Welcome, and thank you for joining CK Asset Holdings Limited 2021 Interim Results presentation. My name is Gerald Ma. With me, we have our Chairman, Mr. Victor Li, our Deputy MD, Mr. Edmond Ip, and our Chief Accountant, Mr. Simon Man. As in the past, I will spend a few minutes on the highlights of the interim results, before turning over to a Q&A session. 2021 interim results, HKD 8.355 billion of reported earnings, up 31.4%. Earnings per share, HKD 2.25, up 30.8%.
As required, if you look at note one, the earnings per share is based on the weighted average shares in issue during the first six months of 2021. Because of the project that you all know about, the share count is slightly adjusted. Dividend per share, happy to report that there will be a 20.6% increase, HKD 0.41. Net book value as at June 30, 2021, comes to HKD 97.69.
43% of our profit contribution is recurrent in nature, and this number actually goes up and down depending on our development bookings each year. Suffice to say that it is a solid part of our income base now. Go back page. If you look at the waterfall chart at the bottom right corner, the major changes in three areas. On the property sales, there was not any major development bookings in Hong Kong in the first half. Pub operation had a reduction in loss recorded. There is a solid increase in infrastructure income in the first half. Majority of our profit contribution in the first half comes from the mainland, almost 60%. Turning to the divisional performance, property sales. Very respectable overall contribution margin of 53.5%, even better than same period in 2020. Major contribution from Laguna Verona, Dongguan, HKD 4 billion.
Upper West Shanghai, HKD 1.842 billion, and Regency Garden, Shanghai, HKD 1.169 billion. As I alluded to earlier, the majority of the contribution in this division came from our mainland activities. In Hong Kong and overseas, we only had bookings of a few unsold inventories, hence the contribution margins in Hong Kong and overseas are not quite meaningful. We are encouraged by the 55.5% contribution margin from our mainland property sales. We still have over HKD 41 billion of contracted sales not yet recognized, and close to HKD 20 billion will be scheduled for recognition within this year. Within that HKD 20 billion, a major portion will come from Seaside Sonata in Sham Shui Po, which is scheduled for bookings in the second half. Turning to property rental.
Despite the softness in Hong Kong retail and office in the first half, we still recorded a very healthy almost HKD 2.9 billion of profit contribution, and a very good 86.3% contribution margin, which as I understand, is quite a bit higher than our competitors. Major contribution from Cheung Kong Centre, almost HKD 700 million. Whampoa Garden, HKD 360 million and change. Hutchison Logistics Centre, almost HKD 300 million.
Overall investment property portfolio, we have 17.4 million square feet of IP assets, most of them are in Hong Kong. Fair value adjustment, HKD 121 million. There is a bit of up and down depending on the rental income for various property, but there is certainly a positive contribution from Hutchison Logistics Centre. Turning to our hotel division. We have recorded an improvement in occupancy from both our daily hotels and service Suites, hence the improvement in contribution to HKD 124 million in the first half.
Majority of contribution from our Hong Kong operation as expected. We have over approximately 15,000 rooms and service suites. Average occupancy for our daily hotels in the first half was 30%, up from 20% in full year 2020, and 90% for our average occupancy for our service suites, up from 86% in the full year of 2020. Property and project management as steady as always. 43.1% contribution margin, giving us HKD 186 million of profit. Aircraft leasing. Contribution margin was affected by the lease restructuring support we gave to some of our lessees, and also lack of disposal or trading activity. As I stated before, normally the contribution margin in a normal cycle should be around 40%. Last year we had 48% because of the disposal gain we had this year. Without that, and also with the lease restructure and support, the contribution margin was 35%.
125 aircraft, 120 narrow bodies, mostly for domestic use, so hopefully they will be the first to recover. Average remaining lease term, close to five years, and average age of our fleet is just over seven years. Turning to pub operation. Last year, because of the lockdown, was very much like operating in a vacuum. Just to remind you, we have about 2,700 pubs, three different divisions. Pub Company means managed pubs, our self-managed pubs, generating the bulk of our profit in a normal cycle. Pub Partners, essentially, we are the landlord of a number of almost 1,000 tenanted pubs, where the tenants will provide us with either turnover rent or fixed rent, together with many of them selling products that we manufacture from our third division, the Brewing & Brands division, in which we have two different breweries, one in Scotland, one in England, manufacturing a range of products.
