analyze what we should focus on for our next vision, which we are now calling Vision 2030. And that addresses key issues such as diminishing natural resources such as energy, food and water, climate change and growing sociopolitical instabilities and inequalities. So our Vision 2030 is broken into 3 main stakeholder pillars, which are enhancing our guest experience, empowering our people and enriching our communities. And you can see in the 3 pillars, which have been drawn in rather peninsular style, there are 10 key commitments, which are broken down within the 3 pillars. So this vision seeks to harness our achievements and lessons from the past decade to build a strong foundation, to enable our businesses to remain resilient and to continue in our commitment to enhance guest experience, empower our people and enrich our communities. The final slide is on outlook, and of course, you will know as well as me that the outlook is very uncertain in the world at the moment. We'll try and make some comments, but I think you're all as aware of the uncertainties as we are. We are seeing maybe a glim of hope with growing vaccinations and China seeing some recovery. But of course, we continue to expect that our business will be affected for the foreseeable future due to the COVID situation, unless there's a sudden and maybe unexpected turnaround. We continue to focus on keeping our staff and our guests safe, to manage our finances and to control our costs. Despite our cost control efforts, the group may sustain an operating loss in 2021 due to the ongoing effects of COVID. Besides the pandemic, various other geopolitical uncertainties may continue to affect our business, including the U.S.-China trade war, the impact of Brexit, the social unrest in Thailand and the Myanmar situation. We prioritized maintaining a strong financial position for the group in order to fund our large capital commitments. As mentioned, we do have financing in place for all of our project commitments as well as a buffer of over 2 years of cash burn. The Peak Tram business will be negatively impacted because we'll be suspending the service in the second half. Although as compared to the lost number of passengers, we have fewer passengers than we had expected during this closure period. So maybe it's not such a bad time to close it and significantly improve the experience that we believe once we have delivered the expanded tram cars. And with Hong Kong stabilizing, that will significantly enhance both the experience of our passengers, and hopefully, our financial return from the project. Our commitment to the very long-term development of the group, and in particular, the Peninsula brand remains unchanged. We continue to invest for the future. And we're focused on the successful delivery of our new hotel projects as well as the Peak Tram project. We have a highly motivated and dedicated team of management and staff who are committed to our long-term vision. I'm proud that despite the significant challenges that we are facing, we remain in good spirits. We have good morale. We have a team that is committed and loyal. And hopefully, we can continue to deliver the brand proposition that we have always promised, okay? So that was our presentation. And Judy, have -- has anyone asked questions of us?

Yes. We have a couple of questions come through. The first one was asked by a few analysts. The question is, can management please comment on our views and strategies for the Yangon project?

The Yangon is extremely negative and difficult situation. There's no other way to describe it. This military takeover was completely unexpected. And of course, we're very concerned about how this will eventually be resolved and what impact that's going to have on foreign investment and foreign tourism. For the immediate future, we are focused on securing the safety of the site and the safety of our people and we have been very focused on that. Martyn, who's in charge of that project has been on it on a daily basis. For the time being, the site is largely closed, and we're -- our strategy is also to minimize the cash outflow. Of course, there are still contractors and consultants, which are on site, and we're having to try and minimize the cost of that. In the longer term, we're going to evaluate all options, which may include mothballing for a suitable period. I think the relevant information here to give is that the project is about 57% paid for. So obviously, we're going to be comparing the amount paid to the amount remaining to be paid and what we think the future prospects of this project will be. So things are very uncertain, but obviously, we will be taking a very responsible attitude towards assessing the investment and what the best option would be to take.

The next question relates to recovery trend. So the question is, how was the RevPAR recovery trend in January to March for this month, in particular for our Greater China properties?

I would say, there hasn't been much of a strong recovery trend. In the case of Hong Kong, the best period we saw was back in September, October when these -- when the social distancing rules were relaxed, and we actually saw a good level of business. In December, you remember that restaurants had to be closed after 6:00. And even during the day, tables were limited to 2 people, with the swimming pool and the SPA closed, of course, that affects your business greatly. And in the case of Hong Kong, there's effectively no overseas entry into Hong Kong with the quarantine rules. So we are entirely dependent on local business, and we believe that we have pushed that as much as possible. So I would not say that there has been much of an overall trend of recovery, although I think our team does a great job in pushing the local staycation packages, which, as you know, have become very well known in Hong Kong. And by the way, if you haven't tried one, please go and do it and go and come for a staycation at the Peninsula. China again, was probably stronger around October, November. There was a recovery in domestic travel, and that was not only within cities but between cities. People were coming in from different parts of China. But even for them, there are various periods when the clampdown are either more or less. Beijing encounters periods of stronger clampdown from time to time. So I would say that China is generally a bit better than Hong Kong because the market is bigger. You have all of China. But even then, we have not yet seen any really tangible signs of great recovery. So that's the situation that we're seeing right now.

Thank you, Clement. Next question from Bank of America. Any chance the company can achieve operating profit purely relying on domestic and local demand before international travel can be largely resumed?

The way I would answer that is, if one could see the sort of business we saw in October and November last year, then actually the Greater China properties were EBITDA positive during that time. But then we're still carrying the other properties around the world. So if we could have both, if we could have that China-Hong Kong situation, coupled with recovery, particularly in the U.S., then I think we'd be getting closer to it. But unless international travel is allowed, you've really got to have every market -- local market going gangbusters to even get to that breakeven sort of situation.

If I may add to that, we were also pinning some hopes to the Olympic Games, which we know were canceled last year. And now, as you know, no foreign arrivals will be allowed into Japan to attend the game. So that makes it more difficult for that property. And as far as Europe is concerned, as you might know, right now, there's a great spike again of new cases in France, which will, of course, impact the recovery of that hotel. So it's incredibly hard to make predictions, and we're really taking it from day-to-day or week-by-week almost.

