Well, thank you all for coming to Hysan Development's 2020 annual results announcement analyst webcast session. Let me introduce our panel for this afternoon, our Chairman, Ms. Irene Lee, our Chief Operating Officer, Mr. Ricky Lui, and our Chief Financial Officer, Mr. Roger Hao. We will start today's session with a presentation from Irene, Ricky, and Roger, and we will follow that with time to take questions. Before the questions, though, I will invite Irene to start. Irene, please.
Thank you. Hello, everyone. Happy New Year. Let me start by wishing everyone a mighty Year of the Ox filled with good health and good fortune. A very warm welcome to Hysan's 2020 annual results. Thank you for Zooming in, but I do hope to see you all in person at our next session. 2020 was a most difficult year for Hong Kong and for the rest of the world. I am actually very happy it is over. As we enter the second month of 2021, there is still little clarity in the future. For a while now, we have seen signs of change as people's habits and preferences evolve with generational shift. Baby boomers followed by Gen X and Y and Z. With rapid advancement and adoption of technology, and adding the shorter-term shocks of trade war, COVID-19, and social unrest, this has just accelerated the pace of change.
Our results show resilience and strength in the face of adversity. In 2020, Hysan's turnover and recurring underlying profit decreased year-on-year by 7% and 7.3%, respectively. Occupancies of office and retail portfolios were 95% and 96%, respectively. Hysan has a premium collection of real estate concentrated in Hong Kong's busiest and most iconic area. We have a balanced office and retail portfolio in terms of financial contribution, and we have a diversified group of tenants. This has given us an important balance and stability. Long-term partnerships with our tenants, which allow a close working relationship, has also served us well in difficult times. Lee Gardens community is an important and unique feature. We are a destination of choice. Our visitors form a lifelong and multi-generational habit of visiting Lee Gardens. We believe community curation is key.
The rollout of technology helps us understand what customers want, how they want it, when they gather, how often, and so forth. Increased use of digital and robotic services also continue to improve efficiency and remove pain points. We talk about structural changes. Notable structural changes leading to new normal in office and retail sectors in recent years has been dynamic and changing. For office, our users demand flexibility, mobility, access to off-site work. How many of us have been working from home in the last 12 months? Of course, work-life balance. For retail, consumers are much more willing to pay for experience. For instance, we see a lot of interest in dining, lifestyle, home improvement purchases. They are probably less willing to just buy stuff, material stuff. An overall package will always be welcomed. There is, of course, a heightened and faster adoption of online commerce.
What makes Hysan stand out? We focus on the new normal caused by new behavior leading to the new economy. This is all evolving. It is not a static situation. Our community model is therefore organic, dynamic, constantly evolving, and focusing on experience and fulfillment. Our operational expertise uses sustainability and uses technology. What about beyond Causeway Bay? We will continue to invest, strengthen, and grow our core in Causeway Bay. With our strong balance sheet and a unique Lee Gardens community model, we do have the capacity to pursue opportunities outside Hong Kong. 2021 outlook. We are already end of February, so what is our outlook? A great deal depends on COVID-19 coming under control globally. The world economy will continue to have ample liquidity, providing stimulus in a low interest rate environment. Governments will and must restart economies.
The first step, again, is we must contain COVID. At Hysan, we will do our best to look after our staff and motivate and protect them. We want to continue to inject new ideas and create community projects, and we must protect and enhance our assets.
Thank you, Irene. If we can have Roger for the next session, please.
Thank you, Mark, and good afternoon, everyone. On our annual results, turnover for 2020 is HKD 3.71 billion, a 7% drop year-on-year. The measurement of our core activities, recurring underlying profit, is HKD 2.398 billion, a 7.3% decrease year-on-year. Whereas on an SSI shareholders' fund, is HKD 73.68 billion, a drop of 5.1%. Next, on the contribution from the portfolio. Next page, please. Yes. Thank you. As you can see here, out of the HKD 3.71 billion, the contribution from office further increased to around 49% as compared with that of 46% in last year. At the same time, retail slightly reduced the percentage of contributions to 43%, while residential remains contributing 8%. On the next page is about the financial positions and liquidity.
As you can see on the right-hand side of the chart, average maturity has been further lengthened to now 6.8 years with quite a spread of debt maturity with an overall effective interest rate of 3% and predominantly on a fixed rate debt. Our credit rating remain on investment-grade A3 Moody's. Finally, the cap rate, as you would probably recall in the mid-year interim results, the cap rate for retail portfolio has been expanded by 25 basis points, and it remained the same throughout the second half of the year. While for office and residential, the cap rate remained the same throughout the whole year.
Thank you, Roger Hao. Can I invite Ricky Lui to do the section about our performances?
