Good evening. Welcome to the live webcast of Swire Properties final results analyst briefing. Today's briefing will be hosted by Mr. Guy Bradley, Chief Executive of Swire Properties, and Ms. Fanny Lung, Finance Director of Swire Properties. Guy and Fanny will take us through the final results, after which we will hold the Q&A session. Analysts are invited to submit their questions at any time during the briefing by clicking the Q&A box at the bottom of the window. Please be reminded to provide your questions in English and ask no more than two questions at a time. Before we start the presentation, let's have a look at a video we prepared for this occasion, which highlights the key developments and achievements of the company last year. I hope you enjoyed the video. Now, I would like to invite Guy and Fanny to begin the presentation.
Good evening, and thank you for joining Fanny and myself at the 2019 Swire Properties final results analyst briefing. It's been a testing year in Hong Kong, as we all know. So I'm very happy to report that our underlying profit more than doubled in 2019, driven by the disposal gains and growth in recurring profit from property investment. At the same time, we were able to grow dividends by 5%, leaving us very well placed to weather the headwinds and to benefit from improved conditions in the future with a strong balance sheet, a balanced portfolio, and a healthy project pipeline. Some of the key developments that we saw in 2019 relate in April and June to the two divestments that I mentioned earlier, raising some HKD 17.4 billion.
The other key highlight on this timeline here, I think, that I'd like to draw your attention to, is the fact that we've now started replenishing our land bank, and there are four residential projects that we either began or moved forward with last year, which make the trading side of the business very exciting going forward. Just turning now to the investment portfolio, the biggest part of our business, Hong Kong office, pleased to report that in 2019, we were able to achieve double-digit reversions. We're also, as you can see on the chart, very close to full occupancy. In terms of valuation, we were able to grow the portfolio by a small amount, 1%, notwithstanding the disposal of 625 King's Road in the same year.
Lastly, I'd just like to draw attention to One Taikoo Place, which was an absolute game changer in 2019 for our Hong Kong office business, in that it established Taikoo Place as the premier business district. So we're very excited to be continuing now with the construction of Two Taikoo Place, which is another 1 million sq ft, which represents part two in this exciting transformation and decentralization of Hong Kong's office market. Turning now to Hong Kong retail. Again, you can see that we're very pleased to maintain very high levels of occupancy in our three centers in what was an extremely tough and challenging, if not unprecedented, retail environment last year. We took very quick action to support our tenant base, something that we've done before and something that we will continue to do in terms of working with long-term partners.
You can also see from the chart here that we think very long-term about Hong Kong retail. We are very positive about the long-term prospects, so much so that we continue to reinvest in our assets here. You can see, for example, in Pacific Place, we continue to launch new stores. We reconfigured Harvey Nichols and reopened in its new format in late September 2019, and some very exciting trade mix changes taking place in Pacific Place on an ongoing basis. We also hope to be, later this year, debuting the new ice rink at Citygate, and meanwhile, the extension that we finished in August 2019 of Citygate, goes from strength to strength. If we look at the balance of the lease expiries in the Hong Kong portfolio, as always, we try to maintain a good balance and a strong and diverse tenant base.
You can see here, if I just draw your attention to the Hong Kong office expiry profile, this year we are expecting just under 15% of expiries and about the same next year. It is not a huge amount of expiries, and this is something that we carefully manage over time. At the same time, we continue to invest in Hong Kong, and our belief in Hong Kong as our home base, is very strong and positive, and we are extremely focused on building and developing around the two existing clusters of assets that we have, both in Pacific Place and in Taikoo Place. In fact, I mentioned Two Taikoo Place already. There is also scale additions to the Pacific Place family, with the development that we have down on Queen's Road East.
Also, you can see here that subject to compulsory sale, we hope to add another 779,000 sq ft of office GFA to the Taikoo Place portfolio going forward. Turning now to Mainland China, which is making an increasing contribution to our business. You can see that the income that we are getting on an attributable basis from Mainland China has more than doubled since 2013, which is an incredibly positive story for us. Just specifically looking at last year, in renminbi terms, the income was about 12% up on prior year, which was a stellar year for China, and we are very proud of the contribution that Mainland China is making to our retail business. Again, very similar to Hong Kong, we try to maintain a very balanced lease expiry profile.
