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Edited Transcript of 101.HK earnings conference call or presentation 30-Jul-19 8:30am GMT

Half Year 2019 Hang Lung Properties Ltd and Hang Lung Group Ltd Earnings Presentation

Hong Kong Aug 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Hang Lung Properties Ltd earnings conference call or presentation Tuesday, July 30, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ronnie Chan

Hang Lung Properties Limited - Chairman of the Board

* Weber Lo

Hang Lung Properties Limited - Chief Executive Officer

* Hau Cheong Ho

Hang Lung Properties Limited - Chief Financial Officer

* Adriel Chan

Hang Lung Properties Limited - Executive Director

* Chuk Fai Kwan

Hang Lung Properties Limited - Director - Corporate Communications & Investor Relations

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Conference Call Participants

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* Fan Tso

BofA Merrill Lynch, Research Division - Junior Analyst

* Jeff Yau

DBS Vickers Research - Analyst

* K.C. Ng

Macquarie Research - Analyst

* Ken Yeung

Citigroup Inc, Research Division - Director

* Praveen Kumar Choudhary

Morgan Stanley, Research Division - MD

* Wai Ming Liu

HSBC, Research Division - Analyst

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Presentation

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Chuk Fai Kwan, Hang Lung Properties Limited - Director - Corporate Communications & Investor Relations [1]

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Good afternoon. Welcome to the interim results presentation. It is my pleasure to introduce the speakers today: Mr. Ronnie Chan, Chairman of both Hang Lung Group and Hang Lung Properties; Mr. Wai Pak Lo, Chief Executive Officer; Mr. H.C. Ho, Chief Financial Officer; and Mr. Adriel Chan, Executive Director. Can I first leave the floor to Wai Pak to give an overview about the results first, and then we'll open the floor for any questions.

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Weber Lo, Hang Lung Properties Limited - Chief Executive Officer [2]

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Welcome. Welcome, everyone. I will not go through each numbers, but I just want to summarize our core leasing business because this time around all our revenue and profit are coming from investment properties. So I will focus more on the leasing part first.

First of all, if you look at Mainland revenue in terms of leasing, the growth momentum continues. As we discussed 6 months ago, we saw second half of last year was already better than the first half. And this trend continue. And I would say, in terms of absolute numbers, the revenue of Mainland improved by 7%. And the number actually is much higher than the second half of last year as well. So not only because of the growth of the same period of last year, but also sequentially, the second half, further improved to the first half of this year.

In terms of Hong Kong, we already see a very stable growth, 3%, 4% in commercial, 3% in office and 5% in residential, quite stable. And overall, because of the depreciation of renminbi of the same period of 6%. And therefore, our growth of lease translate into Hong Kong dollars, it's only 2% but if you look at renminbi, the denominator currency in Mainland, actually, the growth is very solid. And I would like to also emphasize the company, our team worked very hard this year.

We have a lot of projects coming into completion, for example, Kunming, Kunming Spring 66 (sic) [Spring City 66], our mall, we will officially open on August 23. And our office will be hand over to the tenant for renovation, actually in September. So basically, everything on track. For Wuxi, the second office tower, also actually in completion in a few weeks' time, and we are ready to hand over to the tenant. And the Conrad hotel in Shenyang, we will officially open in early September. And basically, now is in the period of final testing with the hotel operator. And on top and above, I think, it's very exciting to inform you that our Grand Gateway AEI are moving along and on track in terms of the renovation. Our North tower complete renovation a few months ago. And now, actually, the South tower underway. And you will see in terms of store opening, B1, ZARA already open and cosmetic brands, including Sephora and all the other cosmetic brands will be open in a few weeks' time. And we are now focusing on the rotunda because we would expect all the big brands, including the Louis Vuitton, Gucci and all those luxury brands will be opened by December.

And hopefully, by then, the rotunda as well as the area outside, will be fully ready for the Christmas time. And then the leftover will be the both wings, which we will complete it by 2020. So I think this will give us a strong momentum in terms of growth for Shanghai, as well as the last one, I would say, the Peak Galleria -- in the peak. Now we already opened 4 restaurants. One store on the ground floor. And then gradually, we will open in August. And by fourth quarter, we will basically open the whole mall in operation.

