Good afternoon, ladies and gentlemen. Welcome to Swire Properties 2016 interim results. Today's briefing will be hosted by Mr. Guy Bradley, Chief Executive of Swire Properties, and Ms. Michelle Low, Finance Director of Swire Properties. Guy and Michelle will walk us through the interim results this year, followed by our Q&A session. Before we start the financial review, as in previous years, we would like to introduce a video showcasing the company's highlights in the first half of this year.
Thanks, Wayne. Good afternoon, everybody. As usual, we obviously like to start these things with the highlights video, because I think it gives you all a real good flavor of the very, very many things that are going on in our world. Without further ado, I will dive into the presentation and try and avoid some of the overlap for those of you that were here earlier. But forgive me if there is a little bit of an overlap, but Swire Properties is obviously a very big part of Swire Pacific, so that is somewhat inevitable. For those regulars here, or those keen observers, you will notice that we have changed the picture on our front slide here, and t here is a good reason for that. The skyline that you can see there in front of you is Miami, in Brickell.
As you saw in the video, it is going to play a really important part in our year, and indeed into next year. We have mentioned that previously. This really is the year of Brickell City Centre, so we thought it would be appropriate to kick it off that way. Obviously, in terms of the first half key developments, we opened the, actually the first of the two office towers at Brickell City Centre, known as Three BCC. It is currently running at 84% occupied. One very large tenant, which is a huge U.S. law firm called Akerman, in occupation now. In April this year, we conducted and began the presale of ALASSIO in the mid-levels, and so far, have sold 184 units out of a total of 197. In June, the hotel portion of Brickell City Centre opened. It is branded as EAST Miami. We have a total of 352 rooms.
There are not quite all of those operating at the moment, and that includes some service departments, too. I will get into some of the early news on that hotel in due course. Also, in July, we confirmed the naming of the two newest office products in the Taikoo Place portfolio, One and Two Taikoo Place, and the HKD 15 billion redevelopment program that we have put in place to develop those, formerly the three T echnocentres, into these state-of-the-art g rade AAA office buildings. Just top line highlights, as you all know by now, the gross rental income for the first half was broadly flat to prior year.
Underlying profit down 9.6%, and as we said previously, that mainly reflects the fact that in the first half of 2015, we were in full sales mode of AREZZO, and this year in the first half, we were in full sales mode of ALASSIO, but the OP on ALASSIO doesn't kick in until later this year, and so t hat profit won't be booked until 2017. So, the comparative 2016/2015 numbers and effect on underlying profit is largely driven by that difference. On the investment property portfolio side, the Hong Kong office has been very resilient in the first half, and we expect that resilience to continue into the second half.
Very high occupancy, almost full in our portfolio, notwithstanding the fact that we're currently in train for vacating the last of the two Technocentres, Cornwall House and Warwick House, and at the same time, we're preparing to move the government printer and the government offices from Cornwall House into CP3 . So, there's a structural shift in our rent portfolio caused by those movements, but the recurring part of the portfolio on an office basis is proving very solid this year. Conversely, can I get that back? No. It doesn't seem to want to.
Previous.
Previous. Conversely, on the retail side, we're still seeing some softness in Hong Kong, primarily evidenced again, as with the year-end results in Pacific Place, driven by specifically the luxury sector. But we're seeing a general softness all around in Hong Kong retail, which is a softness that we're not particularly evidencing north of the border in China and some of our retail results. Somewhat slower than the year before, but they're still peddling reasonably attractive rates of growth year-on-year. Brickell City Centre, as I say, opened earlier in the year. It's a big highlight. The shopping center is due to open in November, and we continue the sales of the condominiums at Reach and Rise, and they're an important part of the trading profit contribution for the rest of the year. This is just a financial summary.
Again, you can see the underlying profit down 9.6%, the reported profit down 37.2%, and importantly, the first interim dividend per share staying flat versus prior year. You also note a modest increase in the gearing ratio from 15.3% to 15.9%. Just using the waterfall chart, really, it's just a pictorial way to show what I've just said in terms of the difference year-on-year, but the large green bar there with the -HKD 304 million reflects the difference in trading profits between the first half of 2015 and 2016. Turning on to the movement in investment properties in valuation, a couple of things to note on here. The effects of the renminbi in the pink bar on the waterfall chart impacted us to the tune of HKD 521 million.
