Wharf Real Estate Investment Company Limited (1997) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to the webinar of Wharf REIC Interim Results Briefing. I'm Angela Ng, Investor Relations Manager. Our management team in the webinar include: Mr. Stephen Ng, Chairman and Managing Director; and Mr. Horace Lee, Director. Before the presentation and Q&A section, we will start with the opening remarks by the Chairman.

Thank you, Angela. My opening remarks should be short. Generally speaking, demand is still weak for the business we're in, primarily covering retail properties in Hong Kong, office properties and hotels. In respect of all 3 sectors, current demand is still weak. In terms of local demand, I would say, it's probably back up to 80% to 90% of what it was previously before the pandemic. But what we lack is, of course, the visitor demand, tourist demand. And we will not be able to get back to what we used to have until the borders reopen. And even when the borders first reopen, I suspect it will take a little while before we can recover to the substantial amount of the previous demand. That obviously will impact not only the hotel business but, to a certain extent, the retail business as well. So I guess the outlook much depends on border reopening. I can come back to address any questions you may have, but let me hand back to Angela first to take you through the PowerPoint. Thank you.

Thank you, Mr. Ng. Now I believe that you will see our PowerPoint presentation on the screen. The theme of the presentation is rental income remains depressed. With strict border controls still in force due to the COVID-19 pandemic, the hospitality and retail sectors in Hong Kong are still on their knee. Bleeding continues for hotel and the discontinuation of the government's employment support theme will present a new challenge for the second half. Retail sales have bottomed, but that was still 28% down from the 2019 level. The entire sector is still facing tremendous pressure until borders reopen. The prevailing vacancies and weaker market rents continue to depress the rental income of landlords. Although local consumption rebuilders with an 8% sales rebound in the first half, the absence of tourist spending is still a big challenge for the retail sector and the market competition is getting more intense. With extensive marketing programs to sharpen our competitive edge, retail revenue drop of 3 malls in Hong Kong narrowed notably, but the malls margin is eroded. Overall speaking, the improvement in turnover rent has partly compensated the negative rental reversion. As a result, the group's Hong Kong retail revenue drop narrowed to 11%. On the other hand, the office sector's still facing a soft demand under economic uncertainty and a new work culture. With new completions inflating supply, the existing oversupply in the market may take some time to be digested. Although the vacancies and soft rents continue to depress our rental income, the decrease in Hong Kong IP revenue narrowed to 11%. Since the pandemic, the group has been making strong marketing efforts to retain our market position. And to strengthen the critical mass of our malls in a fast-changing environment, we have been very selective in re-tenanting in order to maintain our high-quality tenant base. As a result of our proactive strategies on different fronts, both Harbour City and Times Square achieved outperforming sales growth. Regarding the latest leasing trends, some sophisticated tenants used the opportunity to enhance store locations and sizes, while the landlords also took the opportunity to enhance tenant mix. Turning to the financial highlights. The group reported a revenue growth of 10%, with the drop in operating profit and underlying net profit narrowed to 11% and 15%, respectively. Underlying net profit of IP decreased by 14%, mainly due to weaker rental income and investment in marketing. The loss of hotel has narrowed. IP revaluation increased by 96%, contributing to a turnaround of net product to nearly HKD 3 billion. Dividend policy maintains at 65% of underlying net profits from IP & Hotels in Hong Kong, which represents a DPS of HKD 0.67 for the first half of 2020. In the following slides, we will walk through the performance of our IP & Hotel portfolio as well as financial management and outlook. First, Harbour