HongKong Land Holdings Limited 2005 Preliminary Announcement Of Results

The strong recovery that characterised the commercial property market in Hong Kong in 2004 continued throughout 2005. Capital values and rents in both the office and retail sectors rose as vacancy fell across the market and demand became more broad-based.

The effect of negative rental reversions on the Group's income came to an end during the year as reversions turned positive. The overall impact on earnings for 2005, however, was neutral. With few completions in the residential sector, profits from that segment fell to US$19 million. Consequently, despite reduced financing charges, underlying earnings were 5% lower than the prior year at US$188 million.

Capital values continued to increase as rising market rents were only partially offset by higher capitalisation rates. Net profit rose from US$1,688 million a year earlier to US$2,061 million, reflecting a 34% rise in the value of the Group's investment property portfolio. The 34% increase in valuation, as assessed by external valuers, to US$9,779 million led to a 41% increase in adjusted net asset value per share to US$3.86.

In view of the positive outlook for operating cashflow, the Directors are recommending an increase in the final dividend for 2005 to US¢6.00. Together with the interim dividend of US¢2.00, the total dividend proposed for the year is therefore US¢8.00.

The strong performance of the Hong Kong economy, and in particular of the international business sectors operating in the city, generated broad demand for high quality, well-located premises. This has led to the full absorption of the considerable additions to office space completed in Central in recent years. Office rents rose significantly in this environment.

The retail sector also continued to see robust growth, with the enhancements to quality created by the continuing refurbishment of the Group's portfolio attracting good demand from retailers show-casing their brands in Hong Kong's premier shopping district.

In Singapore the Group took advantage of the strongest local market seen in recent years to pre-commit some 70% of its joint venture development at One Raffles Quay, well ahead of its physical completion in 2006.

In the residential sector, Phase II of the Central Park development in Beijing was handed over to buyers during the year. The units in Phase III, currently under construction, have been substantially pre-sold. In Hong Kong, few units remain to be sold in the Ivy on  Belcher's and Stanley Court developments, while the joint venture property fund, Grosvenor Land, continues to divest its investment portfolio recording satisfactory returns.

In 2005 three major sites were secured for future development. In July, the Business and Finance Centre phase I site in Singapore was won by a consortium comprising the same partners currently building One Raffles Quay in the city. The Group's one-third interest in this development positions Hongkong Land well to benefit from the improving performance of the Singapore market. In Chongqing, in Western China, a joint venture with local developer the Longhu group won the right to develop an excellent site of 450,000 sq. m gross floor area at Bamboo Grove in the New Northern District of the city. In Macau, a joint venture with Shun Tak Holdings Limited was entered into to develop a prime site adjacent to the MGM casino development, facing the Nam Van Lake and the harbour. This will comprise high-end residential apartments, a luxury shopping podium and a 5-star hotel.

These sites provide the Group's business with a significant and diversified development pipeline to complement its prime investment portfolio.

On 17th February 2006 the Group completed a voluntary cash offer for MCL Land, a Singapore-listed residential property developer. Following the offer, MCL Land is now a 77%-held subsidiary at a cost of US$307 million. The acquisition gives scale to Hongkong Land's growing residential property business and provides a platform from which to develop that business further in Southeast Asia.

In conclusion, the Chairman, Simon Keswick said, "With the reversion cycle having turned and the demand for space strong in the Hong Kong commercial market, the outlook for both our office and our retail portfolio is good. The lack of residential completions will hold back the result for 2006, but our active development pipeline and the positive rental cycle give confidence for the years to come."

An extensive programme of refurbishment and redevelopment has rejuvenated our Central portfolio in recent years. This will culminate in 2006 with the completion of the new tower on the southeast corner of The Landmark complex. It leaves the core assets of our business in an excellent position to take advantage of the strong cycle we are experiencing in Hong Kong, in both the office and retail markets. Our leadership in quality of product and level of service will ensure our revenue growth benefits fully from the upswing.

In support of the core Hong Kong commercial portfolio, we are growing regionally and developing the residential component of our business. Securing the Business Financial Centre (€˜BFC') opportunity in Singapore takes the critical mass of our portfolio in that city to a new level, and builds value for the future. The acquisition of MCL Land in Singapore and the new sites we have been awarded in Chongqing and Macau will provide further momentum to the residential business. Finally, with the disposal of our toll road investment in Indonesia, only Tradeport remains of our infrastructure portfolio, now reported in the Commercial Property segment of our accounts.

The strong upward momentum in rentals experienced in 2004 in the Hong Kong office market continued throughout 2005 amid steady broadening demand. This enabled the Group to reduce vacancy from 6% to 4.6% over the year. The cycle of rising rents and falling vacancy is now benefiting decentralised districts as well as Central.

The rise in rents has moved the reversion pattern for our office portfolio from a negative position as recently as the first half of the year, to a strongly positive one by the fourth quarter. For the year as a whole, the two periods broadly offset each other and only in 2006 will positive reversions significantly impact revenue. The new office tower on the Landmark East site of some 110,000 sq. ft net will be completed towards the end of 2006 and begin generating revenue in the following year.