When I go back to the Mainland, I would like to emphasize all of the 7% growth on our rental revenue. 4% in Shanghai. But if you look at the 4% in Shanghai, Plaza 66 the mall grew by 11%, with a very strong sales of 15% after 2 consecutive years of double-digit growth, which proved to us that even at a very high base, if we are doing the right thing, the brand can do more business as well as we can actually earn more revenue.

However, it was disrupted by the short-term renovation of Grand Gateway. And that's why Grand Gateway have about negative 4% in terms of revenue and, therefore, slow down the Shanghai. I want to emphasize again that outside Shanghai, now is our driver for growth. Look at the 7% of Mainland, outside Shanghai growing at 14%. And if you look at the mall, the mall grow at 16%. And just to mention a few, Palace 66 in Shenyang, Parc 66 in Jinan, Olympia 66 in Dalian and Center 66 in Wuxi, they all post double-digit growth, strong double-digit growth.

Even though we all talk about Shenyang before, Forum and the Riverside in Tianjin, they are also posting a sales growth and single-digit revenue growth. So I think outside Shanghai, used to be, I would say, last few times when we meet you all ask us about outside Shanghai, what is your view. And now, I would say, now we will see outside Shanghai will be the driver for growth for Hang Lung going forward.

And Chairman mentioned a few times to some investors, I would like to also mention to all of you, we see the future will be bright because of the 5 drivers. As I mentioned, the organic growth from our existing asset. Hopefully, we can continue to grow the existing organic growth continuously. Second one will be all the new projects coming into operation. As I mentioned, Kunming, Wuxi and Conrad. And next year, Wuhan will add into more space for us to rent, and therefore, will actually give us more revenue opportunities. The third one will be the AEI, as I mentioned, Grand Gateway and Peak Galleria, that will also give us stronger growth momentum in the future. The fourth one, we all discuss is sell down our residential houses and duplex in Blue Pool Road as well as the Long Beach. At the same time, we will continuously explore opportunities to dispose some of the noncore asset.

Finally, we all discussed last time as well is a lot of service apartment, we are building in Mainland, including Wuhan, Wuxi, Shenyang and Kunming. We will continue to build those service apartment for sales in the future.

So despite, we believe that is our interest for growth in the future. And I just want to summarize what we discussed before. And I will like start with here now.

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Chuk Fai Kwan, Hang Lung Properties Limited - Director - Corporate Communications & Investor Relations [3]

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Thank you, Wai Pak. Would Chairman Ronnie any remarks to make? Okay. Welcome any questions.

(foreign language)

Okay. Sorry. Okay, we would welcome any questions from the floor. Please raise your hand and let us know your company organization name and your name as well. Morgan Stanley?

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Questions and Answers

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Praveen Kumar Choudhary, Morgan Stanley, Research Division - MD [1]

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Congratulations for a great set of results. My question is related to 6 months ago, we were talking about summer is coming. So the question is, has it come?

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Ronnie Chan, Hang Lung Properties Limited - Chairman of the Board [2]

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Well, let me put some numbers to what Wai Pak just said. We had 6 shopper centers outside of Shanghai, on the Mainland. 3 of them, in terms of sales growth, retail sales growth and rent revenue growth have been upward of 23% to 25%, as much as 30% on both counts, both measures. So would you consider that as summer?

The fourth one is a solid, very solid one always, always a double-digit growth. But in the teens. This time, it grew at 11% rent and 15% sales, I think it is. And then the other 2, which are the weaker ones, and they are now all turn around, occupancy and footfall, wherever you look at it, it's basically pointing upwards already.

So I think -- I don't how hot you want to be, but I think that -- I think summer's here. But more than that, sorry, not just the numbers that I gave you, the momentum is really quite powerful. I would not be surprised that those kind of double-digit growth, maybe not 30% -- for any longer period of time but, but double digit, that may last for some time. And let me give you another qualitative -- half qualitative, half quantity answer.

In the last 1.5 years, and for the next couple of months, we have signed or about to sign, close to 60 leases with the top 20, call it, 20 top brands in the world. And the majority of them are outside of Shanghai. Of course, some went in to Grand Gateway, as we all know. And some, well we let them into Plaza 66 for the first time. But 2/3 of them or more are outside of Shanghai. And so I would say, in whichever definition you have for summer, I think -- do you agree with me? You guys agree? I think summer is here for us, although it's only the early, early summer. It's a long way to go.

