Good evening, everyone. A very warm welcome to Wharf (Holdings) interim results briefing. I'm Angela Ng from the IR team. You can download the PowerPoint presentation from the QR code displayed on this LED backdrop. This backdrop photo showcases the new Park Hyatt Hotel in Changsha, which is owned by our group. It marks Park Hyatt's debut in Central China, this is also the third hotel at our Changsha IFS. Let's move on to the results briefing. Our management today includes Mr. Stephen Ng, Chairman and Managing Director, and Mr. Kevin Hui, Director and Company Secretary. I will first go through the PowerPoint presentation and then open the floors for the analysts to ask questions. The theme for the presentation this time is Capital Values Fall in the Lethargic Market. In the challenging macro environment, most markets have lost vibrancy.
Consumption and investment in property sector also stalled. Although most business segments of the group were not spared from the weaker performance, UNP was maintained stable at HKD 2 billion. The fall in capital value led to non-cash IP revaluation deficit, result to a group loss of HKD 2.6 billion. The group adheres to a prudent debt management and gearing maintained low at 6.2%.
The slides show more details on the financial performance. As a property-focused company, Hong Kong and Mainland Properties account for over 60% of group revenue, while hotel, logistic, and investment are the other key contributors. Group revenue decreased by 14% to HKD 7 billion, OP maintained relatively stable at HKD 3.1 billion. Under the weak sentiment in Mainland China, we prudently made a provision of RMB 0.6 billion on Mainland DP, which is lower than the same period last year. Interim dividend was steady at HKD 0.20 per share.
Let's take a closer look at our Hong Kong and Mainland Properties assets. The group has taken a prudent approach to capital allocation. Strategic relocation of capital was made to Hong Kong properties, there was no replenishment for Mainland DP in the past few years. As reflected in this bar chart, we see that the contribution from Hong Kong property, to the book value, has increased notably from 2018. Currently, there is a full project pipeline in Hong Kong, including the Peak Portfolio, Kowloon Tong Project, and Kowloon East Portfolio. Majority of the projects are under development. For Mainland DP, it mainly comprises some slow-moving residential and office stock. To mitigate the high HIBOR impact, total debt of the group was reduced to HKD 19.3 billion, which is the lowest level in the decade. We also adjust the debt exposure with majority in RMB as natural hedge.
As a result, average interest cost was lower to 3.9%. Our net debt remained low at HKD 8.7 billion with total equity of HKD 140 billion. Our long-term investment portfolio continued to provide liquidity. Market value of listed equity was HKD 30 billion, HKD 1 billion dividend income was booked to P&L. We will walk through our business segments in the order of Hong Kong properties, Mainland IP, Mainland DP, hotels, and logistic infrastructure. Our Hong Kong properties comprise a rare collection of highly unique properties, including the ultra-luxury Peak Portfolio. In the first half, the group sold and booked one apartment at Mount Nicholson with selling price of HKD 600 million, equivalent to HKD 131,000 per square foot . Our Hong Kong residential land bank amount to 2.8 million square feet . All projects are progressing on track. Moving on to Mainland investment properties.
Mainland retail market is facing a slowdown in domestic consumption, partly due to leakage overseas. While for office, it continues to see deteriorating supply and demand imbalance. All these factors impose pressure on both occupancy and rent in the IP segment. As a result, Mainland IP revenue decreased by 2% and operating profit by 4% in RMB terms. Moving on to Mainland Development Properties. The market floor is forming given the supportive policy, but we believe it still takes time to rebuild sentiment and market confidence. For the performance of our group, due to lower ASP and less sellable inventory, our attributable contracted sales decreased by 48%. Net order book was RMB 0.6 billion. Mainland DP stock, including both developed and undeveloped, decreased to 1.3 million square meters. A provision of RMB 0.6 billion was made on some unsold stock. Moving on to hotels.
Wharf Hotels currently operates 16 hotels in Hong Kong, Mainland China, and the Philippines across three self-owned brands, namely Niccolo, Marco Polo, and Maqo, which is a new premium lifestyle brand debuted at Changsha IFS in last November. Separately, Park Hyatt Changsha was opened at Changsha IFS in June this year. This represents the first owned hotel, but not also operated by the group since the mid-1980s. In line with the market trend, overall hotel performance declined year-on-year, particularly in room rates. Turning to our logistics infrastructure. Hong Kong port business lost vibrancy under restructuring of supply chains and heightened regional competition. Hong Kong throughput dropped by 7% year-on-year. Modern Terminals, our 68% owned subsidiary, has been proactive in capturing the opportunity from growing demand of logistics facilities, and it is currently developing a new logistics center at terminal two of Kwai Chung Container Terminals.
