Thank you all for coming to Hysan Development's 2021 interim results announcement analyst briefings 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'll start today's session with a presentation from Irene, Ricky, and Roger, and we'll follow that with time to take questions. I'll invite Irene to start. Irene, please.
Hello. Good afternoon, everyone. We are meeting virtually again. I still remain hopeful that our next meeting will be in person. In the first half of 2021, we are seeing first signs of recovery in major economies after global rollout of COVID-19 vaccines. In Hong Kong, our GDP grew, labor market improved, and residential sales market remained active. Global recovery is still uneven and uncertain. Hong Kong is still affected by external forces, travel restrictions, and local social distancing. But we are seeing good business and investment opportunities as we gradually recover. In the first half of 2021, Hysan's turnover and recurring underlying profit decreased year-on-year by 7.4% and 12.6%, respectively. Occupancies of office and retail portfolios were 95% and 97% on a committed basis, respictively. One of our big news this year was that we won the tender for the Caroline Hill Road site.
Our enlarged land holdings will further augment and enliven our neighborhood and community vision. Our investment highlights our confidence in Hong Kong and its role in the Greater Bay Area. This mixed-use commercial development complements our existing portfolio, which has a strong dual engine office and retail tenant mix. Collaborating with a like-minded partner, Chinachem Group, makes it all the more exciting. Hong Kong's office rental market continued to be affected by COVID. Hysan's office portfolio continued to see demand New Economy tenants. We are seeing expansion from individual tenants in the fintech, flex/co-work, and wealth management sectors. Demand from those originally from other parts of Central, who recognize Lee Gardens' exceptional location, facilities, content, and community remains strong. Lack of tourists continue to affect Hong Kong retail.
Our estimated tenant sales still grew by 32% year-on-year, significantly bettered Hong Kong's retail sales growth of 8.4% during the same period. Hysan's business model of creating destination of choice in recent years has worked well. Our emotional loyalty strategy continued to attract our multi-generational local customers. Luxury and lifestyle brands continue to choose to stay and expand in Lee Gardens. Recognizing Hysan is a landlord with a long-term vision, and we are also a venue with strong local purchasing power. F&B businesses improved after relaxation of social distancing. Hysan contributed as a major community stakeholder, in particular towards its tenants. We invested time and effort to nurture a strong partnership with our tenants to understand their needs. We launched creative, customized, and collaborative marketing events. We enhanced health and safety in our malls, including provision of air purifiers for tenants.
By the way, air purifiers made and invented in Hong Kong. We have a safer and vibrant location, and that is always better for business. We have taken steps to encourage vaccination and aim for a fully vaccinated Lee Gardens area. To this end, we partnered Adventist Medical Center to host Hong Kong's first in-mall vaccination promotion health check center at Leighton Centre. We distributed health check packages to underprivileged and frontline workers so they can learn more about their health status before vaccination. We donated to Po Leung Kuk for COVID-affected families. The donation amount is based on the number of fully vaccinated workers in the Lee Gardens area. We also have a lucky draw for the public. First and foremost, our Lee Gardens portfolio will continue to be our core business. However, we are well prepared to build for the future, which will complement and extend our reach.
Our joint venture with IWG PLC to operate flex/co-work centers in the Greater Bay Area, which includes Hong Kong, is an important extension of our office portfolio. This is on an asset-light model. Flex will form a part of the office ecosystem. Different and hybrid forms of office arrangements will be a permanent feature, especially during and even post-COVID. Hysan is a pioneer of the flexible office sector in Hong Kong since our partnership with IWG over 20 years ago. IWG is a proven global market leader. Currently with over 30 centers in the Greater Bay Area, IWG has been a strong beneficiary of the industry consolidation. Hysan provides landlord perspective, including experience in creating synergy for flex space in a mixed-use portfolio, as well as flex in a community ecosystem.
We are delighted to partner with IWG for the development of flex centers in the Greater Bay Area. Major economies are on the road to recovery. However, development and containment of COVID is unpredictable still. This also compounded by geopolitical tensions affecting confidence. The Hong Kong economy can only make significant strides when the vast majority of the community is vaccinated and our virus is meaningfully contained. Hysan has a comprehensive strategy for long and short-term targets. We will continue to grow our core business in Lee Gardens. Our strong balance sheet, our strong and stable core business are good foundations and springboard for us to capture good opportunities. I will now hand it over to Roger.
Yes. Thank you, Irene, and good afternoon, ladies and gentlemen. Let me share with you a few highlights of the group as a whole before Ricky will share with you in more detail the performance of each business segment. Overall, for the group as a whole, turnover for the first half of the year is about HKD 1.8 billion, about 7% year-on-year decrease. The key profitability numbers, the recurring underlying profit is about HKD 1.17 billion, a 12% drop year-on-year. Whereas the shareholders' fund is HKD 73.14 billion, a slight decrease of about 0.7%. If you look at this slide, you will notice that our top-line performance reduced. Next page, please. Yes. The top-line performance actually reduced from HKD 1.98 billion in the first half of last year to about HKD 1.7 billion in the second half of 2020, which is about a 13% decrease.