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Unidentified Analyst [3]

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Yes. This is Mark from UBS. Yes. So first of all, congratulations for the good results. And actually, I read through for the result and actually, we see a strong turnaround for Shenyang and Tianjin. Yes, so maybe management can share what have we done to make the results have turned around? And what's your outlook for these 2 cities going forward as well?

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Weber Lo, Hang Lung Properties Limited - Chief Executive Officer [4]

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Thank you, Mark. First of all, Shenyang, it's not always well. When you look at Palace, we are growing at 20-plus percent. Once you can find your own positioning. We are in the street, Zhongjie, which we now are the destination for younger generation. Of course, those sports brand, like Air Jordan, like all those are helping us. By the same time, without reinforcing our positioning, it would be difficult for us to sustain. So we sustain 2 sequential 6 months already. So we believe that this trend will continue. When you talk about Forum, I think the problem that we are dealing with is the mall and the office. They are there, and they have a MTR station. However, sometime, we find difficulty to have those office people to shop in our mall because they only come in a week day, but they will never come back in the weekend. So therefore, we have to find our own way to work hard to make sure that this become a place for shopping. And now with the Conrad hotel close to completion, there is another reason why for the people to come, and we truly believe that a mixed-use complex will have a halo effect to build up the positioning for Forum.

Going into the details of Forum, we are really fine-tuning day in, day out on tray mix, making sure that we got the right tenant coming in, and therefore, we can attract footfall, and the footfall will be stably high, and therefore, we can cross-sell them into the retail. And you will see a lot of good restaurant coming into Forum these days and that is something we are working very hard on. But of course, ultimately, we want more luxury brands to come into Forum, and therefore, stay tuned, we are working hard on that. At the same time, in Forum, out of the sites that we have in the sites, we have more than half of the sites, we can continue to build. Therefore, I think it's a time for us to work hard and making sure that we can build this become a destination for shopping, for office, and then we can dominate this market.

Tianjin, again, the same thing, right? We are working very hard to have rental reversion. At the same time, upgrade the tenant. And now if you go to Riverside, you can see a lot more quick brands coming in, for example, Lego,[Gassien], Fila, Nike, Adidas, they are coming in into the L1 and now contributing to our rental income as well as drawing the traffic for our mall. So I think, all in all, we are working very hard day in, day out to make sure that we get the right tenant, and therefore, the footfall will improve. Therefore, the sales will come. And hopefully, because of that, we can actually drive up the revenue.

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Chuk Fai Kwan, Hang Lung Properties Limited - Director - Corporate Communications & Investor Relations [5]

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There is a question here from the webcast online. How do we see the retail outlook in the second half of 2019 in Hong Kong?

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Weber Lo, Hang Lung Properties Limited - Chief Executive Officer [6]

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I think we can say that we believe everything is normal in Hong Kong today. If you look at our sales -- retail sales growth. Actually, we registered 6% growth in the first half. Not bad, right? We see a little bit of the slowdown in June, only a little bit. But in July, we still need to get more data before we can share with you. But when we talk to the tenant, especially on the day of protests, it had some huge impact in terms of retail sales.

So I would say, first of all, we need more time to monitor the situation. But I just want to give you a reassurance that the turnover rent in terms of the percentage of our overall income in Hong Kong is very, very minor, it's single digit. But that means we got a very high base rent already in our retail business in Hong Kong. And retail account for 60% of our Hong Kong revenue. Right? So short term, we do not expect there will be a lot of significant changes. But you never know, right? If they could not get their sales, and they will not be able to survive, then it will have a trigger effect, but we don't see it happen in a very short-term period of time. That's why I can only say, we will closely monitor. And hopefully, by the year-end, we can tell you more about this. So far, we don't expect to us, the impact is significant.

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Chuk Fai Kwan, Hang Lung Properties Limited - Director - Corporate Communications & Investor Relations [7]

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Any question?

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Ken Yeung, Citigroup Inc, Research Division - Director [8]

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It's Ken from Citi. As Chairman mentioned, that summer is coming as, when can you start to reward shareholders with dividends? So this -- I think your Chairman's statement said that we need to wait for a while. So I think a lot of investors are concerned about that.

And secondly, regarding the disposal of non-core asset, Can you update us regarding any timeline and scale?