Thank you. May I give some highlights of our operation performance? Starting from office. Office portfolio turnover declined slightly by 1% to HKD 1.8 billion. Occupancy is 95%. The COVID-19 adversely affected Hong Kong's office rental market, with negative net absorption standing at over 2.7 million sq ft at the end of 2020. Hysan maintained overall positive rental reversion on renewal, rent review, and new lettings, but narrowing as compared to 2019. About our office tenant portfolio, we still keep a balanced portfolio with different industry by percent, but we also find Lee Garden has become a preferred location for new economy and personal services. We come to retail. The retail turnover was HKD 1.6 billion, down by 12.9% from 2019. The occupancy is kept at 96%. Our overall rental reversion is negative in 2020. The COVID-19 caused significant disruption to the Hong Kong retail sector.
Those traditionally benefit from overseas and mainland visitors suffered the most. Hysan estimated sales in most categories, largely on par with overall Hong Kong sales performance. During this difficult time, Hysan has been working proactively to help our tenants. We offer multifaceted support from rental assistance to marketing collaboration with our tenants. We used digital technology to swiftly expand our online sales channel in response to the COVID disruptions. For example, Power Up and other eShop campaigns generated encouraging sales for our tenants. We also offer very attractive incentive program to our loyalty club members, those are Club Avenue and Lee Gardens Club members. About the residential. The residential portfolio turnover saw a decline of 7.2% to HKD 296 million. Our overall rental reversion was flat. Occupancy kept at 74%.
The high-end residential rental market actually negatively impacted by relocation and a sharp decline in incoming expatriate workers due to the tough economic situation. We have been focusing on retaining our tenants through enhancing service and the environment, plus a tenants' referral incentive scheme. About our Tai Po residential development. The target completion date is end 2021 or early 2022. Sales strategy is being developed based on the sales launch around that date. Finally, sustainability and communities. Health, wellness, and safety come to the top priority during the COVID-19 days. Hysan responded quickly with virus prevention measure in place, and we also constantly upgrading hygienic and preventive means to avert possible outbreaks. COVID time is challenging for community events. We still launched new art and culture events, as well as children academy and sustainability activities, both offline and online, through use of digital technology. Thank you.
Thank you, Irene, Ricky, and Roger. Now time for questions. We will start with a question from Colin Yao from Goldman Sachs. Colin's question is that we know the company has beefed up the balance sheet and is ready for the Caroline Hill Road site, but as recently, Hysan has also bid for Kai Tak residential site with another partner. The question is, will Hysan be more aggressive in land banking in the coming few years, and even look for other residential projects?
Maybe I can start and perhaps Ricky can supplement. Yes, we have raised debt last year, and we also raised a couple of perpetuals. Last year, we took advantage of the very, very favorable market conditions, and it was just wise to put some ammunition in our bank. As far as land banking is concerned, we are always open to looking at opportunities. Hong Kong's residential market is robust, so we have had a strategy all along that we will bid for good residential development potentials from time to time. Yes, we did bid twice this year. Unfortunately, we did not win. But we are still optimistic about Hong Kong's residential opportunities. We have talked about Tai Po. It is going to be coming out for sale towards the end of the year, beginning of next year.
That is another item which will showcase Hysan's development, our quality, and I think that will be a very important milestone for us. For Caroline Hill, we have talked about this quite a bit and it is a much-anticipated event. It has been a long time since we did our master plan, in fact. It is right next to us. It is part of our neighborhood. So of course, we are interested. Of course, we will look at it. It is part of our community. So, we look forward very much to when that is announced. Ricky, do you have any other-
I think chairman has stated our strategy and tactics very well. We will keep abreast to see, to find and search for good opportunities for the company.
Thank you. I now have a question from HSBC's Raymond Lui. Raymond's question is, what were the retail tenant sales performance in the fourth quarter of 2020 and this year's year-to-date trend? What is the latest strategy for strengthening tenant sales for the rest of the year?
Maybe Roger can address the numbers.
Okay. Thank you, Irene. Raymond, the tenant sales performance of our portfolio actually pretty much mimic that of the overall Hong Kong retail sales as far as those applicable segment is concerned. So, in particular, in the second half, that is between the second wave and third wave, and then towards the end of Q4, the fourth wave's coming. Apart from those sort of waves of infections, in general, we see our tenants' performance kind of in tandem with that of the overall Hong Kong market. Obviously, if you look into segments, there are, again, like Hong Kong overall segments, there are some segments performing better when compared with some of the other segments.
Great. Thank you. I have a few questions here from UBS's Mark Leung. I will start with the first one, which is, what is your expected rental reversion for both office and retail in 2021?
Right. Thank you. Maybe let me talk a little bit about our expiry profile, and then Ricky, if you like, you can give any more market colors. So far, actually we are still in February. The year is still way too soon, given the uncertainty related to the COVID-19 cases. But I do want to point out that, as you can see from the final results announcement, in terms of expiry profile, our retail actually has 32%. That is roughly our usual average of one third. Whereas in office, actually it is only about one quarter of space coming up for renewal or rent review. So in that sense, 2021 is not a year with particular high concentrations. Obviously, from an overall momentum point of view, 2020 is a difficult year for us.
