Good evening, everyone. A very warm welcome to The Wharf (Holdings) final results briefing. You may download the PowerPoint presentation on this QR code on the LED wall, and the webcast of the event will be uploaded on our corporate website afterwards. Our management today includes Mr. Stephen Ng, Chairman and Managing Director, and Mr. Stephen Fu, Financial Controller. I am Angela Ng, Investor Relations Manager. Same as before, I will start with the presentation, followed by Q&A section with our management. The theme of the PowerPoint this year is "Profit Attained with Smaller Property Provisions". The mainland property market remains subdued amid the weak buyer sentiment, and office sales market was particularly challenging. We remain prudent, with no land replenishment for mainland DP since 2019. With lower sellable inventory on hand, total property sales declined by 44% from 2022. Net order book at year-end decreased by 75%.
During the year, attributable impairment provisions totaled HKD 1.9 billion, mainly for the slow-moving office stocks in mainland China. The provision is substantially lower than 2022. As a result, UMP after the provisions improved by HKD 3.3 billion and attributable profit improved by HKD 2.7 billion. Looking at our segmental breakdown. As a company focusing on premium property, mainland and Hong Kong properties account for around 70% of total assets, group revenue, and operating profit. Revenue and profit from hotels surged after borders reopened, while logistics and investments are the other key contributors to the group. The tepid macro environment resulted in an uneven recovery among industry post-reopening. Translation from the weak RMB understate the performance of our mainland businesses when expressed in Hong Kong dollars. Group revenue increased by 5% to HKD 19 billion. UMP surged 11 times to HKD 3.6 billion due to a lower impairment.
Dividend was steady at HKD 0.40 per share for the full year. Despite the high rate environment, we successfully lowered the average interest cost in the second half to 2.5%. Average interest cost for the year was 4.7%. Total gross debt reduced to HKD 92.4 billion, which is the lowest in over a decade. To help manage borrowing costs better, Hong Kong dollar debt was cut by HKD 9.2 billion, with RMB debt ratio improved to 74%. With total equity of HKD 148 million and a net debt of HKD 7.8 billion, gearing remained low at 5.3%. Our long-term investment continued to provide strong liquidity and dividend income. Market value of listed equities was HKD 34.6 billion at year-end, and HKD 2 billion dividend income was booked to P&L. Around HKD 7 billion of total return was made after mark to market since 2018.
We will walk through our business segments in the order of Hong Kong properties, mainland DP, mainland IP, hotel, and logistic infrastructure. Our Hong Kong properties comprise a rare collection of highly unique properties with longer selling cycles than the mass market. This insulation somehow protect them from the broader market downturn. Attributable contracted sales was HKD 289 million from a house in Mount Nicholson. Mount Nicholson also recorded a sale of an apartment in January this year for HKD 600 million, equivalent to HKD 131,000 per square foot. Total land bank in Hong Kong amount to 2.8 million square feet, comprising also projects at some key locations in Kowloon, which are all proceeding according to plan. We believe the recent removal of stamp duty could help expand buyer catchment. Moving on to mainland DP. The weak confidence and economic uncertainty weigh on market sentiment. Demand will be taking longer to rebuild.
As office oversupply is getting more serious, we prudently made a provision on the slow-moving stocks. Amid the volatile market, we have strategically refrained from land purchase since 2019. As a result of lower ASP and slow inventory, contracted sales fell to CNY 2.6 billion on an attributable basis. Net order book was CNY 2.3 billion, and land bank decreased to 1.4 million square metres. Moving on the Mainland IP. Mainland IP revenue increased by 4% in RMB terms, but the rise was offset by the currency translation to Hong Kong dollars. As mentioned before, office market is still fragile. Meanwhile, the upside in retail segment was limited by the feeble consumption sentiment. Retailers remain positive on the longer term. Leveraging on the distinguished positioning, the flagship IFS malls at the hearts of Chengdu and Changsha continue to see resilient leasing demand amid the competitive market.
