Good afternoon, ladies and gentlemen. Welcome to Sun Hung Kai Properties FY 2020 interim result analyst briefing. Thank you for joining us today, although we are not able to have a face-to-face meeting under this hygiene conscious environment. I believe you still find this briefing useful. May I take this opportunity to wish you all good health, and may God bless all of you. In a moment, I will give you an overview of the interim result and the performance of each business segment, followed by Q&A section with our senior management as usual. Let me kick start my presentation now. First of all, I will go through the financial highlights of the result. Please note that all figures are in Hong Kong dollars unless stated otherwise.
For the six months ended 30 December 2019, the group achieved underlying net profits of around HKD 13.4 billion, representing a year-on-year decline of 2%. Similarly, the underlying earnings per share dropped by 2% to HKD 4.63, while reported earnings per share declined by 25% to HKD 5.32 due to lower revaluation gain on investment property this period. On dividend, the board has declared an interim dividend of HKD 1.25 per share, the same as the corresponding period last year. This table shows the profit breakdown by segment. Our rental business continued to deliver a stable performance with overall net rental income up by 2% year-on-year to around HKD 9.7 billion. In Hong Kong, our rental portfolio delivered slow growth in net rental income of around 1%, partly due to higher promotional cost for the shopping mall portfolio.
Our mainland China rental portfolio achieved 4.8% year-on-year growth in Hong Kong dollar terms and 7.1% in RMB term. The property development profits grew by 2% to around HKD 6.9 billion. In Hong Kong, property development profits rose by 15% due to higher GFA book. On the other hand, property development profit from mainland China dropped 57% to HKD 515 million, mainly due to lower recognized property sale on less GFA book. As a result, local social incidents, which caused severe decline in visitor arrivals in Hong Kong, profit from our hotel business was down significantly by 75% to HKD 197 million. Other business recorded mild decline of 1%, mainly due to the negative profit growth in SmarTone. The total operating profits was down slightly up 2% to HKD 19 billion in this period. For financial position, the group balance sheets remain strong.
The net gearing ratio and net debts were 17.8% and HKD 101 billion respectively. The higher gearing and net debt were mainly due to the increased bank borrowing to finance the land premium for a mega commercial site in West Kowloon that the group successfully acquired in November 2019 through government tender. Interest coverage was around 11 x, and net book value per share is around HKD 196.60. I now start the discussions on property business with our land bank in Hong Kong first. The group total land bank in Hong Kong stood at around 59 million sq ft of attributable GFA as at the end of December 2019. It includes completed properties of around 33 million sq ft and close to 26 million sq ft of properties under development. Shopping malls, together with offices, accounted for majority of completed properties at around 67% of the total.
For properties under development, around 75% of total is for residential use. The group made strategic land acquisitions in Hong Kong during the period. In November 2019, the group acquired a mega commercial site atop the High-Speed Rail Terminus in West Kowloon. This 3.2 million sq ft office cum retail integrated development will create great synergy with the group's neighboring ICC office, two five-star hotels, and the West Kowloon Cultural District, an international cultural center currently under development. The acquisition not only represents another key milestone of the group's development, but also its long-term commitment to Hong Kong. Discussion with another strategic investor in the office portion of the project are now underway. Now let's move on to the performance of our Hong Kong rental portfolio. During the period, the group's diversified rental portfolio in Hong Kong registered an overall occupancy of around 93%.
Gross rental income reached HKD 9.9 billion, up around 3% year-on-year. For the office portfolio, it registered year-on-year growth of 3.7% to nearly HKD 3.3 billion, accounting for 1/3 of the total. For the retail portfolio, the gross rental income grew 3.7% to HKD 5.4 billion, mainly driven by the additions of new shopping malls and contribution from newly renovated malls. However, the group has spent more on promotional campaigns during the period. As such, the net rental margin was negatively affected. This reflected in net rental income of the overall Hong Kong portfolio, which showed mild growth only. As we all know, the operating environment of retail sector in Hong Kong has been difficult in the second half of 2019. The group's retail portfolio was inevitably affected to a varying degree. Nevertheless, the portfolio achieved healthy occupancy despite short-term pressure on renewals and new leases.
