Good evening, everyone. A very warm welcome to The Wharf (Holdings)' Interim Results Analyst Briefing. I am Angela Ng from the IR team. You can download the presentation from the QR code on the LED backdrop. Today, our management presenting includes Mr. Stephen Ng, Chairman and Managing Director, and Mr. Kevin Hui, Director and Company Secretary. We will first go through the PowerPoint presentation and then open the floor for the analysts to have the Q&A section with the management. The theme for the presentation is Prudent Balance Sheets with Healthy Liquidity. Let's take a look at the results highlights. Amid the persistent weak market conditions, the group has marked assets to market with impairment provisions for development properties and revaluation deficit for investment properties. We continue to adopt proactive capital management, keeping the gearing ratio at a low level.
Our renminbi assets also serve as a natural hedge, helping to reduce borrowing costs. Meanwhile, the liquid long-term investment portfolio not only preserves capital strength but also delivers a satisfactory return. In the first half of the year, the group's underlying net profit was HKD 2 billion, on par with the same period last year. Interim dividend per share also remained unchanged at HKD 0.20, representing a payout ratio of 30% of underlying net profit. Here is more details about our financial highlights. Due to lower recognition in Mainland development properties under depleting stock, the group revenue decreased by 19% to HKD 5.7 billion and operating profit by 14% to HKD 2.7 billion. As a result of lower impairment provision and revaluation deficit comparing to last year, the group reported a profit turnaround to HKD 535 million. The group has maintained a healthy capital structure with low leverage.
Net debt remained low at HKD 6.5 billion, equivalent to a gearing ratio of 4.4%, with all debt in renminbi and effective treasury management. Average interest costs reduced by 1.5 percentage points to 2.4%. Interest cover was healthy at 13.4 times. We remain focused on our core businesses, namely Hong Kong and Mainland properties, hotels, and logistics. With over 60% of total assets are in premium properties in Hong Kong and Mainland China. Our business sustainability is underpinned by strategic timing. The decision to suspend land acquisition in Mainland China in 2019 effectively reduced our portfolio risk. At the same time, we shift capital to Hong Kong projects, which are all progressing well. In the next few slides, we will walk through our business segments in the order of Hong Kong properties, Mainland IP, Mainland DP, hotels, and logistics infrastructure.
In light of the improving market conditions, the launch of tender for the group's Peak portfolio is proceeding as planned, and marketing for 1 Plantation Road is underway. In May this year, Mount Nicholson set another apartment price record, with a penthouse sold for HKD 609 million or HKD 144,000 per sq ft. As of now, over 90% of units have been sold at Mount Nicholson. Attributable Hong Kong DP revenue was HKD 475 million, mainly from the recognition of the large house at 77 Peak Road. As at the end of June, our Hong Kong residential land bank amount to 2.8 million sq ft. Regarding Mainland investment properties, overcapacity is still a challenge for the sector. Meanwhile, consumer sentiment remains soft and e-commerce evolving rapidly, the retail competition continues to intensify.
However, our flagship malls, Chengdu IFS and Changsha IFS, continue to see solid occupancy of 93% and 97% respectively, underpinned by their scale, prime locations, and continuous efforts of tenant mix and marketing. Meanwhile, office oversupply situation persists. As a result, our Mainland IP revenue slipped to HKD 2 billion and operating profit to HKD 1.5 billion. Moving on to Mainland development properties. Subsequent to suspension of land acquisitions after 2019, our DP stock was 1.2 million sq m. Net book value amounts to HKD 17.2 billion. Most of our residential inventory has been sold, while other stocks remain slow-moving. Impairment provisions was made accordingly. We are closely monitoring how the recent policy changes may affect the industry outlook. Moving on to hotels. Wharf Hotels currently operates 16 hotels under Niccolo, Marco Polo, and Maqo brands, mainly in Hong Kong and Mainland China.
Park Hyatt Changsha is the group's only hotel with outsourced management. Overall speaking, room rates have declined as traveler cut back on spending. Occupancy trends are mixed. Hong Kong saw a boost from rising tourist numbers, while Mainland performance was dragged down by growing hotel and destination choices. Turning to our logistics infrastructure. Trade tension is disrupting the cargo flow, while the restructuring among major shipping alliances has been unfavorable to Hong Kong's port. Modern Terminals throughput in Hong Kong declined by 3% in the first half, and improvement may not be seen in the second half. Looking ahead, our project pipeline will focus on Hong Kong development properties. Completed or to be launched projects include 1 Plantation Road, 8 Lung Ting Lane in Kowloon Tong, and Victoria Voyage in Kai Tak, which will be launched the first batch this week.