In the next slides, we will take a look at our project pipeline, outlook, and sustainability. In Hong Kong, one Plantation Road is completed and other projects in the pipeline include Kai Tak JV Project, Kowloon Tong Project, Mansfield Road Project, and Kowloon Godown Redevelopment Project. The new logistics center by Modern Terminals is expected in 2027. In Mainland China, the high-rise apartments at Changsha IFS Tower 2 will be completed next year. Looking ahead, the business outlook remains clouded by macro uncertainties and volatility. The group will remain prudent in financial management and seize opportunities to drive business performance under economic headwinds. In the last part of the presentation, I will walk through our efforts in ESG. Wharf Holdings maintain good ESG ratings and numerous projects are awarded with green building certifications, including LEED Platinum.
As of June this year, 40% of our outstanding bond and loan facilities was sustainable financing. We are also committed to various business and community initiatives, including our Project WeCan, which supports youth development. In addition, we are also active in supporting the Community Chest and continuous efforts were made to promote a safe and healthy workplace to our staff members. Same efforts were also placed to uphold the standards of business ethics and corporate governance.
That concludes my presentation. We will now proceed to the Q&A section. A quick housekeeping note for the analysts before we begin. If you have any questions, please raise your hand. Our staff will provide you with a microphone. Please identify yourself and state the organization you represent before asking the question if I did not do so. 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. Thank you. Now may we take the first question from Karl Choi, Bank of America?
Hi, a couple questions. First is on the Hong Kong DP market, especially in the high-end market. I think in the slide you described the first half as quiet. Can you give a little bit more color, especially since your own projects in both the Peak District as well as in the Kowloon area. I think there was a distress sale on Plantation Road recently, there was record-breaking price at one of your peers' project over at Beacon Hill. Any big difference in the market conditions between the Hong Kong Island side or Peak area versus Mainland China? Second is, for IP, there was a decent-sized revaluation loss. Just want to get a little bit more color. Was it cap rate driven or just the changes in rental outlook?
Second question deals with the IP.
In China, the revaluation loss.
The outright luxury market in Hong Kong, property market in Hong Kong, was generally quiet. We did not have a lot of stock in the market right now. We do not typically sell on a pre-sale basis. That is the nature of that sector of the market. Therefore, the Kowloon Tong Project is not yet in the market. When it is closer to project completion, we will finalize our marketing plan. On The Peak, we have a few units left in Mount Nicholson and one house at 77, 79 Peak. We only concluded one sale in the first half of this year. Generally, quiet market as the slide indicated. We are now preparing, depending on market conditions, to get ready to sell number one Plantation Road. Not the entire project, but a few houses.
We will pick a few at the beginning to see whether the market likes it or not. That is likely to be later, much later this year than, for instance, next month, unless market development suggests we should do it a lot earlier. That is the way we see the state of the luxury market in Hong Kong. In Mainland IP, yes, we actually booked a fairly large, as you pointed out, revaluation deficit. At the same time, we wrote back a deferred tax, because unlike in Hong Kong, there is capital appreciation tax in the Mainland. In the past, when we wrote up the value of an investment property, we had to make allowance for the increase in deferred tax. Now that the valuation has been written back down, we were able to write back some of the reserve for depreciation for deferred tax.
The deficit related mainly to offices and retail. Offices because of the general oversupply, and retail in respect of our smaller malls, which are becoming less competitive. As far as our major Mainland malls are concerned, their values stay substantially unchanged. Probably fell a little bit, but not because of the major malls. It is the smaller malls, which as a result of development. Well, by smaller, it also means older. Older and smaller malls, which are less competitive than the newer, bigger malls. That is where they came from.
Thank you. May we have the next question from Cindy, Citi?
Thank you. I have two questions. First is capital deployment, actually. Appears you could actually become a cash company in just a couple of years, I guess. Just wondering if this is something that you are looking for, and also wondering what condition or what signal could make you to become a little bit more positive or aggressive in terms of investment? This is the first question. Second question, mainly on China DP, actually. You mentioned at the slides that you think China is forming a bottom of the property market. Just want to hear a little bit more on your thoughts regarding this, and would that mean you may start to consider, say, investing a little bit more in terms of China DP? Thank you.
Okay. Second question first. Central government has announced a number of policies and taken a number of measures in an attempt to stabilize the housing market. There, we're referring to the housing market specifically, not offices or retail, but housing. When we talk to many of our peers, our Mainland peers in particular, who are bigger and closer to the market than our Hong Kong peers I'm beginning to get more and more feedback from our peers that they feel a bottom is forming. Obviously, that's barring unforeseen circumstances. All right? They feel a bottom is forming. It may not be a V-shaped rebound, but at least they feel the further downside risk is limited. How quickly the market will recover from here in both volume and price, the opinion is very varied. It's quite diverse. We take a relatively conservative view.