Both malls achieved double-digit positive rental reversion. Moving on to hotels. We are delighted to announce the debut of our new hotel brand, Maqo, in November last year. This expansion brings our hotel portfolio to a total of 17 managed or owned hotels under three distinct brands. Namely Niccolo, a collection of five award-winning hotels in top-tier tourist cities in mainland China and Hong Kong. Marco Polo, which comprises 11 deluxe hotels in key Asian destinations. Maqo, the new premium lifestyle brand newly opened at Changsha IFS. In 2023, we reported a record year for owned hotels despite the momentum loss in the fourth quarter. Various achievements were also made by our different hotel brands. For Niccolo, they consistently outperformed their competitive set as a market leader.
In addition, Marco Polo Hotels is undergoing some rejuvenation, with the Prince Hotel in Hong Kong completed a full renovation and reopened in August last year. Turning to our logistic infrastructure. The segment remains weak with ocean throughput hit harder by macro factors. Modern Terminals have been proactively sharpening the competitive edges with increasing focus on investment properties in logistics. In the next slides, we will take a look at our project pipeline, outlook, and sustainability. Our upcoming sales pipeline in Hong Kong includes 1 Plantation Road, Kowloon Tong Project, Kai Tak JV Project, and Kowloon Godown Redevelopment Project. In mainland China, following the opening of Maqo, Changsha IFS Tower 2 will also welcome Park Hyatt to open doors in the middle of this year. The city landmark also comprises high-rise apartments.
Looking ahead, with external and domestic uncertainties that are adding to volatility, we believe that the business outlook remains clouded. In the last part of the presentation, I will walk through our efforts in sustainability. Wharf (Holdings) is a constituent of Hang Seng Corporate Sustainability Index Series with AA+ rating. Our projects are awarded with green building certifications. Chengdu IFS, Changsha IFS, and Shanghai Wheelock Square even achieve LEED Platinum. The group has established 2030 environmental targets to reduce environmental footprint. As at the end of 2023, 30% of our outstanding bond and loan facilities are sustainable financing. In regards to the use of renewable energy, Chengdu IFS has been sourcing 50%-80% of electricity from hydroelectric power. Modern Terminals also expand solar panel installation and therefore triple the annual power generated by renewable energy.
For communication contributions and youth development, our flagship program, Project We Can, partner with 82 schools and benefit over 93,000 students. In addition, we are committed to uphold the standard of business ethics and corporate governance. That concludes my presentation. We will come to the Q&A section. A housekeeping note before we begin. If you have any questions, please raise your hand, our hotel staff will provide you the microphone. Please identify yourself and state the organization you represent before asking the question. You may feel free to ask no more than two questions each time. May I invite Mr. Ng and Mr. Fu to come to the stage, please?
First of all, let me lead off with a correction. I believe Angela said our interest cost for the second half of last year was lowered to 2.5%. I think that's what you said. The slide shows 4.5%, 4.5% is correct. Okay. Sorry. It's a technical point, but it's very important. I want to show that we don't mislead you.
Sorry about that. May we take the first question from the floor, from Karl Choi, Bank of America.
Hi. Two questions from me. First is on Hong Kong DP. As you mentioned, during the presentation, you have four projects on deck. Can you give a bit more details on the sales or timing and, also, especially for the Kowloon side projects, the pricing strategy, will it be to optimize margins or will it be to optimize asset turn? On the 1 Plantation Road, whether you've seen an increase in interest given the removal extra stamp duties. Second question is on China DP. Can you give us some sense, out of the 1.4 million square metre of land bank left, how much is the other stock? Thanks.
Okay. Hong Kong market. First of all, generally, since the cooling measures were removed, the market has become more active. Price is still relatively stable. It hasn't moved much. My guess is price will stay in a narrow range, in the foreseeable future. The increase in volume is very welcomed. For a market to thrive, first of all, we need transactions, and without transactions, there is no market. A lot of people in the sector depend on transactions. That includes agents, lawyers, fit-out companies and moving companies and everybody else. With the return of transactions, hopefully we'll start to see a more active market. Our own projects are not entirely ready to go to market yet, with the possible exception of 1 Plantation Road. That's ready or nearly ready, and with the removal of what we call the stamp duty penalties, will obviously become much more affordable.