I mean, obviously, we understand that government's priority is to maintain the safety of its people. And that the restrictions are designed to protect particularly Hong Kong, as a destination. But one would understand that with restrictions like that in place, it makes business like ours extremely difficult.

Thank you. The next question relates to our investment properties business. Can management please give some guidance in terms of the rental concessions granted to the tenants in our leasing portfolio?

I would say that in relation to the residential leasing portfolio, we have not been granting rental concessions. I think it's a question of supply and demand. And when leases come up for renewals, it's a question of what choices people have in the market. Obviously, we're not seeing any new demand coming from overseas because people cannot arrive in Hong Kong. There's no influx of expatriates. And so the competition is between different local options that people have. Despite that, we have seen quite a lot of interest in the Repulse Bay apartments because of the facilities that we offer. And I guess there's a bit of -- Martyn, a bit of rearrangement of people, maybe some people downsizing a little bit from houses into Repulse Bay, there's a bit of coming and going. That's how I would describe the resi side.

Yes, certainly. I think what we've seen is downsizes and upsizes as well, I think. And we've seen a significant growth in show around on the property. In the last 3 months, it's been -- compared to previous years, it's grown well. So people want to live there. They want it somewhere with that sort of level of facilities. So we're getting a lot of people thinking of, in some cases, upgrading; in some cases, downsizing from houses, yes.

On the retail side, basically, it depends on how tourist-dependent you are. So at the furthest end of the scale, the Pettah, which is entirely tourist-dependent, we have had to give probably the most rental concessions. Then if you look at the arcades in China, where they have a significant amount of domestic consumers than relatively lesser, I think, in terms of concessions. And the Hong Kong Arcade is somewhere in between -- it depends a little bit on which retailer one is talking about as well. I mean, again, it's the same story, isn't it, that we do need to see an opening up of Hong Kong to help our businesses recover.

A follow-up on our hotel properties. Have we seen our U.S. properties demand pick up after the vaccine rollout and the number of cases coming down over there? And when do we think we can reopen the New York Hotel?

Peter?

In answer to the first part of the question, since California has seen a decline in cases, we've definitely seen a slow recovery of the occupancy at the Peninsula Beverly Hills. And what's encouraging for the summer months, we've had for the first time in a long time, inquiries from abroad, particularly from our very loyal Middle East and clean hotel inquiring whether they could stay with us, and of course, we would welcome them with open arms. So that's some positive news. In terms of our golf resort, which is heavily dependent on The Quail, A Motorsports Gathering, we have had incredible demand this year. We're trending better than any year before, in terms both of ticket sales as well as people who want to showcase their motorcars during the event. So again, some positive trend there. And in Chicago, we are -- again, since the restrictions have been eased, both in food and beverage, and in the rooms demand, we're seeing an increase. But I wouldn't call it going back to healthy levels, but at least we're trending in the right direction. As far as the reopening of Peninsula New York is concerned, we're still looking at the marketplace. We're following the STAR report. Governor Cuomo has lifted the restrictions of all U.S. citizens entering into New York, no longer having to quarantine and that gives us some hope. We're looking at the comp set. Some of them are opening in around June and some of them are still waiting for the fall. And we will announce the reopening whenever we make that decision.

Thank you, Peter. The next question is about Peninsula London. Can the management team, please give a little bit more color on the budget of the project?

Okay. As with all projects, we had provided for contingency against the project, which includes possible delay contingencies and unforeseen conditions and unforeseen events. Obviously, we're trying to fight in order to bring the project in within their contingency. But I would have to say, it's looking very unlikely with COVID and all of the other impacts that we have seen. We have encountered delays not only from COVID, but from some issues with trade contractors and some of the consultant delays as well. So we are making an assessment of the -- as mentioned earlier, there will have to be a revised time table. And we're making an assessment of the final cost of that. We're fighting on what those numbers will be, and we're going to try and minimize the amount of cost overrun. But I think we'd have to say that there's a high possibility of a cost overrun, but we are not yet in a position to estimate or put for the precise number of that.

One more question. Can we please elaborate on the management decision to not be part of the Hong Kong hotel quarantine program?

It's simply that because we enjoy a lot of local staycations business, we enjoy a lot of local F&B business and we have a lot of people coming through our Arcades. We thought it was better not to expose the hotel to quarantine business.

And there was no option given by the government, either you're a quarantine hotel or you continue to run a normal business.

Thank you. I think we have time for one last question. It's more about our long-term strategy post COVID. What does the management think in terms of balance sheet management expansion plan or any asset-light initiatives?

Yes. I mean, obviously, the last 2 years have completely changed our overall situation. Our priority is to deliver the projects that we have committed to and then to bring down the gearing as much as possible after that. The London residential sales will help in that greatly. But even after we do that, then the gearing is going to be at the high end of where we would want to be. So I do not envisage that we'll go out and suddenly commit to lots of other capital expenditure. We don't think that is going to be possible. It's a question of working with our existing assets and the assets under development to bring as much value as possible. And to the extent that we can find other capital-light ways in which to grow our business, we actually have a task force working on that at the moment. But one would appreciate that any capital-light expansion would probably be based on leveraging the Peninsula brand. And we're quite careful about what we expose the Peninsula brand too, in terms of what product or service we want to be associated with Peninsula. So we have to balance that consideration as well. But I think this balance sheet and capital management will continue for some time, given the extent of damage that the last 2 years have caused on us.

Thank you. I think with that, we will wrap up our presentation today. If there are any further questions, please write to us at the IR mailbox. And our slides will be made available for download on our website later today. And with this, it concludes our 2020 Annual Results Analyst Presentation. Thanks, everyone, for joining us.