Good afternoon, ladies and gentlemen. Welcome to the Hong Kong and Shanghai Hotels 2024 interim results presentation. My name is Claire Yau, Assistant Director of Corporate Finance and Investor Relations. The interim results announcement will be posted on the Hong Kong Stock Exchange website after this session. Our Senior Management is going to give a presentation followed by the Q&A session. For audiences joining us in person, if you have any questions, you can wait until the Q&A session. For audiences joining us online, you're welcome to submit your questions online by clicking the Raise Your Hand button at the top right-hand corner of your screen. Presenting today, we have Mr. Clement Kwok, Chief Executive Officer, Mr. Keith Robertson, Chief Financial Officer, Mr. Gareth Roberts, Chief Operating Officer, and Ms. Ming Chen, Chief Property Development Officer. Now, let's invite Mr. Kwok to begin the presentation. Mr. Kwok, please.
Thank you, Claire. Well, the first thing you'll notice is that of our team around this table, I'm the dinosaur. I have been doing this for 22 years, and this will be my last press and analyst meeting before retirement. But all of my colleagues are relatively new to be at this table. Keith, of course, is a relatively new CFO. Gareth has worked at the company for as long as me, but this is your first appearance at the press and.
Second, the analyst.
Analyst meeting. Ming also has around 20 years of work experience, but, of course, again, she's taken up her position as our Chief Property Development Officer, and Ming is now in these meetings. So this is a sign of transition and a sign of our new management team coming through. The other thing I would mention is, if you look at this photo here, this is a very significant photo because this was the opening ceremony of The Peninsula London, which was held on the 18th of June. I'm sure you recognize the main individuals who were unveiling the plaque. Sir Michael, his son Philip, and then Prince Edward, the younger brother of King Charles III, and his wife, Sophie.
That was a very significant moment for us because that represented, finally, after looking for all this time, this magnificent hotel in London, which is in such an amazing location. This is going to be a very important landmark asset for us for many years to come. Hence, the opening on that day was a truly significant event. If I think back to the first half of 2024, how would I describe it? The way I would describe it is it's really a continuation of getting Peninsula London up and running. Why do I say that? If you look at our results, the results have been affected, as you've all been told, by depreciation because with the hotel opening, there is sizable depreciation coming, and that's because the hotel was very expensive to build.
At the same time, there are sizable interest costs which were previously capitalized but now are going into the P&L. If I talk about the interest costs first, we expect those interest costs to reduce as we get in the proceeds from the Peninsula London residential sales, and that's all part of the economic model of what we set out to do. But we still have some sales which are outstanding where we're still waiting for proceeds to come in. At the same time, of course, it takes time to build up the EBITDA of a new property like London and indeed Istanbul. The EBITDA is not yet at the level that would be covering the depreciation and interest. Of course, the plan is it would.
But with a soft opening in September, the hotel not being fully opened until about February of this year, of course, it takes time to ramp up. And on that, by the way, the recent momentum has been very good, particularly in London, but also in Istanbul. So these big factors which are affecting our results for the first half of the year, we're working through. This is all part of the consequences of opening London. Now, there have been some gains booked on the sales of Peninsula London residences, and that has helped to offset some of the impact that we're talking about. The other factors that have influenced our first half results, in particular, a very weak second quarter in terms of operating results, particularly in Hong Kong.
I don't think that comes as a surprise to any of you that follow Hong Kong in terms of tourism and the economy in Hong Kong. Also, I think, as you know, and really, it is of much less significance, a property revaluation deficit, which actually, in percentage terms, is very small as compared to the portfolio, but then that amount has to be taken through the P&L as well. We've had the Peninsula New York under renovation during this time. While our results are better than budgeted for the rooms that were still in inventory, and the response to the renovation from our guests and customers has been very good, but, of course, we've had a large part of the inventory unavailable. So if you compare the numbers between 2024 and 2023, then, of course, you have New York being affected by the renovation.
That pretty much is the story of the first half. I think all of you would be fairly familiar already. We issued the profit warning just because the bottom-line number looked like a big negative number. I think it is something that we have explained quite clearly. With that introduction, I will get Keith to take us through the numbers.
Thank you, Clement, and good afternoon, everybody. During the first half of 2024, consolidated revenue increased 89% to HKD 4.6 billion. The increase was mainly due to the inclusion of revenue from the sale of four Peninsula London residences of HKD 1.7 billion and the additional revenue generated by the Peninsula Istanbul and the Peninsula London, which soft opened in February 2023 and September 2023, respectively. Excluding residential sales, EBITDA before non-recurring expenses decreased from HKD 498 million to HKD 395 million, mainly due to the Peninsula New York renovation, new hotels in London and Istanbul requiring time to stabilize, and weak markets in a number of other hotels. Depreciation increased by HKD 100 million, mainly attributed to the Peninsula London.