It is obviously a bit more mature in Hong Kong, so we have had longer to do that, but you can still see it looks reasonably healthy in terms of the expiries this year and next year. So we are very confident about the business that we have there in China. In terms of the China retail, just a little bit more detail. You can see at all five of our centers, we had double-digit sales growth, which is an absolutely fantastic achievement. At the same time, we are nearly close or at full occupancy in all of those centers. So the story continues, and it is a very good story.
We want to add to the story. This chart here shows that the two additions that we were going to open in 2020, namely Taikoo Li Sanlitun West, which is about 250,000 sq ft, as an extension on Taikoo Li Sanlitun and Taikoo Li Qiantan, which is the sixth big investment we have made in China, opening in Shanghai, hopefully finishing by the end of this year and opening in early 2021. That is a 50% business joint venture that we have with Lujiazui Group. That will add another 1.25 million sq ft of GFA for retail, and we are very excited by the prospects that it has in a location that is now being called the New Bund. This is the first time, I believe, that we have separated out Mainland China office for you so you can get a little bit more color on how that looks.
You can see both in Guangzhou Taikoo Hui and in Shanghai Taikoo Hui, we are close to full occupancy in office. INDIGO up in Beijing, 500,000 sq ft building we have there called INDIGO ONE. It is a little bit softer, reflecting the conditions of the Beijing market. Meanwhile, over on the other side of the world in Miami, you can see that the retail business continues to look very satisfactory in what is an extremely tough and challenging market. On the office side, it is a very strong market for landlords, and we are pleased to report that we are close to 100% occupied. Just turning to trading. I mentioned at the start of the briefing that we got our land bank figured out, and we were starting to sort of replenish after having had a very good run in the Mid-Levels about five or six years ago.
These are the four projects that I mentioned at the start, which threaten to add about 1 million sq ft of residential trading in Hong Kong over the next few years. This is very exciting for Swire Properties. As most of you know, we do have a very strong and admired residential brand, and this is testament to the effort that we have put in in the last year or two to try to make some of these projects happen so that we can take advantage of that strong brand. That was in Hong Kong. We are also pleased to say that the projects in Miami that we have been selling, Reach and Rise, since 2014, are nearly fully sold with 93% sold in Reach and 72% sold in Rise. So that project is well on its way.
Very excited to be launching our first project in Singapore, which is called EDEN, and it happens to be the first project that Thomas Heatherwick and his studio have completed on the residential side worldwide. It is a wonderful product. There are 20 units, one unit per floor. I have been down there a few times. I am very excited by the prospects of it, and it is certainly game-changing in terms of the Singapore residential market.
So we are really watching that carefully. At the same time, we have got a first project in Jakarta, in South Jakarta, which we will be hoping to tell you more details about later in the year. It is not yet launched, but we have finished the demolition, and we are hoping to move into foundation anytime soon. Again, it is a joint venture, and it is going to hopefully be a product that we will be very proud of. Just turning to hotels.
2019 was a year of mixed results. On the managed hotel basis, the operating profit was a reasonably strong HKD 168 million. It was 16% lower than the prior year. That was due very much in part to the impact that we had in Hong Kong from the social unrest, which of course, doesn't help the hospitality business. The good news is that also we saw last year improved results in Shanghai and Miami. Those two hotels, reasonably new openings, are going from strength to strength, and we are very proud about what is The Middle House in Shanghai and EAST in Miami, two great products. If you haven't been there already, do go and stay. On the non-managed front, part of the Citygate development, of which we are a 20% consortium member, we are opening a new hotel there called The Silveri Hong Kong.
It's part of the MGallery brand, and that will be a 206-room hotel, which opens in Tung Chung later in the first half of this year. Finally, on hotels, I would just like to say that we are very proud of the seven hotels that we have got. The two brands, The House Collective and the EAST brand of hotels, basically from a standing start almost just over 10 years ago, achieved really great things. The strategy on the hotel side of the business is to extend those two brands to other cities in Asia Pacific on an operating basis only. We have got a team that are trawling some of the best cities we can find in Asia to try and roll out Houses and EASTs as fast as we possibly can.