We have been implementing various kinds of initiatives, such as immediate maintenance supports to restore tenants' operations. Besides, we also leverage on The Point by SHKP, the group's integrated loyalty program, to boost consumer spending in the group's shopping mall. In lieu of the prevailing COVID-19 epidemic outbreak, the group decided to grant rent concession to adversely affected tenants in February, particular F&B operator, helping to ease pressure on retailers while maintaining employment in the weakening economic environment. During the period, the group's property investment portfolio in Hong Kong strengthened with two new additions. V Walk atop MTR Nam Cheong Station opened in July last year and is virtually fully leased. Harbour North, the retail component of the group's landmark residential development, Victoria Harbour in North Point, is opening in stages. Anchor tenants, including YATA Supermarket, already held their grand openings and have been well-received by shoppers.
After the retail portfolio, let's move on to talking about our office portfolio performance. The group's premium office portfolio continued to perform well with high overall occupancy during the period. Leasing demand for the group's office premises remained solid. Major tenants showed confidence in the group's quality buildings and excellent services despite a weakening macro outlook. Over the medium term, the group's rental portfolio will be further expanded. The major new addition in Hong Kong will be 98 How Ming Street project in Kwun Tong. This project combines two Grade A office towers and a regional shopping mall. Upon its full completion in FY 2023, the group presence in Kowloon East will be further scaled up. Moving on to the property development business in Hong Kong. For the period under review, the groups recognized HKD 14.7 billion property sales in Hong Kong, up around 21%.
Development profits increased 15% to HKD 6.3 billion with satisfactory development margin. Major contributors include Wings at Sea in Tseung Kwan O, PARK YOHO Napoli in Yuen Long, Kwun Tong West phase I and II. During the period, around 1.4 million sq ft of attributable residential GFA were completed. There will be another 1.6 million sq ft due for completion in the second half of this financial year. As at the end of December 2019, we have over HKD 49 billion of contract sales yet to be recognized. In Hong Kong, we achieved contract sales of HKD 17.9 billion during the period. The table here shows a breakdown of the major contributors. In early January this year, we launched Wetland Seasons Park phase I for sale, and it has been nearly sold out. So far, up to 23rd February 2020, contract sales amounted to HKD 23.9 billion.
Despite solid end-user demand for small to medium-sized units, property sales has been disrupted after the outbreak of COVID-19 since late January this year. After epidemic is under control, we shall put new projects on the market at an appropriate time. As shown in this map, over the next 10 months, the planned upcoming launches for sale include a wide range of products from mass to luxury residential, as well as industrial products. In addition to new launches, we shall continue to sell inventories and other remaining units of previously launched projects. This concludes my discussions on the property business in Hong Kong. Now let me turn to our property business in Mainland China. As at the end of December 2019, the group had a total land bank of around 70 million sq ft of attributable GFA in Mainland China.
Completed properties stood at around 15 million sq ft, of which 50% were shopping centers and 1/3 were office. For property under development, 52% of the total 55 million sq ft was residential project for sale. The group's land bank in Mainland China was further expanded after the acquisitions of Hangzhou site in August last year. This JV project is located in Qianjiang New City CBD in Hangzhou, with a total above-ground GFA of around 9 million sq ft. Comprising premium offices, retail, residential, and hotel spaces. It is currently in the planning stage. Turning to the performance of our rental portfolio in Mainland China. During the period, the group's Mainland rental portfolio generated gross rental income of around HKD 2.4 billion, up 4.8% year-on-year in Hong Kong dollar terms and 7% in RMB term.
The growth was mainly driven by positive rental reversions and contribution from newly completed properties. Gross rental income from Mainland China accounted for 19% of the group's total gross rental income. You may notice that the gross rental income from office portfolio was down by 3.7% year-on-year during the period. The decline was attributed to two factors. One is the rental decline at Shanghai ICC due to the relocation of one of the major tenants to Shanghai Two ITC. Majority of the vacant space at Shanghai ICC has now been leased. Another reason is that the management fee of one of the investment property is no longer classified as part of the rental income. During the period, Shanghai ifc mall has achieved healthy rental growth, and Shanghai iapm continues to enhance its brand mix and recruit popular eateries to the mall.
Rental reversion of office space at Shanghai ifc and Shanghai ICC remains satisfactory. In Beijing, occupancy of New Town Plaza has stayed high since its opening in July last year. However, since January this year, traffic flow and tenant sales of the group's malls on the mainland has been under pressure due to the outbreak of COVID-19 and related countermeasures. In Shanghai, the mall at One ITC, the latest showcase of the 7.6 million sq ft ITC development, had its soft opening in December last year. Both the retail and office space at Two ITC are fully let. Upon the full completions of ITC by late 2023, this development will become a new landmark in Xuhui District, Shanghai. In Nanjing, the group's another integrated landmark, Nanjing ifc, cover 3.4 million sq ft of total GFA. Nanjing One ifc office achieved increased occupancy with tenants gradually moving in.