Net financing charges increased by HKD 237 million as the group is no longer capitalizing interest on borrowings relating to the Peninsula London project following the opening of the hotel, as well as higher interest rates. Revaluation loss of HKD 139 million was principally attributable to a decrease in the appraised market value of the Repulse Bay complex. Given these factors, the group made a loss of HKD 448 million for the period compared to a profit of HKD 95 million last year. Excluding the pre-opening and project expenses, the post-tax effects of unrealized property revaluation movements, the group made an underlying loss of HKD 257 million as compared to an underlying profit of HKD 25 million last year. I will now turn to the divisional performance. With respect to the hotels, they reported an 18% increase in combined revenue.
The increase in revenue was contributed by the two new hotels, The Peninsula London and The Peninsula Istanbul, opened in 2023. And as mentioned, the EBITDA of the hotels division was negatively impacted by the The Peninsula New York renovation and the newly opened The Peninsula London and The Peninsula Istanbul, which were still in the early stages of operation before stabilization. With regard to the commercial properties, revenue rose by over 400% to $2.1 billion. The increase was mainly due to the inclusion of $1.7 billion of revenue arising from the sale of the four luxury the Peninsula Residences London. Excluding the revenue from residential sales, the division's recurring revenue increased by 14%, mainly due to the increase in number of visitors to the Sky Terrace 428, and EBITDA is stable.
Overall, The Repulse Bay complex remains the largest contributor of revenue in respect of leasing operations, accounting for over 60% of the division's recurring revenue. Clubs and services revenue increased by 42%, and was mainly attributable to The Peak Tram's robust business performance. EBITDA is negative as some key revenue drivers, such as Peninsula Merchandising's mooncake sales and The Quail, A Motorsports Gathering, normally take place in the second half of the year. I will now talk about the cash flow summary. Net cash generated from operations for the period amounted to HKD 1.9 billion after taking into account pre-opening and project expenses, tax payments, and changes in working capital. The increase was driven by the HKD 1.7 billion of proceeds from the sale of the Peninsula Residences in London.
During the first half, HKD 293 million was spent on existing assets, which included the HKD 147 million on renovation of the Peninsula New York.
A total of HKD 444 million was spent on the two new hotels in London and Istanbul. As the group is no longer capitalizing interest on borrowings related to the Peninsula London project following the opening of the hotel, as well as higher interest rates, interest payments increased to HKD 344 million against HKD 272 million last year. Overall net cash inflow before financing was HKD 0.6 billion. Moving to the capital structure in the balance sheet, our net borrowings, excluding lease and other liabilities, decreased by 7% to HKD 14.1 billion, with average committed facilities maturing at 1.4 years. The net debt to total assets was 25%, and available liquidity amounted to HKD 3.2 billion. Our weighted average interest rate was 4.72% after taking hedging activities into account.
This reflects a 34 basis points increase compared to December last year. 43% of total debt had fixed interest rate. We are now delighted to announce that we have recently received a credit rating of A from Japan Credit Rating Agency, Ltd. for long-term foreign currency and local currency denominated debt. $2.8 billion of financing arrangement is in progress in the second half of 2024. 74% of our total committed facilities were classified as Green Loan or Sustainability-linked Loan versus 57% in June last year. The increasing use of Green Loans or Sustainability-linked Loans demonstrates the company's continuous commitment in sustainable luxury. We will continue to closely monitor our overall debt and cash flow positions to maintain sufficient financial headroom. I will now hand you over to Gareth to talk about operations. Thank you.
Thanks, Keith. Good afternoon, everybody. I'll now give a brief overview of our The Peninsula Hotels operations around the world. Firstly, looking at Greater China, The Peninsula Hong Kong had a good first quarter, although we saw some slowdown in the second quarter, and the overall tourism sentiment in Hong Kong remains weak. In March, as part of Art Week in Hong Kong, we held a major event to showcase contemporary artwork as part of our global art program, Art in Resonance, including a piece commissioned exclusively for The Peninsula Hong Kong by local artist Kingsley Ng, which you see here on the left. Our collaboration with the Star Ferry continues with our signature Peninsula afternoon tea served on board. Our hotels in the mainland are seeing good recovery.
The Peninsula Shanghai is the rate leader in the city and reported strong results and is starting to see a return of international visitors, although the luxury retail and food and beverage sector remains weak. In Beijing, we're seeing excellent results and achieved the highest RevPAR in the history of the hotel with a 27% increase year-over-year. The majority of the guests were from the domestic market and were also welcoming a younger demographic. Elsewhere in Asia, the Peninsula Tokyo is doing well, and this was driven by robust international business from the U.S., U.K., and Hong Kong. Bangkok and Manila are stable, although we continue to struggle with the oversupply of hotel rooms in Bangkok.