But more importantly, the gain in fair value of HKD 2.3 billion in the portfolio was reasonably broadly shared by the three markets that we are operating in, Hong Kong, China, and the U.S. In Hong Kong, it was driven very much by the increase in the valuation of the office portfolio, somewhat offset by a decrease in the retail portfolio. Just turning to the gross rental income side. Hong Kong office has generated a 0.5% increase year-on-year in growth rental income. Occupancy remains high overall in the portfolio at 99%, and rental reversions have been positive, and we expect them to continue to be positive for the balance of the year. Demand, we said in the Chairman's statement, is somewhat expected to be subdued, but it is still there, a nd we are still receiving inquiries. We are still doing deals.
But I would stress the point that the space that we have available, the empty space is close to zero, so we are reasonably optimistic that the office side of the house will continue to be extremely solid for us for the balance of the year. On the retail side, the gross rental income is down 3.7% in Hong Kong. Despite full occupancy, the turnover rent in Pacific Place has been impacted by the drop in sales and somewhat the changes that we are going through to Pacific Place in terms of adjusting for some of the trends that we see and anticipate. Yo u can see there are a lot of stores at the moment that are in transition that are being closed and changed, and that is having somewhat of an impact on rental income, inevitably.
On the China side, you can also see that the China contribution is positive in terms of rental reversion, a nd we are expecting retail sales to continue to grow modestly in the second half. I would point out that, obviously, the growth that we are putting up there excludes the contribution from our 50%, 50/50 joint ventures in China, and it also reflects the effect of the renminbi depreciation. If we were to add those back in, the growth in the China portfolio is 10.5%, which I think is a pretty encouraging result from the Mainland for the first half. Next slide shows the occupancy by center, and if you look at the reversion column, you will see each center was experiencing positive rental reversions. The rental range for the One and Two Pacific Place developments is in the HKD 110- HKD 130 range, which we think is positive. It is good.
Three Pacific Place, fixing rents in the HKD 95- HKD 100 zone, and One Island East continues to achieve latest rentals in the mid-HKD 50s to mid- to high-HKD 60s. On the retail, again, we have said we are full in terms of occupancy, but the sales growth across the board really in Hong Kong, has been negative for the first half. Pacific Place particularly impacted at - 17%. Citygate, too , which again is much more exposed towards the Mainland market and the visitation from China, down 13% year-on-year. Cityplaza, relatively insulated from the China effect at - 4.1%. We are, as I say, changing the mix of retail tenants in all of our centers, particularly in Pacific Place, to adjust to accommodate the change in consumer preferences and to attract new consumers that we have either lost or that we want to identify and bring into Pacific Place.
There's an awful lot of activity going on. I wish it could happen overnight. I think I've said previously, it takes us, due to the leasing cycles, it takes us a period of two to three years from start to finish to plan these things, negotiate them, and then implement them. So, there's quite a lot of work going on both behind the scenes and downstairs as we speak to actually execute that plan. But I think we, as management, feel very excited by what we see already and by what we think we've got to come. I think there are some great changes in place and more to follow. I won't dwell on the mix slide.
It's relatively familiar other than just to say that we continue our policy of diversity in our tenant base, and we also continue to try to balance the lease expiry profile, which we think has served us in good stead in prior years. The next slide, skipping the summary of the portfolio, just covers the office side of the investment property business that we have in Hong Kong. The main point to note here really is that we continue to add to the pipeline of office. We believe very strongly in Hong Kong's future as a financial services center and the office market here in general. With the developments that will be coming on stream from 2017 onwards, in Kowloon East, in Wong Chuk Hang, and obviously the big one in Taikoo Place, we remain optimistic and committed to the Hong Kong office market.
I think you can see here that there's enough of a pipeline in place that will provide good drivers for future rental income growth. Again, this chart really just lays out the area. I think obviously the exciting part is Shanghai, which is the big add to come later this year, which I will focus on in a second. If we look at the sales performance around China in the first half, you can see Chengdu, which was the biggest event for us last year in terms of opening, continues to achieve month-to-month record sales growth, and so w e're extremely excited. There's a real buzz going on in Chengdu around Taikoo Li. For those of you that have been up there, you probably felt that. If you haven't, please go. It's actually, I think, changing the whole retail scene up in that city.