At this point, I am just going to hand over to Fanny, who is going to take you through the financial highlights in a little bit more detail. Fanny.
Thank you, Guy. We have very strong performance. Total underlying profit for 2019 was up 138% from that of 2018 to reach a record high of HKD 24.13 billion. The increase mainly reflected substantial profit arising from the sale of interest in our investment properties, including our entire 100% interest in Cityplaza Three and Four and our entire 50% interest in 625 King's Road. Recurring underlying profits also increased by 1% in 2019, primarily reflecting the higher underlying profit from our investment property portfolio in PRC. Our USA portfolio and Hong Kong office portfolio also did well.
There was underlying loss from our trading properties in 2019 of HKD 18 million, related to the residential units in the U.S.A., partly offset by profits from the sale of car parks at the ALASSIO development in Hong Kong and from the share of profit from the sale of offices and car parks at Sino-Ocean Taikoo Li. There was increased underlying loss from hotels in 2019 as compared to 2018. Our hotel portfolio did well in the first half, generating positive underlying profit in the first half of 2019. As Guy mentioned about the impact of the social unrest, our second half performance, particularly on the Hong Kong hotel portfolio, deteriorated quite a lot. On the other hand, our PRC and U.S.A. hotel portfolio improved. On the investment property portfolio, we recorded a 2% increase in attributable gross rental income.
Positive growth was recorded across all major portfolios except Hong Kong retail. Despite the rental contribution loss from the divestment, Hong Kong office portfolio recorded a 4% growth in GRI. The strong performance was supported by the positive rental reversion, very firm occupancy, and a full year rental income contribution from One Taikoo Place . Our Hong Kong retail portfolio recorded a 10% drop in the GRI. Looking at the first half result of 2019, our Hong Kong retail portfolio did quite well. Recorded 3% up in the GRI. The social unrest in the second half of 2019 had resulted in a significant reduction in the sales, as well as the turnover rent, and also the need to provide temporary rental subsidies to help our tenants partners to keep their business afloat. As a result of that, our Hong Kong retail portfolio GRI reduced.
Excluding the impact of the temporary rental subsidies, the overall GRI reduction was very slightly reduced by 1%. The good news is we keep our occupancy very full during 2019. The story in PRC was a complete opposite, as mentioned by Guy. All our five portfolios recorded a tremendous growth in 2019. Overall, PRC retail portfolio recorded a positive growth of GRI at 8%, supported by the strong positive rental reversions, firm occupancy, and higher retail sales all across our five existing projects. PRC office portfolio also got a stable increase with a 3% increase in the GRI. Miami continued to improve their sales performance in the retail portfolio and contributed 8% growth in the GRI in 2019. Despite the near-term uncertain business outlook, we managed to deliver dividend growth. The total dividend growth in 2019, as compared to that of 2018, was 5%.
Over the past five years, the cumulative annual growth rate was 6%. So we are on track to deliver according to our dividend policy, to deliver a sustainable growth in dividend and to pay out approximately half of our underlying profits over time. Going to the balance sheet, the biggest item is, of course, the investment properties value. Total value of the investment properties increased by 1%, and this waterfall chart shows the reason for the key movement. The first item is in relation to the fair value gains for the investment property portfolio. There was a HKD 3.7 billion increase in the fair value gains.
The background for this particular gain was there was no change in our cap rates, and the increase in the fair value gains mainly due to the rental increase in our Hong Kong office and our PRC portfolio, which was partly offset by our rental decrease in the Hong Kong retail portfolio. The other movement are quite self-explanatory. Looking at this slide, you can see that we have a very strong balance sheet.
Total net debt reduced from HKD 29.9 billion at the end of 2018 to HKD 15.3 billion at the end of 2019. This is primarily due to the significant net proceeds of disposal of our investment properties. This brings the 2019 year-end gearing to a record low of 5.3%. If you look at the table on the right-hand side, you may notice that our gearing and our net debt continue to reduce over the past two years, particularly.
