Good afternoon, ladies and gentlemen. Welcome to SHKP final results announcement for FY 2015. Prior to walking you through the results, I would like to sidetrack a bit to talk about the highlight cycling event in Asia. Any idea what that is? What I meant is the Sun Hung Kai Properties Hong Kong Cyclothon to be held next month, which is going to be great, and the group will be the title and charity sponsor for that event. Should I also assume that a majority of you have already registered the cycling event, and I shall see you along the route enjoying the city's magnificent scenery with me. I can see that Anthony's laughing. So I'm expecting to see you. If not yet, please act quickly to seize the remaining quota of 10 km community ride.
If cycling is not your cup of tea, you can always join us in December for the SHKP Vertical Run, so you can't escape. Also for charity purpose, and which is now open for registration. And I do believe it's a great opportunity for you to test your stamina, or at least to get your body moving rather than sitting here. So I look very forward to seeing your sporty and sweaty looks rather than men in dark shirts, dark suits, and women in whatever beautiful dress. All right, so much for the pitching job. Let's get back to the group's business results for FY 2015. As usual, in the next 20 minutes- 25 minutes, Brian and I will present to you the group's results for the fiscal year and the business outlook. I will briefly go through the bottom line of the final results.
After that, Brian will provide you with our business updates in Hong Kong and on the mainland. I will then share with you our group's business strategies and prospects. Of course, following which, we will open the fun part, which is the Q&A session. Let's look at some of the financial indicators first. For the year ended 30th June 2015, the underlying net profit, which excluded the effect of fair value changes on investment properties, net of deferred tax and non-controlling interests declined by 7.4% year-on-year to HKD 19,825 million. The underlying earnings per share was HKD 7.7, representing a decrease of 11.1% year-on-year. The fall was mainly due to less property sales recognized for the fiscal year. Largely in line with the trend seen in the underlying profit, the reporting net profit was HKD 31,082 million, down 7.3% year-on-year, while the reported earnings per share dropped by 10.9% year-on-year to HKD 11.9.
I would like to draw your attention that EPS declined more than that of the overall earnings, given the increased number of outstanding shares, mainly as a result of the exercise of bonus warrants. The board is proposing to declare a final dividend of HKD 2.40 per share for a year end of 30th June 2015, which is the same as last year. Together with the interim dividend of HKD 0.95 per share, the total dividend for FY 2015 would be HKD 3.35. Let's shed light on the profits by business segments. First, our retail portfolio had robust net rental income growth of 7.6% year-on-year to HKD 15,352 million. The net rental in Hong Kong rose 7.6% year-on-year to HKD 12,299 million. This is well supported by some notable examples of malls, which record impressive net rental income growth, such as MOKO Mall, Landmark North, New Town Plaza III, and IFC Mall.
Also, the net rental income growth of office was 5% year-on-year to HKD 4,100 million. The performance of net rental on the mainland increased by 9.7% year-on-year to HKD 2,520 million. The growth was mainly driven by satisfactory performance of office portfolio with higher occupancy rates, together with higher rents. The Shanghai iapm that opened in August 2013, saw continued ramp-up. Second, our profits from property sales decreased by around 30% year-on-year to HKD 7,332 million, mainly due to the absence of large-scale projects completed last year, causing the reduction of GFA booked. You may wish to know that the drop in booked GFA was mitigated by the luxury projects, including Twelve Peaks and The Cullinan, which had higher ASP and also the high margins office projects booked, like One Harbour Square and W50.
Whereas on the mainland, there was a decline in ASP since smaller portion of high margin projects like the Shanghai Arch was recognized for the fiscal year. The booked GFA, however, actually increased. Third, our hotel operations experienced a 3.3% year-on-year increase to HKD 1,293 million despite an operating environment that has become more challenging over the past few months. The four Royal Hotels continued to see high occupancies, while Crowne Plaza Hong Kong Kowloon East and Holiday Inn Express Hong Kong Kowloon East recorded further improvements in occupancy. Furthermore, the Ritz-Carlton Shanghai Pudong registered notable growth in room rate and occupancy. Last but not least, other businesses rose 21.4% year-on-year to HKD 4,269 million. The driver of this surge was the strong EBIT growth at SmarTone, due to higher revenues from handset and accessory sales. SUNeVision and Yata also registered a decent growth during the fiscal year.
