Good evening, ladies and gentlemen. Welcome to Shui On Land's 2026 interim results analyst briefing. Thank you for joining us online this evening. We are pleased to have four members of the senior management team with us today. Mr. Vincent Lo, Chairman. Mr. Douglas Sung, Chief Financial Officer and Chief Investment Officer of Shui On Land. Ms. Jessica Wang, Chief Executive Officer of Shui On Land, and Mr. Allan Zhang, Chief Executive Officer of Shui On Xintiandi. We will start with a presentation by the management, followed by a Q&A session. During the course of the webcast, you may submit your questions via the webcast portal, and they will be conveyed to our management during the Q&A session. Without further ado, may I invite our Chairman, Mr. Lo, to provide an overview of our performance over the past six months as well as the market outlook. Mr. Lo, please.
Okay. Good evening. As we all know, we are operating under a very uncertain and changing environment. I think we all can see the persistent geopolitical uncertainties, the two wars, and then with President Trump, a lot of unknown is around the corner. The prolonged adjustment of the correction in the property sector. I think we are facing a perfect storm this time. The correction has been going on for five years now, and it's likely to continue for the next two, three years. It's because the global uncertainty, politics, and economics, and then within China, we are undergoing economic structural transformation and change. Within our own industry, it's unfortunately the three high business model, just not sustainable. I think all these are coming in together that it's dragging out the whole correction process.
Looking at the recovery, it's not very clear yet, but we do believe that it's bottoming out, especially in Shanghai. We're seeing some positive signals, which I'm sure my colleagues will share with you later. On the opportunity front, urban regeneration will be a focus development going forward for a lot of cities, and particularly in Shanghai. The shifts in the consumption patterns focusing on experience and service, I think will benefit the Xintiandi developments. We are seeing a much higher number of inbound tourists coming to China, and I think these tourists will be good customers to all our Xintiandis. In the first half of this year, we have seen a profit recovery, supported by our very resilient operational performance and then, of course, our prudent cost management.
We have continued to advance our asset-light strategy, and we have maintained prudent and proactive capital management. For the highlights, we have seen the profit recovery. Core earnings increased by 53% year-on-year to RMB 403 million. Profit attributable to shareholders have increased by 337% year-on-year to RMB 223 million. In the commercial property sector, our total rental and related income have increased by 4% year-on-year and continue strong growth in retail sales and our shopper traffic, up by 20% and 70% respectively year-on-year. Our capital management, we have fully repaid the $400 million senior notes earlier this year. Since 2021, we have repaid a total of RMB 51.5 billion offshore debts. We have reissued $450 million senior notes, which will be due in 2029. Our net gearing ratio stay at 56%.
We've declared a special dividend of HKD 0.04 per share to commemorate the 20th anniversary of our listing on the Hong Kong Stock Exchange. Recently, we've been awarded by the Time magazine as one of the world's most impactful companies this year. We are the first and only Chinese property company to have received this global honor. Regarding the market scenario, on the residential front, the property market is expected to be gradually bottoming out, but we're seeing it as very close to the bottom. Nobody can actually exactly pinpoint when it is, but we believe it's getting very close. Because of all the supportive policies by government, we're seeing a supply demand rebalancing taking effect. Market performance is very divergent. We're seeing transaction gathering pace and prices is beginning to stabilize in first tier cities, particularly in Shanghai.
As I was saying, urban regeneration will be gaining momentum because of all the policy support. On the retail front, the consumer market remains subdued. Consumption of services and experiential spending is gathering pace. We're seeing a modest recovery in Shanghai's retail market with rental declines moderating, and we're seeing the prime retail space recovering faster. Recovery in the inbound tourism is presenting very good opportunities for our development as this, tourists will have higher spending power and we have seen the first half of this year, 5.32 million have come to Shanghai and compared to 9.36 million last year. In the office front, office demand in core cities is showing some early signs of recovery, supported by very high value economic activities, but rental declines is still persisting, but it's moderating.