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Ronnie Chan, Hang Lung Properties Limited - Chairman of the Board [9]

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I'll take the first, maybe you want to take the second. As I said, as bottom line grow there's no reason why you don't pay more dividend. Whether we do at the midyear, whether you do at year-end. That's another consideration. I'm not guaranteeing that we will do it at year-end, what if year-end the hell break loose. None of us know what will happen tomorrow. But nonetheless, the principle is very clear. We make more money. We share them with shareholders. That said, we are still probably one of the higher dividend yield real estate company today.

I think most of them are what? 3%, 3.5% dividend yield. And then we are already at roughly 4%. So we are not behind. But on the other hand, we don't mind. I'm a shareholder, too. So -- and I don't mind, giving a little bit of whatever.

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Weber Lo, Hang Lung Properties Limited - Chief Executive Officer [10]

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For the non-core asset disposal. I think you should notice that we sold 2 properties, one in the group, which is one of the factory sites in the Lai Chi Kok, and that actually realize a onetime disposal. And the other one, basically is the car park, which we disposed in HLP, but will be complete in 2 months' time. And therefore, the gain actually was shown in the valuation gain for now. So I think if you ask me whether we have a very clear timeline? I can only answer is when the price is right. Because I'm sure as analysts you all know that if I now want to sell more, it will be very difficult, because when the time is not right, when you want to sell, the people will say, okay, lower price is okay, but higher price, it may not be the right price.

So I think we will continue to look at opportunities. And this is something we are working very hard on, but I can't guarantee that how much we can sell by when, but we already have a list, and we would continue to look at the opportunities. But I cannot guarantee the time.

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Chuk Fai Kwan, Hang Lung Properties Limited - Director - Corporate Communications & Investor Relations [11]

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There's a question here regarding the level of gearing. Any comment on the current level of gearing? And also what is the headroom for further land acquisition?

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Hau Cheong Ho, Hang Lung Properties Limited - Chief Financial Officer [12]

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Our net debt gearing is around 17%, 18%. And I think somewhere between 20% to 25% is quite reasonable. So that will give us the headroom for further land acquisitions should there be any opportunities.

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Ronnie Chan, Hang Lung Properties Limited - Chairman of the Board [13]

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I'm always looking out for something. I just don't know when I can buy, as you know, in Mainland China, the strategy that we have taken -- oh, by the way, this year, I wrote extensively expanded on what had been written before on the strategy that we have which, frankly, I don't know why, but I know a little bit, by the way, we -- I just haven't seen anybody doing what we are doing, exclusively. And so the way we buy land is really sporadic. It as opportunity driven. So between 2005 and -- 2009, we bought quite a bit. And then 2 years, nothing. We bought one in '11, one in '13, and then we waited 5 years. So when will the next one come? I don't know. But we do see opportunities out there. I do smell something. But when will it come to fruition. It can be 1 year, it can be 3 years. I really can't tell. But as long as it's within our financial means I don't see why not.

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Chuk Fai Kwan, Hang Lung Properties Limited - Director - Corporate Communications & Investor Relations [14]

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Okay. Sorry, DBS, Jeff.

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Jeff Yau, DBS Vickers Research - Analyst [15]

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I have 3 questions. The first question is related to the non-core asset disposal.

You said that when the price is right, you would consider selling more. Can you share with us the yield for the previous 2 disposal, deficit yield?

The second question is related to the financing costs. I found that interest capitalized increased substantially year -- on the yearly basis, what are the reason behind? And should we expect similar interest capitalized for the second half?

The third question is related to the new project. Can you comment on the pre-leasing progress for those projects in Wuhan, Wuxi, office tower?

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Hau Cheong Ho, Hang Lung Properties Limited - Chief Financial Officer [16]

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I'll take the first 2 questions. And the yield for the recent disposal, is around 2.6%, 2.7% on the passing yield. And the reason for the changes in interest capitalizations is mainly because of there's an amendment to an accounting standard, Hong Kong accounting standard 23, on borrowing cost. The gist of that is the standard, the amendments clarified what to be included in the so-called general pool of borrowings.

In the past, only specific bank loans tied to a specific project under developments, then we capitalize those interest. But with this amendment that in the accounting standard, it means everything else, not tied to a specific project will fall into a pool of the so-called general pool of borrowings. And the interest expenses of this pool should also be allocate and capitalize into those project and the developments. Okay? And that's the reason why. And the financial impact for the first half result is HKD 323 million. Okay?

