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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon, ladies and gentlemen. Welcome to the analyst presentation for the FY '22 interim results announcement that were made earlier today for both Hang Lung Properties 101.HK and Hang Lung Group 10.HK. We welcome the audience in our Hong Kong office and also the audience who are on our live webcast now. My name is Joyce Kwock, and I'm the General Manager of Investor Relations at Hang Lung. Today, our senior management team is all in our Hong Kong office to join the presentation. They include Mr. Ronnie Chan, our Chair; Mr. Adriel Chan, our Vice Chair; Mr. Wai Pak Lo, our Chief Executive Officer; and Mr. Kenneth Chiu, our Chief Financial Officer. So our CEO, Weber, will share some highlights on our interim FY '22 results. Our Vice Chair Adriel may want to talk about our key milestones on our sustainability efforts. After that, we will address the questions from the audience from both the floor and through the webcast. Before we start, please feel free to scan the QR code on the cover page of the results highlights for the soft copy. So Weber, the floor is now yours. Thank you.
Thank you. Good afternoon in Hong Kong and Asia, and good morning to the West. Welcome. So I think it is so happy to see your view again. Last time we could not have a face-to-face even though right now, we have to wear mask, but at least it's closer than the last time. I just talked to my secretary. This is our fourth time we have to wear mask to do the result announcement. So I hope that next time we can do without that. Just quickly walk you through the numbers. I'm sure you have read already. Our revenue was up 7% in HLP 101. And at the Group, we were up by 6%. The underlying profit was up by 1% in HLP and about 7% in HLG. Given what we have encountered in the first 6 months, both in Mainland and in Hong Kong, we are very pleased to inform you that actually, we are very resilient, and we will still -- could still deliver this kind of set of result. Just to give you some context in Mainland, out of cities we are operating, 4 of them, they either have the more closure or even the whole city were locked down, ranging from 1 week to 2 months. The worst, of course, was in Shanghai in April and May. The next one was in Shenyang, which was closed to 25 days, actually closed to a month. Then the next one will be Tianjin, over a week and Wuxi also about a week. Both the whole city were locked down as well as the mall has to be closed. Other than that, the rest of the other 4 cities, basically, there are some measures like checking the code when you enter to the mall and all that, but you can still get into the mall without any disruption. On top and above other than the closure, most of the F&B, they could not do dine-in for over 3.5 months in Shanghai and actually for quite a long period of time in the rest of the Mainland cities. So the headwind was even, I would say, much harder than the first wave since 2020. Hong Kong, I'm sure in the room, all of you remember, on the 5th of January, we got the message from the Chief Executive, no more dining from after 6:00. And all the so-called extracurricular activity has to be stopped until April 19. So again, the prolonged Omicron kind of impact was, I would say, unexpected. But given what we have encountered, I'm pleased to inform you that we still have some offset to encounter some of the negatives. Next page. As usual, you all know that our business -- majority of them are investment properties. And now Mainland account for 68%. Hong Kong accounts for 32%, and we have one Blue Pool Road sales booked in this first half. And therefore, we basically get almost flat, if you look at the numbers on the leasing, but the sales booking for the Blue Pool Road give us a positive growth in terms of the revenue. Next one. Mainland China rental revenue. It was resilient, as I mentioned, 1% growth year-on-year. Although you can see the half-on-half getting a negative 8%. Part of it because of the seasonality. You all know that the mall business normally have a better numbers in the second half. But this 1%, basically, if you look at the composition, there are a lot of sweat. A lot of sweat means the mall was negative 1%, but office was up by 16%. And even the residential and SA was up actually double digit. Of course, the hotel was down, but we only have one hotel in Shenyang. So the number is very small. So as I mentioned, it's a lot of sweat between this 1%, even though the 1% is not big, but there's a lot of hard work behind that. Next page. So the retail rental, as I mentioned, negative one. If you take out the Heartland 66 we just opened last year March, 3 months impact. The like-for-like is negative 5%. Given, as I mentioned to the journalists, out of 6 months, we could not play for 2 months in Shanghai. And 33% of the contribution has gone. We managed to get our sales like-for-like to negative 5%. But with the contribution, which is Hang Lung only, the portfolio effect of Heartland 66 was at in March 2001 (sic) [ 2021 ]. Actually, we managed to almost make it flat for the Mainland mall retail business. Next one. The tenant sales, of course, was not as good as the revenue. The impact was huge, especially in Shanghai. It was negative 15% tenant sales. If you look at