It is possible we may be opening to the market in the second half of this year, but we haven't decided yet. Still depends on where interest rate goes and how quickly it goes. That's about the only major project we have on the market this year. Mainland DP, we actually have very little residential stock left. Most of what remains is office. We have, over the years, past few years, been marking down our unsold stock, primarily office to market. The need to mark down this year, 2023, was lower than in preceding years, which is why you saw the total impairment provision being lower than in preceding years. That's, I suppose, because we had taken a relatively conservative position in previous years, and we continue to.
Hopefully, there would not be a need to mark them down any further, but we are an entirely transparent company, especially when it comes to the value of our assets. If at the end of this year, of the current year, it becomes necessary for us to mark them down again, depending on market conditions, we will. We don't manage the markdown. We just mark it down to the market, wherever market is. It has been a not a very rewarding journey for our office portfolio so far. The oversupply situation in the Mainland is obvious to all of you. Fortunately, our carrying value is now very low, having gone through the markdowns. What is important for us to do is to convert the remaining assets into cash. It's liquidity, cash liquidity that we're looking at, not necessarily P&L.
If it sells at current market price, we'll sell. We're not particularly worried about margins.
Thank you. May we have the next question, Mark from UBS?
Thank you, management. This is Mark Leung from UBS. I have two questions, I think it's regarding on the retail. I think the first one is, could you share about the tenant sale of the Mainland IFS mall sales in 2023, and how was it evolved after the Chinese New Year? We got a housekeeping question is, what is the rent to sales ratio for that mall, and how do you see the Mainland retail outlook versus Hong Kong going forward? Thank you.
Retail sales in Mainland China was stronger in the first half of last year than in the second half. I think I can say the same thing about the economy generally, particularly the fourth quarter was a bit of a challenge. That was seen in retail sales generally. That was also seen in the hotel trade. For instance, I think as Angela reported, we had a record year for our Mainland hotel business last year. Better than pre-COVID even, that is in spite of a weaker fourth quarter than we had expected. Things were going very well for three quarters, it still went relatively well in the fourth quarter, but the pace slowed down. We can say similar things for the retail trade last year as well.
Overall, our tenants in our major malls in the Mainland, they're paying low double-digit occupancy cost to sales overall, which is very healthy. Because of the softness in the retail market, particularly in the second half of last year, which by the way carried into the first quarter of this year so far, most of them remain committed to the longer term. They see the longer term prospect for retail sales in China still very good, they're prepared to stick their neck out.
Thank you. May we have the next question, Ken Yeung, Citi?
Yes, Stephen, I still want to chat about your treasury management policy, especially your stock investment, because again, you are having two companies. On Wharf REIC we see you sell 10 billion shares and getting the cash lower than net debt by HKD 9 billion. Here I see that you're buying shares. I'm just seeing that you have unrealized now HKD 10 billion but overall, the drop in the shares is just drop HKD 6 billion or HKD 7 billion. The first question is why you're selling in Wharf REIC and buying in Wharf (Holdings) given that I expect both of your company pay similar interest costs. You can see that the net debt is even increasing slightly on Wharf (Holdings). What would you say lower the interest cost? I just want to see why probably same management have two different mindsets on two companies.
This is on the treasury policy. Secondly, I just also want to see how should we be looking at China. We haven't been buying any land for long in China. It seems that a couple of the analyst briefing we go through, you said that the market is not good, it's not yet ready. Should we be seeing that we will be gradually exiting China? Basically, what should we do on that? We have a team there. I expect we do have a property management team. Probably some of the staff is looking for project to do, but what are you doing to them? I mean.