That was the result of our divestment program in the past two year. In total, we generated HKD 27.9 billion proceeds from the divestment of our non-core asset over the past two years. With this very strong balance sheet, we can support all the capital commitment of the company or the development pipeline that Guy mentioned about in our trading property portfolio, and also the potential new investment that may come into our way in the future. We also got a very healthy debt maturity profile and liquidity position. The table on the left-hand side is the maturity profile of our available committed facilities. You can see that the maturity profile is very widely spread out over the next nine years, which can mitigate the refinancing risk of our portfolio.
Looking at the table on the right-hand middle part of the slide, you may notice that the total cash that we have at the end of 2019 was about HKD 15 billion. Together with the undrawn committed facilities of HKD 10 billion, the total committed liquidity buffer that we have amounted to HKD 25 billion at the end of 2019. I think this slide is very similar to the capital commitments slide that we show in the previous time.
The position actually doesn't change too much, as at the year-end of 2019, we still see HKD 16.6 billion capital commitment outstanding, of which Hong Kong portfolio had an outstanding capital commitment of HKD 14.7 billion, which mainly included Two Taikoo Place, Zung Fu and Wah Ha, as well as the Queen's Road East developments. For the Mainland China portfolio, outstanding capital commitment was HKD 1.9 billion, mainly included the Shenzhen, Sanlitun West, and the Taikoo Hui CapEx.
I have to mention that this particular capital commitments schedule does not include the trading properties development cost, which was mentioned in slide 17. With this, I finish my session and pass it back to Guy.
Thank you, Fanny. Just before I talk about prospects for 2020, I would just like to spend a couple of minutes on sustainable development, or otherwise known as ESG, which is a subject very close to our hearts and hopefully yours. First thing I would like to say is that our investments in sustainable development do continue to flourish across the entire portfolio. I am very happy to report that we are now ranked number one in Asia and number eight globally according to the DJSI World. That is a very pleasing achievement that I am extremely proud of. On the green building performance side, 100% of our new projects under development have achieved the highest certification ratings in 2019. 97% of our existing developments are certified green buildings, of which 84% achieved the highest ratings.
There is some really stellar performance going on, both from a LEED certification and on wellness, which I think is the future way to go. In terms of long-term decarbonization, on energy management, we are happy to see as shown by the graph on the left, that we continue to decouple our GFA growth with absolute energy consumption in Hong Kong, which is why these lines continue to diverge. You will have seen these in previous years, but the story continues and it is a good one. Just like to finish before we do some questions with a couple of words on prospects for 2020. The office portfolio, again, the strongest, biggest part of our business. We expect the high occupancy in Hong Kong to result in fairly resilient office rents in Taikoo Place and in the central business district in Shanghai, in which we operate office there.
The weak demand that we have talked about previously continues to exert downward pressure, however, on office rents in Central in Hong Kong and also in central business districts of Guangzhou and Beijing. The retail side of the house is slightly more under the weather, I would say, with the virus affecting both Hong Kong and China retail investment properties and, of course, our hotel business both in Hong Kong and in China. Social unrest and economic uncertainty are obviously also impacting, in an adverse way, retail sales in Hong Kong. On the residential side, we think demand is going to be slightly weaker over the near term, but we are expected to be resilient in the medium and long term due to the fact that there is still a limited supply of housing and a very low interest rate environment.
Overall, I think we are very well-placed in Swire Properties with a balanced portfolio, and as Fanny mentioned, a very strong balance sheet in order to weather any adverse conditions that we may find this year. We also have a very healthy project pipeline to support future rental income growth. But I think we can expect in 2020, certainly some lower rental income from the retail side of the business and from some of the service departments and hotels that we have. With that, we would both be very happy to take questions. Thank you.
Thank you, Guy. Hi, I'm Fanny. We now proceed to the Q&A session. I will read out the questions we received through the online platform, and our senior management will address them one by one. The first question is from Mark, UBS. This question is about rental concession update in Hong Kong and mainland China. If you would like to get some information on that, and also any business recovery update in mainland China so far.