luxury malls, it's negative 14%, more or less in line. But again, without -- if we don't have Heartland, it will be even worse, negative 22% or negative 23%. So I hope this will be the only time after the first half of '20, the negative territories come. And hopefully, next time, we will give you a positive numbers in terms of growth next time when we talk about the tenant sales. However, the strength of our AEI of our work on Olympia and our newly open Heartland and also our Kunming Spring City 66, the positive contribution really helped to mitigate some of the impact. Next one. Another bright spot, we talk about -- this is hopefully now can prove to you that this is sustainable. I talk about this Mainland office for 2 consecutive announcement. We continue to do well, 16% growth in terms of revenue and 36% growth in terms of profit. So that means we are not just letting out without looking at the unit price. We are letting out and driving up the margin. So I think the good news about this one is the revenue is increasing. Occupancy is increasing, margin is improving and the rental reversion is in positive arena. So I think you can argue why in the other part of the cities, they struggle because of the oversupply. I emphasize every single time we are in the prime location, the bright spot, with the best mall hopefully, with the best facility like hotel and SA next to it. And therefore, everything add together. So when you are in the golden street of that particular cities, hopefully, this will continue. And we believe on our quality of the tenant, and therefore, hopefully, this will not be like a one timer or kind of 2-quarter kind of things, right? And then we prove ourselves 18 months already, this continue to grow in. And hopefully, this will be another engine for growth. Even it account for only 20% of our total Mainland business. Next one. Hong Kong. I hope you don't mind me to talk about the worst is over. The recovery somehow disturbed by the fifth wave and slow us down, right? I can tell you that this negative mainly because of the unexpected rent relief measures, which we never expect when we talked to you in January. In January, we talk about we have to see how severe on that impact. But right now, we can see that the impact is manageable. Even though next page, when you talk about by segment -- Joyce? Yes. The retail, the most important part, 60% of our business is negative 3% only, given the rent relief, given what we have encountered. So at least the curve is moving into the right direction from the worst in second half of '20. And now we are basically narrowing the gap. And I hope that this also proved to us that actually we've spent a lot of time to do the trade mix and make sure that the trade mix now can tailor more for the domestic customers. And therefore, we don't need to rely on the tourists. But at the same time, some district is still quite reliant on the tourists, and they are still actually under a bit of pressure. But those actually doing quite well are those we basically focus on a lot of domestic consumption, like the Hong Kong East, like the Kowloon, they are actually already in the positive arena. So I think the worst hopefully is over, and hopefully, there are no more sixth wave or whatever to slow us down. Now office, however, we have to face the reality, the oversupply is coming. And I think the office mainly was because of this building that we have some release from Standard Chartered building. But the first batch that they released in last October, we already absorbed all of them. So we are now dealing with the second batch, which is only 4 floors. So we are confident that we will be able to absorb them. But of course, we don't want to lease cheap. And therefore, we want to make sure that we will find the right tenant to occupy the space. And the resi and the SA are growing at 6%, but they are very small. So now I'll pass to Adriel to talk about sustainability.
So we've been upgraded on MSCI and the Hang Seng Corporate Sustainability Index. I think these are sort of external proof that what we're doing is being recognized. Obviously, this is, in our mind, something that we need to continue to build on, and it's something that you should continue to expect to see us make progress on. Although in the outside world, we do hear people speaking a little bit less about sustainability these days, it's not any less of a priority for us.
Thank you, Adriel. We now start the Q&A session. So please feel free to raise your hands and raise your questions here in our office or by typing the questions in the box on the webcast page. So Raymond from HSBC, please. Thank you.
I got 2 questions. The first one is about the Shanghai leasing performance. As the management mentioned earlier and also in the report that like say, for example, the sales and our footfall of Plaza 66 and the Grand Gateway 66 has improved since the reopening in June. So can you provide us more color? So how should we compare this versus like early this year or last year? This is the first question. And the second question is actually on the tenant level because there has been a lot of change in terms of the shopper behavior or the sentiment across the retailers. Is there any changes in terms of the like tenant sales tactics or say, for example, product mix or marketing tactics there?