It's really cool, and the sales figures are supporting that comment. So, we're extremely happy with progress in Chengdu. Down in Guangzhou, in Taikoo Hui, slightly slower year, but if I looked at the July figures, they're back in double-digit growth. For the first half, we're just looking at a 4% year-on-year growth in Taikoo Hui, but I think that masks some of the exciting things that the team up there are doing, and we continue to change and refine the offer there in the mall at Taikoo Hui. It's got a bit more competition in Guangzhou this year, but we think we've stood up well to that competition and the July sales figures, if they're a reliable indicator of the year to come, prove that there's more to come from Taikoo Hui there.
Up in Beijing, the market, certainly as a city average, year-on-year growth is running at about 3%-4%. Taikoo Li Sanlitun is tracking at 4%, so it's slightly on that or if not better than the Beijing market. INDIGO at 13% is certainly outperforming that, but it's starting from a slightly lower base. But we are very happy with those two centers right now. There are quite a few changes going on in Taikoo Li Sanlitun which we continue to improve, and there will be more to come from me on that in due course. I mentioned the most exciting story of this and next year in this part of the world, which I think is our fifth investment now in China, and it's the opening of HKRI Taikoo Hui in Shanghai on Nanjing West Road. It has been a long time in the coming, as you will all know.
But I can tell you that since we cleared the site and began construction, the progress has been absolutely on track, and I think that says a lot about the ability to execute in a city like Shanghai. It also says a lot about the efforts of the team and the experience that they are accumulating. It is a huge development, so we are going to open it in phases. We hope to get phase one's OP either this month or next, and we are well underway on the leasing of both the office and the retail, and I can give you some more color on that in a minute. Brickell City Centre, as we mentioned at the start, is due to open from a retail perspective in November.
We have got the hotel open and the service departments, where we have about 2/3 of the condominiums already sold, and we are closing those as rapidly as we can to allow us to book the profit. But that will be a big part of the second half contribution to profit from property trading. We have got about 100 occupants now in the flats that we have sold, so there are things happening in there. We have also just done, I cannot announce who with yet, but a second large office leasing deal in the second office tower. So, the combined commitment rate on the two offices is close to 75%. So, we are pretty pleased with the situation on the office market, which in Miami is a tightening market. So, we are looking forward to being able to nudge rents up on the remaining 25% of space that we still have to lease.
Some pictures next on actually the development itself, and then I will move on to talk about trading. I think the story for Swire Properties on the trading side in Hong Kong is twofold. One, we do not have much left in terms of inventory. We had a very successful sales campaign for ALASSIO earlier in the year, as I have mentioned, with 13 units left to sell. We have got nine units of AREZZO left to sell, and with the balance of 26 units at WHITESANDS. So, very little current inventory left on the books for us. The second comment is obviously as a result of that, we ought to be turning our minds to land bank. It is no secret that we are now running pretty low on the land bank side in Hong Kong.
It's not because we don't have an appetite to do more, but we just haven't been successful in the auction room, and we haven't seen anything that we want to bid aggressively enough to win thus far. But we continue to look, and we continue to have that appetite and the financial capacity to buy something. But we won't do that at prices that we don't think are attractive, nor locations that we like to see. That said, that's very much a comment relating to Hong Kong. I think in terms of land bank, we do have residential trade in land bank. It's just it's in Miami, and that's great too, because we understand Miami. We've been there a long time, and we've got a good track record on the trading side in Miami.
The chart next on page 23, just really, I want to highlight the two green boxes, which represent further land bank, if you like, but further phases in the Brickell City Centre story, which contain a healthy dose of residential for trading if we want to realize that. So, we are sitting on opportunities to realize more trading profits. At the moment, they're in Miami. We might like to add to them in Hong Kong as and when. I'll just pass over at this point to Michelle to cover the finance side of the house, and then I'll come back and talk about prospects.
Okay. Thank you, Guy. As Guy had mentioned at the opening, the gearing ratio for the first half year, we have a slight increase to 15.9%. In fact, that represent an increase for borrowing of around HKD 1.7 billion. We have done a reconciliation of the change over the half year and continuing strong core rental income. What's also worth noting is we continue to spend quite a bit of money on the CapEx and also on the development of the trading properties. In fact, if we just look at the interest paid, on the relative basis, we have saved interest at the back of a reduction of the PBOC rate versus last year in China. Also, there's some lowering of the financing cost, which we had lined up over the course of the years. To the next page.