Nanjing Two ifc is undergoing internal decoration and will be completed later this year. Preliminary marketing of the 1 million sq ft Nanjing ifc mall has started and received positive response. Andaz Nanjing Hotel is scheduled to open in late 2021. Both projects will provide incremental rental income for the group. Next, let's move on to the property development business on the mainland. During the period, the group recognized HKD 1.5 billion property sales on the mainland, down around 40% year-on-year, mainly due to less GFA book. Development profits was down by 57% year-on-year to HKD 515 million. Major contribution came from Forest Hills in Guangzhou, Oriental Bund in Foshan, and Grand Waterfront phase II in Dongguan. We expect to complete around 2.4 million sq ft of attributable residential GFA in second half of this financial year.
As at the end of December 2019, we have around HKD 6.3 billion contract sales yet to be recognized. In terms of contract sales, around RMB 3.3 billion was achieved during the period. The table here shows the breakdown of individual projects. The table in this slide shows the major new launches on the mainland in the next 10 months, including brand-new residential apartments in Suzhou ICC. Due to traffic flow control measures resulting from the COVID-19 outbreak, home sales activities has been severely disrupted recently. We believe the sales in these activities will be resumed when the outbreak is under control. That's all for the group's property business. I'll go through the hotel business performance in the next slide. As you are aware of, the operating environment of hospitality industry in Hong Kong has been worsened due to the plunging tourist arrivals in second half of 2019.
The group's Hong Kong hotel portfolio was also affected with a significant fall in RevPAR. On the mainland, The Ritz-Carlton Shanghai in Pudong continued to deliver stable performance during the period. In near term, hotel performance will be exacerbated by the recent epidemic. For new hotel, ALVA HOTEL BY ROYAL in Sha Tin, Hong Kong, held its grand opening in December last year. New hotels under development include Four Seasons Hotel Suzhou, Andaz in Nanjing. Both are expected to open by late 2021. That cover our business update, and let me talk about the market prospect. In Hong Kong, the outbreak of COVID-19 add significant downside risk to the local economy in the short term. However, the operating environment is expected to be back on track when the epidemic is contained. For the primary residential market, activity will stay low in the near term despite solid end-user demand.
Nevertheless, relatively low mortgage rates and steady lease supply over the next few years will cushion the downside risk. On Grade A office markets, new leasing demand will remain weak in the near term. Yet, quality buildings with multinationals and large enterprise tenants should differentiate and outperform the others. We believe core central districts should also fare better than other areas due to limited supply. The retail sector, as well as tourism and public transportation, will be inevitably affected in the short term. Having said that, malls offering one-stop shoppings are still preferred by locals. In key cities on the mainland, despite a negative impact of epidemic on the economy in the near term, various measures have been introduced to support work resumption. More accommodative measures in stabilizing the economy are expected. We expect to see a reasonable growth in the economy over the long term.
The home sales activity of primary residential markets will continue to be affected amid corresponding containment efforts. However, favorable market policy will help support the market. On Grade A office, both international and domestic tenants become more cautious about their expansion plans. Having said that, quality office building at prime location with premium management services remain the preferred choices. For the retail sector, local consumption and traffic flow are inevitably affected in the short term. Sentiment is expected to rebound once the pandemic is contained. Well-managed shopping malls with ongoing trade mix refinement will draw more footfall. Turning to our business prospects, some of the group's business segments, such as retail, hotel, and property sales launches in Hong Kong and mainland China, are affected amid the COVID-19 outbreak. However, we are ready to embrace for the market getting back on track.
Actions will be taken to boost consumer spending in the group's shopping malls and hotels when the outbreak is under control. On property sales, we are also preparing for new launches in Hong Kong and on the mainland. If the COVID-19 lingers for a longer while, the group's earnings prospect will be affected. Nevertheless, the group remain highly confident that Hong Kong will be able to further strengthen its position as an international hub for finance, business, trade, and tourism over the long term. On land acquisitions, we shall continue to seek opportunities in both Hong Kong and major mainland cities with strict financial discipline when opportunities arise. The group's diversified property investment portfolio in Hong Kong and mainland China will continue to expand.