We're not expecting a sharp rebound, I don't think we are in the minority among investors. Whether or not we would be interested in investing in new land, possibly, there is a phenomenon which is becoming more and more obvious in the land sale market in Mainland China. The buying interest tends to be very focused, very concentrated right now. In Shanghai, they sold five plots of land yesterday. Three or four of them were sold at reserve price, the last one was hotly contested. The mediocre sites, very little interest, the good sites, everybody's after. It means the risk-reward balance is still uncertain. Would we chase the mediocre sites? Probably not. Would we chase the hot sites?
Possibly, the probability of getting one of those sites is not as high, secondly, because of the pursuit by various other people, the land cost itself will be higher. We're not in a hurry to jump into that market yet. Depends on how things change. Okay. The first question was-
Capital deployment
cash company. We're not a cash company. No, not yet. Our debt level is relatively low. While on the subject of debt, as one of the slides indicates, we've been changing the currency composition. We've been borrowing renminbi more. That's a natural hedge because, over the years, we've invested a fair amount in renminbi assets. In previous years, we borrowed Hong Kong dollars to fund the renminbi assets because Hong Kong dollars were much cheaper. Now that's, of course, reversed, so in the process of the currency reversal, we've accelerated our conversion of debt from Hong Kong dollars to renminbi as well. An added benefit to that is where possible, we try to borrow onshore, and the onshore borrowing would give us tax deduction as well.
When we used to borrow offshore in Hong Kong dollars, we realized we couldn't get the tax deduction, but when the interest differential was big, it still made sense for us to borrow Hong Kong dollars offshore. Now that's changed, and we're trying to move everything onshore. Our debt level would probably stay low in the coming years as hopefully we'll be able to bring more of our renminbi investments back to Hong Kong. Our Hong Kong projects will take up additional capital, the development properties, and also through Modern Terminals, the new project in Kwai Chung, and which is why Angela showed you a slide which indicates that in the last five or six years, the ratio of our Hong Kong properties to Mainland Properties has significantly shifted in favor of Hong Kong, and we see that continuing.
Thank you. May we have the next question from Mark, UBS?
Thank you, management. This is Mark from UBS. I have two questions. The first question is follow-up on the ultra-luxury residential market in Hong Kong. You mentioned it is more like a quiet market condition, but on the other part of the island, like in Beacon Hill, Mo nt Verra actually reported maybe really a significant contract of sales and broken ASP. Just want to check, have you observed a fundamental preferences changes for those Mainland tycoons? Do they still prefer to live in The Peak, or now instead they want to live in The Peak of the Kowloon Peninsula? That's the first question. The second question is, obviously you mentioned we don't have any plan to buy land in Mainland in the near term but how about for Hong Kong.
We will buy more ultra-luxury residential land in Hong Kong, or we will also expand into the mass market residential. That's the second question. The third question is not sure, can you maybe share with more details on how the Mainland luxury mall tenant sales are doing year to date for our mall in Changsha, Chengdu, and Chongqing, especially, we are seeing more intensified competition going forward.
Well, the luxury market is very thin in any case. The fact that there were, I don't know, five, 10 transactions more on Kowloon side than on Hong Kong side, I don't think it's any indicator. Overall, there's more demand on Hong Kong Island than in Kowloon, if you take a longer view. The fact that we don't have a lot of stock in the market would tell you that our sales performance is not indicative of the market either. Next time we come to the market, probably towards the end of the year, we'll have a better idea where the buyers are coming from and what their interest is. If indeed the U.S. Fed delivers on a lower interest rate sometime soon, hopefully that would encourage more buying interest. Because that would, A, hopefully bring about a weaker Hong Kong dollar as well.
As for our Mainland business, the luxury is obviously weaker than before. Is it weaker than non-luxury? Not by that much. We have to take account of another factor affecting the luxury market. What we see reported mainly come from European Western luxury brands. They're actually losing share to domestic luxury brands. That's another factor. Overall, however, both luxury and non-luxury are seeing weaker sales generally. Clearly, they are star performers, but generally, both are suffering. Part of the reason is the parallel trading, parallel import mainly from Japan. Sometimes I'm puzzled why that can happen so extensively because the people who are behind the organized parallel imports, the Daigou, they're evading two taxes. They're evading, A, import duty, B, VAT. I would have expected law enforcement agency to be going after them a lot more aggressively.