This page shows the maturity profile of our available facilities, which stood at HKD 45 billion at the end of June. In terms of the coming up expiring facility, HKD 2.7 billion in the second half year, in fact, we have substantially lined up the facilities. We have, in addition to what we have done in the first half, the bilateral facilities of HKD 1.75 billion and also the bond issuance of $ 500 million and HKD 400 million private placement. We have lined up close to HKD 2 billion subsequent to June of bilateral loans. In terms of the liquidity headroom, we continue to have quite strong or substantial liquidity headroom. At the end of the year, it stood at HKD 10 billion, and that is sort of the level we are very comfortable with.
In the coming months, in fact, we'll continue to line the facilities with respect to their expiring facilities, which will be expiring in 2017. In terms of the fixed to floating ratio, roughly 60%/40% fixed to floating is our sort of guideline, and this is sort of the level we maintain pretty consistently over the course of time. The CapEx at the end of June stood at HKD 19.9 billion, and there is some increased commitment relative to what we have reported at year-end last year m ainly because we have some design changes, say, with respect to U.S.A. investment property development, and also in Hong Kong. We also had fine-tuning the 2A, 2B developments and also in Dazhongli , and I think this is pretty common in development phase for projects. With that, I pass to Guy for the prospects.
Thank you. So, given all the uncertainty out in the markets that we're in, I think the first half results were fairly solid, p retty pleased with that. What about the prospects for the second half? Well, as I mentioned, we do think that office demand could be a little bit subdued in the second half, but there is still demand. So, it's not all gloom and doom at this point on office for sure. And we're at 99% occupancy levels. I think we can expect those high occupancy levels to underpin the rents for the time being. So, that's where we see Hong Kong office. I did mention that Hong Kong retail is a lot softer. We think that will continue certainly for the second half.
The focus that we're on, I mean, the conditions that are causing that softness are certainly external to a lot of the things that we can control. So, w e're focusing on the things that we can control, which are the trade mix, primarily at both Cityplaza and Pacific Place. As I've mentioned a couple of times now, we're doing a huge amount of activity to address that. We saw some of these trends coming. They take a while to change, but those changes are happening, and we're very optimistic about the effects that we'll create as a result of those changes on the Hong Kong retail side. On the Mainland China retail side, we, again, feel that the progress this year has been solid and will continue to expect to enjoy more solid progress in the second half in China retail.
Some of our Chengdu, our Taikoo Li Sanlitun, the Taikoo Hui in Guangzhou developments really have become landmark developments in the cities that they're in. To achieve that position, I think, in a relatively short amount of time, makes me feel very proud as being part of the management team that's running those centers. They really are, in their respective cities, becoming destination locations, and that gives you a great sense of confidence, certainly from my perspective, in terms of the near-term future for those retail investments. China office in Guangzhou, we've said for probably about the last four years now that there's a huge looming overhang in supply. But we still manage to maintain almost full occupancy on the office side. It's meant that rents have stayed pretty much where they have been, but they're certainly not falling.
I think it is testament to the power of the mixed-use nature of Taikoo Hui that tenants enjoy being in an office development that sits above a shopping mall and has a five-star hotel and is well- connected to transport systems. That is generally the model that we like to look for when we are looking at new developments. I think Taikoo Hui in Guangzhou is certainly proving the point on that one. Beijing's office market, again, I think we can expect a little bit of softness in the next few months. That softness has begun in the first half . We are not exposed to the market in a great way. We have got a 500,000 sq ft in one office building at INDIGO. But certainly, it is becoming a very competitive market out there in Beijing.
On the trading side, again, I think there is obviously a bit of caution out there in the Hong Kong market. We have not got much left to sell. Maybe some of the negative trends, if they result in lower land prices, might become a positive for us, might allow us to replenish some of the land bank. But we are not typically sitting here in the second half very exposed to what is going on in the Hong Kong market. In Miami, we are more exposed to what is going on. The strong U.S. dollar does impact the extent of interest from South American buyers. So, I would definitely say that the Miami condo market is in a slowdown mode at this point. But we continue to sell units on a month-to-month basis. We are just selling less than we did last year. There are not many people out there selling.
We are selling, and that is good. I think that is testament to the power of the brand Swire Properties in Miami, and also the location that we have got. I have not said anything at all so far about hotels, so forgive me on that, but I better just cover the point. I mean, they are having a tough year across our group, in all of our geographies. The reasons for that are probably well- understood, well- documented both in Hong Kong and China. In Beijing, where we have two hotels, is a very, very competitive market. We have got a hotel in Guangzhou, which is also competitive, it is relatively young, but it is actually performing quite well, and it is the Mandarin Oriental in Taikoo Hui. It is one of the bright spots on our hotel landscape.