In sum, the total segment profit of the group at 30th of June 2015, was HKD 28,246 million, a decrease of 4.4% year-on-year. Looking at our financial position, gearing ratio as at 30th of June 2015, was 11.2% versus 13.8% at end of December last year. At the same time, net debt was also decreased from HKD 59,658 million at end of December 2014 to HKD 50,571 million. At end of June 2015, the shareholders' funds were HKD 451,026 million. And the interest cover of full year FY 2015 was 9.3x versus 11.1x of last year. You may wish to know that up to the end of August 2015, the total proceeds received from the exercise of bonus warrants amounted to HKD 14.6 billion. Right. It's time for me to take a break when Brian takes you through our operations in Hong Kong and on the mainland. Over to you, Brian.
Thank you, Patrick. To begin with our business review, let me talk about the group's properties business in Hong Kong. As at the end of June this year, the group's total land bank in Hong Kong was close to 51 million sq ft, including 28.7 million sq ft of completed investment properties, and over 22 million sq ft of properties under development. You can see from the charts on the right that for the property under development, 82% is for residential purposes. This is enough for the group's future development needs for at least five years. If you look at the chart on the left, our total rental portfolio, around 37% are shopping centers and 35% are office buildings. The rest includes hotels, residential and industrial buildings.
On top of that, the group also holds over 30 million sq ft of agricultural land in terms of sites area in the New Territories. The group has been very active on land acquisitions. For this financial year, six new sites with a combined gross floor area of 4.9 million sq ft were acquired through government public tenders. Most of these sites will be developed into large-scale residential projects. That's over economies of scale. Since July this year, the group further acquired two sites. One was the Ma Tau Kok project, and the other was the Yuen Long Station Development. The Yuen Long Station Development will provide nearly 1,900 residential units and about 100,000 sq ft of retail space, which will become an integral part of the YOHO Mall and bring in much synergy.
Following this acquisition, the group's total land bank in Hong Kong was further increased to over 52 million sq ft. Turning to the property development business in Hong Kong, the group recognized about HKD 11 billion property sales in this financial year with satisfactory margin. The sales mainly came from two office projects, namely W50 and One Harbour Square, and several luxury projects such as The Cullinan and The Twelve Peaks. On property completions, over 1 million sq ft of GFA was completed this year, and we expect the average annual completions of residential GFA to exceed 3 million sq ft for the next three financial years. You may wish to find out more detail from this completion schedule we've given to you earlier. With regard to consider sales this year, the group has achieved nearly HKD 32 billion in sales, much better than the original target of HKD 25 billion.
As shown in the table here, major products sold or pre-sold include mass market residential developments such as The Wings 3A and 3B in Tseung Kwan O, and Century Link Phase 1 in Tung Chung. Luxury residential projects Ultima phase 1 in Ho Man Tin, houses at Twelve Peaks and 50 Stanley Village Road, as well as office buildings. Since July this year, the group has continued to achieve strong considered sales and has added additional HKD 5 billion, mainly from Ultima Phase 1 and Century Link Phase 2 in Tung Chung. In the coming months, we will have ample sellable resources. Major projects to be launched include King's Hill, an old building redevelopment in Island West, Park Vista Phase 1 in Yuen Long East, Tuen Mun Town Lot no. 509, Grand YOHO Phase 1 in Yuen Long, as well as a waterfront residential project in Tseung Kwan O.
Next, let's turn to our Hong Kong rental portfolio. The group's diversified rental portfolio of over 26 million sq ft of GFA continued to perform well, with overall positive rental reversion and around 95% occupancy rate, providing the groups with steadily growing rental income. We continue to upgrade our rental properties and provide premium management services to our customers. For this financial year, gross rental income in Hong Kong increased by 7% year-on-year to around HKD 15.7 billion. The growth was mainly driven by higher rents for new leases and renewals. We can see from the pie charts that shopping center contribute over half of the gross rental income while offices contributed around one third. With that, let me provide more details about the group's shopping mall portfolio.