The recovery of the market actually depends very much on the COVID-19 containment and the speed of its recovery. For office, as you can see from the comments from property agencies and all that, it seems that there is a view that the spot rent will be under pressure this year. So we will be monitoring the situation very closely.
Now, let me give you the other two questions from Mark as well. How do you see the leasing demand going forward against the backdrop of work from home and MNCs cost cuts versus potential higher Chinese corporate demand? The other question is with regards to how do you see the normalization of cross border to impact on the leasing demand for both retail and office markets?
Maybe I take this one.
Yeah.
Yeah. I think I will answer the second part first. As you said, cross border, actually is two ways, right? People cross border to China to work, and also China, because the economy will grow to tie with Hong Kong as well. There is also people coming to Hong Kong, so they also create a new demand for Hong Kong. As you mentioned about the flex or new working mode, yes, size of company may become downsized a little bit. But at the same time, as we mentioned, there are also new economy happening due to the new normal. It is a matter of whether we can grab the new business that come up, a new company that is come up according to the new normal and new economy.
We have been very active in curating our community, so that either you are a PRC company or you are new economy, we try to make you feel this is a preferred location for you to set it up. I think that we are quite ready to accommodate the new normal.
Right. Now a question from Fan Tso from Bank of America Securities. How do you quantify the amount of rental relief provided in the second half of 2020 versus the first half of 2020? Will there be any concession impact carried over to financial year 2021? What is the estimated occupancy cost after taking into account the rental relief?
Right. Let me take this one. Hi, Fan. In terms of the rental concession and lease restructuring, we actually account for it according to the accounting standard. That is to amortize the impact for the remaining term of the leases. Suffice to say, I think you all see that for the retail part, on a year-on-year basis, the decrease is about 12%-13%. If we adopt a like-for-like basis, that is to exclude the impact from rental concession and lease restructuring from both years, the year-on-year change or the year-on-year drop of retail portion of the revenue is about 5%. That is about the size of the impact. In terms of going forward, as your questions touch upon the operating cost, I think overall, if I remember correct, the last time we see each other interim.
At that point in time, we are saying that we provide rental concession. First of all, not across the board, but we are more targeted assistance to the tenants that we think is important and who need the support more. In those cases, the amount of concession sometimes can range from 20% to around 50%, depending on which individual tenant. The amount of concession that we've been providing is similar magnitude. Of course, there will be some delay in the sense that we need to look at the actual sales cycle before we go into that discussions. I would say that in terms of outlook, the amount of concession required would very much depends on the recovery of the overall Hong Kong retail environment.
Maybe I can supplement a couple of ideas. Concession is a factor of amount of concession given times time, number of months, number of weeks. That is actually where the numbers come from and how long that spills over to next year. I think part of your question was, is it in 2021? Of course some are, but also you need to look at the way the rent is structured. The structure will also take into consideration the give and the take. Give from the landlord and the give also from the tenant. It's a working together. We talked about partnerships. We give them assistance in the form of not just hard HKD rent concession, but we also give them marketing assistance and so forth. Then they also have to provide assistance as well.
The business risk need to be shared in a more equitable way. As tenants do better, as the economy gets better, a lot of these concessions will fall away because the rent is structured as such. Also with the rights that the landlord has, it's very much of a give and take because it is a very difficult, it is a very dynamic environment. What I want to stress here is it's not a linear structure of I give you HKD 10 off. It is very much a give and take. It's highly structured because we know our tenants very, very well. We structure each lease individually. So it's not a blanket, I'll give you HKD 10 off. We look at the occupancy cost, we look at how they perform, we look at what sort of efforts they make to make themselves more marketable.
It is a whole basket of things. I think that comes down to partnerships, good old-fashioned partnerships. We help each other because we do understand. As a landlord, we understand how difficult it is. As a tenant, they also must understand that the landlord also suffers. We work together.
Yeah, I think one thing is you never can sustain a business by reduced rental.
Yeah.
You have to generate the sales. I think that as Irene Lee said, the spirit is whether the tenant is ready to work together to make their sales work, which will obviously then support the rent within.
Okay. Let us take one more question then. This last one is from CGS's Raymond Cheng. Raymond Cheng said you spoke about buying land in Hong Kong. Will management also consider investment in China? Mainland China.
We are open, as we mentioned before, we are open for opportunity both Hong Kong and outside Hong Kong. The key thing is whether our business model and our expertise can make that opportunity work and flourish for the company.
Great.
I think that's it for today. Thank you very much for participating, and we certainly hope to see you again in person when our next results announcement session come this August. See you then.
Thank you.
Thank you.
Thank you.
Thank you.