There was a major impact in 2021 first half caused by over four months of lockdown. However, because we didn't have to record any impairment in the first half, there's a solid reduction in overall loss from GBP 1.9 billion last year to just over GBP 1 billion this year. With resumption of full trading starting on July 19th, with the lifting of restrictions, we are happy to say that we are back to EBIT positive or proper contribution positive territory, and hopefully we can start to catch up on some of the losses recorded in the first half. Turning to our Infrastructure and Utility division. The acquisition we completed in May, just to remind you, was for minority interest in four different assets. One is new, for CKA, UK Power Networks. The other three are increase in shareholding in Northumbrian Water, Wales & West Utilities, and AVR.
As of now, we have seven joint ventures in our divisions. From top to bottom DUET , Reliance, ista, UK Power Networks, Northumbrian Water, Dutch Enviro Energy, and Wales & West . On the right, you can see their respective shareholding that we own. We recorded a significant increase in income from this division because as a result of the transaction that we undertook in May. If you look at the right-hand side, you see very healthy contribution margin, particularly encouraging from Reliance in Canada. In the first half, they recorded a solid increase in margin.
Just so you know, the others that are not classified as joint venture are the remaining three assets under economic benefits agreement. The underlying businesses are Park'N Fly in Canada, UK Rails, and Australian Gas Networks. Total profit contribution came to HKD 3.3 billion, a 34% increase from over 2020. I'll turn over to Simon for the next few pages on some of our financial metrics and land bank situation. Thank you, Simon.
Thanks, Gerald. At the interim reporting date, the group's interest in the listed real estate investment trust remain more or less the same. 32.5% in Hui Xian REIT, which own and manage 11.8 million square feet of hotel and service suite, office and retail properties on the mainland. Our investment in Hui Xian is an associate, and we take a share of its reported profit amounted to HKD 153 million for the period. Our investment in Fortune REIT, 26.8%, which own and manage 3 million square feet of retail properties in Hong Kong. 18% in Prosperity REIT, which own and manage 1.3 million square feet of office, retail, and industrial properties in Hong Kong. During the period, we received a total distribution of HKD 154 million from the two REITs and were recognized as investment income.
Based on the market closing price at 30th of June 2021, we recorded an increase in fair value of HKD 640 million, whereas in the same period last year, we recorded a decrease in fair value of HKD 1.3 billion. The group's gearing and maturity profile. At the interim reporting date, the group has a total bank and other borrowing, HKD 93.2 billion. HKD 23.7 billion would be due within one year, HKD 52.7 billion would be due within two to five years, and HKD 16.8 billion would be due after five years. After deducting cash on hand, HKD 43.9 billion, we have a net debt of HKD 49.3 billion. If you take the net debt to share this one, we have a ratio of 13.8%.
If we take the net debt to net total capital, it's 11.8%. Our current credit rating from Moody's is A2 stable and from S&P is A stable. Our land bank as at interim reporting date, we have a total of 132 million square feet of land bank. By location, 27 million square feet in Hong Kong, 73 million square feet on the mainland, and 32 million square feet overseas. By category, we have 80 million square feet under development, 8 million square feet in Hong Kong, 70 million square feet on the mainland, and 4 million square feet overseas. Properties held for rental, we have 17 million square feet, mainly in Hong Kong. Under hotel and serviced operation, 8 million square feet in Hong Kong. For the pub operation, we have 26 million square feet in U.K. Property acquisition during the first six months.
In February, the group was awarded a government tender for a site at Kai Tak Area 4E Site 2, with an estimated developable gross floor area of approximately 648,000 sq ft. In May this year, the group reached a land exchange agreement with the government in respect of a site at Kai Tak Road, Kam Tin. We estimated it could build a gross floor area of approximately 137,000 sq ft. Back to you, Gerald.