I think if you look at the data itself, like in June, our Shanghai project in terms of sales coming back to like 85% of last June and back to, I would say, March level. Now of course, they are apple to orange, right? Because March now may not be the same season as June. But you can get a indication. The sales actually, of course, not 100%, back to 100% of last year because they still have a lot of COVID measure. When you enter into the mall, you have to go through the code checking and then they have the checking almost every week to do COVID tests, the whole cities, basically. The people try to avoid not getting themselves into a high risk, and therefore, they don't want to go out, right? So in terms of footfall, it fall by like 30%. It fell like 30% to 40%, but our sales deal, we'll be able to maintain. I can tell you -- I cannot exactly tell you the numbers, but July improved from June, right? This is the good news, right? At least progressively consecutive months. We see after the opening, the June was not bad and July improved from June. However, I can -- I need to emphasize that. However, there are some other city have some other measures. Wuxi in July, they have some other measures. So the whole city basically has to do COVID test for almost every day in a week, and therefore, no one want to go out, right? So there's a lot of disruption. So I believe we don't know exactly what will the government do. But at the same time, we just want to prove to you that the last 6 months was really a stress test to us. The real one, the real one, not the simulation, was the real one. So if the measure will be relaxed at some point or gradually, I hope that you will have the same confidence as us that we would do well, right? Because the good news about our CRM program today, right? Our CRM program spending. Even though with Shanghai closed by 2 months, was up by 5%. The penetration in each mall has been increased from 50-plus to 63%. So that means we have to rely on our loyal customer even more these days, right? Because intentional purchase is the key. They have to come to buy products. Those people we are very targeted. Those people just walk by and certainly, they want to buy something. Those is tough in this kind of measure environment, right? But I think with our CRM program, with our customer base, with our brand trade mix, we believe that when the relaxation comes through, we are confident that we will be able to get the momentum back. This is one question. The second question you said, did you see any behavioral change. I think the mass products, the mass market have some severe impact. Like, for example, if the dine-in was restricted, could not be done in the mall. Definitely, they will have a impact to the traffic, right? Because a lot of traffic came for lunch and dinner. And therefore, for those products, they just pick up like coffee, like the contemporary fashion, they will have some impact. But for luxury, they are more intentional than in post-purchase. And therefore, the sales are, I would say, actually less affected. I just want to give you numbers. Exclude Shanghai, the last 5 -- the next 5 luxury malls outside Shanghai, our sales growth in this first half, even with COVID, was up by 36%, right? So if -- without the Shanghai lockdown, I hope our number actually will be better, definitely, right? So I think I do not worry about the luxury spending slowdown that much yet. I'm more worried about the measure, will they have some unexpected coming through again. But if everything hopefully will go into a positive direction, I hope that the sales will pick up. And then we already have seen it in June and July. Of course, I want to see even better sales. But hopefully, they are going into the right direction.
Maybe I'll just add one word on the behavioral change. So this is sort of anecdotal, right? But in Shanghai with the lockdown, what we've seen is people are not allowed to eat in restaurants, [Foreign Language]. And they've been very creative as we have in Hong Kong about how they do their dining. And so there's been this proliferation of outdoor dining, camping, outdoor activities. And one thing about our properties is that we have always built in these fantastic outdoor spaces. Unfortunately, previously, a lot of these outdoor spaces were neglected because customers didn't appreciate them. And I think that what we expect to see going forward is that there will be -- we will be able to use this space and lease it out more aggressively than we have before. So these are the small kind of subtle changes, I think, that are happening in the market, which we are better placed than many of our peers to take advantage of.
Before we go to the next question, just want to address a number of feedback on the webcast at the -- as at 4:17 p.m. They couldn't hear what Adriel said. Just want to reassure those on the webcast that when Adriel was elaborating on the ESG side, he has repeated what he has after he unmuted his microphone. So you haven't missed anything. So let's move to the next question. Chuen Yeung from Citi. Thank you.
I would like to have a view on Ronnie's upcoming Chairman's statement, which -- because last 6 months, we do have a lot of things which I'm really concerned whether that will change Hang Lung's view on China. I think you must write on the upcoming Chairman statement, but probably I ask first is, in the last 6 months, we do see that it's a very hostile China lockdown. And together with latest development is we do see some of the uncompleted project and probably affect some of the, say, the discretion is spending or the things happen. Or maybe some people also argue that political change, all this thing may affect, seems still quite unstable, whether in October and November, we are far. Some of the foreign investment that people may put in China or even your money maybe probably cannot get out from China. So my questions to Ronnie is, will that 6 months or basically change your -- or because you must plan for 5 years or plus, would that change your plan for 5 or 10 years upcoming? Will that change your investment appetite on China that you still want to invest more? Or probably you may -- some diversification or other things that you need to think about now?