City, which is our major source of income. As for IP & Hotel sectors are still suffering heavy pressure, total revenue at Harbour City was HKD 4 billion. Retail tenant demand continues on the back of its iconic positioning and improved sales productivity. Retail occupancy increased to 91%. Office leasing activity in Tsim Sha Tsui was relatively muted. Harbour City office occupancy was 82%. As the most diverse shopping mall in Hong Kong, Hang Seng re-tenanting and stringent selection criteria are in place to maintain a desirable, high-quality tenant base. We believe the comprehensive mix helps to mitigate the market risk to our tenants. The rental income distribution by different types of tenants is shown in the charts. Harbour City spares no efforts in its successful spending reward scheme to encourage repeat purchases and dining out, which has driven our market year-on-year sales growth with notable growth in local footfall. A variety of forward-looking international and local brands opened or expanded in the first half of the year, and we also fortified the F&B offerings which show resilient demand from the locals. For the hotels in Harbour City, Marco Polo Hongkong Hotel and Gateway Hotel are proactively joining the local market, while Prince Hotel is ready to reopen with a fresh look when borders relax. However, post-pandemic manpower will be another challenge for the hotel industry. Next, we will talk about Times Square. Curation of enticing fresh experience and marketing program started to bear fruits. Tenant sales growth at Times Square turned positive since the last quarter of 2020 and outperformed the market for the third consecutive quarter. The current market adjustment makes space for young brands and new impetus to revive the shopping and dining experience. Retail occupancy was 92%. In fashion activities our [ Hokasan's ] units mildly recover. Office occupancy, it has increased slightly to 88%. Total revenue was HKD 1.1 billion. Then switching to Plaza Hollywood, which enjoys a relatively stable regular food demand. With the full commission of Tuen Ma Line in June this year, Diamond Hill Station has become a new transportation hub for East Kowloon as an interchange station for the Kwun Tong Line and Tuen Ma Line, which amplifies the geographical advantage of the mall. Occupancy was 96%. The next one is Central Portfolio comprising Wheelock House, Crawford House and The Murray hotel. The group's Premium Portfolio in Central continues to show resilience on the back of its diversified tenant base. Occupancy at Wheelock House and Crawford House remained relatively high. As for The Murray hotel, its successful local strategy led to a top-of-the-market revenue per available room comparing to its competitive set. Other events and banquets are still badly hit by the social distancing measures. The Murray still managed to achieve operating breakeven under improved occupancy and tight cost control. Moving on to our Singapore Portfolio, comprising Wheelock Place, Scotts Square on the BC Orchard Road shopping districts. The malls recorded sequential sales recovery before the Phase 2 safe management measures in Singapore in mid-May to June. Moving on to the financial management. The group maintained a prudent approach on financial management. Net debt reduced to HKD 50.4 billion, and gearing ratio improved to 23.8%. Average interest cost further lowered to 1.4%. The group continues to maintain the Moody's A2 rating. Looking ahead, cross-border activities are unlikely to revive in near term and no early recovery can be assumed for the IP and hospitality sectors. As always, the group will adhere to the proactive business strategies to stay ahead in the changing business environment. In the last part of the presentation, I will walk through our efforts in sustainability. The group is a member of Hang Seng Corporate Sustainability Index and Hang Seng ESG 50 Index. We have published 2020 sustainability report following GRI standards and referencing SASB standards. In regard to youth development, our business units are partnering with 16 WeCan schools to provide support. The group is also devoted to making a positive impact against climate change and operates in harmony with nature by promoting green and low carbon and also reduce waste. Our efforts can be seen from the data shown in this slide.