Major additions include the mega landmark project atop High Speed Rail West Kowloon Terminus in Hong Kong, remaining phase of ITC in Shanghai, and the newly acquired Jianghehui joint venture project in Hangzhou. All this development will provide a sustainable and sizable recurring income to the group in the long run. As in the past, we will continue to stick with the prudence financial discipline. Finally, I would like to wrap up my presentation with a message extracted from the chairman's statements as follow. As in the past, the group is dedicated to supporting Hong Kong by developing landmark projects in difficult times. This can be exemplified by the commitment and development of Two ifc during the Asian financial crisis, and the ICC project following the tech bubble burst in 2000.
With a commitment to the long-term development of Hong Kong and a firm belief that the city will eventually get back on track, the group will continue to invest in Hong Kong and the mainland. This conclude my presentation. Thank you.
Thank you, Brian. Ladies and gentlemen, thank you for joining us again. Now, I would like to introduce the panel to you. From your left, Mr. Brian Sum, whom you've already met. Mr. Christopher Kwok, Executive Director. Mr. Allen Fung, Executive Director. Mr. Victor Lui, Deputy Managing Director. The center is Mr. Raymond Kwok, Chairman and Managing Director. Mr. Mike Wong, Deputy Managing Director. Mr. Adam Kwok, Executive Director. Mr. Eric Tung, Executive Director, and Mr. Frederick Li, Group Chief Accountant. Before we start, I would like to invite our Chairman and Managing Director, Mr. Raymond Kwok, to share with us some key messages. Mr. Kwok, please.
Thank you. I'd like to say a few words. Sun Hung Kai Properties has a strong faith in the long-term prospect of Hong Kong. With the city's unique strength of one country, two systems and solid fundamentals, while riding on opportunities from rapid developments on the mainland, the group remains highly confident that Hong Kong will have a brighter future. We believe that the novel coronavirus epidemic will only have a short-term impact on Hong Kong and the group. Over the past 40 years, the group has grown together with Hong Kong, going through ups and downs, including the confidence crisis over the territory's future in the 1980s, the Asian financial crisis in 1997, the SARS epidemic in 2003, and the global financial tsunami in 2008. Each time, we have emerged stronger.
With a solid foundation and extensive experience, the group is confident that it will, together with the people of Hong Kong and its staff, succeed in overcoming the challenge brought about by the coronavirus outbreak. The group's recent successful acquisition of the landmark commercial site atop the High Speed Rail West Kowloon Terminus represents another key milestone of the group's development. Located at the center of the West Kowloon development area, the project will integrate with other developments in the district to create Hong Kong's next most important business hub. The development is a testament to the group's faith in and also commitment to the long-term future of Hong Kong. As shown in the past, the group continues investing in Hong Kong even during tough times. Hong Kong Two ifc was developed during the Asian financial crisis in the middle of 1990s.
Hong Kong ICC was built after the dotcom bubble burst in the 2000s. The Shanghai ifc project was committed while the SARS epidemic was underway. These projects have all contributed to the development of Hong Kong and key cities on the mainland. In respect of the short-term impact brought by the latest epidemic, the group is pressing ahead with all its property developments and will put new projects for sale on the market as soon as they are ready. As always, the group will complete its essential developments for handover to customers on time and also with our signature high quality and good services. Knowing the operating difficulties of shopping mall tenants and to safeguard jobs for their staff, i.e. the tenant staff, Sun Hung Kai Properties has offered rent concessions to its small tenants, hoping to ease their operating pressure.
On the other hand, the group has strengthened measures to fight against the epidemic, including stepping up cleaning and disinfection of its properties and making donations of face masks to the Hospital Authority and number of charity organizations. While tackling the epidemic, the group has already drawn up plans for all its operations with a view to revive business right after the epidemic. These include plans and strategies to increase footfall and spending in shopping malls to help its tenants, as well as initiatives to promote property sales, hotel, and other businesses. All these measures seek to put the local economy and the employment market back on track as soon as the virus outbreak subsides. Thank you.
Thank you, Mr. Kwok. The question-and-answer session will now begin. If you wish to ask a question, please press star one. May I have the first question from Ken Yeung, Citigroup?
Hi. Hello?
Hi. Please go ahead.