In Shanghai Grade A office market, the rental decline has moderated to 9.4% in the first half of this year. We are seeing a significant increase in net absorption, and the market will remain tenant driven for sure, and recovery likely will be led by the high-quality assets in the prime locations. In the short term, we will continue to expand on our asset light strategy and we will look at capturing selective opportunities, and we will leverage on our brands, the Xintiandi, and also the luxury living brand of Lakeville. We'll continue to focus on Shanghai, but we are looking at the Greater Bay Area, looking at a couple of projects there, and we hope we'll be able to bring them forward in the near future.
We'll continue to manage our liquidity prudently, and as I was empha sizing, we will look for attractive acquisition opportunities as we see the market bottoming out. For long-term goals, we will work hard on sustainable growth in our profitability, and we will continue to strive for leadership position in selective areas and cities, particularly Shanghai. We will continue to have a balanced strategy between property development and asset management. Of course, our fee income, with all these asset light management projects, we're looking at a much higher fee income. Thank you.
Thank you, Mr. Chairman. Let me just give a quick overview of our first half 2026 financial performance. Here you can see a snapshot of the key parameters. In the first half, we recorded revenue of RMB 1.7 billion, gross profit of RMB 1.16 billion, total rental income and related income, RMB 1.8 billion. Profit attributable to shareholders is RMB 223 million and core earnings RMB 403 million. I think the highlights here is we have seen pretty strong core earnings and pr ofit recovery from first half of 2025. Core earnings increased 53% year-on-year and profit attributable to shareholders by 3.3 x. We think this is pretty good performance under still very difficult market conditions. In particular, and I know Allan will talk more in detail later, our rental income and related income continue to grow.
This provide the company very strong recurring income base and a strong cash flow supporting our overall financial health. On the next page, just on the income statement side, I won't go through every single line item. Maybe just highlight a few key points. We talked about the revenue of RMB 1.7 billion. You can see that property sales overall amount is fairly low in first half 2026 because we did not have any new residential completion or handover, and all the sales are basically parking, car park space in the various projects and really just a handful of parking space. It's a fairly small figure. Luckily, we have, as I mentioned, very strong rental and related income growth of 8% year-on-year. That continues to support our overall income.
Gross profit RMB 1.16 billion translate to a margin of about 68%, which is on par with the previous year. It has been fairly stable in terms of our margin. Other income is RMB 470 million, and then the expenses side are fairly regular and consistent with the past. No single particular large expense item during the first half. I'll talk a bit more about fair value change of our IP later on. On a consolidated basis, we recorded RMB 110 million decrease in fair value of our IP portfolio. On finance cost, you can see that there's a 15% decline compared to a year ago at RMB 752 million. Profit before tax is RMB 319 million.
On the next page, you can see that after tax, after minority interest, profit attributable to shareholders is RMB 323 million, which was a 3.3 x increase from a year ago. Core earnings is RMB 403 million, which is a 53% year-on-year increase. On the next page, this is the breakdown on core earnings. In total, we recorded a decline in fair value of our IP of RMB 180 million, of which RMB 112 million is on our consolidated assets and RMB 68 million on our investment in JV and associates. If we add back this RMB 180 million to profit attributable to shareholders, you can see the core earnings would be RMB 403 million. On the balance sheet side, these are some of the key metrics. Currently, we have total assets of RMB 84.5 billion, total debt of about RMB 28 billion.
Our cash on hand is approximately RMB 6.1 billion, and net debt is RMB 21.7 billion, net gearing at 56%. The key metrics on the balance sheet has been fairly stable in the last couple of years, and you can see on the next couple of page graphically. On the net assets, for example, and net debt, you can see that over the last two, three years it has been pretty stable, not any significant changes. On the breakdown on our assets, you can see that approximately 65% of our assets are now in investment properties or JV and associate investment in IPs. This is on the IP portfolio valuation in the first half of 2026. We basically break it down into Shanghai and non-Shanghai. Overall, the total carrying value on 100% basis is RMB 96.9, RMB 97 billion.