The group's well-diversified shopping malls portfolio continues to perform well, in particular for those regional malls which primarily serve the local residents. This year, the growth of tenant sales of group's major shopping malls continued to outperform the market. Besides, we are able to achieve positive rental reversions and high occupancies. For this year, the gross rental income generated from our shopping mall was over HKD 8 billion, up over 8% year-on-year. The groups continue to take on Asset Enhancement Initiatives so as to create values for shareholders. The reconfigurations at MOKO in Mong Kok, which was formerly known as Grand Central Place, has completed recently. The new layouts and additional escalators have drawn higher traffic flows and offer customer greater convenience. Other major AEIs includes APM in Kwun Tong and Metro Plaza in Kwai Fong.
APM is currently implementing various upgrading work, including the conversion of over 150,000 sq ft of office for retail use. The renovation work at Metro Plaza has commenced late last year, and the market position of Metro Plaza will be much enhanced once the work completed. Looking forward, the group's retail portfolio will be further boost when new shopping malls open in the future. The mall at YOHO Midtown in Yuen Long, with 250,000 sq ft of retail space, was just opened last week. This mall, together with the Sun Yuen Long Centre, the retail portions of Grand YOHO, as well as the retail space of the recently acquired site above MTR Yuen Long Station, will form YOHO Mall. It will cover 1.1 million sq ft of retail space and become the largest shopping destination in Northwest New Territories.
The scale of this mall is comparable to New Town Plaza in the east. Other future new additions include PopWalk in Tseung Kwan O, HarbourNorth in North Point, and the Nam Cheong Station development. The first phase of PopWalk, that is the retail space at The Wings 2, is scheduled to open in Q2 2016. So far, the leasing response is encouraging. The HarbourNorth which will be developed in phases, which house over 140,000 sq ft of retail space and have a glamorous facade spanning 270 meters on Java Road. In addition, a premium mall of nearly 300,000 sq ft at MTR Nam Cheong Station is also under construction. Moving on to the group's office portfolio in Hong Kong. The group's 10 million sq ft of well-diversified office portfolio generate gross rental income of around HKD 5 billion, up by 5% year-on-year.
Occupancy of Hong Kong IFC was further improved to around 98%, whilst book rent at Hong Kong ICC remained high. Offices located in other areas such as Millennium City Culture in Kowloon East, Metro Plaza in Kwai Fong, and Grand Central Plaza in Sha Tin also performed well. That cover the group's property business in Hong Kong, and let me walk you through the group's property business on the mainland. As at the end of June this year, the group's mainland land bank amounted to 79.6 million sq ft of GFA, of which over 11 million sq ft are completed investment properties and 68 million sq ft are properties under development. You can see from the charts on the left that of the completed investment properties, 56% are shopping malls and another one third are offices.
Meanwhile, as the other chart shows, of the properties under development, around 65% will be residential, 19% offices, and 30% shopping center. In July this year, the group reduced its stakes in Oriental Bund in Foshan from 80% to 50%, reducing the total land bank to 71 million sq ft. The reductions allows us to reallocate more resources, in particular human resource, to other projects in first-tier cities, including the Xujiahui Center project in Shanghai. Moving on to the mainland property development. For this period, the group completed about 7 million sq ft of attributable GFA, of which 20% are investment properties, including the two ICC office tower at the Shanghai ICC complex. The group recognized over HKD 10 billion property sales, which mainly came from projects such as Shanghai Arch Phase 1, Forest Hill Phase 1A, and Top Plaza, both in Guangzhou.
There is over HKD 4 billion property sales yet to be recognized. In terms of completed sales on the mainland, the group recorded around HKD 5.8 billion for this period, mainly from Shanghai Arch Phase 1, Shanghai Cullinan, Topaza in Guangzhou, and The Woodland in Zhongshan. Since July this year, we have achieved nearly HKD 1 billion completed sales. Major launches in the coming months include new batch of luxury residential units at Shanghai Arch and Shanghai Cullinan, Guangzhou Commerce Center, a premium office tower adjacent to the Guangzhou-Hong Kong thru train station, and Oriental Bund in Foshan. Next, let me update you about the group's mainland investment properties. Up until June this year, the group owns about 11.6 million sq ft of attributable GFA of completed investment properties, which are mainly located in prime cities on the mainland, particularly in Shanghai.