Hong Kong hotels, whilst our hotels are outperforming in their competitive set, the whole sector itself is reasonably soft at this point. I think that goes across the market there for Hong Kong. EAST Miami, I mentioned earlier, has got off to a very exciting start. There are queues and queues every night for the restaurants on the fifth floor and on the roof. We have got a Sugar, that you will all know from here, up on the roof in EAST Miami. In its first month, Condé Nast voted it the, I think it was the best rooftop bar in North America, which sounds pretty good. So, if we can translate some of the F&B success into room revenue, we will be more than happy, but that remains a challenge.
With that, I will just finish on a note that is important to me at least, and that is just the subject of sustainable development. We continue to push the team in this direction. We are willing recipients of any of these indices that come along because we think this is a serious subject. We are making great strides, and particularly on the area of energy reduction. The chart at the top right there is my favorite chart on this subject. Y ou do not need to look at the detail from afar, but if you look at the first line going upwards, that is our expanding floor area, and the green line going downwards is the reduced energy consumption as we increase the size of our portfolio.
Those two lines are trending in both the right directions and show a really good effort in terms of becoming much more efficient with the way we manage our buildings. The only other thing I would like to just touch on very quickly is Blueprint. We have had a great couple of years, mostly from a CSR point of view, but we have had some extremely good press and, more importantly, done some really good work in terms of nurturing and developing some tech startups in Taikoo Place. I think it is a great way to add variety and diversity to Taikoo Place. They bring a lot of energy into the neighborhood, and it is very much a win-win. It is something that although we are going to be demolishing Cornwall House anytime soon, we do intend to continue with the Blueprint.
I used to call it an experiment, it is probably more than that now, but it is a great success story so far for us, and we want to carry that on. With that, I think it is probably question time.
Thank you, Guy and Michelle. We will now open the floor for questions. Just to remind that the analyst briefing is being webcast, so please wait for the microphone and then state your name and organization, and then please keep to no more than two questions at a time. We will take the first question. The gentleman over here.
Hi. Karl Choi from Merrill Lynch. A couple questions. First, I would take up on Guy's offer to talk a little bit about the pre-leasing updates for the Shanghai project. Second is, and also related to pre-leasing, could you also give us an update on the pre-leasing for the One Taikoo Place as well as the Kowloon East office projects? Sort of the tone of the conversations you're having, because presumably, tenants would like to save money, but at the same time, they also are probably shy about making commitments and CapEx and things like that. Just want to sort of get a sense of where the tone of the conversations have been. Thanks.
Thanks, Karl, for reminding me on that one. Yeah. It's an important subject. Shanghai Taikoo Hui pre-leasing on the retail side is roughly 2/3 committed, certainly in terms of LOI signed at this point with another 6%- 8% under serious negotiation. So, I would say that we're in very good shape on most levels of the mall. The area, again, that is proving the most struggle for us and I think for anyone at this stage is luxury, which is on Level 1, and we continue to be challenged by that part of the market. But we've got some great anchor tenants in place. We're very excited.
I don't know if you picked it up, but we announced earlier in the year the arrival of and signed lease with Starbucks to do a roastery concept on what's known as Lot 46, which is the part of Taikoo Hui on Nanjing West Road. They only have one roastery in the world, which is in their headquarters in Seattle, headquarter city. It's an absolutely fantastic concept where you're essentially bringing in a brewing facility into a shopping environment, and you can see the coffee being ground and brewed and packaged. So, it's going to be really exciting. It's going to be the first of its kind outside of the U.S. They won't be doing too many of these, and it's a real number one for both Shanghai and for Taikoo Hui. So, it's those sorts of big anchors that we're targeting. We've got a great supermarket anchor.
We're bringing some real lifestyle tenancies into the Shanghai market. I think the watch word, if there's anything for the positioning of that mall is that we want lively. It's not going to be completely high-end. It's going to cater for a real cross-section of lifestyle uses, and we want to bring life into that part of Nanjing West Road. Given its location and the fantastic metro connections that that site presents, I think we've got all the conditions in place to do that. Now, we just need to add some really good tenants. We've got 45 F&B tenants signed up, some of whom will be well- known to you, some of whom will be venturing into Shanghai for the first time. Those details will obviously be the subject of specific announcements.
