Good afternoon, ladies and gentlemen. Welcome to The Hongkong and Shanghai Hotels 2022 interim results video webcast. My name is Aiden, group treasurer for the company. The result announcements were posted on the stock exchange website early this afternoon. Our presentation will begin by our senior management team, followed by the Q&A session. You are welcome to submit your questions at any time during the presentation by using the Q&A box on your screen. Today, we are pleased to welcome the following speakers: Mr. Clement Kwok, Chief Executive Officer, Mr. Peter Borer, Chief Operating Officer, Mr. Christopher Ip, Chief Financial Officer, Ms. Shirley Lam, Group Director, Properties. We would now like to invite our CEO, Mr. Clement Kwok, to begin the presentation.
Thank you, Aiden, and good afternoon, everybody. If we go to the first slide. Actually, Aiden, I can't actually see which slide is on the screen. The slide headed one, H1 2022. I don't think anybody will be surprised that what we're seeing depends very much on what is the COVID situation. In Hong Kong and China, there have been very stringent COVID travel restrictions, and therefore our business has suffered from that. Whereas in Western countries such as the U.S., and we also operate in Paris, we have seen a strong recovery, in some cases with record high rates. Overall, our H1 results have seen some positive momentum as compared to a year ago, but we're still having to watch very closely what is the COVID situation.
I'm pleased that overall, our H1 results gave us the first positive operating cash flow. Now, this is after normal capital expenditure, but excluding the new projects such as the hotel developments and the Peak Tram. On that basis, we are cash positive for the H1, which I'm happy about. Key issues for us, significant labor shortage around the world, especially in the hospitality sector. That has been well reported. People are aware of that. That has given rise to wage inflation, and we're also watching closely inflation, rising energy costs, and rising interest expenses. For the time being, our focus remains on ensuring that we successfully complete the construction of the hotels in London and Istanbul. Those hotels have faced challenges, as I've explained to you before, and we'll go into more detail later on.
The Peak Tram upgrade project will be completed in the late summer of this year. We came into this crisis, as always, with low gearing and considerable liquidity, which we believe will comfortably meet the group's operating cash requirements, so we have good buffers on that. Given the operating results and the current economic environment, the board felt it was prudent not to declare an interim dividend. That is my overall summary. I will now ask Chris to go over the numbers in more detail.
Thank you, Clement. I also cannot see the pages, so I assume that we are now on page four, which shows the overall P&L.
All good, Chris.
Thanks. I'd like to start off saying that, our consolidated revenue for the H1 increased by just over 30% to HKD 1.7 billion, and the majority of that came from the hotel division. Like Clement said before, we've seen a strong rebound in the States as well as from Europe. A lot of this increase in the revenue is attributable to New York and Chicago, for example. The operating costs have also increased from HKD 1.2 billion-HKD 1.5 billion because, along with the opening of the hotels and the better business, for example, in New York and Chicago, we've seen a corresponding increase in staff costs. Bear in mind, at the same time last year during this period, some of our hotels were actually shut.
That's why we've seen this increase at a greater degree for this period. Our EBITDA after pre-opening and project expenses increased year-on-year to HKD 65 million compared to HKD 6 million last year. There was also HKD 426 million increase in fair value investment properties, which was mainly attributable to The Repulse Bay Complex. Despite the softer demand for residential leasing, prices within the Southern District of Hong Kong for the luxury residential apartments saw a pickup in values in the H1. Our underlying loss reduced by 27% to HKD 254 million. On the next page, contribution by division on a combined basis. You can see that, as we mentioned before, hotels did very well. We reported a 41% increase in our combined revenue with strong rebound in the States and Paris.
Our home market in Hong Kong and also in mainland China, where we have properties in Beijing and Shanghai, were still under significant lockdowns, drastically limiting tourist arrivals. On an EBITDA basis, we're back to a + HKD 13 million in the H1 versus -HKD 80 million during the same period last year. In commercial properties, revenues declined slightly by 3%. The largest contributor to this division, The Repulse Bay Complex, recorded a modest similar 3% decline due to the shortage of expats arriving into Hong Kong. The Peak Tower experienced another challenging year with almost a 25% drop in revenue, significantly impacted by the lack of tourists and the ongoing Peak Tram upgrade project. Overall, EBITDA here fell by 12% to HKD 158 million .