Our share of this portfolio is RMB 62.1 billion. Shanghai accounts for 80% of the portfolio, so at RMB 77.8 billion. The non-Shanghai is approximately 20% of the total. You can see that the Shanghai portfolio is fairly stable. The decline really came from office, which I think we are all aware of the downward pressure on the office market in China. So we recorded a 0.7% decline in the office portfolio, and actually a slight increase in the value of our retail in Shanghai. On the other non-Shanghai properties, we recorded an overall 0.8% decline. Next page. This is just graphically the change in gearing and net debt over the last ten years. I won't go through the figures, but clearly you can see we have been striving to maintain a stable balance sheet, stable leverage.
Overall, in the last four or five years, our net gearing has been basically hovering around 50% level. Next page. On the offshore debt, which is obviously has last few years been a clear concern amongst investors. You can see, I think, quite clearly, the peak of our offshore debt repayment was between 2021 and 2024. During this time, every year we would pay approximately RMB 10 billion of offshore debt. This pressure has dropped quite substantially since 2025, as you can see. Obviously, you know we repaid $400 million of our existing U.S. dollar bond, at the end of last year and earlier this year. We also issued a new $450 million three-year senior notes. This is, I think, one of the few new U.S. dollar bond issuance by China developers over the last few years.
I think it's a testament of the credit of Shui On amongst bond investors. Looking ahead and in terms of our maturity profile, you can see that we really don't have a lot of maturity coming up. Of the 2026 debt maturity, we basically have already refinanced or repaid all of them. As of August, we repaid or refinanced 96% of the total. We only have a relatively small amount of onshore project level debt maturity left. Our refinancing focus is pretty much done for 2026. Looking ahead, for example, next 18 months up to end of 2027, we really don't have a lot of maturity. You can see that the figure for full year next year is just about RMB 2.1 billion. Again, we have a much better liquidity, I think, condition today compared to the last couple of years.
Then, in terms of our credit profile, we would like to believe that it has continued to strengthen in the last few years. For example, if you look at the coverage ratio, just looking at our total rental income versus our total interest costs, that ratio has now increased to about 1.4x . We continue to shift our financing to onshore. So right now we have less than 20%, basically 18%, of our debt in offshore financing. Then we continue to be able to continue to have reasonably low interest costs. So our average cost of debt is at about 4.4%. So again, it is a fairly reasonable level in our view. Then also in terms of our net current assets or going concern, you can see that it is a big improvement in the first half of 2026.
That is because we have basically shifted or extended most of our current liabilities. For example, we have repaid the $400 million U.S. dollar bond and replaced it with a new three-year note. We basically have refinanced pretty much all the maturity in 2026. So again, this is a much healthier picture, compared to a few years ago. So just to wrap up what we will be focusing on. First and foremost, continue to be prudent on capital management. As Chairman has mentioned, we still believe that, even though the market seems to be bottoming, we are not expecting any quick recovery. We still think that the market condition is challenging, so we will continue to remain fairly prudent. We want to continue to focus on cost control, including our overall debt, cost of debt.
Also we will try to continue to explore different ways of financing, particularly onshore with asset-backed securities, for example, continue to examine asset disposal, restructuring, or other ways to enhance our liquidity and to reduce our overall cost of debt. So with that, I will turn over to Jessica on the residential business.
Yeah. Thank you, Douglas. Let me take you through our property sales in the first half of 2026. For the first six months, our contract sales were R MB 2.96 billion. In addition, we recorded RMB 464 million in subscribed sales, which will convert to contract sales in the coming months. I would like to highlight three projects in particular. The first one is heritage-inspired villas and the townhouse at Lakeville VI. All units with presale permits have been sold. The remaining units have generated significant buyer interest and are ready for sales contract signing upon obtaining the required permits. The second one is La Ville, the final residential phase of Wuhan Xintiandi. It was fully sold by the second quarter of 2026 after launching in November last year. The third one is Lot R2 of KIC Wuhan, The Moment.