Looking to the U.S., where we have 3 Peninsula hotels, The Peninsula New York is currently undergoing an extensive renovation, which will result in a significantly improved lobby, rooftop bar, and public areas, as well as new guest rooms, which you see pictured here with the Peninsula proprietary technology. This renovation will be completed in September of this year, and as a result, we've been performing well with the available inventory, but our revenue for the period was down due to the work ongoing. Business was stable at our other U.S. properties, The Peninsula Beverly Hills and The Peninsula Chicago. We also own and operate a resort in Carmel, California, The Quail, which hosts our annual motorsports gathering and does very well in terms of ticket sales and sponsorship from the top automotive brands. Momentum continues to build in our 2 newest hotels.
The Peninsula London continues to attract positive reviews and rooms business momentum, and banquet and spa are also performing well. Our rooftop restaurant, Brooklands, was bestowed with two Michelin stars after just four and a half months of opening, so we're very pleased about that. The Peninsula Istanbul's momentum has been satisfactory and continues to gather pace and capture market share. Our various outdoor dining and event spaces are quickly becoming some of the premier destinations in the city. At The Peninsula Paris, we reported stable performance, and of course, it's very busy with the Olympics at the moment. Peninsula Merchandising revenue increased by 58% compared to the previous year, although our business was affected by the soft retail markets in Hong Kong and mainland China. Of course, Peninsula Merchandising is known for the signature mooncakes, and we're seeing satisfactory sales for the season so far.
I'll now hand over to Ming to talk about commercial properties performance. Thank you.
Thank you, Gareth, and good afternoon, everyone. We own and operate The Repulse Bay on Hong Kong's south side, which is our largest commercial property. Work is underway to enhance and upgrade the retail arcade. During the first half, The Repulse Bay had positive business performance compared to last year, with revenue increasing slightly. We're pleased to see demand from local moves and expatriates who are returning or moving to Hong Kong. With positive leasing renewals, we remain cautiously optimistic about the second half of 2024. The Peak Tower experienced a strong first half compared to last year, and revenue at The Peak Tower improved by 51%. We're exploring a variety of new dining and retail options to enhance The Peak Tower's appeal as a destination, and during the first half, we welcomed a new coffee tenant and held various promotional activities to appeal to families.
Business at The Peak Tram has been robust, with record patronage achieved during the Golden Week holiday in May. Revenue increased by 73% compared to last year. Located at the Central Station, the lower terminus of The Peak Tram is St. John's Building, where revenue decreased and occupancy dropped slightly to 86% during the first half of 2024 due to weaker office demand and new Grade A office supply coming to the market in Central. We also own commercial properties in Ho Chi Minh City, Vietnam, as well as in Paris, located beside The Peninsula Paris, and that property was fully occupied during the first half. Now I'll hand you over to Clement to talk about the outlook.
Thank you, Ming. So if I think ahead to the remaining months of the year, what are the most important factors for us? Of course, I think the most important is London and Istanbul and the buildup of those properties. As I mentioned earlier, the momentum has been very good in the last two or three months. We're achieving very good RevPAR positions and much more income as compared to the beginning of the year. But of course, we want to see this being maintained. Generally, we would expect the second half to be stronger than the first half. The second half also contains the Quail Motorsports event, which earns a lot of revenue for us and also mooncake sales. And in the past, the second half performance had been stronger in the hotels division than the first.
But of course, the key question is still Hong Kong, right? And we're all aware of the situation in Hong Kong, which is weak, and we're really not seeing the long-haul leisure travelers coming from places like the U.S. Now, I don't think that's going to change very quickly, but I've been saying, for instance, in the press conference today that Hong Kong really has to promote itself. I hope all of us Hong Kongers will convey the pride that we have in ourselves and the confidence and to go and influence the international community so that they would understand that Hong Kong is still a wonderful place. But in terms of outlook, of course, we still have concerns about Hong Kong.
China, I think we've touched on before, of course, is also affected by the sort of poor image that the Americans in particular are putting onto China and Hong Kong. But the difference with China is, I think, two things. One is that there is more domestic travel going into Peninsula Shanghai from other parts of China, and we're seeing the affordability of that domestic audience to be able to pay for a Peninsula product. And also in Beijing, there is diplomatic business, visiting governments coming to Beijing, and that business is helpful to us as well. So it's a bit of a mixed bag, but I would say that the most key elements would be the performance of London and the performance of Hong Kong. I think those are quite key.
If I look at the non-hotel side, I think, Ming, that things are generally looking more positive in terms of The Repulse Bay. I think we're seeing quite good rental demand. We're seeing some growth, even some foreigners taking up some new leases. The Peak continues to have good momentum. And one key thing, of course, on the property side is the continued sale of The Peninsula Residences London, both in terms of getting in the proceeds to reduce our interest costs, but there are six or so apartments that we're working on selling as well. So, of course, it's never easy. I still think this year is a bit of a sort of transition year as we get the new hotels up and running.