It was followed by about 6% increase from the second half of last year to HKD 1.83 billion the first half of this year. You will notice that especially on a half-on-half basis, our performance and the bottom line basically follow this trend. In the next page, again, just a word on our very healthy and strong financial positions. As you can see from the slide here, we continue to maintain a very healthy debt maturity profile, very spread out with an overall average debt maturity of 6.6 years. The overall gearing ratio is 8%, and we continue to maintain an investment-grade credit rating. In terms of our valuation of the investment property portfolio by Knight Frank, our valuer, the cap rate adopted by Knight Frank in valuing our portfolio remained the same. That is, for retail, 5.25%-5.5%.
Office is 4.25%-5%, whereas residential is 3.75%. Next, I would like to invite Ricky to share with you more operating performance details. Thank you.
Thank you, Roger. I try to highlight some of the performance of our first half. For office, the turnover declined by 5.1% year-on-year to HKD 880 million. The occupancy is 93% and 95% on a committed basis. The average rental reversion rate on renewal rent review and new lettings actually slipped into negative territories. For the office tenants' portfolio, we still have a very balanced portfolio with different industry represented. Lee Gardens as a preferred location for banking and finance, New Economy, and personal services further reinforced. There are solid demand from New Economy, which take up about 35% of the new office leases in the first half by area. About retail, our turnover is HKD 820 million, down 8.9% year-on-year. The occupancy is 97%.
The overall rental reversion rate on renewal rent review and new lettings is negative, but with rental levels seeing signs of stabilizing. Hysan tenant retail sales actually outperformed the Hong Kong retail sales, as mentioned by Chairman, 32% versus 8.68%. Hysan outperformed the market in basically all the major categories. As you can see in the table, jewelry, watches and clocks, and valuable gifts actually have a very good performance. New lease is taken up mainly by the watch and jewelers, luxury retails, food and beverage. We also see some lifestyle and apparel now come out to take up new leases as well. During the COVID period, we have done a lot of event and promotion activities to help and support our tenants. Particularly for Club Avenue VIPs, a lot of private promotional and sales events was held for them. About residential.
The residential portfolio turnover saw a decline of 13% to HKD 134 million. Occupancy was 73%. The luxury residential market continued to be affected by travel restrictions. This caused significant reduction of expat demand. Unlikely to change significantly until COVID-19 situation improves. The overall rental reversion was negative. We come to property development. For Caroline Hill, the acquisition of that site mark a clear expansion of our core assets in Lee Gardens. At 1.07 million sq ft of prime commercial space, which is 107% expansion of our current portfolio GFA. We also estimate there will be 10,000 extra daily user occupants in this area, which will help both the retail, as well as bringing a larger base of tenants, as well as more choices of properties in our area. It also expand our revenue base significantly.
The value of that site is further enhanced by the proposed connectivity scheme, offer a pleasant weatherproof walkway from Hysan Place all the way to Caroline Hill. There will be 60,000 sq ft of greenery, urban oasis matches sustainability mindset, which also is an important feature to meet the need of all the green leases of the future of the international corporations. Our master plan is under development, and it is going to be submitted for government approval soon. Tai Po, w e have good progress for the Tai Po project. We target the completion date by early 2022. Right after the completion, we expect sales launch to start. About technology. We are ready to unveil an interactive e-community of Lee Gardens, which will add the e-commerce platform for unique shopping and related experience, including activities and events, and also it will help to activate and reinforce our loyalty program.
These will become the very important new channels to engage our customer and tenants. Our Hysan new headquarter is going to be ready very soon, will be a smart office with advanced technology to drive efficiency and productivity. Sustainability and community. Health, wellness, safety is the top priority during the COVID-19 days. As a forward-looking landlord, we did provide air purifier to our F&B tenants right after the government had the new policy about air ventilation, air qualities, which helped to release the pressure to the operation of our tenants very much, which we also received a lot of positive appreciation from our tenants. As mentioned by chairman, the air purifier actually is a Hong Kong designed, Hong Kong made technology product, which help to promote our Hong Kong technology scene.
For that particular situation, we even host the wellness town hall, including COVID-19 expert, to help our tenants in understanding both how to manage their business as well as how to provide safe, good environment for their customers. Thank you.
Thank you, Ricky. Now it is time for questions, and we will start with a question from HSBC's Raymond. Raymond's question is, "Can the management provide the guidance of the amortization of rent reliefs in 2020, and first half of 2021, and second half of 2021, please?
Right. Maybe let me take up this for Raymond's questions. As I mentioned, I think, when we announced the final results in 2020. First of all, we expect the amount of rental concessions before the amortization treatment will be significantly reduced this year. Back in February, I think we were estimating that the concession amount required will be less than half of those we offered. Just to refresh everyone's memory, in 2020, roughly we provide around 20% of our rental as a rental concession, of course, spreading for different periods. Based on the first half performance that we observed so far, we see that even only looking at the first half, the amount of concession given is, at this stage, only 40% reduced already.