It was launched in late June with 77% of units subscribed within 10 days of launch. By the end of June, our lock-in sales stood at RMB 19.4 billion, which will be delivered to customers and recognized in our financial results in the second half of 2026 and beyond. Now let's look at our residential sales pipeline projects for the second half of 2026. We have approximately 125,009 sq m of residential GFA available for sales and presale in the second half of this year across five projects in Shanghai and Wuhan. This includes the remaining heritage-inspired villas and townhouses at Lakeville VI, pending presale permits at approximate 6,200 sq m, with structural completion target for the second quarter of 2027 and handover in the fourth quarter of 2027.
It also include the high-rise residential units at KIC Wuhan at approximate 22,500 sq m with structural completion target for the second quarter of next year and handover in the third quarter of next year. Now, let me share with you our observation on the industry and the market trend. On the policy side, the government continued to roll out supportive measures in the first half of the year. Policy efforts were focused on stabilizing the market and high-quality development. On the demand side, more measures such as lowering down payment ratios, relaxation of purchase restrictions and tax relief, et cetera, were released to restore market confidence and further reinforce the foundation for our market recovery. Meanwhile, the launch of the fifth five-year plan on urban regeneration gave a fresh boost for future development. On the market side, the K-shaped divergency persisted.
With Tier 1 cities outperforming the national average, the market divergency widened further. Major coastal cities showed early signs of bottoming out, while most low-tier cities continued to face inventory pressure. Within this K-shaped recovery, the high-end residential segment in Tier 1 cities performed particularly well, supported by stable demand for quality living. Meanwhile, cities driven by technology industries also recorded notable growth in high-end residential sales. Turning to Shanghai, the city clearly outperformed the national average. Following the easing measure introduced in late February, inventory continued to decline steadily. The second housing market saw a clear recovery while the primary housing market showed notable structural resilience. In particular, high-end projects and quality products in prime location maintained the strong sales momentum supported by solid end user demand. Against this backdrop, here are our three major strategic focuses.
Firstly, we will continue to focus on top-tier cities with Shanghai as our priority. Against the backdrop of the current market environment, we will remain financially disciplined and seize suitable opportunities in a highly prudent and selective manner. Secondly, we will continue to drive our best-in-class product strategy anchored by the Lakeville brand, leveraging the strength of the Xintiandi community brand and our distinctive competitive edge. We aim to capture opportunities in the mid to high-end segment while steadily strengthening our brand presence in core markets. Finally, we will continue to pursue our SLI strategy, expanding our strategic partnership network to drive business growth and support the company's steady and sustainable development. Now, let me introduce our SLI strategy in more detail. In simple terms, it has three key components. Firstly, we will gradually introduce financial investors into our mature commercial assets.
By doing so, we can recycle capital more strategically and enhance capital efficiency, which in turn supports sustained growth in fee income. Secondly, we will continue to broaden our investor base and seek suitable investment partners with the goal of building a broad base of external capital resources and a robust investment ecosystem to facilitate our future growth of the business. Thirdly, we will undertake new development projects through SLI partnerships, leveraging our brand strengths and core competencies to achieve healthy business expansion with a light capital footprint. Through this strategy, we are evolving from a traditional property developer into an integrated developer, investor, and asset manager. In terms of the market positioning, we aim to lead in selective markets with Shanghai as our home base while expanding into the Greater Bay Area.
In terms of the business model, we are developing towards a more balanced contribution from property development, asset management, and fee income to our overall earning profile. Moving on to our four SLI projects currently in progress in Shanghai. Together, they represent approximately 1.228 million sq m of residential GFA and 295,000 sq m of commercial GFA. Starting with the Nanqiao Tiandi in Fengxian District, the project comprises 325,000 sq m of residential and 98,000 sq m of commercial space. Construction commenced in January, with completion targeted for 2031. The Phase 1 residential is expected to launch in late 2026 or early 2027. Yongxinli in the Greater Xintiandi community comprises 165,000 sq m of residential and 55,000 sq m of commercial space. Construction started in the second quarter of this year, and the completion target for 2031. Residential is expected to launch in 2027.