While those under development include Mansfield Road project and Kowloon Bay redevelopment project. Looking forward, the group remains vigilant amid ongoing geopolitical tensions and a complex environment. As reflected in the theme of this results announcement, we are committed to maintaining a prudent balance sheet and healthy liquidity to navigate the macro headwinds. In the last part of the presentation, I will walk through our efforts in ESG. Wharf Holdings maintain strong ESG ratings and green building certifications, including A rating in MSCI ESG assessment, LEED Platinum, and BEAM Plus provisional platinum ratings. Also, the group's near-term science-based targets were approved by SBTi. We aim to cut Scope 1 and 2 emission by 42% and Scope 3 emissions from capital goods, downstream leased assets, and investment by 25% before 2030, using 2022 as the base year. Our accumulate green financing amount to HKD 23.6 billion.
Sustainable financing made up 52% of our total financing as of the end of June. We are dedicated to various business in-community initiatives, including our flagship project, Project WeCan, which supports youth development. We are also an active supporter of Community Chest. Same efforts are placed to uphold the standard of business ethics and corporate governance. That concludes my presentation. We will now proceed to the Q&A. Before we begin the Q&A section, just a quick housekeeping notes for our analysts. If you have a question, please raise your hand and our hotel staff will bring you a microphone. Kindly introduce yourself and your organization before asking the questions. You may feel free to ask no more than two questions each time. Now, may I invite Mr. Ng and Mr. Hui to come to the stage, please. Please feel free to raise your hand if you have any questions.
We will have the first question from Cindy.
Hi, thank you. This is Cindy from Citi. Two questions. First question on your capital deployment priority. Obviously you have super low gearing and the funding cost is reduced. Do you think it is maybe about time for you to more actively looking for new investment? I think the last time you mentioned most interested in Hong Kong luxury, maybe open for new investment, for co-investment with Wharf China or Mainland China. Are those two areas still on your radar or anything new?
The second question is on Mainland China retail. You mentioned first half there is still competitions ongoing, do we see any, maybe sequential improvement in the second quarter or about May and June? How should we think about, say, second half reversion outlook? Specifically, I think IFS should be doing well, how about Times Square and Times Outlets? How are our measures to improve the competitiveness of these older malls? Thank you.
Thank you for your questions. Generally, we are in no hurry to reinvest. The macroeconomic conditions are uncertain. We are quite happy to continue to be selective about new investment. In the meantime, if possible, we will accelerate the monetization of existing assets. Both on the Mainland and in Hong Kong. For instance, in Hong Kong, one of our joint venture development properties project in Kai Tak, it is led by COLI, they are project managers. This project is coming to the market this week. They have already pre-sold six units, by special tender. Good price, only six units, we need a lot more volume to make it a good project. In the Mainland, we do not have a lot of residential stock left. When I say residential, I mean general residential. We have some residential stock, which is subject to en bloc sale restrictions.
They are not simple residential deals. We need to look for special buyers. We're in negotiation, but I don't have any particular news to announce at this stage. For retail on the Mainland, competition continues to be stiff. There is a minor letup in the second quarter, but minor is the word I need to underline. We're not expecting much upturn in the third quarter while the trade war, the tariff war, is still very uncertain. That is why generally we take a cautious approach to the second half.
Thank you. May we have the next question from Karl Choi, Bank of America?
Hi. I'll ask two questions, both on Hong Kong property. First is, I think it was mentioned during the presentation that you saw stabilization in the Hong Kong residential market. Can you just give it a little bit more color on the outlook? I think some people are thinking that maybe we have reached the bottom. Do you agree? Second is, I think the financial services secretary has been talking to the central government regarding launching the so-called Property Connect, allowing Mainland talents to move their capital to buy property in Hong Kong. I think there are definitely concerns about loopholes for capital flight. Do you think there can be enough to be done to make sure that Beijing is comfortable? What other measures would you think that actually the Hong Kong government could introduce that would be helpful?
I think the industry association supposedly sent in some message out today based on these reports. Anything that you can add? Thanks.
Thank you. I'm in no position to advise the financial secretary. He knows much better than I do. I hope whatever he has in mind materializes earlier rather than later. Generally, I think the supply pipeline for residential properties in Hong Kong has slowed down. Supply, the new pipeline. The old pipeline's there and there's some slow stock in various projects. At least the new pipeline has slowed down, which is positive news to rebalancing supply and demand. Hopefully, interest rate will continue to stay down and trend down. That would help. If more buyers are able to come into the market through the schemes that you're referring to, that would obviously also help. What we are seeing we are a relatively small player in the marketplace, and we're somewhat of a niche player at this stage. Whatever we see cannot be representative of the entire market.