Clubs and services, we saw strong performance from Quail Lodge and also the Peninsula Merchandising, which more than offset the decrease in revenue from the Peak Tram due to the second suspension. That EBITDA saw a loss of HKD 41 million in this period. Going on to the cash flow. We can see that the amount of operations for the period amounted to a + HKD 16 million. That's after taking into account tax payments, changes in working capital and normal CapEx. This compared with a - HKD 94 million for the same period last year. During the H1 of the year, over HKD 150 million was spent on existing assets, including the Peak Tram upgrade project, and also over HKD 1.1 billion were spent on London and Istanbul as the new hotel projects.
Overall net cash flow before financing was HKD 1.3 billion. On the next slide, in terms of our capital structure and balance sheet. Our net borrowings excluding lease liabilities increased slightly by 2% to over HKD 13 billion with an average committed facility maturity of 1.5 years. Net debt to total assets stood at 24%, and the available equity amounted to over HKD 5 billion. Our weighted average gross interest rate was under 1.7%, and we continue to monitor our overall debt and cash flow positions to maintain ample and a prudent financial headroom. I'll now pass over to Peter to talk about the operations.
Thank you, Chris, and good afternoon, ladies and gentlemen. Our hotel performance varied across the globe. With ongoing border closures and travel restrictions, The Peninsula Hong Kong continued to experience a challenging year. Revenue decreased by 10% with a 36% drop in RevPAR, albeit seeing a rebound since social distancing measures being relaxed on the 19th of May, 2022. The Peninsula Arcade was 93% occupied, although commercial leasing remains under pressure due to the soft retail environment. We believe our newly renovated Peninsula Arcade basement will continue to offer an attractive retail environment for tenants with an eclectic mix of lifestyle and culinary amenities. We are pleased that one of our anchor tenants will expand their footprint further. The China market had an extremely challenging H1 year with various lockdowns from March onwards, causing serious deterioration in business.
The Peninsula Shanghai saw a 48% decrease in revenue, with RevPAR down 66%. We achieved some improvements in June when restrictions were lifted and welcomed the reduction in quarantine from 14 days- 7 days+3 days . The Peninsula Shanghai Arcade was 94% occupied. The Peninsula Beijing saw similar challenging H1 with a 21% drop in revenue impacted by lengthy quarantines and significant lockdowns since April. We do not expect any turnaround in business level until after the 20th Party Congress in November 2022. The Peninsula Beijing Arcade was 95% occupied. In the United States, The Peninsula New York experienced a strong rebound in the H1, with revenue jumping 320% and RevPAR more than doubled. The speed of recovery and revenge travel spending has exceeded our expectations.
The Peninsula Chicago reported more than 70% revenue and record high average rates. Labor shortage remains a key concern and recruitment is a top priority. The Peninsula Beverly Hills saw a 76% increase in revenue and the highest average rates in the history of the hotel, with robust demand for suites and high-end products. The Peninsula Paris enjoyed a successful H1 since restrictions were lifted from March onwards. Revenue jumped 455% with RevPAR increased by 362% more than last year. The month of June was the best performance in the history of the hotel since we opened in 2014. Elsewhere in Asia, following the relaxation of government restrictions, business rebounded drastically. The Peninsula Tokyo reported a 39% increase in revenue.
Both The Peninsula Bangkok and The Peninsula Manila saw some rebound, and the outlook for the H2 is for further improvement. I will now hand over to Shirley to talk about the commercial properties.