Looking forward for the whole year, especially compared with the quite heavily affected 2H last year, we expect the amount of concession reduction will be further reduced. As you all noticed from the tenant sales performance, we have seen a very strong momentum in Q1 and also in Q2. Even though the number for July has not come out completely yet, but based on preliminary numbers, we see the momentum actually continues. With that, we are, I think, cautiously optimistic about the operating environment for our retail tenants. Obviously, the actual we will see, but based on the feedback and based on our discussions, I think that is a trend that we expect. Ricky, I do not know if you have anything to add about the tenant operating environment?
I think the government support recently does help the overall scene. It also further empowers the pickup of the local consumptions. Of course, we should expect rental will be at least stabilized with the better sales of our tenants.
Great. Now there are, unsurprisingly, questions about the JV with IWG. Can the management provide more color about the JV investment with IWG? How much capital will Hysan spend and the expected return on investment profile, please?
Okay. The investment is not significant compared with our balance sheet, obviously, because as we mentioned, this is an asset-light model. The importance of this joint venture is that it marks a few important steps for Hysan. First, we go into the GBA. Secondly, we are investing in OpCo. Thirdly, this is an asset-light model. The beauty of this one is the return of the flex business actually, in general, is a quite decent return business, which compared with our current core asset return, is a very decent one. We expect the business will generate a good return for Hysan. At the same time, with the growth potential, and IWG as the world's largest and most experienced partners, we do have confidence this investment strategically, long term, will bring a lot of benefit to Hysan.
Yeah, maybe I'll add. It complements our portfolio in the sense that while we have a sizable office portfolio, as we all know, the way of working is changing and I think we will continue to see demand for flexible office requirements. So in a way, investing in flex is a hedge for our office portfolio. Now, we are getting scale pretty quickly in GBA because there is already 32 centers in existence, and this is growth capital. But on an asset-light way, we are not investing in real estate. This is operations. So the key to operations is the operator, and having worked with IWG for over 20 years, we believe that they are the right partner for us to expand together into one of the world's highest growth areas.
There's a related question from Carl from BofA. Is Hysan planning to lease even more spaces to the IWG JV going forward?
I think it is all about demand and supply. As you know, Hysan has been a pioneer in flex. We have about 10% of the space already for the flex business in our portfolio. We do think both IWG, as a very experienced operator, and Hysan, as an experienced landlord, will find the optimal point about the percentage of flex in our portfolio.
Great. We have a couple questions from UBS's Mark Leung. What is the latest rent-to-sales ratio for retail tenants?
Well, let me take this up. The latest one is around 21%. So 20%, 21%.
Okay. His follow-up question is about rental concession. Rental concession booking guidance and rental reversion degree year to date for both office and retail, please.
Right. Again, thanks, Mark, for the questions. As I explained earlier during the question from Raymond, I think the key is the amount of concession, or in a sense, the cash basis concessions. We are seeing that the amount is significantly reducing, which means the amortization burden we will have in future period will be substantially reduced. I would also like to point you to look at our second half numbers, as I mentioned a bit earlier on the top-line performance, which basically reflect that phenomenon. We had quite a heavily heated second half of last year. The first half of the year, we see quite a significant rebound from that, partly because of the amortization or the originating amortization originating concession is reducing.
In terms of the rental reversions, I guess for retail, obviously, the more relevant or even more relevant number is the OCR, the occupancy cost, which is about 20%-21%, which we consider is relatively healthy. For office, we actually start seeing a mid-single-digit negative reversions, which we expect will probably continue throughout the whole year. It is not totally surprising in the sense that I am sure you all know that the rental trend for the Grade A office market in Hong Kong and in particular, the recent six months performance in market-led central. I think that will continue to be the case for a good while.
It is because of that, we also revise or refine a bit of our strategy, by keeping our tenants and by balancing the trade mix and while at the same time attracting new demand from companies like in the New Economy.
Right. We now have one last question or one last set of questions from DBS's Jeff. So Jeff's questions are, retail income in the first half of 2021 was much higher than that of the second half of 2020. What are the key drivers behind this half-on-the-half growth, given that the reversionary growth remains negative, and this is due to a much lower amortized rental concession?
Yes. This part basically is the functioning of the basic arithmetic, I would say. Because in the second half of last year, we had the concession from or related to the tenant sales or the tenant rental in second half. At the same time, we are stacking up onto it, the concession amortization from first half of last year. It is kind of like a stacking phenomenon. In this kind of accounting treatment, I think one of the very key leading indicator will be the amount of originating, I would say, quote and unquote, "originating concession," which we are seeing quite a promising trend in the sense that the amount of concession is reducing.
Great. Thank you, Roger. Now I think we are out of time, and many thanks to everyone for participating. We hope to see you in person when we have our next results announcement session in 2022. See you then.
Thank you.
Thank you. See you.
Bye. Bye.