So that concludes my presentation. Now we will come to the Q&A section. [Operator Instructions] Now we will reserve the first question from Ken Yeung, Citi.

Can you hear me?

Yes, we can. Please go ahead.

I have 3 questions. Maybe I ask one by one, if it's possible. And in an earlier session in our conference, I got to know that you have stopped granting rent concessions in the first half -- cash rent concession in the first half this year. And basically, this looks weird because all these are expiring at different period of time. Does this mean that you have already restructured all the leases basically to a lower base, hence, no rental concession allowed, but all the rent are basically -- we already see the reversion and back to a lower level? Can I check if I understand that is right?

Okay. That's the first question. Would you like to ask the other 2 questions as well? And then we'll...

Okay. Sure, sure. And secondly, this is also linked to the first question. You mentioned about turnover rent already receiving. How can we understand on the occupancy cost for now? And I think tenants are happy. How are they in terms of the stress level in that kind of occupancy cost? This is the second question. And I also tried to message on the third question is, can you give us some color on the retail sales? I know that you didn't disclose since 2020. How does that roughly comparing to pre-COVID results, or, let's say, 2019 level? Can we get a range?

Okay. Thank you very much. And I'll try to answer them one by one. First of all, the rent relief. Rent relief is not tied directly to either lease expiry or prevailing rental from -- on the current lease, on prevailing lease. What we have done so far and we have stopped offering rent relief is that we would identify those tenants who are not trading as well. And we would give them a defined deferral of rental, right? That has stopped, and it's not directly related in any way to rent restructure or lease restructure. I should also add that we've done very few lease restructures for a long time. In the early days of this pandemic, there were some special situations, but our attention has mainly been focused on helping the tenant to trade rather than reducing their rent. What is more important, as far as the tenant is concerned, is to sell more, and that is what we have been doing in investing in marketing and promotion. That, hopefully, would answer your first question. Your second question about occupancy cost. Obviously, it's very strong tenant to tenant. And generally, occupancy cost is still higher today than what it was 2 years ago. And I'm also answering your third question in the same breath. Total sales in our malls in the first half of this year compared to the first half of 2019 is still low -- it is still lower, rather, than 2019. And that's true, not only for our malls, it's true for Hong Kong as a whole. And as you know, we have a higher concentration of tourist spending in our malls than Hong Kong market on average. Our decline compared to 2 years ago is deeper than the Hong Kong general market as a whole. However, we've seen good recovery in the past few months. In a way, we can't look at retail -- or rather, I should say it this way. In a retail situation, there are retailers and there are also landlords. At this moment in time, I think retailers are faring generally not too badly. On the one hand, sales have improved from what they were 6 months ago, 12 months ago. On the other hand, the rents generally have fallen compared to 6 months ago and 12 months ago. I'm not saying, they are in a good position, but at least they are in a -- probably in a better position than the landlords because the landlords, on the one hand, are seeing a reduction in rental income. And at the same time, the landlords -- many landlords are investing more in marketing. So it's not obviously ideal for the combination of retailers and landlords, but within that ecosystem, I think many landlords and we in particular have been doing a great deal to help the retailers to trade. I hope that answers your question.

Yes. But can I have a quick follow-up? You just mentioned that landlords have suffered because of a decrease in rent but increase in promotion, which I see your promotion actually day-to-day, 1 program and then we start another. Should we be generally expecting that the marketing is already -- expense is already at the peak? I mean we haven't seen your stock on your coupon program. So is it -- does it mean that you've already seen the worse of the market expense at the peak? Or vice versa, on the other hand, you have already cut the rent? Have you seen the worst in terms of the rental revenue after all?

It's a very good question. It's a little bit like QE, qualitative easing -- quantitative, rather. If you do QE, question is how do you exit from it? At some point in time, you have to exit from QE. In a way, our investment in additional marketing is a QE, and we need to exit from it as well. And the challenge is how to finesse your way out of QE so that the tenants will not be affected and you will not be affected. But it will be obviously a gradual process. I think if trade continues to do well, I think the answer to your question is probably yes.

Thank you, Ken. So we will receive the next question from Andy So, Haitong.

Management, can you hear me?

Yes, we can. Thank you. Please go ahead.

There are some numbers I want to ask about. On the gross margin, for the first half, what I see is that the gross margin has been coming down quite substantially. That number was [ a market 2% ] in the first half of last year, but this first half, we are talking about 70% of the gross margin for the first half. We don't know why we are seeing such a big drop in terms of gross margin for the first half of this year, despite the fact that our occupancy rate seems to be relatively high. Should we expect that going forward our gross margin will remain relatively low, like 70%, 75% in coming 1 to 2 years? And the other numbers I would like to ask about is the selling and marketing expenses. What I can see is that your sales and marketing expenses is up by close to 300% in the first half. Is it -- have we opened some new like properties or more in Mainland China, and that's why the marketing expense has been increased so substantial in the first half of this year? Should we expect that our marketing expense will remain high like kind of 1 to 2 years?

Okay. Let me address maybe the first part of it, and that is the general margin on IP. Your second question about selling costs and so on, part of it may be related to DP, and there may be this distortion. Let's take a look at that, but if I can deal with IP first. Margin would be negatively affected, mainly because of 2 metrics: declining revenue; and increasing costs. And I think we hit both of them in the past 18 months. It's clear that revenue has been declining, partly because of vacancy and partly because of a lower market rent. We, like everybody else, have to face the market. If market rent has fallen as and when we renew a lease or sign a new lease, we can only charge what the market can bear. So revenue has been under pressure. On the other hand, in particular, the additional marketing costs and the additional costs in even operating the properties in terms of additional sanitization and temperature scanning and all that, it all ends up in costs. So I would not be surprised at all that the margin would continue to be weak until we start to see revenue climbing again and until our operating costs can return to a more normal level. I have no crystal ball. I don't know whether that would happen in the second half of this year or the second half of next year, but I think it is probably prudent to assume it will be with us for at least a little bit longer. On the second point, selling expenses, is any selling expenses in there as far as you know? What are you referring to? Are you referring to -- which page are you referring to, if we can be more specific?