We are also doing a really great offer in terms of cosmetics as a category as well, and we think there is a great opportunity there. We have over 20 cosmetics brands signed up. Karl, on the office side of Shanghai, before you ask, we are just over 50% committed on the office side, with a good number following that in terms of active negotiation, a good amount of further space. But at the moment, we have just over 50%, which at this point in time, I would say, is slightly ahead of where we thought we would be. So, we are pretty optimistic about the office progress. Its tenancies involved are a very healthy cross-section of multinationals, high-quality local tenants, financial services, legal services, these sorts of industries. So, we are extremely happy with the profile of the tenancies that we have achieved so far.
Your second part of your question, I think, was on One and Two Taikoo Place. All I can say is that we are enjoying huge interest, Karl, at this point. We are almost two years away from opening, so it is still way too early to be concluding large deals on this. We have not done any of that yet, but it is extremely early in the day for us to be at that point. There are lots of other offices coming out in the market before then, so we have a lot of work to do on One and Two Taikoo Place. But the game at the moment is really to continue the construction and make sure that we can open on time. But there is certainly a lot of interest in the project, and the leasing teams are flat out coping with the inquiries at this stage. Kowloon East, you asked about.
I am glad you mentioned it. It is obviously a property we bought in land terms in 2013, for investment purposes. We began construction pretty quickly thereafter. We are currently up to the superstructure levels. The leasing team began the leasing progress in 2015. That construction project is due to be completed at the end of next year, end of 2017. So again, it is too early to be talking specifics on the leasing progress, b ut I would say that of all the markets in Hong Kong, generally, Kowloon East looks the softest, just by virtue of the amount of supply there is. But it is a quality location that we are in, and we are building a really quality office building there with some fantastic open space attached to it. So, we are very pleased with the progress and with the product.
The gentleman over there.
Thanks. Justin Kwok with Goldman Sachs. I guess my question's on the land banking side. You shared your views on the Hong Kong land banking appetite. Do you mind to talk a bit more on the same topic in China or even in Singapore where you are seeing opportunities for you to increase more projects? As you just mentioned that it seems that the rental growth in China has been picking up while in Hong Kong it's been slowing. In that regard, do you also mind to share a bit more on the two projects on your slide, which has been there for some time, the Dalian one and the Qiantan one? What is the potential business model or the potential development that you're looking at in these two projects as well? Thank you.
Good questions. Yeah, land banking in China and Singapore, again, it's a fairly similar answer. I think in all the markets we've been in in this part of the world, we've certainly not seen cheap land opportunities in the last few years. So, there's no surprise about that. Interest rates being at historic lows, asset prices have been high, h asn't been any corrections that we've seen yet. Therefore, we've not bought in China yet, or other than a very small project that we executed in terms of land in Singapore. We've been unable to find something since then in Singapore that we find attractively priced and located. So again, we have an appetite for some residential land opportunities in both Singapore and China.
We also have an office in Jakarta, which is focused on identifying the right kind of sites and prices that we go for in a market like Indonesia, which we think has great long-term potential. So, we're also actively looking there. But these things can take time. So, we haven't found anything on that. The China land bank question sort of leads on to your second question, which if I take Dalian first. Dalian does have, as a project, a residential portion to it, as you know. So, if and when that deal gets consummated, it would represent the first opportunity, the first land residential play for Swire Properties in Mainland China. Because it's the first one, we deliberately decided to do it with a partner who knows residential.
One of the partners in the framework agreement, CITIC, who we've known for a long time in China, is in the process of consummating an even bigger deal with China Overseas, that you will know about. To the extent that they need to get that deal done very much puts the Dalian progress on the back burner for the time being. But we still remain interested, but we need to sort of let that bigger deal unfold first. Un fold means sort of happen. The Qiantan project in Shanghai is the second project that we've got in our sort of pipeline of unconsummated potential joint ventures. As I said at the year-end results, it's a city that we want to do more in.
Qiantan, being in Pudong, and being master planned by the Lujiazui partner, who very closely connected, if not affiliated with the Pudong district government, have presented us with an opportunity that we thought was very attractive. There's nothing to announce at this point, but the designs are all moving apace. The foundation is actually going ahead, but we've still got to catch up in terms of forming the joint venture. So, I've every reason to believe that things are on track for that site, and we hope to be able to announce something in the next few months, but we'll have to wait and see.
This gentleman, please.