Thank you, Peter. The Repulse Bay Complex experienced a softening market, with residential revenue and occupancy declining at 101 Repulse Bay and de Ricou. The expat exodus and the lack of international arrivals continue to affect the luxury residential leasing market, and we are concerned about the H2 of 2022. However, F&B saw a strong rebound after COVID restrictions relaxed in May. The Peak Tower reported another challenging year, significantly impacted by the lack of foreign visitors to Hong Kong and the ongoing upgrade projects of the Peak Tram. Revenue declined due to rental concessions offered. We are implementing a variety of promotion and business strategies to entice more visitors to The Peak. We are confident that The Peak Tower and the Sky Terrace will benefit from the reopening of the Peak Tram in late summer 2022. St. John's Building occupancy remained stable, but revenue dropped.
With increasing market vacancy, the immediate outlook remain cautious. Revenue of the Landmark in Vietnam improved 61%, with an increasing occupancy for both residential and office. Outlook for the Ho Chi Minh City leasing market remain positive. Revenue at 21 avenue Kléber improved slightly versus last year. We have successfully leased the entire office and the two shopping space. I will now invite Peter to go through our clubs and service division.
Thank you, Shirley. The Peak Tram upgrade project made good progress in the H1, although it has been negatively impacted by the unforeseen ground conditions, the ongoing pandemic restrictions, as well as supply chain issues in terms of delivery of equipment from Europe and the mainland China. As a result, the expected reopening of the new tram will be in late summer 2022. The new tramcars will carry up to 210 passengers instead of the previous capacity of 120, and visitors' waiting time will be significantly reduced. We believe the new Peak Tram will enhance Hong Kong's tourism image and generate a lot of revenue once the Hong Kong tourism market reopens. Quail Lodge & Golf Club reported a strong year, with revenue increasing by 40%, with significant increase in average rates and RevPAR versus pre-COVID levels.
We were able to once again host the Quail Motorcycle Gathering in May, and we look forward to hosting the Quail, A Motorsports Gathering, in August 2022, which is considered one of the world's leading concours events for classic motoring aficionados and brings us significant sponsorship revenue. Revenue at Peninsula Merchandising increased substantially by 61%, mainly from stronger online sales and robust corporate, wholesale, and travel retail businesses across Asia, and contribution from our Japan stores. The Peninsula Boutique & Café in the basement of The Peninsula Arcade celebrated its first anniversary in May 2022 and has generated significant revenue for this subsidiary. This division is planning for expansion in several markets, including the Chinese mainland. I will now hand back to Clement to talk about our development projects and the outlook for the remainder of the year.
Thank you, Peter. First of all, going to London. As all of you know, The Peninsula London project is in an exceptional location at the great gateway to Belgravia, overlooking Hyde Park, the Wellington Arch, Green Park, and the gardens of Buckingham Palace. The 190-room Peninsula hotel, with 25 luxury Peninsula-branded residential apartments, has made significant progress in the H1 in our guest rooms, the lobby, spa, pools, ballroom areas, back of house, and The Pen Boutique. Construction is continuing apace. However, the project has been materially affected by delays caused by COVID-19 pandemic, as well as design and project coordination issues. We've also had some supply chain challenges. I have shared with you before that this project has been extremely challenging, and we continue to have a lot of challenges that we have to overcome.
Because of the factors that I've mentioned, as we've previously reported, the project has suffered significant time delays, causing further cost overruns. The practical completion of the project and soft opening date of the hotel have been further delayed to the H1 of 2023. It's a very complicated project, and for us to manage it, including the cost consequences, is not easy. We are still further assessing the consequences of the further delays in terms of costs. As already reported at the last year-end, we expect there to be an upward adjustment in the indicated total construction budget of GBP 800 million. The Peninsula Istanbul is a 177-room hotel, which is in a 50% joint venture partnership with our partners, as part of the wider Galataport project.
The Galataport project incorporates a very major promenade on the shores of the Bosphorus, museums, art galleries, restaurants, boutiques, retail units, parks, and public spaces, as well as a cruise passenger terminal. The Galataport facility as a whole has largely been opened, and we're seeing an extremely good response to this area, enjoying a high level of patronage from both locals and visitors. In fact, the place is absolutely buzzing nowadays. The COVID-19 situation and some construction issues have also caused some delay to The Peninsula Istanbul project, although we have continued to mitigate these impacts in 2022. I can report that the progress towards the completion date is now satisfactory with fit-out activities progressing in all areas, and we are targeting the soft opening of the hotel in the H1 of 2023. The project cost, which is denominated in euros, remains on budget.