Retail activity continued to be buoyant in Hong Kong. The renovation of The Landmark, and the continuing work on the public environment outside our retail portfolio under our Cityscape scheme, have reinforced Central's position as the leading high-end shopping destination in Hong Kong. In addition to our refurbishment in The Landmark Atrium and creation of The Landmark Mandarin Oriental which opened in August in Edinburgh Tower, a number of major global fashion brands launched stunning flagship stores during the year.

Together with the introduction of Harvey Nichols' first store in Asia, these investments by Hongkong Land and its leading retailers have taken Central to a new level.

Against this background, the proportion of rental income generated by the retail element of our Central portfolio has risen to some 31%.

The Singapore office market saw improving demand during the year. Our joint venture development at One Raffles Quay (€˜ORQ') provides a world-class product at a time when many global financial service firms are seeking to expand into state-of-the-art premises in the city. In this environment, pre-leasing at ORQ was very active and by the year end the development was some 70% pre-committed. Tenants will be able to take-up occupation in two phases; the South Tower from April, and the North Tower from September 2006. Our existing investment in Singapore, One Raffles Link, remains fully let, as does its retail component Citylink Mall.

In July, the consortium of companies constructing ORQ, in which Hongkong Land has a one-third share, won the right to develop the neighbouring BFC site. These two sites will form the core of the New Downtown business district in Singapore. The BFC is a 438,000 sq. m mixed-use site which will be developed in two phases; predominantly for offices but with retail and residential components.

In Thailand, our 49%-held retail centre in Bangkok, Gaysorn, is fully let and trading well. In Indonesia, the Group increased its interest in Jakarta Land to 37% and since the year end has bought an additional stake to move to a 50% holding. The refurbishment of the company's existing buildings in Jakarta is in progress, while plans for its landbank will be developed later in the year. In Kuala Lumpur we entered into an agreement to manage a premium retail mall at avenue K, enabling us to become involved in the market in that city without committing capital at this stage. In Vietnam, our two leading office buildings in Hanoi remain fully let at premium rents.

Following a number of residential completions in 2004, only Phase II of Central Park in Beijing was handed over to buyers in 2005. As a result, profits reported in this sector were lower than the prior year. Units of Phase III of Central Park have been substantially pre-sold.

These are now under construction, with completion scheduled in 2007. Work on Phase IV has begun. This is the last phase of the project and is scheduled to be handed over to buyers in 2008.

Elsewhere in Mainland China, following the formation in March of a joint venture with local developer, the Longhu group, the company successfully bid for a major site in the New Northern District of Chongqing. This large site of almost half a million sq. m will be developed in phases.

In Hong Kong, with sales of Ivy on Belcher's and Stanley Court almost complete, we are now focusing on our Lai Sing Court and Victoria Road developments. Vacant possession has now been obtained at the former and demolition of the existing building has started. At the latter site, we have now agreed the land premium with the Government and will begin work on site shortly. Construction on these two sites is scheduled to complete in 2009 and 2010 respectively.

In the Philippines, the sale of apartments at Roxas Triangle in Manila continued but at a slow pace, while we raised our holding in residential developer Jardine Land to 40%.

In September, the Group signed a joint venture agreement to develop a prime, 200,000 sq. m mixed-use site in Macau. Over 800 luxury apartments will be constructed, commanding excellent waterfront views over Nam Van Lake above an international-quality retail podium.

Adjoining this, facing the harbour, a 5-star hotel will complete the development. Our joint venture with Shun Tak Holdings Limited commenced construction toward the end of year.

Our joint venture residential property fund, Grosvenor Land, continues to realise its investments in Hong Kong and Japan.

In December the Group announced a cash offer for Singapore-listed MCL Land. The Offer, which closed on 17th February 2006, received acceptances of 77% at a cost of US$307 million. As indicated when the offer was announced, Hongkong Land's intention was to acquire a controlling stake in MCL Land and the Group is content for the company to remain listed with a minority interest.

MCL Land is a leading property group whose main activity is residential development in Singapore and Malaysia, where it has a portfolio of prime residential properties at various stages of development for sale. MCL Land has a good brand name, a reputation for quality and a highly regarded and experienced management team. The acquisition of a controlling stake in an established developer such as MCL Land allows Hongkong Land to expand its growing residential property activities into Singapore and Malaysia.

In September, the Group raised S$700 million in a landmark issue of 5 and 10-year bonds, the largest ever seen in that currency by a foreign issuer. This financing was followed by a US$400 million, 7-year, Convertible Bond issued in December. These issues have enabled the Group to take advantage of the very low level of longer-term interest rates currently prevailing.

The Group's core commercial portfolio in Hong Kong is now benefiting from the strong upturn in market rents which began in the last quarter of 2003. With relatively little supply over the medium term of either office or retail space in Central, the outlook for rental income is very positive.

Our residential business, augmented by the acquisition of MCL Land, will see few completions in the short-term and not therefore contribute significantly to accounting profit in the near term. The Group's development pipeline is, however, stronger than it has been for many years. These developments will add to the income stream later in the decade.

Nicholas Sallnow-Smith

23rd February 2006