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Weber Lo, Hang Lung Properties Limited - Chief Executive Officer [17]

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Additional comment, not because of the accounting change because we have more development under the PUD.

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Hau Cheong Ho, Hang Lung Properties Limited - Chief Financial Officer [18]

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So example, sorry, like the Dalian in Hangzhou, we will fully pay for that land, RMB 10.7 billion, okay? So that's a project under development.

So the interest related cost on debt project is also being capitalized accordingly.

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Adriel Chan, Hang Lung Properties Limited - Executive Director [19]

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And this will be ongoing. So from now on, this is how it will work. So this is just the beginning. Sorry, what was the question?

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Jeff Yau, DBS Vickers Research - Analyst [20]

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The new project.

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Adriel Chan, Hang Lung Properties Limited - Executive Director [21]

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So preleasing, it actually is very good in and Kunming. We expect to open, I think, right now, I think we're at around 80% leased. 85%, I mean, when we open later at the end of next month, we should open with almost 70% open. So even though we should be at that point, hopefully, closer to 90% leased. It should be about 70% open. Wuhan, I think we're now at around -- are we at 40% yet? About 40%.

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Ronnie Chan, Hang Lung Properties Limited - Chairman of the Board [22]

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August 23.

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Adriel Chan, Hang Lung Properties Limited - Executive Director [23]

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For Kunming, Kunming is August 23. And Wuhan, the exact opening date to be decided, but it should be summer, so second or third quarter next year.

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Hau Cheong Ho, Hang Lung Properties Limited - Chief Financial Officer [24]

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Just to supplement on that point. For the Kunming mall, we already leased 85%, but there are many, many top-tier tenants, top-tier brands in it.

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Ronnie Chan, Hang Lung Properties Limited - Chairman of the Board [25]

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Okay. Contrasted to Wuxi Center 66, when we first open it, a lot of big names sign up, but not everybody moved in because the market turned south. In 2012, you remember, we opened in 2013. So we have to wait until the winter is over. And then now they are moving in. So LV, and whoever else, they are all there.

Almost everything that is in that city that is worth having there, basically, we have it already. Spring City 66 in Kunming, on the other hand, the day we open it will be just like Wuxi. And so 2 things going forward. Number one, everybody who sign up will be in there. Number 2, it's the summer. It's not the winter, like when we first opened in 2013. So I think that all those things means that from day 1, we will be getting the top line. Obviously, the bottom line would get a little bit time to come through, but at least day 1, the top line will be there. And even Wuhan, I don't want to say too much. But Wuhan, the competitive landscape in Wuhan is tougher than in Kunming, that's for sure. But that said, I think the chances are good that we will open Wuhan next year with a very lovely shopping center with names that every lady in this room would be very familiar with. I hope.

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Chuk Fai Kwan, Hang Lung Properties Limited - Director - Corporate Communications & Investor Relations [26]

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HSBC, Raymond.

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Wai Ming Liu, HSBC, Research Division - Analyst [27]

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Management, I've got 2 questions to ask.

The first one is regarding the service apartment. So we actually see the very clear time line in your presentation material this time. Can you actually share a bit more color on the pre-sales of service apartment in 2021, 2022, on this one? That is the first question.

And the second question is about your China commercial business. So with a very good performance of retail sales business, can you share with us more color on the occupancy cost and expected occupancy cost in the coming like 12, 18 months here?

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Adriel Chan, Hang Lung Properties Limited - Executive Director [28]

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Maybe I'll start. So we expect to start being able to presell in Wuhan, first. The first tower of the service apartment is up to Level 5 in terms of construction and there will eventually be 3 towers. The second one that we should also be able to start pre-selling around mid- to late 2021, is Wuxi. Wuxi is currently under construction. We've just started the excavation works. And so that will be the second batch, but also starting around 2021.

And then thereafter, it will be Shenyang and Kunming. The sales pace, it's -- obviously, we're still a few years away, but I don't expect the sales pace to be particularly brisk. What we're selling is the high end of the market, the top luxury apartments in those cities. And so you're not going to be selling them en masse. Those will be very selective, very high-priced units. But that's in line, of course, with our broader strategy.

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Chuk Fai Kwan, Hang Lung Properties Limited - Director - Corporate Communications & Investor Relations [29]

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Lastly, you asked also about the occupancy costs?