Finally, our outlook. Clearly, with what I'm saying, the outlook for our various businesses remains of concern. We expect to see a continued recovery in the U.S. and Europe, although there is some uncertainty as to the sustainability of this recovery, because, you know, we still hear of further COVID cases and rising costs at the time of writing. The main issue for us is Hong Kong and China, where the COVID related restrictions continue to be very strict, and because of that, the number of tourists that are able to arrive in Hong Kong and the mainland is very restricted. Our current business and the outlook both remain uncertain. Because of this, we're really hoping that governments will start to relax in terms of travel restrictions, so that Hong Kong's status as an international financial and tourism center can be reestablished.
Travel is very important for Hong Kong, and this is something we're watching with great hope. I've already mentioned labor shortages in the hospitality market and rising inflation. These are areas of concern which are being addressed. Actually, we're taking specific actions on the human resources front to address the challenges that we're facing in terms of our workforce. We expect that the new Peninsula hotels in London and Istanbul, both which are in exceptional locations, will make a big impact for both local and international customers once they open, and they will further enhance our brand presence once they are operational. The launch of the Peak Tram in late summer of this year will also significantly improve the visitor experience and enhance Hong Kong's tourism image, as well as generate significant revenues, but we need that.
That is only gonna happen after the Hong Kong tourism market reopens. Overall, our company has maintained a strong balance sheet and has closely managed our operating costs, as well as managing our financial position, our gearing and liquidity during the crisis. Overall, that is our report for the H1 of this year. As you can hear, it is somewhat mixed, good recovery in some places and continued travel restrictions in others. In the light of the enormous challenges that we continue to face, I believe that my team and I have continued to deliver a satisfactory set of results. Thank you very much, and we would be happy now to take any questions.
Thank you, Clement. We do have a few questions coming through. First question is, can you please give a little bit more details as to the group, how are we coping with high inflation and labor shortage?
In terms of high inflation, you know, inflation will affect both revenue and costs. If we can maintain a good product, we believe that we will be able to inflate our room rates and our revenues as well. You know, inflation is not something that's going to only affect one side of our profit and loss account. Will affect both revenues and our costs. The important thing is to maintain a product which is competitive, which will enjoy good demand from our customers so that they will continue to pay despite the inflated prices. I think the bigger issue is to do with labor shortage, because we have come under pressure in the hospitality markets. I'm sure people have heard that the workforce for hospitality has reduced, and people have gone to work in other places.
On that, our group human resources team have put together a number of initiatives to address this issue, and we're basically focused on making the employment experience as attractive as possible for our company. We have long had a reputation to be an extremely good employer, and I think people will know that our staff loyalty is very high. Our staff turnover rate tends to be among the lowest. In terms of length of service, we're very, very proud of the length of service of people who've been with us for 10 years, 15 or 20. But now we have to maintain that attractiveness. We are looking at both working practices and benefits to make sure that we remain attractive to prospective and existing employees.
Okay. Thank you, Clement. We have a second question. What is your general view on London, especially we have our new The Peninsula London opening soon?
My general view of London is that this is going to be the most amazing hotel project. I have walked the site many times, and the spaces that we are designing and building are quite extraordinary. We have very good spaces and very good ceiling heights, so the places will feel very generous and very grand. The quality of design is very high, and the quality of finishes is going to be very high as well. We have no doubt that this hotel will be recognized as being one of the best in the world when it opens, and we strongly believe that London is a market that will continue to attract the most high level and discerning customers, both from the local market and from overseas as well.
We are confident that what we will build is going to be of great value and will be very well-received. Remember also, we're building for 100 years plus. We're not building only for a few years. We're very optimistic about what we've got in London. We're very excited. I think every time we look at it matches our expectations, if not exceeding our expectations. The construction side of it has been very challenging, and that's what I've mentioned, that we're trying to overcome those challenges. I wonder if Peter would like to add some thoughts on that comment too.