Okay. Thanks. I have three questions on company. One is on the property development, one is on the Hong Kong retail, and the last one is on dividend. Firstly, on the Hong Kong property side, on the development side, with the recent weak sentiment, are you going to change your sales strategy, i.e., will you delay your launches, see what the market is going on, and will that affect your pricing, as well as do you see that the current moment is good as a land banking opportunity? This is the first question. Secondly, on the Hong Kong retail. What is the latest occupancy cost for the retail portfolio? And the new thing that you already grant some rent concessions. Can you tell us what is the magnitude of this rent concession, and will you consider to extend into March, April, et cetera?
Can you also give us a sense that what is the rental loss regarding this rent concession? And lastly, on dividend, given that the market has been tough since mid of last year, we have been suffering a very long period of tough time. In case earnings decline, will the board consider to have the payout ratio higher than 50% in order to maintain a flat EPS? I.e., in what circumstances the board will consider to cut dividend? Thank you.
Maybe your first question, Victor.
Yes. On the development side, although the epidemic is affecting our new sales a bit, but from our past experience, we know that this will not last long and we will always have the windows and opportunities to launch our new projects. I do not see we shall have any much delays on our future sales. We are always committed to offer quality units and services to our customers in different sectors, from luxury to mass residential projects. Nevertheless, in the next one to two years, most of our projects, our new projects, are comprising small to medium-size units, which have a solid demand and very marketable. On our sales strategy, we are always sticking to the prevailing market condition. From our past record, you can easily see that we can always strike a balance between volume and margin.
Normally, we are looking for a quicker asset turnover on mass project. As for the luxury project, which the locations are quite difficult to replace, we shall dispose our units at our measured pace. I think you still remember that just before the Chinese New Year, we are able to have an almost sold out on our phase I of our Wetland project, comprising 700 units, fetching a total sales of HKD 4.5 billion. You can see that we can always deliver and execute our sales direction on different projects.
Yeah. I think in terms of the Hong Kong retail sector, I think the entire retail sector, including our group shopping malls, have seen a negative shock as a result of the outbreak since January this year. As a matter of fact, actually towards the end of last year, we were seeing signs of recovery in terms of sales and traffic in our malls. From the earlier social protests. This coronavirus has really caught everyone by surprise. Because there is still so much uncertainty about the development of the outbreak, I think for right now, the occupancy cost is not meaningful under this extraordinary situation. However, as we announced earlier, we have had provided rental concessions for adversely affected tenants in February this year. That ranges from 30%-50%. The exact magnitude of the concession will vary depending on the retailers and the industries.
More help will be granted to retailers with more employees, such as F&B operators. In terms of whether or not we will extend the rental concessions to March, we will continue to monitor and review the situation. Finally, in terms of the impact on the rental income, again, I think it is too early to tell, because we still have a few more months to go for this financial year. But we are keeping a close eye on the situation. Lastly, I think we are also confident that at the end, the impact of the epidemic outbreak will be short-term and the consumer spending will rebound to a normal level later in the year.
Question on the dividend. I think we have to balance between maintaining our debt equity ratio of below 20% and also paying dividend to our shareholders. The interim dividend is the same as last year. I would say, as long as the dividend payout is below 50%, we will try to maintain our dividend. That is in spite of the fall of earnings. As long as the dividend payout is below 50%, we will try to maintain the dividend per share. Thank you.
Thank you, Mr. Kwok. Next question comes from John Lam, UBS.
Hello. Thank you very much for taking my question. Given we have the senior management here, maybe I want to ask something more longer term. My first question here is that, what is your long-term investment outlook for Hong Kong, China, and maybe overseas market? Second is that, would you maybe take the advantage of the current situation to be more active in terms of land acquisition in both Hong Kong and also maybe China as well? Then the third here is about, what is your view and also attitude towards the government potential farmland resumption, and also the upcoming land sharing pilot scheme? Thank you.
Mike, you can answer the third question first.
Okay. On the land sharing scheme, government has actually, in the budget speech yesterday, they indicated the scheme will be available for application in the first half of this year. As you are aware that there are certain preliminary ideas how this scheme is going to be executed. We are still awaiting the further details from government, and hopefully upon the propagation of more details will be investigate further details before we decided to submit schemes to implement the land sharing scheme. On the conversion of farmland, as always and as usual, we have been actively engaging government with various projects. The only thing we can say that we are still in active process, and there are a few projects in the advanced stage.