For the year under review, the rental portfolio as a whole continued to enjoy positive rental reversion with high occupancies. The gross rental income was HKD 3.3 billion, which accounted for around 17% of the group's total rental income. You can see that gross rental income increased by 9% year-on-year, while net rental income rose around 12% year-on-year on adjusted basics. From the chart on your right that 56% of the rental income came from the shopping malls and around 35% from offices. Let me also give you some quick updates on the group's integrated projects in Shanghai. Shanghai IFC in Pudong continued to perform well, benefiting from the expansion of Xujiahui Street. Both office tower at IFC Complex are fully occupied. The Shanghai IFC Mall, which is fully let, recorded healthy growth in both football and tenant sales.
Internal renovation, together with construction work on external connection to nearby buildings, will further enhance the attractiveness of the mall. Marked by the completion of Two ICC office tower, the Shanghai ICC complex was fully completed this year. The occupancy rate at One ICC office building stay at a high level, while new tenants of Two ICC have started to move in. Meanwhile, the fully listed 1.3 million sq ft iapm Mall at Shanghai ICC continues to ramp up, with strong growth in traffic flow and tenant sales. As a long-term investment of the group, the 100% owned Xujiahui Center project in Shanghai is expected to become a major growth driver for the group's future rental income. In addition to the direct link to the Xujiahui Metro station, footbridges will be built to connect the whole development as well as major projects in the neighborhood.
Superstructure work of Lot 1 located on Huashan Road will be topped out by the end of this year, while foundation works of Lot 2 have already commenced. Moving to the southern part of the mainland China, the group will add two new shopping malls in Guangzhou next year. The 50% owned Parc Central, located at the Tianhe Road in Guangzhou, will offer a variety of international fashion brands and is expected to be opened in first half next year. Leasing so far, it has been encouraging. International Grand City, a 33% owned shopping mall at Tianhui Plaza in Zhujiang New Town in Guangzhou, will house affordable luxury retail brands, quality eateries. These two projects, upon completion, will further strengthen the group's retail network on the mainland. Lastly, let me go through the performance of our hotel operations.
The group's hotel business recorded 5% and 3% growth in revenue and operating profit, respectively. The performance was inevitably affected by the recent sluggish tourist markets in recent months. However, through proactive promotions and marketing initiatives, high occupancy was sustained. The Ritz-Carlton in Shanghai, Pudong continued to do well with notable growth in its RevPAR this year. The group will have two new hotels in Hong Kong, adding over 1,300 rooms, one in North Point and the other in Sha Tin. Construction work of both hotels have commenced. That concludes my part of the presentation. Now I will pass it back to Patrick. Thank you.
Thank you, Brian. Before we dive into the group's strategies and business prospects, I'd like to share with you our views on the market. The Hong Kong primary residential market is expected to remain active, especially for the small to medium-sized units. For the retail market, leasing demand for Grade A offices would remain healthy while regional shopping malls serving mainly locals shall outperform those targeting tourists. The outlook of residential markets of the first-tier cities on the mainland is likely to continue to perform well. The leasing demand for Grade A offices as well as shopping malls with quality management is expected to remain steady. I trust you are already familiar with the group's time test business strategies. Just to refresh your memory, our long-term strategies include the following: achieve a balance between income from property sales and rental business. Strengthen the group's brand with quality products and services.
Adhere to selective and focused approach to the investments on the mainland. Last but not the least, abide by the discipline of prudence financial management. Turning the page to the business prospects, I shall cover the property development portfolio first. The group expects a promising outlook for our property development business with respect to the following. Strong property sales in Hong Kong would be recognized as over half of the residential units to be completed in FY 2016 were already sold. Production volume will be on the rise, given that there will be a higher level of average annual residential completion, i.e., over 3 million sq ft per annum for the next three years. Such rising production volume is well underpinned by the group's abundant sellable resources, comprising a wide range of flat makes to meet the market needs.