I'll give you my conclusion first, and then I'll tell you why. The conclusion is that I believe that in the coming 3, 5, 10 years, Mainland China may be the best place to invest in the world. And our business, our industry is one of the very good ones. That said, I'm very concerned about many things these days. You mentioned a few. But frankly, those are not my main concerns such as in Mainland China, the residential people have stopped paying mortgages and COVID. Doesn't -- I can do about a COVID anyway. So what is there to worry about when I can do nothing about it. But I do see the whole world changing that will inevitably affect China, and that, in turn, will impact our business. 2 issues: number one, continued deterioration of China-U.S. relations. But that one, my conclusion is not that negative, frankly. I think that one, both in the short term and in the long term, there are reason for me to believe that our market in Mainland China will do fine. That's the first issue. China-U.S. That doesn't mean that the United States will not continue for some ways the mad behavior towards China. So that's one. The second one is the unexpected consequences of the Ukraine war. It is not the war itself that is a problem. There's tons of wars everywhere. America invaded Iraq, invaded Afghanistan, Russia invaded Afghanistan, right? Yemen, you have a war going on for a long time and on and on and on. But it is the reaction of the west to the Ukrainian war, which is to me, irrational and damaging. Now let me jump to the conclusion again. I think that at the end of the day, it's a positive for China, and I'll explain why in a second. I don't want to take too much time because we are supposed to talk about Hang Lung. But frankly, this thing impacts everybody. And so I did devote quite a bit of time in my letter to this discussion. 3 things. Number one, I believe the capital flow in the world has been severely impacted and will change. And if a country can at will lock up people's U.S. dollar assets somewhere, will they continue to put money or assets in places which can be subjected to somebody's at will lock up, right? Even friends, allies of the United States are watching. Those guys are smart. They are not stupid, and they will do exactly the same thing as the less friendly to the United States. Nobody will talk about it. Everybody will quietly do it, right? However, [Foreign Language], sooner or later, time will -- things will service. And then it become a avalanche. And so I believe that the Ukrainian war is already setting in stage a gradual shift of capital flow directions in the world. That has been rather stable for the last 30, 40, 50, 60 years, but that has been changed. The second, that's capital flow. The second one is the energy politics, which, as we all know, has always been very important to the world. And it is not a joke. 1703, Peter the Great built St. Petersburg and move its capital there, symbolizing the westward looking of Russia, right? 319 years later, finally, the west says I don't want you. Never ever before. And in some way, Russia save the Western world during the Nazi days, right? And so for the first time, they say I don't want you. So Putin said, I will go east. And that's why it benefits China. It can get energy and food, which both are deficient in China, especially energy, a lot easier than otherwise. And so when they look east and when China benefits, our business benefits, right? I can go on a lot more detail, but forget about it. Number 3, inflation. Did the West before they react to the Ukrainian war, factor in the possibility of inflation such as shortage of food right, and energy cost? And that will have ramification around the world. Think about this. Famine always creates revolutions and social unrest, right? And Africa, forget about it. I know I'm into too much detail. I know again, yes, tons of stories. Africa will suffer. And you will see migrants from Africa that go across the Mediterranean into Europe. And so you have all these. Why is America going to Venezuela, Iran, Saudi Arabia and UAE, right? The first 2 are debt enemies. The President are begging them, please produce more energy. And those guys just go like that, right? Ignore it. And even Saudi Arabia and UAE, they are not listening either. And so that's why the United States have to relax at least relax -- talking about relaxing some of the restriction on trade with China. [Foreign Language] Sorry for the Chinese, the Cantonese. Sorry. Anyway, so I think that -- and all that means that China will benefit. I think China will have a better time in the coming couple of years. And then, of course, you have the domestic situation in the United States that worries me no end. The Roe and Wade, that being reversed. That is just the beginning. You will see a lot more social divide to come, especially if Trump would come back in a few years. But even if not, I think that the division there is serious. So when you put all that stuff together, how can you not worry, right? But upon final analysis, I came to the conclusion that China is probably relatively the better place to be. And then you talk about, hey, China is going to -- this guy going to serving the term and this and that. I said I am not ideological. As Deng Xiaoping says, "Black cat, white cat, any cat that catches a mouse is a good cat." I don't care what system they take as long as it does well for the citizens. And then I further remind everyone, if Lee Kuan Yew were to allowed to serve only for 10 years in Singapore, you think Singapore will be what it is today? I'm not saying that this guy is the best guy. I don't know if he is. [Foreign Language], right? But I'm not ideological, I'm agnostic about it. So as long as the world is in such a chaotic situation, China being big, a continental economy can sustain itself for a long time as long as it doesn't get into domestic social problems. I think China may still be one of the best place to invest. And so are we investing more in China? In the long run, you bet. But in the short run, with interest rate the way it is going, right, with the market inside Mainland China, even Hong Kong a little bit, right, in terms of residential sales, a lot of these things cause us to become very cautious in the short run. In the next year or so, let's not be too adventurism. Let's not do adventure, but let's be a little bit cautious, protect ourselves. But we'll see how it goes. I won't be too surprised if you were to take a 3, 4, 5 years' view that you see us in the market. Frankly, we are seeing deals already that are pretty good deals I haven't seen for a long, long time in the Mainland of China. Will we act? Well, let's see -- let's get over the short-term humps first, right? So that's basically, Chuen, our position. Is that a good enough preview? Can we go back to -- yes, it's all here.