First two question.
Yes. As you know, we just got the HSR site, as Mr. Kwok previously said. The acquisition is very meaningful to the group and also to Hong Kong. The site would create excellent synergy with our neighboring ICC projects. Over the years, we have been very active to participate different land sales of the government, under a very prudent financial discipline. For sure, we shall continue to be very active on the future land sales. At the same time, we are also monitoring the investment market closely for possible acquisitions.
We shall be very selective and only focus on those properties which have more synergies with our existing properties, and those which we can add value on and at reasonable price. Given that the current market is still at very low interest rate, and most of the owners are having a very strong holding power. We do not see any bargain for the time being, but we shall continue to be very active and also keep an open eye in the market.
I would also like to add that we'll try to sell more non-core properties, so that whilst we are buying more land when it's a reasonable price, we try to keep our leverage, that equity ratio, to below 20%. Thank you.
Yes. On the non-core disposal, I also want to supplement that we are always reviewing our non-core rental properties for possible disposal, including those luxury residential units, non-core retail premises, and offices.
As I said, these properties are those properties which we cannot add value on, and those properties which cannot create synergy with our existing properties. Not too long ago, we have sold some retail premises in Tsuen Wan and Shau Kei Wan. As basic fundamentals still remain unchanged with low interest rate, limited supply, and ample liquidity, we shall continue to look for more opportunities to offload our non-core rental properties. I think it is sensible to do this as we can reserve more capital for new acquisitions. Thank you.
Thank you, Mr. Kwok. Thank you, Mr. Lui. The next one is from Justin Kwok, Goldman Sachs.
Thank you. Thanks for taking my call. I got three questions. The first one on residential, second one on the investment properties, and then the last one on the HSR site. On the first one, regarding the residential segment. Now with a softer market, as you have mentioned on the current environment, and at the same time, you are also one of the rare company in Hong Kong giving out a medium-term contracted sales target of HKD 40 billion per annum. Can I check, would you intend to revise down this HKD 40 billion for this year? Also, how do you see the medium-term target of that HKD 40 billion to be maintained? That is the first question. The second one on the investment properties side.
Assuming the rents are more or less the same in the current level, how would the rental reversion like for your office segment and retail segment, in the coming year? Would you expect these two segments or one of them heading into a negative reversion anytime soon? The third one on the High Speed Rail site. As you pointed out in the presentation, you are still actively looking at the introduction of strategic partner. Can I get a sense on the progress on that? Also, how would the investor be expecting on your eventual ownership of this project when these partners are being added? Thank you.
Yes. On the property sales, as I said, although the sales market is a bit affected by the epidemic, from our past experience, we know that this will not last long, and we can always have the opportunities to launch our new projects. Just before the Chinese New Year, we have been able to have an almost sold-out on our Wetland project phase I that comprise 700 units, fetching a sales of HKD 4.5 billion. We also just got the certificate of compliance for our St. Martin in Pak Shek Kok and also Wings at Sea in LOHAS Park. I think we can also market those completed units very soon. We also hope to get the sales consent of phase II of Wetland project in next month.
We also want to market this project as soon as possible, as we know that we have a big number of prospective buyers waiting for this phase. In Q2 and Q3, that would be our residential project in Sha Tin, our industrial project in Tsuen Wan, and also phase II of Victoria Harbour, and also Central Peak at Stubbs Road. Lastly, that would be our residential project in Tuen Mun , the [inaudible] project, at the end of the year. You can see that in the coming 10 months, we shall have a number of projects to be marketed that would offer sizable liquidity for the group. Having said that, as we cannot start any new sales for the time being, that may affect our sales target in this financial year.
But I think we can easily catch up in the second half of this year with ample marketing resources and also our high level of new projects under completion in the next few years. We are very confident that we can achieve an average annual sales of HKD 40 billion in Hong Kong.
Maybe, Eric, can you answer the HSR site?
Yes, for the HSR site projects, we are actively talking to a potential strategic investor who will bring synergy to the whole development. We are looking for someone who is investing only in our office portion, taking up a substantial portion of the office. For the retail portion, it will be 100% owned by Sun Hung Kai.
On the investment property for the office and the retail portfolio, I think we still expect the rental reversions to be overall positive, yeah. A lot of the rental renewal, a lot of them are already done in the second half of last year. So overall, we expect our investment properties rental reversion to be positive. Of course, I think like in February, I think we expect to give some rental reduction, offer some rental reduction to some of our retail tenants. Thank you.