Thank you, Simon. We are excited to include our ESG sustainability highlights in our presentation going forward. With the establishment of our sustainability committee in December 2020, we have adopted a number of governance-related policies, ranging from CSR environmental policies to human rights policies. To deal with COVID, we adopted a number of measures to protect our customers, our staff, and to support our community as well. The last page here just basically highlights ranging from the different actions and activities taken by different business units, from property development trying to save construction waste material, to our property management team trying to reduce carbon emission and increase energy saving efficiency, to our pub operation being the first pub company in the U.K. to meet the Carbon Trust Zero Waste to Landfill standard.
Going forward, we will continue to update all our stakeholders on our initiative on this front. Now that's the end of our presentation. We will now open the floor for questions. I can see that we have close to 200 participants online. Please submit your questions and I will try to consolidate similar topics together to ask our panel of management. The first question is about share buyback. CKA bought back shares over three days in June, and then stopped after that. Does the company have further plans for share buyback, Mr. Li?
I think our share buyback program is a mid- and long-term strategy. That's not going to change. It's good value and investment for the company. Remember, we just completed Project Race. We've done a lot of share buyback in that project. I'm not going to comment on short-term strategy. I think it's not my job to be disclosing our rather opportunistic decisions at a particular point in time.
Thank you, Mr. Li. The next question is, what is your dividend policy going forward?
Well, I think we've announced that the full year 2021 dividend will at least be HKD 7.558 billion, if I remember correctly. We've made that policy a public document. Other than this, the general policy, of course, for CKA is to continue increase our dividend in line with our earning increase. That has not changed. Generally, our policy is to make sure that we have enough ammunition on hand to make acquisition too. Both dividends and share buyback, it's our long-term mission to return value to shareholders.
Next question is about the market. The market in the first half has been quite volatile. How would you sum up CKA's performance so far this year?
Well, we can only do performance in terms of our profit results. Given the pandemic, we have achieved a 30% increase in profits. I think that's I'm never satisfied, but I think it's okay. Remember, a few of our divisions are still very stressed. You look at hotels, you look at aircraft, you look at pubs. For the first half, they are still in very stressful times.
Having said that, a lot of them have shown solid signs of improvement once the pandemic ease off. You take the pub operation, for example. If I'm correct, I think they are already, in terms of revenue, only about 8% or 7%, roughly in that area, below 2019. That shows that our assets are quite tough and quite resilient to various difficult situations, and that earnings are quite reliable. I think once the pandemic ease off, a lot of our assets are quality assets that will show solid returns.
Again, I will consolidate your questions into one. Some of the new questions have been answered-
I am sorry.
...already.
Certainly we keep talking about COVID, but in the meantime, property projects are doing quite well. The sales are doing fine. And we achieve pretty good prices for the property. For example, you look at Borrett Road. I think we have achieved certain records for the most expensive condominium ever sold in Asia. And not just one, but all of them set new records for that neighborhood. And it seems the momentum is continuing even without, remember, this is all local buyers. We do not have mainland visitors in Hong Kong during that sales period. The same applies to Sea to Sky. It is all gone.
Since we are talking about property now, the next question is your view on property and future land bank acquisition.
We always look at land. Property development is our oldest business. We are actively participating in not only government land tenders, but converting our agricultural land portfolio, our hotels into residential development. Sometimes it is not just the market, it is also the architectural side and whether we can create value for a particular site. One example I can say is if you look at the Kai Tak site that we have acquired recently.
Just a couple of days ago, we finalized our plans. I am quite happy to report that it is one of the few sites when I can say that every single one site, every single one unit can have a view of the Victoria Harbour. Not one single unit have a garden view only. Every single one has a water view, which is quite difficult to achieve, and that may be the record for that area among all other sites that was auctioned.
The next question is, again, on Hong Kong property on office. Office vacancy in Hong Kong has been rising. Do you expect further drop in property rental contribution in the second half?
I think we've seen the worst. Hong Kong economy is slowly recovering, and also because of our portfolio. Our property is either in core central or in areas that is servicing the neighborhood. In the latter, actually, we don't see any damages. During or before or after pandemic, they've been quite steady. But if you look at central, I think the rental has dropped from the all-time high couple years ago. But in terms of occupancy, if you look at Hong Kong's history, any time when central occupancy is slightly higher, people from surrounding districts move back to central. So if you give it a few months to settle, the vacancies will be seen in B and C class areas when the A class areas will have slightly lower rent but higher occupancy. That has always been the tradition in Hong Kong.