There's quite a number of questions stacking up on the webcast. So let me just read out a few questions here. So first of all, while it is noted with congratulations that the effective interest rate fell again, is the company seeing upward pressure on the floating rate borrowings? The second question, which can be further broken down into 2 parts is, first, what's the rental concession in Hong Kong and China in the first half that was being granted? And second part is, what's the latest rent to sales or occupancy cost ratio for the key luxury malls in China?
To answer the first question first, and then I'll leave it to Weber to answer the remaining 2 questions. Yes, we have observed a -- our company's finance cost has come down to 3.5%. And -- but under the current interest rate hike and borrowing, both in the U.S. and Hong Kong, we do believe that the overall finance cost may go up in the second half. And for us, we think that we have a very balanced fixed and variable interest rate exposures. And after we repaid the USD 500 benchmark bond, which was like at 4.75%, I think the remaining debt profile, the cost actually is lower than that level. So that said, I think our management team, we observe the market on a daily basis. My CEO is a banker -- was a banker. He knows the market very well. I observe the market day to day. When the -- for instance, when the IRS, the pricing is more reasonable, we may also do something to manage our interest rate risk. But at this -- at current level, I think, yes, there is a upside interest rate hike potential, but I think the overall is manageable. And now our net gearing is only at like 26.9%, still healthy. So I don't have much concern on the interest rate hike on our P&L.
To answer the second part of the question, in terms of rental relief or rental construction, I think the number is manageable. They are very small in terms of -- as a percentage of the revenue. We agree most of the deal in first half, basically starting from April for Mainland. So some of the impact already was in the second quarter. And of course, some of them will be fall through into the second half or even the next 2, 3 years, depends on the lease. But I believe that the number is more enough that we will be able to offset that. For Hong Kong, I think this time, the severity was not as high as 2021. It was only the 599F category. Those category, we need help. Otherwise, the number is manageable. And I have to say that the government initiative, the moratorium, which we cannot chase rent for 3 months, actually 6.5 months will be end next week. So -- but the impact is very small to us. Not many customers apply because there is a tricks on that. If you can have a rental relief agreement with them, basically, you can still collect rent from the customers. So I think overall, the concession is manageable. It's not severe as what the people think. It's quite case-by-case basis. We are not -- we never want to do a one-size-fit-all kind of a concession. And then we really, we look at their sales number and making sure that for those that we need to help, we will help definitely. And the last part of the question is the occupancy cost. I can tell you that the occupancy cost was very healthy. I never disclosed this number. I will not disclose this time. But it's very healthy. Therefore, opportunities for us to raise rent is high. So I think as I mentioned, if -- think about it, if you exclude Shanghai, we were at 36% growth. So if last time was a record time for us, and they are still growing at 36%, I don't think we need to worry the occupancy cost that much for luxury mall. For the sub-luxury mall, if you look at our revenue, it's only minus 2%. So they are there. And especially with Parc 66, we are doing AEI. That kind of impact already included into that number. So I hope that from the second half when we have some luxury cosmetic coming in, the number hopefully will improve. So I would say they are very healthy at a healthy level.
In fact, the rent reversion was double digit for every luxury mall, except one, and that one is at 9% rent reversion. So rents are doing okay. [Foreign Language] because of the lockdown. And even for the sub-luxury ones, they all grow at a healthy rate and the best of which is 10%.
Let me read out the next 2 questions from the webcast. Okay. So first of all, what is our outlook for the Chinese luxury spending once China's travel restructuring ease? How much domestic spending on luxury goods will persist once consumer are able to go back to Milan and the other European cities who buy their luxury goods? So this is the first question. The second question start with a pretty strong statement. 2022 is a year of wealth disruption. Please share your view on the impact on the purchasing power of Chinese luxury product buyers.