Yes. Well, as you're probably well aware, we were one of the first large landlords in Hong Kong to move very quickly last year to engage in retail concessions, rental concessions with the Hong Kong tenants. We've continued to do that into this year as the situation has not got any better with the COVID-19 situation. Also, again, now for 2020, we're engaging over the Chinese New Year period and into March with our Chinese tenants, to talk about rental concessions to help support their businesses. It's very important when we take a long-term view that these relationships are strengthened through adversity, and we're committed to working on a case-by-case basis with all of our long-term tenants.
Thank you, Guy.
Was there a part two to that question?
No, that's it. The second question is from Ken from Citi. His question is about Hong Kong office. How do you see the refresh outlook for Pacific Place and Island East portfolio?
In 2020? Well, I think, as we've said, the demand situation is much, much softer this year than it was last year, and last year was softer than the year before. We're starting to see this downward pressure and this vacancy opening up in Central. That vacancy, of course, is largely caused by the decentralization effect that we initiated through the development of One Taikoo Place and the entire Taikoo Place portfolio. We're largely to somewhat the cause of some of the vacancies in Central, but we're also taking advantage of it down in Island East. I think there'll be a little bit of downward pressure in the Central market, but for Island East, we're very confident in Taikoo Place that rents will be reasonably resilient given the fact that we're so fully occupied.
There is still a lot of interest in tenants wanting to benefit from the economic story of Taikoo Place, and also the technical specification of the products that we're building. It's a very exciting outlook, I think, for Taikoo Place, in particular. We're very focused now on getting Two Taikoo Place opened, which is the second part of the story here, another 1 million sq ft that should be complete by the end of 2021.
Thank you, Guy. Ken's question actually consists of a second part about dividend policy. His question is, recurring net profit up 1% while DPS up 5%. How should we expect for future dividend policy?
Well, I'll let Fanny cover that one, I think.
Our dividend policy is to pay out 50% of our underlying profit over time, and we would aim to deliver a sustainable growth in the dividend per share. If you look at the past five years, the dividend payout was 41%, taking into account the total dividend over the total underlying profit. I think we still have some room to catch up in the future.
Thank you, Fanny. Moving on to the next question. The company enjoys high occupancy rates across office and retail portfolios in Hong Kong and PRC. Do you see risk to occupancy rates of the rental portfolio due to the headwinds in the market?
There is certainly some risk in certain parts of our portfolio, and specifically the Pacific Place sub-market, that it's in, the Central and some of the markets in Beijing, particularly on the office side, are under a little bit of pressure. But all in all, I don't think there's much risk in 2020 to the occupancy levels that we currently have, where I'm obviously in a high mode of tenant retention, and we're very confident that we'll be able to keep those high levels of occupancy in place.
The next question is about our trading portfolio. Congratulations on your residential acquisitions last year in Hong Kong. How big do you expect trading portfolio to grow back to over time?
Well, thank you for the congratulations. We're obviously very excited as well, because it's been a very successful part of Swire Properties over the last many, many years. But it's been a bit ad hoc, I think. What we're seeing now is a very conscious decision by the management to try and do a lot more trading property business, given the fact that we have such a good brand. We haven't set ourselves very firm targets over the next 10 years, but we're certainly going to be allocating a bit more capital than we have done previously to that side of the business, given the fact that it can be very profitable, and it has been very profitable over the years. Yes, I've mentioned three or four projects in Hong Kong, Southeast Asia.
We'd like to do a bit more in Miami, where we've got more of a land bank. Going forward, you can expect that the trading side of the business will kick in over the next few years to contribute to the overall profit story of Swire Properties, and we're very keen on that.
The next question is from Desmond of Morgan Stanley. The media has reported on the possible sale of Two and Three Brickell City Centre and EAST Hotel in Miami. Any color on where we are in that process, potential selling price compared to book values, and interest from potential buyers would be appreciated.
I think we are still at the very early stage of this particular sales process. At this stage, there is very little that we can disclose. But I think by the time later on when we get to the point that we can conclude a deal, we definitely will disclose more information.