Thank you, Mr. Kwok. Next question is from Raymond Liu, HSBC.
Hi, management. This is Raymond Liu from HSBC. Thanks for taking my call. I got three questions to ask. For the first one, it is about the retail portfolio in Hong Kong. Can management share with us the first four and the tenant sales in January and February this year? Also about the percentage of turnover rent to total retail rental income in Hong Kong second half last year. This is the first question.
The second question is about investment property portfolio in Hong Kong. Can you share with us about the lease expiry profile so that we can better understand the rental growth trajectory going forward? The last question is actually about the construction progress. We heard couple of public companies now adjust their construction pace. May we note, is there any adjustment of your construction pace in Hong Kong and Mainland China due to the virus outbreak? Thank you.
Let me answer the third question first. In terms of construction progress, in the immediate future, for the next six months, we have approximation of 3,500 units, and because those are not affected by supply chain issues, we expect it to be, as the Chairman said, on time, and of good quality and of good service. They cover a range of seven projects, and we are confident in the short term that we can deliver it. Whether in terms of midterm, there is, of course, China is still resuming work in the factories and so on. Whether we can get the components like concrete or curtain wall in time remains to be seen.
But rest assured, as long as the material is here, we are doing all we can to ensure timely delivery, and that we have not slowed down our construction to the extent possible, as long as it is healthy to do so, and safe to do so.
In terms of the retail market, as I have said, I think this is a negative shock to the whole retail sector. And we have definitely seen trades such as, I think, jewelry, watches, and F&B are quite significantly affected by the outbreak. But then I think on the other hand, I think there are still some trades such as supermarket and healthcare, that still were able to achieve moderate sales in some of the more residential areas. In terms of our rent structure, actually, majority of our rent is base rent.
Actually, over 90% is in base rent. So that should give the group some cushion to face the headwinds. But I think, again, we just want to repeat that we expect this is an extraordinary event. The impact will be short-term. As soon as the outbreak is under control, our group has plans in place to launch a full range of promotional programs to help our tenants' sales.
To respond to your second question, I think our office lease is normally three to four years. And for our retail mall leases, it is normally about three to four years, yeah. Thank you.
Thank you, Mr. Kwok. For the interest of time, I would like to invite two final questions. We have the next question from Karl Choi, Bank of America.
Hi. Thank you. I also have three questions. First one is I wanted to ask about your Mainland China shopping mall. Could you talk about their sales trends in the first half of the fiscal year? Also, have you given any rental concession in the last month, given the virus outbreak? The second is, can you talk a little bit more about the office market apart from the rental reversion? What are you seeing on the spot rent front or on occupancy? There are a lot of talks about pressure. So can you talk a little bit about that? Lastly is on farmland. I also want to follow up. Any change in the conversion pace in your discussions with the government or the conversion price?
Given the social events last year or more recently, the virus outbreak, any impact on the conversion price or pace that you can see? Thank you.
Your second question again? Your second question about the office market, yeah.
On Hong Kong office market, what is the outlook for spot rent and also occupancy?
Maybe Christopher can answer the first question. Victor can answer the farmland one. Okay.
Yes. I think in terms of our retail sales in Mainland China, I think actually up until the end of last year, we have actually seen strong double-digit growth in both sales and rental income for our shopping malls in China. Again, obviously, the outbreak in China has dealt a severe blow to the mall traffic in our malls, but our malls have remained opened. Again, we believe as people gradually start resuming work, I think traffic and sales are set to rebound in China. In terms of rental concessions, we are making reference to the concessions we make in Hong Kong for our malls in China. But the specific amount will depend on the specific city's conditions. The concessions will also vary depending on the retailers. Yes.
As for the office leasing market, although the epidemic have delayed the relocation and expansion plan of some tenants, but policy fundamentals still remain unchanged. We can still see that Central still hold up very well due to limited supply. In fact, new supply will only come up in around three to four years' time. Most of the Grade A buildings in Central are still enjoying high occupancy, like our One and Two ifc, they are both fully let. For our other buildings in Island, in Wan Chai and Causeway Bay, they also show very healthy performance.