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Wai Ming Liu, HSBC, Research Division - Analyst [30]

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Yes.

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Hau Cheong Ho, Hang Lung Properties Limited - Chief Financial Officer [31]

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It will be in the range of 17% to 22%, 23% across our whole portfolio in Mainland China.

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Weber Lo, Hang Lung Properties Limited - Chief Executive Officer [32]

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Actually, it's coming down. You appreciate that because of retail sales going up.

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Adriel Chan, Hang Lung Properties Limited - Executive Director [33]

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But I keep saying, I mean, occupancy cost is not a metric that I look actually very closely at. I would like it to be high and probably higher than most of you are comfortable with, just because that's what we build is really the top end. A lot of people are there in our malls, not just to do sales, but also for marketing. And so I think that they can they can withstand a much higher occupancy cost in our malls than they can in other malls. So as a standard, I wouldn't use this really to compare us to others. And I would expect us to have a higher occupancy cost. And I would push my team to have a higher occupancy cost.

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Ronnie Chan, Hang Lung Properties Limited - Chairman of the Board [34]

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I always have a problem. Why do analysts think that -- sorry, I'm a man so I have to use a woman, as an example, but you can reverse that, if you want. Why should a beautiful woman, cost the same as an average looking women? That always baffles me as if there is a standard that one size fits all. Everybody has to be at a certain level. I don't speak with experience, but I speak with observation. That certain women are just more expensive. And -- hey, they are pretty like those in this room. So what can I say, right? So -- yes. Higher.

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Chuk Fai Kwan, Hang Lung Properties Limited - Director - Corporate Communications & Investor Relations [35]

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Any further questions? David?

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K.C. Ng, Macquarie Research - Analyst [36]

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David, from Macquarie. Just one quick question on Hong Kong. So there have been recent news that one of the fashion brand, which is a major tenant of your portfolio is seeing some difficulties and trying to find someone to maybe sublease. So of course, that may be just a pure rumor. But -- those leases were signed kind of at the peak of the market, 5 years ago. So sooner later, we have to face that issue that some of these rental was at a relatively high level.

Any particular thing, maybe on maybe not particularly on this tenant, but for that category of tenants, are there any particular strategy that you may switch to something that can generate higher traffic, but maybe lower rent? That's one question.

Second question is just on the Hong Kong redevelopment projects, roughly CapEx that we should expect next few years and the time line of the development.

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Weber Lo, Hang Lung Properties Limited - Chief Executive Officer [37]

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I would say, I could not comment on rumors. On an ongoing basis, we continue to work with our tenant, if they have difficulties, we will find ways to see how sustainable we can work together as a landowner and tenant. I think in terms of CapEx expense on the redevelopment, maybe H.C., you can mention.

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Hau Cheong Ho, Hang Lung Properties Limited - Chief Financial Officer [38]

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All the land costs for the redevelopment projects in Hong Kong have been paid.

So the future CapEx would mainly be a construction cost for the 2 projects, totaling less than HKD 1.5 billion over a period of 3 years.

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Adriel Chan, Hang Lung Properties Limited - Executive Director [39]

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And those projects, we expect to start, lets say between 2022 and 2023.

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Hau Cheong Ho, Hang Lung Properties Limited - Chief Financial Officer [40]

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If I may, to supplement my answer earlier on, in fact, for the 2 development projects in Hong Kong. One of those, we can start pre-selling in 2021. So the cash will start coming back.

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Chuk Fai Kwan, Hang Lung Properties Limited - Director - Corporate Communications & Investor Relations [41]

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Any further questions? We can accommodate 2, 2 more. One question on the screen is the recent protest in Hong Kong, would that affect our how we should position our Hong Kong portfolio in the longer run?

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Weber Lo, Hang Lung Properties Limited - Chief Executive Officer [42]

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If you look at our business today, 52%, 53% Mainland and 47%, 48% Hong Kong. So I think both are important to us and -- total rent, total rent. Both are important to us, and we will continue to drive opportunities for growth. Now of course, the recent issues will definitely have an impact on the retail sales. And as I mentioned, hopefully, the impact will not be significant on us, but we will continue to monitor closely.

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Chuk Fai Kwan, Hang Lung Properties Limited - Director - Corporate Communications & Investor Relations [43]

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Any last question? Okay.