I answered this question, I think, maybe 4 times in the last 4 announcement. They will have an impact, I'm sure, right, because if some people go out, but those may not be a main core spending they spend in those brands. Maybe some -- they just find out I could not buy locally. They may pick it up, but they may only account for 20%, 30% of their total spend on the luxury spending. My belief, to be honest, is that our CRM customer base has been growing significantly, and we never have a chance to get so close to them. As I mentioned to you guys, in the COVID time, our penetration of CRM customer base contributes 63% of our sales, right? That means if we can continue to build loyalty, continue to offer something they cannot get from outside, continue to offer experience and service, which when you are tourist you can't get, I think that is not much a concern. Maybe 10%, 15% will be lost, but they may buy more because you offer them better products. I think this is one. Second, in general, I would say luxury spending based on what I told you, right, in outside Shanghai, we are growing at 36%. If I exclude Shenyang, Shenyang also have a long term. We are growing at over 40%, right? So I still see the trend is intact. Whether the so-called inflation or whatever affecting the purchasing power or a slowdown of economy affecting the spending power, I think has to be seen, right? I don't know, right, to be honest. But the top 2% of the market hopefully will not be severely impact, right? So I hope that as long as we are top high-end luxury mall in that particular cities, actually, this kind of time, we may have an opportunity to consolidate. We have -- we may have opportunities to not only getting more market share, but also hopefully serving the other cities around the region. So I think I'm not looking only at 1 city per se. I hope that we can serve more. And therefore, I do not too worried about the trend for now. And if I look at the LVMH announcement just now, they are doing fantastically well, partly because of their sales increase and also partly because of the price increase. So I think I just talked to Ronnie for inflation impact. As long as someone like them or hopefully someone like us can pass on the cost increase to the end customers, I think the impact will be minimal.
I'm very disappointed by that question. I'm really -- my ego has been hurt because I wrote extensively 6 or 12 months ago on why the repatriation of purchases would not go back substantially back to Milan. I heard that word Milan or Paris or London or anywhere. And the reason I won't go into it, I just refer you to what I wrote 6 or 12 months ago. You have to analyze why they go out to buy in the past in the first place. And that situation has substantially changed. And it's been changed so much that anybody, sorry, who asked those questions are not co-headed to analyze the real situation. And when the situation changes externally, the purchasing behavior also change. And so I just don't believe that the bulk, the majority of the expatriated foreign sales, overseas sales will -- that has been repatriated will go back again. Moreover, now the CRM program and so forth, not just ourselves, other people as well, have good CRM programs. And we are making ourselves very sticky. And so please, please read my formal letter. Can't reach it, but I don't know about the rest of you, but anyway, I think you can.
Thank you. Let me read out the next 2 questions from the webcast. Will all the malls in the Mainland China be upgraded to a luxury level? The second question is what's the recent foot traffic situation?
Okay. I'd love to if the situation allows. All of our 10, we have 7. We are working hard on upgrading Parc 66. Hopefully, it will become 8. Then let's see for the rest. For the foot traffic was bad. The impact for the first half is about ranging from 20% to 40% down. I think this is self-explanatory because we have COVID measure almost everywhere. And then those kind of timing was unexpected. They have full community test almost everywhere, every week. Basically, people do not want to go out. But as I mentioned, again, because our positioning, we are luxury in nature and then those spending are more intentional spending. And just if you want to buy a Rolex watch and then they said, "Your watch is arrived," I'm sure they will find a way to come. So I think for our positioning, I think, yes, footfall is important. But hopefully, the footfall will come back soon. But at the same time, I again go back to the measure of the COVID. If the relaxation come, hopefully, that will have a huge impact to us, not only the footfall, but also the sales and also every other trades will be a lot more healthier.
Another question from webcast, asking about the strategy to sell the serviced apartments in China given the currently weak market sentiment.