With the healthy financial position guided by our prudent financial management, the group is well-positioned to capitalize on land acquisitions opportunities, particularly in Hong Kong, as they arise. Moving on to the group's property investment portfolio, which is expected to have steady rental income growth and be positive rental reversions and sustained high occupancies. In particular, the rental business will benefit from the strong pipeline of new investment properties that are coming on stream. There is over 1.7 million sq ft of retail space located in Hong Kong, Guangzhou, and Shanghai, which will be opened in the next two to three years. The ongoing Asset Enhancement Initiatives and tenant and trade mix refinements will continue to strengthen the competitiveness of rental portfolio. The group will keep seeking opportunities for appropriate non-core asset disposals to further shape up our portfolio. This slide is in fact our last slide.
To recap on the group's prospects, leveraging our professional management team, we have strong visibility for more bookings in FY 2016, which is well supported by our high production volume in the next three years, which I have just talked about, and capitalize on our robust financial positions, which further underpins our steady rental income growth. This is the end of my presentation. Thank you for your patience.
Before we start the Q&A session, I'd like to introduce to you the panel today on stage. From your left, Brian Sum. Next to Brian is Mr. Allen Fung, Executive Director at Sun Hung Kai Properties. Next, obviously, Mr. Patrick Chan.
Yes.
Next to Patrick, Mr. Victor Lui, Deputy Managing Director. At the center, Mr. Raymond Kwok, Chairman and Managing Director. Next to Mr. Kwok is Mr. Mike Wong, Deputy Managing Director. Left to Mike is Mr. Adam Kwok, Executive Director. To your far right is Mr. Eric Tung, Executive Director. Now, we're going to start our Q&A session very soon. Just a quick reminder, please signal for the microphone if you have a question to ask, and please do speak clearly for our webcast. We're going to record this briefing today, and video of the briefing will be uploaded to the website tonight. Please do identify yourself and the name of your company before you question. May I now invite the first question, please? The gentleman on the third row.
Thank you for taking my question. It is David from Macquarie. Two questions regarding the Hong Kong market. I guess one of the big excitement is the recent opening of the shopping mall, the Grand YOHO Mall. Could you just maybe elaborate a little bit on the new strategy of the Hong Kong shopping mall, especially in view of the ongoing change of the demographics, change of potential tenant mix? How would you position this mall to support its future growth? That is one question on the mall side. For the Hong Kong residential, of course, Sun Hung Kai Properties has been one of the more active land acquisition over the last few years. When we look at the land bank, it does support a very strong and robust growth of resources next few years. How would the management plan to smooth the type of growth?
Are we aiming for a certain percentage of growth per year and spread it over a couple of years, or would it be a little bit bumpy? Thank you.
For our development properties for sale for the next three years, we would on average produce about 3 million sq ft per annum. At the moment now, our land bank for development properties is about 22 million sq ft. Therefore, I think we have enough land bank. We cannot plan for every year, complete the same square footage every year. It is not possible because in Hong Kong,
I think I can supplement that. Probably you notice the low production this year. As explained in earlier session with you guys, the deferment of the Grand YOHO completion due to foundation difficulties and coupled with the one more deferred project for Ultima, supposed to complete this year, defer to the next year. Which yield the situation that you can find extreme low production this particular year. As Mr. Kwok said, for the coming three years, we will be capable producing more than 300 million sq ft per annum. If you divide it by our land bank for development cycle five to even to seven years, we will be well exceeding 3 million sq ft per annum. We are very confident to have a smooth and high volume production in the forthcoming few years.
On the residential sales, I think you may notice that in the past two months we have launched two projects belonging to two different positioning. The Ultima being actually a luxury project in Ho Man Tin, and each carrying a huge price tag of over HKD 40 million. The project was well-received and when we were selling two months ago, within a short period of time, we have been able to dispose over 100 units, fetching a total sales of HKD 4.5 billion. Some of the typical units are actually doing a premium price in the whole Kowloon luxury market. Last week, we have launched a totally different project, a mass project in Tung Chung, the Century Link Phase 2. Again, within a few hours, we have been able to dispose over 300 units.
Upcoming, in next month after Century Link, we shall launch our project in Mid-Levels, which we have named Kings Hill. After that, we are going to launch our scenic project in Yuen Long East, the Park Vista. In the first half of next year, we have three projects to be launched, namely the Tseung Kwan O project fronting the harbor, then followed by Church Lane in Hong Kong East. In the middle of the year, we shall launch Grand YOHO. Apart from residential projects, we also have a few commercial industrial projects to be launched. We are going to market the remaining floors in One Harbour Square in Kwun Tong, and we also have two industrial projects to be sold in the coming months, which are from Tsuen Wan and Cheung Sha Wan, respectively.