What I can see is that the selling and marketing expenses in the first half of this year is around HKD 516 million. And that seems to be relatively higher compared to HKD 124 million in the first half of last year. So I just want to know why we have such a big jump in the selling expenses HKD 516 million versus HKD 124 million?

I think actually you are referring to the gross margin. And as Mr. Ng has explained, the impact of the marketing and promotions in Hong Kong has a substantial impact on the margin. And the margin is a combination of our IP in Hong Kong and also DP in China. And last year, we had recognitions -- not last year, for this period, first 6 months, we have a substantial recognition in China DP. And there is a change or an impact on the expanding expenses and also in the margin of the whole Group.

But it's not just IP, our core business. There's a bit of DP in it.

Thank you. We will have the next question from Avery Chan, JPMorgan.

Can you hear me?

Yes, please go ahead.

Just 3 quick questions from my end. I would like to know what is the retail and overall rental reversion for the portfolio? That's my first question. My second question is, how much concession is actually booked into the first half of '21? And how much will be booked in second half of '21? Then my last question would be, I understand you mentioned a little bit about the retail sales. Just wondering if it's possible to have a range or a guidance for first half and also the recovery that you're seeing in July?

Recovery in July. Okay. Rental reversion in the retail area, it's negative reversion, but at least we're beginning to see spot rent stabilizing. Now it's -- for retail, because it's not homogeneous, there is not 1 spot rent for the whole mall, it's not possible. It depends very much on location, size and everything else, but we are beginning to see stabilization. And the good news is, I think as Angela pointed out, sophisticated tenants are using this opportunity to reorganize their portfolio of stores. They would exit poorer-performing stores, and they would trade into new stores, which hopefully would give them more upside. In that process, we see demand from major international tenants who are exiting from our competitors' locations and coming to us. And at the same time, we as a landlord, we are also enhancing our trade mix. The less well-performing tenants who cannot afford the rent are giving way to stronger tenants who are expected to perform better. So it is a process that is occurring. Concessions in the first half is already lower than -- much lower than any time last year. As I said, we stopped offering concessions since January. Last concessions we offered were in January, whereas, the first half of last year, we had a lot more offered to tenants. But of course, according to accounting standards, what we do is we amortize the concessions. And over half of -- well over half the concessions have been amortized, and we probably have a few hundred million dollars more, most of it to take place in the second half of this year. And retail sales, it's difficult to -- or even misleading to use these retail sales in this current market. It doesn't -- it actually doesn't tell you a lot if I say -- if I tell you, for instance, that retails at Harbour City in the month of February is 2x what it was in February last year because last year's base was extremely distorted. That's part of the reason why we're not focusing on retail sales per se, because we don't see it as a very useful figure, particularly when you use global figures, the whole mall. It's not a mall-to-mall situation' it's a tenant-specific situation. Some tenants are doing much better than others, and it's a process of elimination, unfortunately.

Thank you. We will have the next question from Karl Choi, Bank of America.

Can you hear me?

Yes, we can.

So I joined late, so apologies if you have already addressed that. But I just want to find out, first of all, in terms of the relief amortization. Could you look at the first half this year versus the second half of last year? Would you say the amortization of the rent relief, was as high half-on-half or similar lower? Because I'm just trying to look at the fact that the rent was still down half-on-half on the retail side and how much of it was due to rent relief and how much was it just underlying? And also by the same token, when you said it looks like maybe at least the spot rent seems to be stabilizing and the rent relief should also -- from an amortization impact standpoint, should also be lower, should we start to see retail rental income stabilize at the current level, assuming no major sort of outbreak in the sort of further wave of pandemic?