Next question is on property, but U.K. property. There's been news report of CKA selling 5 Broadgate, the headquarter of UBS in the U.K. Is it true? What is the expected transaction timeline?
How should I say this? Because every day I've got offers on some of our properties, be it U.K., Hong Kong or China or Singapore. And the fact that a person has made an offer, be it good or not good pricing, doesn't mean that we have to sell. It's nice to feel that a lot of interest on our portfolio, but I don't think receiving an offer means that we have to sell. I keep answering this. It happens actually more often in mainland China when we receive offers on our property from time to time, and we have to tell the market that whether the rumors are true or not. So I'm not going to comment on individual of them. But given Cheung Kong's portfolio, there would be some trading, but the bulk of our investment will continue to be long-term hold.
With staying in property, there's been news reports of CKA obtaining approvals to convert some hotels into other uses. What is your timeline or redevelopment plan for these sites?
Well, we have a huge hotel portfolio, and about 10% of that portfolio, which is not small. 10%-15% of that portfolio, the neighborhood has changed, pricing has changed, and there is value generation by converting some of the hotel users to residential. We are just working on that smaller percentage. Now, it is not a small portfolio, but it is a small part of our total portfolio. We will continue to be opportunistic. Remember, at the same time, we are building a new hotel in Ap Lei Chau, near the mass transit station and near South Horizon. While we are converting existing hotels to residential, on the other hand, we are also building new hotels to add to our portfolio. That new hotel is a long-term lease. It is going to be long-term service suite leases. Five minutes to Causeway Bay. Sorry, I cannot help but do an advertisement.
Thank you, Mr. Li. Next question, are you concerned with the hotel business in Hong Kong?
Well, I think if you look at CKA's portfolio, you have to divide it into two very distinct categories. We have long-term stay suites, and these are for people who are residing in Hong Kong for three, six, sometimes months or years. So those are not quite affected by the pandemic. Actually, in the next couple of months, I think we will be increasing rental for these service suites.
They are more in line with the property market in Hong Kong than the tourism business. That is one category. So we are quite big in that category also. I think thousands of units there. Now, there is another category, which I call it the daily category, which are focused more on tourists. Now, that one, I do not need to add. It has gone through possibly the most difficult period they have seen. Now, I have gone through SARS. The early part of my career is in hotels, so I have gone through SARS, and I still remember the tough time during SARS. All I can say, the lesson I learned from SARS is that they go away, and the tourist comes back, and the business will recover.
We have a history of doing good HOP per square foot on our tourist hotel business. Now, in the meantime, while the tourists are not coming, we have converted the daily tourist hotel into the long-term stay categories. So that helps us improve our P&L. But the design of the units are different. Some can be converted, some cannot. So, we are doing the best we can. But I am quite sure that one day tourists will come back, and we will be giving good numbers.
Thank you, Mr. Li. The next question is on the Greene King business. With the U.K. government having relaxed the legal restrictions, do you expect the business to turn around for the full year?
I think, just earlier in the presentation, I think if you take a snapshot today, Greene King is already profitable and the revenue is almost close to the 2019 level. I think it's about below 10% off from the 2019 level in terms of revenue. If you look at U.K. pubs, they have really two categories. One category is in the residential districts, and they are very close to people's daily life. Some of my U.K. friends, you ask them not to visit a pub for more than three days. They actually personally feel very uncomfortable. So that is a very steady recurrent income business as in the residential areas. There's also another section of this operation which operate in London, mainly for tourists. That sector is still affected because fewer tourists are arriving in London.
The majority of our business is in the first one. So I think that they're going to be fine. In total, what we're trying to do is how much we can catch up on the losses that were booked before. But they're improving very quickly. Actually, the improvement is better than I thought. That people's habit of visiting pub is very entrenched in British culture. Actually, not only on pubs, but on all our businesses. What the last one and a half years, or almost two years now, what this has taught us is that if you have quality assets, and we've just gone through a major stress test. I think we've come out of that stress test in fine colors. Very fine colors.