We make everything ready in second quarter this year. But as you all know like the other developer, we want to find the right window to sell. The last 3 months in Mainland China, I think for residential, not even mention SA, for residential sales, the sentiment was weak. Given you have some mortgage boycott in the second-tier cities or some unfinished development outside of the main core cities and all that. We will continue to monitor the situation. The good news is I hope we now have another sales pitch to the potential buyer. We are financially stable. We will be able to complete. And then we have a 5-star mall and 5-star office next to it. And our pricing. SA, we priced a little bit cheaper than the residential also because of the commercial title, some people have concern. So in terms of pricing, in terms of location, is second to none. So I think it's about the sentiment. Once the sentiment come back, maybe fourth quarter after national holiday, hopefully, it will come back strong. So -- and also the completion for the Tower 3 will only be in the third quarter of next year, right? So therefore, we still have time. So we will continue to do private sale, acquisition activities, gather all the customer base. And hopefully, when the timing is right, we will push. But today, you ask me, I don't want to sell and then when I have a big launch, only 5 people come, and that is not what we want, right? So we want to monitor closely, but this is still on plan, and we are very confident of our quality. We are very confident of our location and everything. We just need to wait for the right moment to sell.
Something when what Weber said with just 2 sentences. On the sales, it is never really the main part of our business. So of course, we want to make the most out of it. But really, it's not the main part of our business. So it's not a big business for us. So that's number one. On the upgrading of shopping centers, of course, we always try to do that as I have clearly written. But some are easier than others. I think that -- and it also depends on the competitive landscape, right? For example, we have been able to successfully turn Grand Gateway 66 from a 4 star to a 5 star, doing very, very well. By the way, occupancy cost there is the lowest. And that's because anyway. We just renew rent. And we were very successful in Wuxi. We're very successful in Olympia 66. That's a really interesting one. That one is just like that, within 1.5 years. But Parc 66 in Jinan will be a little bit more challenging. So yes, but it may take a little bit more time, but it's okay.
John from UBS. Thank you.
So I have 2 questions. The first one is regarding on the -- from your communication with the tenants, do you feel that the CapEx plan or expansion plan has kind of changed it because of what happened in this year compared to the past 2 years? And then the second question is regarding on the future expansion plan. So I'm not sure if the company continue to acquire new land in the next maybe 12 months' time. If yes, do you prefer to expand the shopping mall in the existing cities that you have or to the new cities? If the new cities, then which cities?
Thank you for your question. I think the second question, Ronnie already mentioned, we will be cautious. But of course, if there is a golden opportunities for us to buy something, definitely, we will consider. But I think with all the consideration, we just need to be more cautious about new acquisition. For the communication with the tenant, I just came back from Europe. I spent a week, 4 days in Paris and 2 days in Milan, talking. We arranged over 30 meetings in that 5 days. The fact is people are more cautious again because of the lockdown in Shanghai, the impact. But the long-term or even medium-term view, they are very positive about China. Actually, I have to say maybe they need to rely on China. When we talk to the brands, I have to say in Paris and in Milan, the tourism was booming because they don't have any restriction. And I see a lot of tourists coming from North America because of the recent strong dollar and weaker euro and all that. But they all know that this may not be sustainable because the economy is not as bright as on the surface. At the same time, U.S. is doing quite well this year for their business. But they told us that they really worry about the recession as well, and therefore, the purchasing power and everything will be slowed down. And therefore, if they want to continue to grow, they have nowhere to go but in Mainland China. So I think overall, they are very optimistic. But of course, the noise recently about the lockdown, COVID measure and all that, make them think again. But I don't think the direction will be changed. But even though I would say hypothetically, if let's say they don't want to expand anymore. Look at the situation ourselves versus 10 years ago. I think now we have 7 more. Out of the 7, I can say 5 of them are leaders in that market. So once you are as leveraged to be the leader in the market, when consolidation comes, we may get more market share. So I think if things go both way, at least the situation for us is a little bit different from like 5, 10 years ago. So I truly believe that I will not exactly know what they will do in the next 5 years. But at least so far, I got from them, they are still very positive. They still want to expand. They want to create exceptional experience with the customers in Asia and in China, in Mainland China. However, even though if that may not happen with our portfolio, I believe that we have an opportunity to consolidate from others. So that is something I want to talk about. Yes.
Just to repeat one thing that I have said in the past, and that is we don't mind buying in the same city, but we will also look at new cities. But as far as the new cities are concerned, I'm sorry, John, I won't tell you or anybody else.
And we will find our -- let Simon from Goldman Sachs to raise the last questions for this analyst briefing. Thank you.
Can I have just few more questions? You mentioned about -- and I also appreciate the fact that you mentioned CRM membership has gone up by another 5%. Just wanted to get a sense how you are managing the CRM program, a number of membership, concentration rates per software spending? Do you have any data you can share with us so that we get the sense how…
I think the exact number, I may not be able to tell you. But in terms of acquisition…
You are able to tell me, just don't want to tell him.