As for the non-core areas like Kowloon East, there are some new buildings being completed in the last two years. We have seen some owners are taking a more flexible stance on rental negotiation. Our existing building of our Millennium City portfolio are not affected because most of our tenants are belonging to larger users of the renowned users in different sectors. They have long-term relationship with us, very stable and very demanding on building management, quality, and facilities. Although there are some activities in the area underpinned by cost saving. High CapEx remain a hurdle for most of the big users to relocate. Again, our buildings in the area are well-positioned with a solid rental and high occupancy. Overall, I think that both the Central and Tsim Sha Tsui will continue to outperform the rest of the market.
Although there are some big users, they may consolidate a bit, but the likelihood of major downsizing is low. As for other sub-markets like Kowloon East, I think the rents of the new buildings may edge down a bit. The leasing activities will continue to be stable, underpinned by minor relocations.
On the subject of farmland, as I responded to one of the peers earlier on, we have been doing the conversion process. Basically, there are two stages, planning and then land exchange stages. As I said earlier, there are several cases that we have already obtained the planning approval and enter into the land exchange stage, so that we're expecting in the advanced stage of this process. As one thing worth mentioning is that government has recently, one year ago, has set up a special task force, a land supply team within Lands Department to process this land exchange application. We hope by way of increased attention and human resources within government and our eagerness to conclude deals. I think once the government resume work, we hope we can achieve more active progress with the couple of cases in our hands.
We have the last question from Praveen, Morgan Stanley.
Thank you very much for taking my question. Three quick questions, if I may. First one is on dividend, second on hotel, and third on HSR site. On dividend, it is extremely clear, Mr. Kwok, that you want to keep it at least flat as long as it is not above 50%. However, assuming that you are saying this is a passing phase and eventually the world will be better, you have seen in 2003, 2009.
Would it be prudent to even go higher than 50% because you know the next year will be better? That is the first question. The second question on hotel, was related to the occupancy that you need to have to at least break even, because I realize that some of the hotels might be running at a very low occupancy. So the break even occupancy is the question. The third question is on HSR site.
As you clearly mentioned that you will keep 100% of the retail business, but you would share the offices of the HSR site. This is opposite of your West Kowloon strategy, where you kept ICC 100%, but you shared your mall with MTRC. Could you explain the reason behind it? Thank you very much.
To answer your third question first. We have no choice. The MTR wants to keep 80%. We wanted the whole of the ICC mall, but MTR is very clever. On the tender condition, they insist that they need to hold 80% of the shopping mall. On the first question. I think we will consider the dividend payout to be slightly more than 50% if we can pre-sell at a good pace. It all depends on making sure that our gearing stays low. For example, if Victor can keep on selling, if he can sell more than HKD 50 billion per annum, of course, we can raise the dividend payout ratio. But if this virus continue and we cannot sell too many apartments, then we have to stick to the 50% dividend payout ratio.
On your question about hotel, I think we are dealing with a very tough situation now with only 3,000 visitors coming to Hong Kong every day. So the occupancy is very low. At the moment now, I think two points. We need to control our cost by closing some restaurants, and also some of the hotel staff, we have to ask them to take unpaid leave. So it is difficult to talk about break even because I think the situation can change anytime. For example, I think if this virus dies down, then I think that the visitors would come back. At the moment now, the 3,000 visitors per day is very low. I think in fact it is over 90% down compared with the normal number of visitors.
This is the moment when what we can do is just to control our cost and then wait for the virus to subside. Thank you.
To complement Chairman's point on the hotel. Actually, in January, on food and beverage alone revenue, some of our hotels actually have exceeded year-over-year on the 2019. 2020 January was better than 2019 January. Of course, there is some Chinese New Year factor, but you can see that once the virus ends, I think at least in the F&B part, there is a lot of people who want to come out and eat.
Local people.
Local people
Yeah.
Please visit our restaurants soon.
To add to Christopher.
Sorry, just one more minor point. I think while we are putting in place some cost-cutting measures, I think we also have no plan to lay off full-time staff because we think we should overcome this difficult period with our staff together. Just want to get that clear. Thank you.
I think Adam has a good point. I think in January, with no impact from the virus, the local people are coming back to eat. The problem now is this virus, for example, even the government doesn't want their people to come back to the office to work. Even for a lot of the investment bankers, they stay at home. We would like more people coming back to work, and then the F&B of the hotels would at least pick up definitely substantially once the employees come back to work. Yeah. Thank you.
Ladies and gentlemen, thank you very much for joining us today. We hope to see you all again in our annual results in September. See you next time.