What we see is an improvement in viewing. Viewing doesn't cost anything until they write the check. Prices are still, or rather, potential buyers are still tight with what they offer. That's not surprising. At least there's more interest, and hopefully when enough interest builds up, it will just take a trigger for interest to turn into sale. In a way, we're slightly less pessimistic about the Hong Kong market. I can't say we're too optimistic yet.
Thank you. May we have the next question from Mark, UBS?
Yep. Thank you, management. I have a big question, first of all, regarding on the China luxury retail. We see the top-line revenue was declining. Just could you remind, what is the rental reversion and also maybe the occupancy cost, just for housekeeping? I think that's the first questions. I think the second question is regarding on the development property side. I recall that we continue to see doing some provisions. Just want to check in our existing book, do you see any further provision needed for our Hong Kong and Mainland properties? Last question is, could you give us some update on the upcoming project, like the Peak portfolio, when it's going to be completed, and I think the eye-catching is the Yau Tong Bay project. Thank you.
Okay. Sure. First of all, retail rental reversion. Generally, we see stable rental reversion, what is currently missing is turnover rent momentum. The market is competitive in that new malls are springing up in a lot of cities. When you have more supply, again, there's tendency to be competition, additional competition. The occupancy cost you asked about. Generally, the occupancy cost for our main malls are in the low teens. It's crept up a little bit. Used to be better. With the decline in sales generally and the relatively smaller decline in rent, occupancy cost has crept up a little bit. Residential properties in Hong Kong. You asked about Yau Tong Bay joint venture. That particular joint venture, I have no progress to report. It's not going anywhere. It's still a standoff between the ask and the bid in terms of modification premium and all that.
There is no progress to report on that one. The active ones, Angela already highlighted. The active ones we're putting on the market right now is we're still selling what remains of Mount Nicholson. 1 Plantation Road, we're doing soft marketing. Victoria Voyage, the joint venture, it's coming to the market, to the general market this week. Hopefully before the end of the year, we'll be marketing the Kowloon Tong property. Those are the more active ones, the more immediate ones. The other Peak properties, Mansfield Road, they have a much longer development cycle, and I don't see them coming to the market anytime soon. Going back to a question which Cindy asked, which I hadn't addressed, was the smaller Times Squares. Your question reminded me.
The smaller Times Squares are actually finding themselves in a tougher competitive environment because they are smaller, because they are older, unlike the larger IFS malls. I may have already talked about this last year. You will have noticed that we took an IP revaluation hit last year, and that mainly referred to the smaller Times Squares. Whether or not we will continue to see IP revaluation deficits and/or DP impairment provisions, it's a function of the market because we mark them to market. If market moves, we move.
We're passive in that regard. We're not an active player in terms of marking to market.
Thank you. Please feel free to raise your hands if you have any questions. Mark from UBS.
Yep. Sorry for taking another question. I got a few more questions. I think the first one is I usually like to ask management is about regarding on the tenant sales outlook in Hong Kong and China in second half. Which region do you think will outperform? I think that is the first question. The second question is also regarding on the Times Square, the AEI, which we also talked about last week. Do you see any Mainland retail malls are subject to AEI in the future? What kind of CapEx we are targeting. Last but not least is definitely we see a pretty good growth in our property portfolio with a pretty balance between the economy and property. In the future, would you like to make any adjustment, for example, profit-taking the property, stock, et cetera. Thank you.
Okay. AEI is a constant factor in our business. It's AEI at a manageable level. We don't go over the top unless it's necessary. We don't see a major AEI requirement for our Mainland malls in the near term. The regular AEI we will continue to do. Investment portfolio. I should point out that we have not been adding or subtracting from that portfolio for some time. The movement in value is primarily a function of market movement rather than addition or subtraction. We have no immediate plan to add to that portfolio. Whether or not we would subtract from it depends on, obviously, a number of factors, including, in particular, whether there is a need for us to monetize it for a different purpose. Otherwise, we will be quite happy to continue to park it where it is. They are stable preservation of capital.
They represent stable preservation of capital. They pay a good yield. That's what we are quite happy to hold on to until there is a need for cash.
Second half retail outlook.
Second half retail outlook in Hong Kong?
Versus Mainland China.
Okay. All right. Mainland China is what is relevant, so I will deal with that first. I think a lot of people want the total retail sales in Mainland China to be stronger. To be correct, retail sales in Mainland China continues to grow based on government statistics. Our malls are not seeing the sales growth, partly because of competition, because there are more malls. Some of the new competition will become older competition and may become less aggressive in discounting. What we faced in the last 12 months or longer is discounting by new malls coming into the market. Understandably, they would do so. Hopefully, once they reach a more stable, a more mature competitive position, they would let up a little bit on the discounting.
I think retail sales at our malls in the Mainland would probably still come under pressure in the second half. Hopefully, slightly less than in the first half.