Yongnianli, also located in the Greater Xintiandi community, comprises 105,000 sq m of residential and 50,000 sq m of commercial and office space. Construction will commence in the fourth quarter of 2026, with completion targeted for 2032. Residential is expected to launch after 2027. Finally, Sanlin Xintiandi, located in Pudong area, comprises approximately 633,000 sq m of residential and 92,000 sq m of commercial space. The project is currently in the design stage, and completion is scheduled for 2035. Now, for this page, I'd like to share with you our strategical expansion and the latest progress on the urban retreat community line. In recent years, we've seen consumer trends shift. With city life is so fast-paced, people long for a space nearby where they can relax and take a break from their daily routines. That insight drove us to create Panlong Xintiandi.
This project has been a remarkable success and had laid a strong foundation for the urban retreat community line. Since its opening, Panlong Xintiandi has received over 50 industry awards and welcomed more than 71 million visitors. It was recently awarded as a national tourism and leisure block by the Ministry of Culture and Tourism. This is an honor that not only speaks to the project's quality but also validates our vision for the urban retreat concept. We are now steadily extending the urban retreat community product to other districts across Shanghai. Zhaolou Xintiandi builds on the success of Panlong Xintiandi, drawing on the nearby 1,000-year history of Zhaojialou ancient town and the rich cultural heritage of the Jiangnan water town. It weaves together with history, natural, and modern living into our cohesive community.
The project includes 150,000 sq m of residential space and 73,000 sq m of commercial and cultural facilities. Construction is moving forward steadily, and we expect the project to open by 2032 at earliest. The other project is Sanlin Xintiandi. This one enjoys a prime location close to the Qiantan CBD and the surrounding high-tech industrial parks. Here, we aim to preserve and revitalize the historical character of Sanlin Old Town while creating a large-scale mixed-use community that brings together heritage charm, modern retail, quality residential spaces, and a healthy natural environment. We believe it will become a distinctive new landmark of Pudong. Turning to our residential development sellable resources. As of June 30, thanks to the new residential sales resources coming from Zhaolou Xintiandi and Yongxinli, our total residential sellable resources stand at RMB 73.5 billion, with an attributable value of RMB 22.6 billion.
If we break it down by city, Shanghai accounted for about RMB 47.7 billion, and Wuhan contributed around RMB 25.8 billion. Beyond residential, our commercial pipeline under development and future development totals approximately 1.656 million sq m in gross floor area, of which 56% is office and 44% is retail. Last but not least, I'd like to share our recent progress on sustainability performance and the recognition we've received. On carbon reduction, KIC Shanghai has used 100% renewable electricity since January. It is a big step toward carbon neutrality. We also drove sustainable living through the 2026 Green Xintiandi Festival, spanning 11 projects in five cities. We engaged the tenants and the public alike in low carbon, nature friendly practices, and the turnout and feedback were overwhelmingly positive. Now, let's look at our global recognition. At the project level, two achievements stand out.
Hong Shou Fang received the 2026 ULI Asia Pacific Award for Excellence, recognizing its success in heritage-led regeneration and placemaking. KIC Corporate Avenue in Wuhan earned the WELL Platinum Certification. On global ratings, we also delivered strong results. We achieved an AA rating from Hong Kong Quality Assurance Agency and a five-star rating from GRESB, and secured a CDP A score for the second year. We were also included in the Hang Seng Corporate Sustainability Benchmark Index. That's all from me, and I will now hand over to Allan. Thank you.
Thank you, Jessica. In my ses sion, I would like to give you a brief overview of our commercial assets management, starting with our Shanghai commercial portfolio. As of the end of June, our completed commercial assets in Shanghai has reached RMB 78.4 billion, with a total gross floor area of 1.6 million sq m. This prime asset includes our flagship developments and our newly opened CPIC Xintiandi Commercial Center. There is another noteworthy figure here. A high-quality Shanghai commercial portfolio continues to expand steadily and has constantly generated strong and stable income for the group. In the first half of this year, our rental and related income from our Shanghai portfolio already accounted for 78% of our total rental and related income. With the advancement of our asset light management, we currently have four new asset light projects, representing a total commercial GFA of 263,000 sq m.