Okay. You probably know somebody who works in our China team. All right, treasury management, the issue is not different management. It's the same management, but different companies with different financial positions. In the case of Wharf REIC, they have a much higher gearing. The gearing was over 20%. We brought it down to below 19%, particularly through selling the stocks which were yielding negative carrying. As interest rate rose, some of the stock that company held became negative carrying, we unwound that position. In the case of Holdings, we have a much lower gearing, 5%, and we don't have a negative gearing situation. The total dividend income last year amounted to almost HKD 2 billion on a portfolio of HKD 35 billion at market value and higher initially. We were able to cover our interest cost more or less.
That explains why there seems to be a disparity in strategy. It is not a disparity. It is because of different financial positions. Mainland China property market, the general view is that the market is in very bad shape. It's yes and no. In fact, if you look at the data for first-tier cities and one or two of the top second-tier cities, primary sales in 2023 was equal to or slightly ahead of 2022. Secondary sales was better than 2022. The problem is the rest of the market is the other, I don't know how many second-tier cities and the hundreds of tiers two, three, four, five, six, eight, seven, eight, I don't know how to count, seven, eight cities. As a result of that, actually the land buying interest is not among the remaining developers.
A lot of developers are not buying anymore, either because they're not able or they're not interested. Among the remaining buying interest, most of the buying power is focused on a very limited number of cities and a very limited number of sites. That tends to chase price up for those sites. The ones that people don't want, they get unsold. If nobody wants them, I don't think we're interested in them either. It's not exactly a very balanced market right now, and we're in no hurry to go back to start buying again. As far as the team is concerned, yes, our team is now smaller because we have fewer projects. First of all, in terms of local teams, because we have fewer projects, our requirement for staffing has dropped. Some of the teams have actually been released to contain our overhead.
There's no point in carrying big overheads if the projects don't support them. In terms of Hong Kong staff, head office staff, there's also been a reduction. Some of them have been redeployed in other departments. Particularly the Hong Kong development team has been expanding. Those with suitable qualifications, some of them have been relocated to a different department. Overall, I think if the two teams combined, it's probably still smaller than before, but that's a healthy trend. There is no drastic layoff.
Thank you. May we have the next question, please? Simon from Goldman Sachs.
Back to Hong Kong, hear you that 1 Plantation Road is the only project that you have this year. I just want to get a sense, to what extent you can speed up the remaining project pipeline, in case the market sentiment starting to turn more rapidly than what you anticipated. That's the first one. The second one, just more housekeeping question. I noticed there's a HKD 1 billion fair value losses on a long-term fund investment that you highlight in your financials. I'm wondering what that is. Thank you.
All of our projects are proceeding on plan. Whether or not we can accelerate them, theoretically, possibly, we can look at them. We're not doing that seriously because we don't think the Hong Kong market will change dramatically to warrant acceleration. Our pace is appropriate. That is our current reading. As far as the second question is concerned, the accounting treatment for listed securities and unlisted investments is different. For listed investment, we book through the P&L only the dividend income, and the surplus or deficit on valuation of the portfolio goes directly through the reserves. In the case of the unlisted investments, the surplus or deficit goes to the P&L as well. For our unlisted investments, we have booked gains in past years.
In 2023, most of what you're referring to arises out of a loss in value of that same portfolio from the position at the beginning of the year. That's what it is. You just subtract the listed from the total. It's about HKD 8 billion or something.
Thank you. The next question from John Lam, UBS.
Thank you. I have one question, probably a follow-up question regarding how do we think of China. Probably we are not in a hurry to come back to the market to buy. How about if we think about whether we will potentially sell some of the asset, including the three IFS. In particular, right now the Chinese government also relaxed the China REIT, whether the company may consider to spin off some of the asset to the China REIT. Not sure if I can follow with a question regarding how do we think of Greentown China, the stake, because I think it's also an indirect exposure to the China DP market as well. Thank you.
Right. First question. Sorry.
Spin-off.
No, that's the last question.