In the coming nine months, we shall be busy on launching our new projects again.
Regarding your first question on the YOHO Mall, our strategy would be, the mall would be like New Town Plaza in Sha Tin. New Town Plaza would be on the eastern New Territories, whereas YOHO would cover the western New Territories. We are hopeful that YOHO Mall will be as successful as New Town Plaza.
Thank you.
Next question, the gentleman on the second row.
Hi, Ken Yeung from Citi. I have three questions, so maybe is it better to ask one by one?
Please, yes.
Okay. All on strategies. One is on the Hong Kong sales strategies. I have seen that your Ultima one has been launched for some time and still less than half being sold, and phase two is coming. I guess it will be completed next year. It seems to me that your luxury sales strategy is looking for a very high price versus the market price to achieve a margin. Should we confirm that? Basically, that means that you will be a two-tier strategy. On the high-end luxury side, you are chasing for very high price for margin. While for the mass market side, you just sell at the market price. Should we have that kind of expectation on your sales strategy?
Yes, I think on The Ultima project, we all agree that this is a luxury project carrying a huge price tag per unit. Actually, the project has been very well received. Within a few weeks time, we have been able to dispose over 100 units. Actually, this is a very high rating project situating in traditional luxury location and also adjacent to the future MTR station. At the same time, commanding the best view, I would call a superb double view over the east and west side of the harbor. We have a very high hope on this project, and we shall retain a major portion of units to be sold after completion. I think you also noticed that in the past two years, for luxury projects, most of the units were sold after their completion.
For us, I think we have more incentive to market this project according to our pace, because we are very confident on our quality delivery, and at the same time, normally, there is quick appreciation on our completed properties.
Thanks. Second question.
I think the price is just reasonable, not very high.
I think you can afford it.
Also, for this project, I think it is a very rare site. Therefore, our strategy would be whenever we cannot replace the land, then we have to pace ourselves to sell the project. But whenever we can replace our land bank, we would sell quicker. And also, as Victor said already, I think the MTR Shatin to Central Link will be connected.
It will be operated in the next two years, there will be a major boost on the selling price.
Yeah.
Second is on your Hong Kong land banking strategy, 22.1 million sq ft by June. Guess after including the Yuen Long station project is close to 24 million sq ft. Is one of the very high number in my mindset. Do you think your land bank size is optimal? I.e., what do you think about this land bank in terms of number of years? Basically, even at this point of time, your gearing is still quite low. Should we expect more?
Healthy.
More active land acquisitions in Hong Kong?
Maybe I can answer your question on the land acquisition. You may know that all along we've been very active on land acquisition, we participate each time on, most of the time, on land tenders. However, we are constantly holding a very strict discipline. Together, we are looking for a reasonable margin on the tender. Like in last month, we are very happy to get the Yuen Long site. This is a very sizable project, in future, a small part of this retail element will connect with our YOHO Mall that will create a lot of synergy. In the past few years, we have developed a number of residential and commercial projects in the vicinity, we know we are familiar with the area.
On the other hand, you may also notice that recently, there is a tender on the Pak Shek Kwok area, and the site is just next to ours, which we acquired recently. Of course, we want to get the site, so that there will be some synergy on the future development. You know the result, we lost it to a higher bid. Overall, we shall continue to participate actively on land acquisition, but together we have a strict discipline and looking for a reasonable margin.
Third question. The last question on China. FY 2015, the China sales is a bit off your original estimate. Do you see any improvement in recent months? Regarding the sell down of the Oriental Bund, any change of the China strategy can we take from here?
I think in Oriental Bund, it's natural fit that we let KWG Group Holdings develop the residential units. I think that's a core competence, especially the mid to lower end segment markets. They can do it more cost effectively and quicker. Whereas, as you know, the Oriental Bund is also a huge commercial element to it. So I think we're going to focus on the commercial element and where our strength is. I think in terms of strategy in China, I think you heard from earlier on, we've decided to fully keep our ITC project in Xujiahui for rent. So I think that's a strong signal saying that we are mobilizing our resources in the first-tier cities appropriately and divesting a little bit away from the lesser return ones.