Sure. Rent relief -- amortization of rent relief, I should say that, it's declining half-on-half. First half of this year compared to the second half of last year, yes, it's already lower. And we expect the second half of this year compared to the first half of this year to be again lower. That's assuming no new concession is offered, which we don't see as necessary at this point in time. For your second question was?

Retail rental income will it stabilize?

Okay. I hope so, too. But although new spot rent, let me call it spot rent, it seems to be stabilizing, obviously, there is a delay factor where still some of our tenants are still on old leases, and so there is a lagging effect. In a down market, there is a lagging effect; in an upmarket, there is a similar lagging effect. And so it will take another 1 or 2 periods before the previous leases will have expired and all of them will have been replaced or most of them will have been replaced by new "market leases."

Got it. If I may follow up. You mentioned earlier last year, you offer a rent deferral. Is there any sort of issue with that? Could you talk a bit about the rent collection? It's an issue now? Was there any more provision for bad debt as a result?

No, nothing worth discussing. Very manageable. Very negligible.

Thank you, Karl. The next question from Mark Leung, UBS.

Management, can you hear me?

Yes, we can. Please go ahead.

Yes, sure. I got 2 questions. I think the first one is about the Central land site. I know the site is a little bit -- competition is pretty intense. So in any case, if we fail to beat the land, will we consider to increase the final dividend and to revert to the shareholders? I think that's the first questions. And the second question is, definitely, our marketing campaign is really a big success as well. Just want to double check for the details. Will the tenants also share part of the marketing costs as well?

Okay. Central site, yes, it's intense competition. I should point out that we did not cut the dividend in the run-up to submission of the bid. Our dividend policy was declared on day 1 of our listing. To the extent that we never cut dividend, I don't know how we can restore. There is nothing to restore. I hope we can -- and I should say that, too. If we win, at this point in time, I don't see a cut in dividend. It's a policy that was decided by the Board at that time, and it's been reaffirmed by the Board in several years since this listing. So our dividend policy continues to be 65% of underlying net profit from Hong Kong properties and hotels. That's exactly how much we're paying for the first half of this year. Marketing, how much of our marketing cost is recovered, let me use that term from tenants. It's part of our confidential arrangement with tenants, and we're not at liberty to discuss. And I should add, too, that I'm not by any means admitting that we are recovering anything from tenants.

Thank you, Mark. And the next question from Simon Cheung, Goldman Sachs.

Are you there, Simon?

Oh sorry. Sorry. Can you hear me? Yes.

Yes, we can.

Great. So I think I have 2 questions. Just trying to understand the group. Given all these pandemic and we discussed in the past about competition in region, [ Hainan ], et cetera, how are you seeing maybe 2, 3 years' time for Hong Kong retail market in general in terms of the competitive dynamic versus the other regions? And do you still foresee Hong Kong being one of the most visited shopping hub for Chinese? And if so, then how would you position to maybe a slight change in terms of behavioral change of some of the Chinese tourists? And on that point, related to that, how do you see your current tenant mix, I think, being what, 60% [so actually in ] leather goods and another 20% being jewelry. Are you comfortable with that number? And then I think secondly, just I joined late as well, so I wanted to check on several numbers. One is, did you guide any percentage on the negative rental reversions that you are seeing? I hear that you mentioned that your spot rent is still negatively [ burnt ]. And then secondly, occupancy costs? And then thirdly, I think I noticed that the Harbour City, the occupancy rate hovering at about 91%. Do you foresee that number going to be picking up quite significantly in the second half because in the old days, you're running at 96%, 97%?