Greentown.
Okay. Potentially asset sale. If I can divide our mainland property assets into two parts, IP and DP. DP is definitely for sale. Find me a buyer, I'll pay you a commission. All right? It's definitely for sale. The office portfolio, we've marked it down to sell. Right? IP, no, we don't have any current plans to sell the IPs. We don't think it's a good market to sell the IPs anyway. We hold them for long-term return, rental return and so on. If the capital markets for IP revives, which it isn't at the moment we could consider, but we're certainly not looking to sell the IPs right now. Either directly or indirectly through a REIT, a spin-off. Greentown, our position in Greentown, we've held it since 2012. We're quite comfortable with that position. The company had a difficult time in the initial few years when we invested.
In the past five to seven years it has become quite good. In fact, it's one of the very few remaining POEs in the development sector in mainland China. We work closely with that management team. We know it's a good team. We're happy with that investment, and we're happy to hold onto it. We think it's financially healthy. I think that's important. We don't participate in the management of the company directly, but we help to watch their financial position, and that's what we are most concerned about.
Thank you. We will have the next question from Jeff Yau, DBS.
The first question is regarding the Yau Tong Bay redevelopment. Could you give us some update on the land premium negotiation for this project? I recall that another developer just concluded a land premium deal in the neighborhood. What is the key challenge or hurdle facing the consortium in this case? The second question regarding the unlisted portfolio. You mentioned HKD 8 billion. May I have some idea whether it is related to property or New Economy?
Okay. The answer to the first question is one word, price. That's a challenge. The consortium considers the price offered by government is still unrealistic and does not find it acceptable. Hopefully, government would wake up, let me use that term, and give the consortium a more reasonable price. The unlisted investments, it's a combination of different sectors, but primarily New Economy.
Thank you. The next question, Karl Choi, Bank of America.
Just a quick follow-up. Stephen, you mentioned you've written down the office DP part down to very low value. Could you give us some sense about how low the valuation is?
How low the valuation is?
In terms of per square meter or something like that, yeah.
It's probably not meaningful to generalize because clearly Shanghai is different from Changsha. I think it's suffice to answer the question this way. Because of the volume of stock we have, we've taken retail price last done and marked it down further from it. We're assuming we need to offer a bulk discount, either for a bulk sale or for relatively speedy disposal.
Thank you. The next question from Ken Yeung , Citi.
Yes. Just follow up on the asset disposal question, I would like to extend to other area, Hong Kong logistic or other things, because you have revealed Wharf with on disposal of Singapore. I think probably are you doing something similar, not limited to China, Hong Kong kind of asset that will be strategically, you can sell or dispose on non-core side? This is the first one. Secondly, I want to ask on the dividend, especially I recall the dividend policy something like 30%, 40% what of core-
30%
30%. Yes. Correct me if I'm wrong, your China DP is depleting. I'm not sure about your Hong Kong margin side. If it is the case, probably you don't have a lot of the investment or else, or basically we don't have a very upbeat outlook on profit. Is that better to have a better return of cash to shareholders versus 30% that you said?
Our gearing is very manageable, first of all. It's not like it's important to conserve cash for gearing management. Requirement for capital in the coming one to three years mainly would come from the development projects in Hong Kong. It is not clear how quickly we can repatriate capital from Mainland China. We've been relatively successful in doing that. That's part of the reason why our mainland debt has increased. We've de-capitalized to bring back capital to Hong Kong. We have not yet considered increasing the payout ratio, because of the uncertainties in the market. It's normally prudent to save on a rainy day. If we get a better idea that the rain would stop, then maybe we'll consider it next year. Asset disposal, we only have Hong Kong and Mainland China assets. We don't have Singapore assets. We can't sell Singapore assets.
Outside of those two places, we don't have any assets.
Jeff Yau, DBS.