Well, let's turn to the rental performance system, where this chart compares our rental and related income for the first half of this year against the same period last year. Our total rental and related income reached around RMB 1.9 billion in the first half of this year, representing a 4% annual increase. The growth was driven mainly by two key factors. Firstly, the strong performance and rental uplift from existing portfolios, among which our Shanghai portfolio recorded a 5% increase. Secondly, additional rental contribution from our recently opened project, the Xintiandi Dongtai Li, which launched in December last year, and Wuhan KIC Park, which opened in September last year. We are very happy to see that despite the market headwind, this 4% growth in total rental and related income demonstrates the resilience and steady income-generating capability of our commercial portfolios.
Next, let's turn to the retail's positive momentum, where retail business is the main contributor of our rental growth, which accounts for 59% of our total rental income and continues to demonstrate a positive momentum. Our Shanghai communities, our Xintiandi communities, have successfully captured two trends. That is the growing consumer preference for experiential spending and the sustained surge in inbound tourism. So through refined operational management, we have delivered exceptional community products and a vibrant lifestyle experience, building a clearly defined and differentiated product system with a distinct competitive edge. This has, in turn, driven strong performance across our retail portfolio. In the first half, overall sales grew by 20% year-on-year, while shopper traffic increased by 17%. Our average occupancy rate remained very stable at 94%.
Unlike the homogeneous and traditional mall project in the market, the two newly opened projects, Shanghai Xintiandi Dongtai Li and Wuhan KIC Park, were both successfully launched with a unique positioning, reflecting our commitment to curating distinctive and diverse experience in our newly project. Let's turn to our office portfolio performances. In the first half of this year, our mature Shanghai office portfolio continued to deliver improved performances, achieving a high average occupancy rate of 94%. This improvement was driven by our refined leasing strategy and experiential service standard, which has enabled us to attract a quality tenant across both existing and newly opened project. Some of the well-known tenants secured during this period including DHL, Amazon, HSBC, Lexus, alongside the leading domestic players such as CXMT, B-One, WZ Group, and BOC International.
To further enhance our talent experiences, we've upgraded our office service platform, Shui On WorkX , into what we call an office ecosystem value co-creation platform. This platform is built on three core pillars. X Space, creating high quality, flexible, and varied physical workspaces. X Service, offering professional and full cycle operating support. So beyond the property management service, we provide a package of value-added service, including bespoke fitting out, policy liaison, smart building system, and enterprise services. X Content drives holistic and systematic value creation by fostering ecosystem connection and vibrant community engagement across our Xintiandi communities. Altogether, these three elements deliver a talent experience that goes far beyond the traditional office leasing. This service innovation has driven a strong occupancy and also a high-quality talent mix, and we believe this will continue to reinforce our resilience and the competitiveness of our office portfolio going forward.
Now, let me walk you through our strategic focus for second half of this year. On the retail side, our priority is to maintain robust growth in shopper traffic and tenant sales while sustaining high occupancy rate. We plan to achieve this target through three key initiatives. First, we are proactively seizing the opportunity from the fast growing of inbound traveler to unlock the spending potential of international visitors. Secondly, through a refined operation grounded in place-making, content creation, and service excellence, we will continue to deliver vibrant culture and lifestyle experience that truly resonate with our customers. Thirdly, we will launch an enhanced CRM platform designed to drive proactive customer engagement and also elevated service standards, with the goal of building lasting loyalty and transforming first-time visitors into lifelong community advocates. For the office portfolio, our top priority here is to maintain high occupancy across our properties.
To achieve this, we will keep retaining tenants through flexible, proactive, and refined leasing strategies backed by high-quality product offering. At the same time, we will deepen tenant engagement by delivering differentiated community services that go well beyond the standard office amenities. Ultimately, our goal is to build a strong and vibrant community ecosystem. With that, I will pass to my colleagues. Thank you.