Thank you. Next question on infrastructure-related earnings. Your infrastructure division contribution has gone up a lot. Are there plans or opportunities to do more?
Recurrent income is something that we do well because they complement the cyclical nature of property business. The way I look at some of the— I do not like to use the word utility as much as recurrent income businesses. For example, the business we have in Ontario, we are, if not the biggest, well, we are the biggest. I think the biggest and largest market share in the water heaters and air conditioners in all of Ontario. They are not very different from our property portfolio in terms of character of income.
Very steady. It is people's livelihood, and the income goes up faster than inflation. I think in this type of recurring income businesses, we continue exactly the way as we buy more rental property, the same thing. We just look at the IRR. In this case, some of the recurring income overseas are slightly better than property rental in Hong Kong, and that is why we are interested. It is the numbers.
A slightly related question. Any particular country of interest in your acquisition plan, considering your gearing right now?
We are privileged that we can look at many deals. I would not say there are any countries that we particularly target. I think we have operated in so many countries for so many years, and to us, they are not a foreign market. They are our domestic market. Mainly China, obviously Hong Kong, Singapore, Europe, U.K., Canada. We consider them as our domestic market that we are very comfortable in working there all the time. Generally, personally, I prefer to send our colleagues to places that is safe and healthy, and when the rule of law is clear, and we do not have to worry about personal security for our colleagues. Unlikely that I will be going to one or two countries that may not be that safe. Excuse me for not naming names.
I think we have time for two more questions, and thank you for your participation. The rest of the questions we may not be around to hear. I will deal with them in our usual IR sessions. The second last question has to do with the aircraft leasing business, given the lower EBIT results in the first half. Do you have plans to buy more aircraft?
I think we are just negotiating to buy two more in the last couple of weeks. That business continues. The aircraft business is not only kept for rental. We sometimes buy, sometimes we sell one or two aircraft. It is a continued trading exercise also. We are starting to develop in-house expertise in the trading of aircraft. Our aircraft business has just gone through what I call the major stress test in the last one to two years. Earnings are down. Cash flow is down.
On the other hand, if you take a step back and say that if we did do an independent evaluation or valuation of our total portfolio on aircraft, what would the value show? It would have shown that the value today of our portfolio would be more than our book costs, or more than our original costs, I should say. More than our original costs. It is still a good business because the expected cap rate for steady income from aircraft and for other businesses have dropped quite a bit. The multiple has gone up. I think that business is going to be fine.
The last question is a pretty general one. It is like a crystal ball type of question. What are your views on the second-
Sorry, Gerald. Maybe, sorry, if I may. Another way to look at the pub portfolio, we can also say it like this, too. The pub, on one hand, is an operation of drinks, wine, and food business. It is also, don't forget we are a property company. It is a property business. We have 2,000 of property and land everywhere. I think the property value in U.K. has gone up rather than down post-pandemic. That is why I keep going back to one thing, if I may share with our analysts and our investors, is that it is not looking only at the return of the asset that we have, but the quality of the return in these assets and the speed of recovery. That is what we have been spending a lot of time working on. Sorry, Gerald, for the interruption. Is that your last question?
The last question is your overall view on the second half of 2021.
I have my company secretary sitting next to me. I thought it is a crime to predict profits, but barring unforeseeable circumstances in pandemics or Delta or Alpha, whatever, it is looking okay. It is looking quite nicely. The exact timing of booking on property is now getting quite erratic, not because of the market. It is getting the OP at that particular point before Christmas or before mid-year.
And some of these can be early or later based on very arbitrary reasons. Like the particular inspector is busy and did not come for that week and came next week. Or water connection burst or something like that, or a minor fire. So the exact timing, when you compare completion timing on projects is quite arbitrary, and it is not because of operation quality or not. It is just really construction site regular issues. And some of them it is just administration, not even construction.
With that, I would like to thank everyone for participating, and we would draw our presentation and Q&A session to a close. Thank you to our management for participating and thank you for the audience. We will see you again soon.
I strongly hope that our next meeting will be in person and everybody's in good health, and business will be better. Because if I can see all the analysts in person, that means hotel must be good. So good health.
Take care, everyone.
Thank you.
See you soon. Bye-bye.