I got two questions. The first question regarding the capital management. I remember for Wharf REIC, now they have 60% of the total debt interest rate. Interest was for 60% of total debt are on fixed rate basis. How about Wharf (Holdings at this moment? Second question regarding the office. May I assume the majority of the office inventory are in Chengdu, Changsha, and do you consider convert some of them for leasing for income generation?
74% of our gross debt is already in Renminbi, implying 26% is in Hong Kong dollars/U.S. dollars. It's mainly Hong Kong dollars. At the moment, the Hong Kong dollar is more costly than Renminbi, that conversion into Renminbi has helped us to lower our interest cost. In addition, we're borrowing Renminbi onshore, and in doing so, we're able to get tax deduction against our mainland profits tax. Whereas previously we were borrowing Hong Kong dollars offshore with no set off capability. That earlier strategy worked when Hong Kong dollar was cheap. The interest rate relativity changed completely over the last two or three years. That is our current position with a lot of Renminbi debt. The bulk of our Hong Kong dollar debt is still floating. Our Renminbi debt is semi-floating. It's pegged to the best lending rate.
Anytime the best lending rate drops, we benefit from it, too. It's not a daily floating. It's subject to regulatory floating. Let me put it that way. That's that situation. Office portfolio. Question was?
Please.
Yes. The office stock that we hold, we would not leave it fallow. We try to generate income from it. In Changsha, for instance, we are leasing the office tower. We've been leasing the office tower. In Chongqing, in a joint venture, we're also selling that office tower, the last remaining office tower. Again, until it's sold, we continue to lease it, and sometimes we sell with a lease attached. We do everything we can to maximize income from idle assets. Let me put it that way.
Thank you. The next question, Calvin from Jefferies.
Thanks for taking the question. Calvin at Jefferies. Just one follow-up on Ken's question. I think China still have a low visibility on recovery, especially on the DP side. Gradually, given that this talking will have capital inflow. What is the plan for capital deployment if we are not raising DPS maybe for this year? What is the pecking order given we have a still pretty strong balance sheet? Thanks.
As I was reporting, we've been repatriating renminbi to Hong Kong and reconverting that back to Hong Kong dollars. That's to avoid a negative carry or to minimize the impact of a negative carry. For a long time, we were long in cash onshore and short in cash offshore, and the difference between the deposit rate and the borrowing rate constituted a negative carry. We've now been able to create short positions on both sides of the shore, and we intend to maintain it that way if possible. There is no significant reversal of our capital flow direction in the coming year that I can envisage.
Thank you. In the interest of time, we will now receive the last question if there is any. Mark from UBS.
Thank you, management. I have a question is regarding on the Hong Kong development project. I think besides from other friends in here, we mentioned we got the Yau Tong Bay. Could you give us some color on we still got some project that hasn't been included in the land bank. For example, like the Pok Fu Lam. Also, now there is some news saying that the port, the throughput is decline in Hong Kong. Do you have any consideration of converting part of the land uses?
Okay. Pok Fu Lam is a very long-term project, which is why we haven't included it, and it's relatively small anyway. Container terminal, it's a big piece of land. It is zoned as container terminal, and lease is very specific about what it can be used as. Unless and until the powers that be are receptive to modification it would not be prudent for us to treat it as land bank, quote, unquote. I think our auditors would probably refuse to certify that if we treat it as land bank. Having said that, physically it is potentially land bank. Unless and until the terminal is relocated, we can't do anything about it. In the meantime, you may notice, you've probably not yet, but when the annual report is published you will.
The warehouse on the MTL container terminal yard has previously been classified as other assets or whatever, other assets. It's been corrected starting from the end of last year. We are reclassifying it as investment property as it should be because it is an income generating property. If you notice an otherwise unexplained increase in our investment property value, it's because of that. It's got a value of about HKD 3 billion or something. HKD 3 billion? Yeah, about HKD 3 billion. That accounts for the HKD 3 billion change in the IP portfolio.
Thank you. Now we will consider the briefing to be concluded. Thank you for joining today and we wish you a nice evening. Thank you everyone.
Thank you.