Yes. The total number of customer increased by 64%, while the spend was 5% only because of the lockdown in Shanghai, right? So therefore, I think it's like a credit card business. You have to acquire. You have to groom them, and therefore, they will spend with you. And once they spend with you, hopefully, we have some -- we want them to continue to spend more, and you have to continue to acquire as well. So I think the acquisition is not a problem. The key is how we can continue to find the right target customers. I think this is always we talk to the brands that -- I don't want to show you the number only. I want to show you how many qualified target customers. Because if I send 10 million people to you but only to buy your products, it's useless. But if I send you 10 and out of that, 9 people buy your product, it will be even better. So I think the quality of our customers I think is second to none. They are very young. 75% of them are 39 years or below. They are still having that kind of anxiety and also ambition to do well. So therefore, they will continue to spend. And basically, the data are across more or less the same. They come to see us more. They come to visit us more. Even the second year, our retention rate is very high. So I think I'm very confident based on what we have learned in the last few years. We can replicate all our learnings from Shanghai and from other cities and make it even better CRM program. Of course, we will continue to improve. For example, something we can talk about is in Shanghai, we have a launch. In Plaza 66, we have a launch. We are going to build a launch in Heartland 66 which create difference, which creates something different from the competitors. We can provide fashion show. We can provide special dining. We can provide birthday parties for our customers. So I think I would like to continue to build out this one. And in terms of number, I -- sorry, I could not disclose, but I think they are working so well for us and which account for 63%, 64% of our spending, which is quite a big number.
Just back, I think back to Hong Kong, which no one really cares. But then…
No, no, no.
It seems like so. But anyway, you mentioned about a lot of the other landlord been mentioning about localizations. I wanted to get a sense, given your district some of which are Causeway Bay and the Peak, to what extent can you actually localize? And if so, then can you give us a sense on the mix and maybe potential rental impact going forward?
So I think this is a really good question. As I mentioned, if I divided ourselves into 3 districts, which internally we divide ourselves into the 3 districts. Hong Kong East, positive 3%, right? Because they are really local, Kornhill and all the others, they are doing quite well. Kowloon, as a general, plus 1%. Okay? The struggle part, as I mentioned, is the office in Central because of the release from Standard Chartered building, but that one, hopefully, we can manage because including all the numbers that we already work out, we can get up ourselves to 92% occupancy. So we need to work on the 8% remaining, okay? But then back to the Peak Galleria and the Fashion Walk. They are very tourist driven, right? So I think that's why if you go down to each of the project, I think most of the project, including Amoy, including Kornhill, I think the localization has been done and has been done quite well. The key is, I don't want 2 localized Peak Galleria and 2 localized Fashion Walk. When the tourists come back, I cannot reverse again, right? So therefore, some of those, I have to wait. I hope that some announcement already come out that we are swapping the Adidas shop to the others. We are working on those. Those will be welcomed by the tourists in the future. So I think we need to have [Foreign Language]. We need to be ready for -- on both hands and try to be ready when the tourists come back. So I think I will not localize from one extreme to the others. I want to leave some space and hopefully, when the tide come back, we can be turned quickly as well. But all the others, neighborhood mall, basically, the localization was quite successful.
Maybe I'll just add one thing to something that Weber mentioned, which I think is very important. I think it's -- we cannot say that we don't care about Hong Kong. It's still 32%. It's 1/3 of our revenue. So it's still very, very material. Obviously, that's down from the previous few years where it has been continuously reducing as a percentage. But what that brings out to me and I think is a very important point, which Weber also alluded to in his very first response to your questions is that the diversification of our portfolio is now very clear and very strong. So it used to be Hong Kong and Mainland. And in Mainland, it was just Shanghai and non-Shanghai. And very clearly, we've proven now, starting from the last -- the previous half, but also especially in this half, that's just concluded that the cities outside of Shanghai can stand on their own, each city, Wuxi, Kunming, Jinan, Wuhan. I mean fantastically strong cities, giving a lot of contribution, and that's really what's helped us achieve these strong results this half. And so I think going forward, what you will see is a very strong and diversified portfolio rather than one that is just very heavily weighted towards Shanghai. So I think that's a very nice change that we've seen over the past 2 halves. And especially in the stress test situation has proven its value to us and to investors.
Thank you. So this wraps up the analyst presentation for FY '22 interim results. Thank you very much for your participation. We'll see you next time.