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Fan Tso, BofA Merrill Lynch, Research Division - Junior Analyst [44]

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Fan Tso from Merrill Lynch. Just a quick question on Kunming now, we are now 85% is for the mall. So for the remaining 10% to 15%, are they mainly on the ground floor? Or are they scattered? And what's the management thought for the remaining percentage?

Are you waiting for a few big names? Or do you want to maximize the rental level?

And also on the office, you also mentioned preleasing is in good progress, would be helpful if you can share a rough number or are these tenant MNCs or locals?

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Weber Lo, Hang Lung Properties Limited - Chief Executive Officer [45]

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No, I think when we print the public, it was 85%. As of today, is 87%,88%. So by the time when we open, hopefully, it's already 90%. So I think I'm very confident that in the next few months, we will lease over 90%. When we open a big mall like this, you always have some scattered space. You would like to select the tenant. And sometimes, it's our choice to wait. And we would like to make sure that the tenant mix is right. As Chairman just mentioned, by the day, when we open, the opening rates, of course, will be lower than the leasing rate because the tenant needs some time to renovate. But by the time when we open, this mall already includes all the important brands in the cities. You will see when we open some of those, they are still doing renovation.

We have already those brand holding come up, and therefore, we already can show to everyone that, first of all, it's all listed. And second, is only the time that they need time to renovate. Our strategy continue to be we would like to be the mall in town. And our office is the best office in town, and now we are working on the best service apartment and the best hotel in town. Because Kunming will be very likely, this is a one store city.

Those brands, they will be with us, if we are doing well, they will continue to be with us for a very long time to come. So that's why we want to make sure, we kept the right brands to come in, and those single-digit leftover in terms of occupancy, we would like to make sure that the brands coming in are the right brand, we'd love to have. And that's why we are very confident that in Kunming, we will bring all the best things to the Kunming people and also showcase Kunming to the world. And one of our slogan in the marketing -- of course, we don't have English, but we want to say, we will bring the best to Kunming and bring the best of Kunming to the world. And that is something we would love Hang Lung can do -- to do in Kunming.

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Ronnie Chan, Hang Lung Properties Limited - Chairman of the Board [46]

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We just started to rent in office tower. But let me as -- a general statement that outside of each Beijing, Shanghai, the rents will not be exorbitantly high. I wish it were, but it never was meant to be. But what's important is really something that you mentioned, and that is the quality of the tenant. We just started to rent the office in Kunming, just very recently. So we are only, I don't know, 8%, 10% or whatever leased right now. But you look at the case with Center 66 and Wuxi and Forum 66 in Shenyang. Number one, we are the highest rent in the city. Number two, we have the best tenant. Bank of China, Canon, Siemen, UBS and many of your names are in our place. I don't want to mention too many because -- the best of you are in our place. So it's a quality that is important. Sometimes, when we first opened Center 66, that was really, the office tower, it was really at a very tough times.

And remember, between 2012 and 2017, the whole market was really bad, right? So we had to -- we just lease it, but knowing well that some of these tenants are not the long-term tenants. So we have been changing tenants now that the summer is here. We are really trading up the quality of the tenant. And so in the interim, you may have a little bit of vacancy, but it's okay. So we're -- both of those are about 90% leased today. But -- our belief, when we first started this journey in the early -- in the late 2000s. Is that even in those Tier 2 cities, there will always be room for Class A office buildings. And in almost every city that we're in-- and certainly, in Shenyang, certainly, in Wuxi and certainly, soon to be in Kunming, there's just no office tower that come close to our quality. And when that is the case, you just cream off the best tenants. And frankly, rent is not that high. And so to these guys, pay another $0.50, pay another $1. So what if they get the most prestigious office tower. And so it will become a virtuous circle where you have the best property. And then the best tenants come, right? And then that will bring other top names into your tenant roster.

So I think it's a very good business. It's not -- going to make me super wealthy. But that helped the shopping center down there. Right? And it's very stable, and it's very easy to manage. Shopping centers are really tough to manage. You have to go on the foot every day. But office tower, once you have release it, you're basically home free for the next 2 years, just make sure that they're happy. We know how to do that.

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Chuk Fai Kwan, Hang Lung Properties Limited - Director - Corporate Communications & Investor Relations [47]

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Thank you. It concludes the presentation today. Thank you very much for joining. Thank you. Thank you very much.