Thank you. It's David from Macquarie. Two questions. One, I guess, in this low interest rate environment, which is likely to continue for a while, what's the thinking behind selling some of these very valuable investment property assets, whether already holding or whether under development? So, what's the balance between holding versus selling? And I guess a couple of questions on Pacific Place shopping mall. In past few years, it did not enjoy too much of the Mainland tourism, yet the decline in retail sales first half this year , the magnitude seems to be even worse than some of your peers. Can you give us a little bit of the guidance that in this upcoming repositioning or kind of reinvent a repositioning of some of this tenant?
What are the things that we can expect two, three years from now from this mall to make it a more resilient asset within Swire? And maybe if I can, two more detailed questions. What's the percentage of turnover rent within the rental income of the mall? And if we exclude the turnover rent, are we seeing the base rent negative reversion already during first half this year ? Thank you.
Okay. I will take the first two parts of that, and maybe I will ask Michelle to cover the two questions on the percentages later. You asked about selling investment properties. It is not something that we do much, as you will be well aware. But on the other hand, it is something that we have done. Our core strategy is to buy for the long term and hold. But as you saw with Festival Walk, from time to time, it can be the right thing to do to realize a transaction on the sale side. Therefore, in as much as we see an asset not being in a core location, then potentially if there is a great opportunity to sell that asset, we would certainly look at it very seriously. In terms of guidance on PP, what can you expect?
Well, I think what we have done in the last five years is skew the trade mix much more towards luxury than it has ever been, and I think that has given us a great run for five years in terms of rental income, which peaked last year, I would say, at Pacific Place. But these great runs, they do not all last forever, and the dynamics have changed on Hong Kong, I think. Certainly, everybody is experiencing that. So, we need to now start reexamining the mix in Pacific Place in terms of where do we want to take that if we assume that we do not want to skew that much towards luxury as we have done in the last five years. Now, the third floor in Pacific Place will always be the luxury floor. There is no attempt to reduce any of that at all.
What we have done, though, in the last few years is expand luxury into Levels 2 and 4, and that is the sort of area that I think you can expect some changes to be made. In fact, you obviously know that we have done a deal with Burberry to trim back the space that they have. You can see already on Level 4 in Pacific Place that the LV space is going to be reduced back to more likely to the historical level of space that they have enjoyed. So, we are starting to introduce non-luxury categories, and particularly F&B, which we think will be a great big traffic driver in terms of getting people back to Pacific Place.
But also, as I mentioned in the media briefing, we want to look at new categories, not necessarily new, but expanding categories, which we think are much more lifestyle- related on the lower floors. Those include things like sports and wellness categories. Michelle, do you want to tackle the.
Yeah. Okay.
Figures?
Thank you. As Guy has just mentioned, in terms of the rental income that we peak last year and over the course of the past few years, in fact, we have a pretty good increase in the rental income revenue. On the other hand, we also have been able to structure some of the lease in such a way that a lot are related to base rent. So, in the course of past few years, in fact, what we have already seen is sort of a decline in the turnover rental percentage relative to the total rental income, partly due to the fact that we have some leases, which in fact, on renewal, we are able to increase the rental. In terms of the, say, first half percentage of turnover to total rental, that is broadly about high single digit number.
In terms of the base rent question you mentioned is we have a slight decrease in the base rent. In fact, this is sort of the first time that we have seen a base rent drop, but it is just so marginal. The main decline is relating to the rental turnover portion.
I think we can take one more question, so any interest?
Yeah. So, Jonas from Daiwa. I wonder whether you can comment on the growth underlying rental income from Hong Kong office, if we isolate the factor from Technocentre and Cityplaza Three.
Michelle, do you want to take that?
Yeah. We have, in addition to the Technocentre demolishment plan, we also had Cityplaza Three, which we have exchanged with the government, 10 floors of Cityplaza Three. Overall, the impact, we have already started to see the impact last year. This year, for the first half, there is around in the range of HKD 40 million-HKD 50 million for first half, but the impact will be greater for the second half. The overall for the year, that would be we're expecting to double the number.
If there's no more questions, can I just finish off with a plug for Pacific Place downstairs for those of you that haven't got dinner plans. Operetta soft open today, which is the exciting new Italian restaurant in the former Dan Ryan's space. There was, I noticed at lunchtime, a great new cupcake pop-up as well called The Cakery. So, get downstairs if anyone's feeling hungry and check out the latest F&B there, please. Thank you.
Thanks for joining us today.