I think for China, I think you have to look more at our rental income. In the future, rental income will grow whereas the development profit will get smaller as a percentage of the total China profits, yeah. On your question about the land bank, I think in terms of our capability, we can easily do 5 million, 6 million sq ft per annum. But I think we need to exercise discipline when we buy the land. We want to make sure when we buy the land, we can make profits, yeah. So the constraint is on buying the land, not in terms of our The constraint is not in our ability to produce units, yeah.
Just to supplement that, Mr. Kwok's point, we have a date back in history. In the '90s, we are producing more than 5 million sq ft per annum.
Thank you. Thank you, Mr. Kwok and Mr. Wong. Next question, please. The lady on the third row.
I'm Perveen Wong from HSBC. I have two questions. The first one is on construction costs. We're wondering if management could share with us the latest trends that you see with construction costs in Hong Kong. Given the recent devaluation in Renminbi, will this help material costs and in turn slow down the rise in the construction costs that we've seen from recent years? The second question is on Hong Kong retail rental portfolio. It has been a concern among investors because of the slowdown in the retail sales in Hong Kong. Could you please share with us what you see in terms of the retail sales and also the occupancy cost trends within your Hong Kong retail rental portfolio? The portfolio had delivered very good growth this year, 8%. What's your outlook for the growth for FY 2016? Thanks.
Can I deal with the construction cost? I think the strong currency, because we are pegged or linked to US dollar, which will lead the situation that the material cost has softened, which mean the material portion is actually less than the previous years. However, the labor part, the labor market is still very tight, so that on balance, the pressure for rapid rise have been actually reversed. I think there is still a tendency for construction costs rising, but at much moderate rate. We can see that phenomenon in these few months.
On our retail portfolio, our sales per square foot is still increasing, maybe low single digit. We believe our portfolio is much more in the regional mall business, where I think we appeal much more to the local people. I think our local people like to go to malls, to go to restaurants, entertain themselves, also to buy a lot of the necessary items. I think we project that our sales per square foot will still go up and our occupancy cost is still 10%-12% of the Our rent is still 10%-12% of sales. There are still room for sales per square foot to go up and also for our rent to go up. Thank you.
Thank you. Next question, please. Gentleman on the second row.
Thank you. Anthony Wu, Goldman Sachs. I have two questions. The first one is on your farmland. Couple of your friendly competitors have recently making noises saying they are going to do more on conversions. You have 30 million sq ft of farmland. Are you seeing some change in the attitude of the Lands Department on the conversions on the land premium offer? Do you see this increasingly become a new source of land banking replenishment in the next 12 months? The second question is about your dividend. I noticed that you paid the same dividend as last year, despite a drop in the EPS. I am sure shareholders are pleased to see stable payout.
Given that your rental income has been on a very steady rising trend, it was up over 7% this year, and very likely on the back of new project, you are going to see more growth in your rental income in the next few years. Would you consider increasing your dividend a little bit to reflect this steady growth in the recurrent income side? Thank you.
Can I deal with the farmland conversion? Yes, we do have 13 million sq ft so-called farmland or agricultural land. A substantial portion of the We have got the planning approval, and we got more than 10 million sq ft land bank ready for negotiation on premium part with government. However, for the past couple of years, the offer from government has been exceeding the market and what we expect the figures. From land acquisition point of view, we have a very strong financial and cost discipline that we cannot afford to agree at a price that we shouldn't be agreeing. We are stuck there. We cannot see a sign the situation will reverse in the foreseeable future. Although government is trying to advocate the arbitration process to expedite the premium negotiation.
We were told there was one of the fellow developer proposing a deal to be settled with government soon. I don't think there is a significant change of the situation in the foreseeable future. We might be diligent on the bidding of land and other aspects.
Yeah. I think the government proposed premium has been unreasonable. That's why, for the past two years, almost no developer have agreed any premium. I think it's cheaper to buy land from the market than to convert from agricultural land. On the dividend, I think our payout ratio is between 40%-50%. If earnings go up, we would consider paying more dividend. But the payout ratio strategy would be between 40%-50%. We will increase the dividend if the earnings go up. Thank you.