In fact, with the supplement, the overall story going on there with the divestment processes, that we want to recycle our capital in Miami. It's a long way away. We've built some great products over there, but we want to build more. In order to do that, we want to bring in fresh capital to allow us to do more things. That's what this is, this is the first step in that process.
Thank you. The next question is from Jeff, DBS. What's the percentage of retail income of Pacific Place mall and China malls came from turnover rents in 2019?
For the Hong Kong retail portfolio, our percentage of the turnover rent are on overall basis in the teens region.
How about on Mainland China malls?
Our Mainland China mall varies quite a lot. I think it range from teens to 20-something percentage.
Thank you. The next question from Carson, JP Morgan. What is the accounting policy for the retail concession that is being given out this year?
Our rental concessions that we granted in 2019 have been all expensed and reflected in the book of 2019. There won't be any spillover effects into our 2020 result.
The next question from Keith of HSBC. Would you mind shedding light on the Chai Wan residential site regarding its latest development, and how is the likelihood of further non-core asset disposals after the sale of Cityplaza and 625? Thank you.
Well, I will take them in that reverse order. As I said at the media briefing, in terms of further non-core asset sales, we will not rule that out. We have said for several years now that we will be opportunistic about non-core assets, and if we get an offer that we like on a non-core asset, we will take that very seriously. As you saw, we just did very successfully last year with Cityplaza Three and Four and 625 King's Road. Yes, to the extent that we have other assets that we deem non-core, we will take a good look at what to do with those, and react very seriously to opportunistic offers on that. There is nothing at the moment in the plan for 2020. On Chai Wan, which was the first question. Look, it is a great location. It is a very good potential project.
It is subject to various land exchange and a government premium negotiation. There is quite a bit of work still to do on that. We are very excited to be able to be back on Hong Kong Island with something of that scale. I think we could end up with a project that will have about 700 flats to sell in a few years' time if we are successful with our premium negotiations.
Thank you. Moving on to the next question from Justin, Goldman Sachs. At record low gearing, what is your strategy in deploying the cash resources amid micro uncertainties, macro uncertainties? He asked about the differences between different markets in Hong Kong, Mainland China, Southeast Asia.
Well, I think this macro uncertainty, we take the view that it is reasonably short-term. Hope we are right on that. Which therefore means that we do not change our overall strategy. We invest in all of our markets over the long term with a very long-term approach. Therefore, there is no reason to change what we are doing and to build, in building a pipeline of assets for the long-term growth of the business. Obviously at the moment, there are various turbulent impacts to the business. But again, we see a slight pickup in China. Very hopeful that Hong Kong will get through the worst of the effects this year. And we are really looking forward to doing more in places like Mainland China, where we have got such a successful track record now. At the same time, Hong Kong is our home.
And we have got some great plans to reinvest some of the capital in the Hong Kong business itself, specifically in the Taikoo Place and Pacific Place clusters, but also as I mentioned a few minutes ago, in trying to realize more and more trading projects going forward.
The next question is about land acquisition. Are you interested in the new Central Harbourfront Site 3 that will be put out for tender this year?
Well, we look at all sites of that sort of quality, and we will be looking at that one, too, as I am sure will most of our peer group in town. So it is an exciting site. It is a very good location. And we will be sure to be taking a look.
In the interest of time, I think we will take the last question from the online platform. Would you consider a share buyback given the steep NAV discount?
Share buyback is only one of the capital deployment options that we monitor, amongst others. For example, getting our capital into the investment pipeline that Guy mentioned about. With a very strong investment pipeline and the potential investment opportunities, we prefer to put our capital into new projects, which can drive the long-term income growth, and which in return we can support the ongoing dividend growth, which is another form of shareholders' return. But we will keep an open mind and will not rule out the possibility of share buyback. We also be very mindful about our small free flow in the market. So any buyback will have a negative impact to our stock liquidity. To conclude, we will not rule out the possibility of a buyback.
Thank you very much. That concludes our analyst briefing today. Thank you for joining us.
Thank you