Okay. Thank you. Forward-looking. What will retail in Hong Kong look like in 2 or 3 years' time? That's a great question for [ Paul Chan ]. But from our point of view, we still believe in Hong Kong being a popular place for Mainland Chinese visitors to come to once the border truly reopen. Hong Kong has its attractions. It's not just a matter of buying the merchandise. Hong Kong has other attractions, which make it a little special. In a way, it's no different from Hong Kong people going to Europe or to Japan to buy. They can buy most of the same goods in Hong Kong, why are they going to Japan? Why are they going to Europe? And so Hong Kong has its attraction to Mainland visitors as well. However, we think the recovery, even when the borders fully reopen, will be gradual. There will be caution initially, understandably. For health reasons, there'll be caution. And also the habit has been broken, so to speak. Many of them used to come here regularly. And if -- after an absence of 2 years or 3 years, they haven't been repeating their previous habits, it may take a little while for the old habits to fully rebuild. But we are positive about retail in Hong Kong still, particularly given how creative Hong Kong retailers are in attracting shoppers to bring their dollars to spend. So we're not too worried about that in the medium term. The tenant mix, I think there is a -- there are 2 factors here: One is the tenant mix. Another one is the tenant's own merchandise mix. If you take the same tenant today compared to the same tenant 2 years ago, chances are their merchandise mix will have already changed to cope more with local demand, and that can very easily change back when tourist demand starts to rebuild. So I don't see it as critical to reshuffle the entire tenant mix because it's a combination of tenant mix and merchandise mix. And we still do well with the major international brands, and in fact, we continue to attract major international brands to open new stores in our malls. Let me digress a little bit to vacancy, and then I'll come back. There's been a report about vacancies in our malls. I can't say the vacancy figures reported are wrong because it depends very much on how vacancy is counted. We, and I think most landlords, can't vacancy based on area. So if we have 1 million square feet and 100,000 square feet are vacant, the vacancy rate would be 10%. But the 100,000 square feet of vacant space may represent 20% of the stores, may, in which case, if you counted stores, you would say, the vacancy rate is 20%, but that's not how we generally would report our vacancy. That's the first part. Second part, by visual inspection, a store is vacant when it's not trading. But that doesn't mean the store is not tenanted. A quick case in point is this very large store at the other side of LV in Ocean Center, facing Canton Road. It's a very large store. There used to be 2 tenants, one of them Ferragamo and the other, Hermès, and they have both moved to other stores down the street also in Canton Road. And out of the previous stores that they have vacated at our request, we have -- we are combining both stores into 1, which took a little while because there are some structural changes that we need to make, requiring building department approval and all of that. And we have, a long time ago, leased that bigger store to another major international brand from across the street. So -- and that's only 1 example. We have another major international brand moving from across the street into Harbour City. But this giant store at the bottom of Ocean Center, by visual inspection is vacant. True. It is vacant, but it is tenanted. And we have other examples, either new tenants coming in and still fitting up or even existing tenants renovating the store. Overall, vacancy in our malls is still too high to be acceptable to us, but fortunately, not as high as the other -- by the other measurement in terms of the number of stores. Because at the end of the day, what really matters is rent payable on the square footage. They don't pay per store. And then, which brings me back to the tenant mix. We call it smart tenants. Smart tenants are using this opportunity, when weaker tenants vacate existing stores to set up. And these large tenants are investing major CapEx to fit out their new store. These are not minor CapEx. And unless they have a great deal of confidence in the new location, I doubt if they would be able to get the kind of approvals from head office, particularly at a time when head office is putting pressure on them to reduce their presence in Hong Kong and, in exchange for that, increase their presence in Mainland China. And all that bodes well for our malls, we believe. So rental reversion, yes, most leases we sign today are lower than -- the rates are lower than what they were for the same store on a store-by-store basis, sometimes, with new tenants, other times, with existing tenants, with sitting tenants. But it varies really from trade. Some trades are doing better than others, and location and tenants' performance. And occupancy cost is still higher than what it was 2 months -- 2 years ago, no question about that, but we're helping our tenants to sell more to hopefully bring down the occupancy cost as well. So on the one hand, we hope they sell more. On the other hand, the lower rate reduces their occupancy cost. And by doing so, we're hoping to give tenants a much better business, and in turn, to give us a much better business.

That's a very comprehensive answer. So can I just quickly follow up on your point about occupancies? So we -- looking at number, what, 91%, 96%, that is what, 6%, 7% differences. But based on your comment earlier, you're saying that basically the impact is not going to be -- it's actually not 6% to 7%. If you were to include all the so-called rental commitments and change of the tenant space or the size of the tenant, how would you think the -- in space terms or in percentage term, how much would you say you're currently lower than versus, let's say, 2019? And when do you foresee that going to be fully recover other than, obviously, the price on the brands? Just wanted to get a sense on the space side, how do you think about it?

On the space side. I'm not sure I understand the question.