They may be, I don't know. With the currency changes, which we started to see recently, that may become less of a factor. We don't know. Which other part? Oh, Hong Kong, a land acquisition in Hong Kong. Yes, if there's good land. Depends on location and whether that fits our profile. Thank you.
May we have the next question? Raymond, HSBC.
Thank you management for taking my questions. I have two questions. The first question will be related to Hong Kong properties. As you mentioned that you probably launch some project, maybe towards the end of this year. I believe there's one slide, maybe slide 19 or 20. There are four projects adult. Can you share with us your launch pipeline instead of completion timeline for the Kai Tak project, which your JV one, like the Kowloon Tong one, and two Mansfield Road site in the next two to three years' time based on your expectation of timing of launch? The second question is the capital allocations. Management just mentioned about you're not interested in buying land in Mainland China in near term. Hong Kong may be interested.
I would like to know, based on the management views, what are the interesting opportunities that you are seeing across all the business that you focus on? Which one do you want to deploy more? Should we anticipate that you will deploy more capital to your long-term investment portfolio? Thank you.
Okay, thank you. Projects in the pipeline, most of them are ultra-luxury projects. The characteristic of the sale of these ultra-luxury markets is that buyers want to look at finished products and buy finished products rather than buy off plans. In the case of Mansfield, they are some way off from completion, and they won't be hitting the market for at least two years. Kowloon Tong, 2025, sometime next year. One Plantation Road, that's the one I was referring to, about possibly later this year towards the end of the year. Kai Tak, we're now looking at what is the best time and how to do it. That is the project sale timeline. Which business segments to put the capital in. Clearly, properties. That's one area. We have some commitments. We bought sites, we need to build them.
We're interested in more properties of the right kind. The Modern Terminals project, through a subsidiary, will also consume capital. In that case, we're now working on the foundation. If you happen to drive past terminal two, you will see a big construction site. The site is big. It's a little over three hectares. On your way to the airport, when you drive past the container terminal, you see currently two very large logistics buildings. One is called ATL and the other one is Hutchison. They're almost next to each other. Where we're building is almost adjacent to ATL, the other side of Hutchison. The three of them will be very close to one another. Our project on completion will be about half the size of ATL. ATL is huge. It's the market leader right now.
Our target is to beat ATL in terms of product standard. Hopefully, we'll be able to do as well as, if not better than ATL in the market as well. That project won't be completed until 2027. Although there is no land cost, construction will take several billion HKD. I know the Modern Terminals team is already in discussion with various banks about financing it. That's another application of capital within the group. Otherwise, we haven't identified any specific sector where we are ready to commit major capital yet.
Thank you. May we have the next question from Jeff, DBS.
Thank you, management, for taking my questions. I have two questions. The first question is related to the future investment, given the low gearing. Is Wharf (Holdings) interested in the distressed sales in the Hong Kong commercial market? Or if there's any good investment, it should be taken by Wharf REIC, because this is a commercial asset. The second question is, in your opinion between Hong Kong, China, the luxury sales in Hong Kong or China are more likely to recover in the future?
Are more likely to
Recover.
Recover. Well, both are likely to recover. The question is how quickly and how soon, and how much. I think the two markets are different. In fact, the competition from new supply on the Mainland is greater than the competition from new supply in Hong Kong. I have commented that there's oversupply in the Mainland in almost every sector. Office, clearly, residential, clearly, and even retail. There's a similar issue in Hong Kong, but to a lesser extent probably. Partly because land in Hong Kong is rare. Whereas in the Mainland, even now, there's more land supply. If you take additional supply into account, I would suspect Hong Kong stands a better chance of recovery. Obviously, there are many other factors. Maybe next year when you ask me the same question, I may have a different answer.
For the time being, I would probably think it's Hong Kong. To your first question, if there is good commercial property in Hong Kong, whether Wharf (Holdings) would be interested in doing it. Not as likely as real estate investment, REIC. We're more into development than in commercial. I hope that answers your question.
Thank you. Is there any more questions from the floor? Mark.
Thank you, management. I think just now your comment is quite interesting. You mentioned for HK will be more into developments than on the commercial.
In Hong Kong.
In Hong Kong.
In Hong Kong.
Oh, I see. I was going to ask, what is our plan for our commercial project in Mainland.
No, no, in Hong Kong. Sorry, I should clarify.
Okay. Thank you very much.
All right.
Thank you, Mark. Is there any other questions?
Yeah. I think the question was in relation to Hong Kong. I think. Thank you for providing me a chance to clarify.
If there is no more questions, I will conclude today's presentation. The webcast will be uploaded to our corporate website afterwards. Thank you everyone for joining.
Thank you.
Thank you.