Thank you, Clement. Well, to me, the three most important financial centers in the world are Tokyo, London, and New York, and we are now in all three cities, which is amazing for a small brand like ours. In London, I believe we occupy simply the A-one location. We're bringing a product to the market that honors England, but that also has a certain contemporariness to it, and we'll be welcoming all guests from all walks of life. London continues to attract a very, very international crowd from virtually all over the world. If you are in London, which Clement and I were earlier this year, the city is booming and department stores and restaurants and hotels are packed. We're very confident about the future of London.
Thank you, Peter. Next question. How is the current interest rate hike globally, the increase in momentum impacting our group?
I think, with any interest rate hike, there will be some increases in interest rate costs, because some of our debt will be floating rate and some margins have increased as well. However, we've factored all of those things in already. We've planned for it. We've long had a treasury policy, and indeed, Aiden, you're in charge of this, where we are very conservative. We swap, usually about 60% of all of our debt into fixed rate. We have already got that well under control. In terms of committed financing facilities, we have very, very good buffers as compared to the situation that we're in. That includes covering all of the financial needs of the new, hotel development projects as well. That is the situation we're in.
Of course, as I said, rising interest rate will give us some increase in costs, but it will be a manageable amount. I don't know whether either Chris or you yourself, Aiden, would like to supplement on that.
No, I think, as Clement mentioned, we continuously monitor the situation, and we have a sort of approximate fixed rate policy in terms of hedging around 60% of our debt. So we do follow that, and we aim to keep with that threshold level and not to have any knee-jerk reaction and increase or decrease, you know, as and when time comes and when the new announcements are made in terms of interest rate hikes. So that's generally our policy that we stick to.
Thank you, Clement and Chris. We probably have time just for one more question. Final question. How is the Turkish currency inflation, all the changes in currency and inflation impacting our Istanbul project?
First of all, we have always regarded Turkey as a euro-denominated project. Our construction cost was expressed in euros, and our operational business case is also expressed in euro. Now, I'm sure all of you will appreciate what those different impacts are. In terms of currency devaluation on our project costs, for all of our local procurement, the euro cost of that will go down. However, in some cases, that is offset by hyperinflation, which has occurred in Turkey. Therefore, if you take the two together, we are still more or less on budget. As reported earlier, our overall project budget, which is denominated in euros, we are expecting to come within that number. That's on the project cost side. More interesting will be after we start our operations.
Again, I think many people will be aware that, for a hotel business in Turkey, the normal practice is that room rates are quoted in euros. Actually, at the moment, the evidence is that overseas visitors are very willing to pay high, euro-based room rates in Turkey. In fact, those euro room rates have been going up through the roof, so the affordability of overseas visitors to pay those euros seems to be unaffected. On the other hand, you know, locals, who will come for more the F&B side of the business, with the weaker currency, of course, it would cost people more liras to go and come and have their meals.
However, again, I believe that, you know, there's a lot of wealth and affluence in Turkey, and I think, you know, despite the currency devaluation, I think people will be able to afford to you know have their F&B meals. That one remains to be seen. Sorry. What I meant was with the devaluation of people's income in Turkish lira, then, you know, that is something that they need to look at. Now, on the other hand, our staff costs are mainly denominated in lira because most of them are local hires. Again, you have the effect of, in euro terms, those staff costs are lower, but you have, you know, wages inflation because of this hyperinflation situation. You can see from what I've said that, you know, there are, you know, pluses and minuses going into that equation.
Overall, based on our latest assessment, we do not think that the overall viability of the project has been materially affected. I'm able to say that partly because I can see that those euro-based room rates are holding up quite well at the moment in the Istanbul market.
Thank you, Clement. If there are no more questions, we can conclude our interim result presentation for today. Our slides will be made available for download on our website today. Thank you for joining us. Thank you.
Thank you.
Thank you.
Thank you.