So I think what you mentioned earlier is because the tenants, some of which are committing bigger size, some of which are committing smaller size, so that your actual rents that you're receiving is all based on -- is not -- the number you reported is actually not actually driving the so-called the rental revenue. I think from our perspective, I think we just try and gauge how much rental decline was coming from: one, rental concession; two, spot rental reversion; and three, the space -- absence of space or vacant space. So I just wanted to get a sense, the percentage contributed from vacant space if you could?

No, I don't know whether I confused or mislead you. What I -- the point I was trying to make is this. By visual inspection, you can count vacancy based on the number of stores, but we count vacancy based on area, not number of stores. Understandably, by virtual inspection, you go past, what, 10 stores, 8 of them are trading, 2 of them are not. So vacancy is 20%. But the 2 that are not trading may a, either be filling up, in which case, we count as not vacant; and b, those 2 which are not trading may be smaller in which case, they would -- the 2 of them would not represent 20% of the total area. So that was the only point I'm saying. I'm not trying to say, we count vacancy based on rental. We don't count vacancy based on dollars. We count vacancy based on area, whereas, by visual inspection, you count vacancy based on the number of stores.

Thank you, Simon. So maybe we still have time for the one last question, if any. [ Jeffrey Mack ] from Mortgage Stanley.

Stephen, maybe I have a question on the office. The office segment seems to be pretty weak, especially on the Harbour City side. Do you think the things have bottomed already? Or it will remain weak in the coming 6 to 12 months?

Short answer is it will remain weak. Overall, the office market in Hong Kong is weak. I started this session with a description. We feel demand is weak in all sectors, in retail, in office and in hotel. So it goes back to the same theme. Demand is weak in the office sector. And where it impacts Harbour City, in particular, is that a number of our large tenants in the Harbour City offices are related to the sectors which are hardest hit by the pandemic. For instance, retail, hotel, and I mean hotel -- head office, not hotels, the hotel rooms, hotel regional office. And another large part are these insurance companies. And when you don't have retailers and when you don't have visitors coming into Harbour City, they don't sell as many insurance policies as they used to. So some of them have to some -- some of them -- well, some of them cancel the expansion plans; others downsize. And that is what has been hurting the Harbour City offices more so than, for instance, in Central. And we don't see that turning around quickly. First of all, the oversupply generally in the office sector is still high throughout Hong Kong. Secondly, for the industries which are most affected by the borders being closed, until the borders reopen, they're not going to be in a hurry to expand their office presence.

Thank you, [ Jeffrey ]. So this is really the one last question from Raymond Cheng, CIMB.

Okay. Can you hear me?

Yes, we can.

Yes. Yes, Stephen, can I have the latest update about the Hong Kong government just distributed 5,000 electronic coupons, right? So how is the shopping mall sales from, say, Harbour City and Times Square? Can you share some -- let me -- I'm not sure whether you can share some latest number from your mall.

Well, the only thing we can do at this stage is anecdotal because clearly, it only started 5 days ago. And we don't have, unfortunately, real-time reporting from our tenants. One anecdotal is I've spent HKD 500 in Harbour City. Was it 2,000? I use optimism.

It was 200, not 5,000.

I digress. But generally, the good news is, on Sunday, the very first day, both pedestrian traffic and vehicle traffic were very strong and substantially higher than the preceding Sundays. And the tenants we speak to a bit are upbeat about trade. We don't have very good numbers from them yet, but they are upbeat, many of them. It's almost like you see TV news interviewing retailers, oh how much are your sales up? Oh, 40%, 60%. But it's all very generic. Until we get good numbers reported, I don't think it's easy for us to give you a good answer. But generally, the market feels good. And I think part of that is -- part of the reason is all these various medals that Hong Kong athletes are winning at the Olympics too. But that's important. If the market feels good, they are more inclined to spend and hopefully, that becomes a snowball, among them, effect.

Okay. But kind of them being -- you that right, for -- you're just trying -- them being provided, they have offered this electronic coupon, right. How many of your shops already adopt, I mean, allow the customer to use this coupon?

I don't know. I don't have the answer. I need to ask.

Okay. So I think this is the end of our presentation and our PowerPoint will be uploaded to our corporate website later on. So thank you.

Thank you, Angela. I' already said a lot. I have nothing else to add, and I only wish everybody a delightful evening. Thank you.

Thank you.

Thank you.

And goodbye.