Of course, the good thing is that we always look very long-term, and also we maintain a good, steady financial position and liquidity buffers, which is why we have received the A rating from the Japan Credit Rating Agency. Finally, as I said earlier, this will be my last set of interim results before I retire at the end of October. I just want to thank all of my colleagues that we have had such a wonderful journey together.
Now we'll open the floor for questions. There's this first question from the webcast. When do you expect the remaining six apartments to be sold?
I would say that at the moment, demand is quite good. I think some people are waiting until the results of the U.K. election.
U.S. elections.
Oh, U.K. and U.S., but I mean.
We've had U.K. elections.
I know, but they were waiting until the UK elections took place. Actually, recently, we have seen many more viewings for the London residences. I am not worried at all about these residences. If you've been to visit them, they are magnificent. The space is beautiful. They have good ceiling heights, very good space, fantastic location. Some of the apartments overlook Buckingham Palace, some overlook Belgravia, and the quality is really superb. We're not willing to compromise at all on pricing. Actually, this is Ming's responsibility, and she's a pretty tough person. We are getting some, I think we'll be getting some good deals done, but there's certainly demand at a lot of viewings at the moment.
Another question from the webcast. Can you please comment on the profitability of Peninsula London and Istanbul since opening?
I think I've said it, haven't I? Clearly, the profitability is not good. If you have the depreciation and interest, and I explained that we're still trying to build up the EBITDA. But clearly, our business plan is, A, to increase the EBITDA as we increase business. Gareth, I think in the past month, Peninsula London is RevPAR.
Number two.
Number two.
Yes, July we were RevPAR number two. We saw very strong business in July, and we're seeing the same in August.
But the amount of revenue of Peninsula London for July is the highest of any property we have in the group, right? So we are seeing that revenue coming through. But of course, London has a big fixed cost base. It was expensive to build, so depreciation is high and interest. But as I said, we're hoping the interest will progressively come down as we get the residential apartment sales because the proceeds of the sales are being applied towards paying down the debt in London. So that is the equation. And it will take a while to stabilize, I think. But with a bit of luck, I think that transformation could happen quite quick as the revenue ramps up and interest comes down, and that equation comes together.
By the way, the other factor here is that generally, when you open a new hotel, you want to make sure that you don't make any mistakes in terms of the quality of the product and the service. And what that means is that you're opening with quite a full staff complement. Now, of course, you want to maintain a good quality of service, but at that stage, you have not yet had time to work on any staff efficiencies either, right? And that is something we're beginning to work on as well, that as you get settled down, you're working on both the revenue line and the cost line to improve those margins. So yes, I mean, in terms of potential for rapid improvement, I would say London is the number one potential.
A follow-up question. Is there going to be a new hotel in the near future?
No, because at the moment, we have devoted so much attention and investment and resources into London and Istanbul. Clearly, the priority is to make sure that those properties stabilize. If you look at our balance sheet, then we don't want to add any more gearing for the time being. The other thing that I've always had the philosophy, and this is even when I first started with the company, is sometimes people get excited about wanting to build new hotels and saying, "We want to expand in lots of places." But do not forget that quite often, the best potential for creating more value is to look carefully at your existing properties, which are the properties that you know the best, and then to make investments in those existing properties to earn a return.
Because those are the properties you know well, quite often, actually, the risk of making those investments is actually less. We are, as indicated here, we're looking at some of our existing properties as well.
One last question from the webcast. What is your view on the outlook of Hong Kong?
My view of the outlook of Hong Kong is positive. I think Hong Kong has many, many advantages going for it, such as great professionalism, very good infrastructure. It's a place that things can get done. It has a very strong financial services sector. It has a strong legal sector, trading, and all the rest. To some extent, of course, the fortunes of Hong Kong are a little bit tied with the fortunes of China. I understand that there's a bit of a downturn in China at the moment, but I really believe that if you look at China, it is still going to be a fantastic, if you like, manufacturing and production center for the world.
And I do believe that, yeah, I mean, there might be some shorter-term issues in the real estate sector and so on, but I think the overall outlook, I continue to believe that China will be a very competitive place in terms of production, which is very important. And Hong Kong, of course, goes along with that. Now, of course, it has also been very important in the past that Hong Kong, being an international financial center, would also enjoy good relationships with Western countries. And that at the moment, and we all understand why, is also going through a difficult period. But I think provided Hong Kong keeps on working on its own economy, Hong Kong keeps on growing, creating value, making value for itself, and China is growing as well, I think sooner or later we'll find that these things will start coming back in our favor.
Do we have any questions from the floor?
No questions from the floor. All right then. Thank you very much, everyone.
All right. Thank you.
Thank you very much.
If you have any other questions, you're welcome to send your questions to the email box of investor relations.
Thank you.
Thank you.