All right, thank you. In the interest of everyone's time, may we take the last two question, please. Gentleman in the middle.
Hi, this is Praveen Choudhary from Morgan Stanley. One question is about the office outlook. That is something that people did not talk about. I was surprised about the strength in the market when you look at the vacancy rate, which is very, very low in Central, around 1.4%. But the ability to increase the rental has been lower than what I would have thought. So I want to understand if there is a pressure from some tenant to leave the place, or we are not finding new tenant demand in this environment. So would love to hear your thoughts. The second one is, even though the completion for residential has been low at 1 million in Hong Kong, give or take. The residential revenue has been down much less, and I want to understand what part of that residential sales was inventory and what part was completion, if you have the number.
Otherwise, I can take it later. Thank you.
Let me talk about the office market first. The office leasing market continued to be sustainable in the past 12 months. We have seen a lot of positive pickup in the major sub-markets. You may also know that CBD area continue to be outperform, as we have seen a lot of newcomers from the finance and security companies from the Mainland. And actually, most of the Grade A buildings in Central are now enjoying very high occupancy. Like our two projects, One and Two IFC, they are almost fully let. For core locations like Central and Tsim Sha Tsui, I think the rental will continue to be underpinned by new demand and limited supply. Like our ICC project in Tsim Sha Tsui, it is commanding a premium rent in the whole Kowloon area. Apart from this, we have also seen a lot of activities outside the core area.
A lot of users from the insurance, trading, and even those product sourcing companies are now relocating. Some of them are actually expanding as they are moving from area of higher cost. For this sizable user, they tend to be very choosy on the landlord and the quality of the project and also the management. So all our buildings in the Millennium City portfolio are being benefited and enjoying very high occupancy. On the supply side, I think you may also know that in the past few years, the supply has been very stable in the range of 2 million sq ft per annum. In the coming few years, that would be maybe 2.5 million sq ft per annum. So I think we can see the office leasing market can be sustainable in the next two years and with a solid rental.
Sure thing.
Sure. I think margin, as you know, is a function of product mix. Despite the decline in revenue booked in FY 2015, yes, the margin actually improved, basically or mainly due to the sales of the higher margin products like The Cullinan and One Harbour Square, W50, and also Twelve Peaks.
Okay, thank you. There was two questions, but please, the last one, please.
Hi, this is Raymond Ngai from Merrill Lynch. Your stock price has dropped a lot in the past few months, probably like 30%, and your book value is HKD 157, and your hotel and residential land bank are stated at cost. I think your NAV should be around HKD 200. Your share price is below HKD 100. Do you think your stock is very cheap? If yes, would Kwok family start buying shares tomorrow? That's one thing. The other thing is, a lot of public company have start thinking to buy back shares. I think you look at Sino Land, you look at Hysan Development, and even Cheung Kong Property is thinking to buy back shares. I think a lot of U.S. companies also buy back shares to enhance the shareholder return. With share price below HKD 100, book value is HKD 157.
If you buy back shares, you can enhance shareholders' return, enhance book value immediately. Would Sun Hung Kai Properties start thinking to do this capital management to enhance shareholders' return, to enhance book value? With your yield at only 11%. Thanks.
Yes, our NAV is just over HKD 155. To show confidence, to share with you my experience, I subscribed all my warrants at HKD 98 last year. In the early part of this year, I exercised my share option at HKD 110 per share. Of course, I think the stock market, there has been a lot of volatility over the past two weeks. As a director, we cannot buy until tomorrow. We can buy tomorrow, yeah. Yes, I agree. The share price is low, yeah. For our company, we always have the practice not to buy back our shares because I think we always believe there's always growth opportunity for us in Hong Kong and for us in Shanghai. There are plenty of growth opportunities facing us, yeah. If we cannot find any more opportunities, of course we'll consider buying back shares.
I think, I would say in the next two or three years, there are still plenty of buying opportunities. Maybe I'll ask Adam for his view whether you want to buy back.
I subscribe all the Our family subscribe all the warrants too. I noticed today we closed at HKD 99, so right around par. I think from time to time, we'll look at buying shares, but can't tell you, otherwise you'll front run the market.