Thank you. Next question from Karl, Bank of America.
Hi. Two follow-up questions. First is regarding the port segment. Obviously, Hong Kong has been losing throughput market share for the last decade or more. What's the company's longer-term strategic thinking about the ports business? Is it more waiting for the Obviously, we know about the warehouse development. Is it more waiting about for the area to be rezoned? Given the fact that port assets have very important strategic importance globally, seemingly. Would there be any appetite to monetize it if there's offers made? Second is regarding your Greentown investment. You always treat it as a long-term investment. Given some of the recent changes in management over there, has that changed your thinking about Greentown? Thanks.
Okay. Thank you. The port business it's actually going through an interesting time. There's a mega deal in the market that you all know about. I'd like to see the outcome of it first. As far as we know, Hong Kong and Shenzhen are excluded from the deal. What becomes of the entity post-deal is precisely Hong Kong and Shenzhen. We're watching with keen interest as well. Hong Kong has been overtaken by Shenzhen a long time ago. Nansha has overtaken Hong Kong as well. There are natural reasons, geographical mainly, cost reasons.
Cost not so much because the terminals here charge more than the terminals in Shenzhen or in Guangzhou, but more so because of distance from the source or the destination of cargo, and therefore time it takes, and time and cost it takes to ship between source and terminal, or terminal and destination, and so on. The shipping lines are not exactly playing a fair game either. In fact, you may be aware shipping companies charge a so-called terminal handling charge, THC. They typically charge a THC. By the way, the THC is what they charge their customers, the shippers. Typically, the THC is a multiple of what we charge the shipping company. Their markup is what is making Hong Kong expensive, a lot more than what the terminals get.
I suppose in a free market, it's up to them to decide how much they mark up. The bottom line is, cargo throughput in Hong Kong will continue to suffer. We saw an unusual situation in the first half of this year for two main reasons. First, the tariff war. In an attempt to preempt the tariff war, maybe, there was unusual movement in cargo in the first half. That's clearly a major factor, and hopefully that's a non-recurrent factor. Another factor which affected the first half of this year was the realignment of shipping alliances, the net result of which is to decrease cargo flow through Hong Kong. During this transition period, Hong Kong happened to have benefited. It was the dawn before darkness, not the darkness before the dawn. We had an exceptional bout of cargo as the shipping alliances restructured their deployment.
That came to an end in June, so we no longer benefit from that particular factor, and therefore cargo, in June and July for Hong Kong as a whole, is soft. That will obviously flow into the second half of this year. You will have seen that we reported earnings growth in the first half, which was unusual, and non-recurrent. I can say that. Greentown. The management is substantially the same management. The Chairman has changed, but the new Chairman is non-executive. The executive team is substantially the same team. We don't see any immediate change in the way the management functions. The market is a tough market. Let's be honest about that. Greentown, even before this board change, has always had its problems, and those problems have not gone away. It's got a relatively smaller balance sheet than the other main players.
The four SOEs, the Poly, COLI, China Merchants, China Resources, and so on, they are a lot bigger in balance sheet. Greentown is significantly smaller. To answer your question, there is no change in management or in management direction as far as we can see. It is a tough market, and you will have seen the profit warning it published a couple of days ago. It's partly because of timing, but the underlying market itself is not strong. We continue to be a long-term investor, and we have no immediate plan to change that position. Very long way to answer your question, sorry.
Thank you. We will have the next question from Jeff, DBS.
Hi, management. The Wharf (Holdings) is going to launch a few projects in the coming years, we expect some sales proceeds. How should we think about the use of the sales proceeds? Should we expect the company will turn into a net cash company anytime soon? We should expect the sales proceeds will be deployed into the long-term investment portfolio? If you would like to pay down the debt, majority of the debt are denominated in renminbi, it still makes sense because it is used as a natural hedge against its investment in China.
Good question. First of all, yes, there will be DP sales launch. The one which is happening immediately is a joint venture project. The first thing that would happen, I would envisage, is sales proceeds coming in will pay down joint venture debt. This debt in the joint venture. I don't suppose the equity partners will be receiving a lot of distribution too soon. It's not a "problem" that we need to address until that cash is upstreamed from the joint venture. The other projects that hopefully we'll be able to sell, Mount Nicholson, 1 Plantation Road, and so on and so forth. The numbers will be smaller in the sense that the total project may be large, but the speed of sales is nowhere near the kind that we look at for Kai Tak.
The cash flow will be gradual, and being flush with cash is a nice problem to have. Unfortunately, I don't think we'll be in that position too soon.
Thank you. Any analysts still have questions? If there is no more questions, we will conclude the briefing here. The webcast of the briefing will be uploaded to our official website tonight. Thank you for joining today.
Thank you.