Highlights:
·Asset values begin to recover
·Negative rent reversions impact revenues
·11 Chater Road due for completion in 2002
·Good progress in letting new properties in Hong Kong and Singapore
Results Year ended 31st December
Operating profit - US$319
Profit after taxation and minority interests - US$267
Profit after taxation and minority interests excluding asset impairment reversals/provisions-
US$265
Earnings per share - US¢ 10.59
Earnings per share excluding asset impairment reversals/provisions - US¢ 10.48
Dividends per share - US¢ 9.00
Net asset value per share US$2.07
"The Group's strategy continues to focus on maximising the revenue from its Central portfolio in Hong Kong, developing investment and trading properties in the region, and growing its infrastructure portfolio."
Simon Keswick, Chairman
"Rent reversions were sharply negative in 1999 and this will continue through 2000, which will be reflected in further declines in average rents. A shortage of new office supply over the next two years and the resumption of growth in the Hong Kong economy encourage a more optimistic view in the medium term."
Nick Sallnow-Smith, Chief Executive Officer
28th February 2000
The final dividend of US¢5.50 per share will be payable on 7th June 2000, subject to approval at the Annual General Meeting to be held on 31st May 2000, to shareholders on the register of members at the close of business on 24th March 2000. The ex-dividend date will be on 22nd March 2000, and the share registers will be closed from 27th to 31st March 2000, inclusive.
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HONGKONG LAND HOLDINGS LIMITED
PRELIMINARY ANNOUNCEMENT OF RESULTS
FOR THE YEAR ENDED 31ST DECEMBER 1999
OVERVIEW
The total stock of Grade "A" office space in Hong Kong's Central business district increased from 17m to 21m square feet between 1997 and 1999. This expansion coincided with a recession in Hong Kong's economy, leading to a sharp fall in both market rentals and capital values. By mid-1999, however, the great majority of the new space had been let, rents had stabilised and Hong Kong's economy was beginning to show signs of recovery. At the end of the year the improved outlook was reflected in modestly rising commercial property values.
Business conditions have also strengthened in the other markets in which Hongkong Land operates, where the outlook for the Group's investments is continuing to improve.
PERFORMANCE
Hongkong Land Holdings Limited today announced that the net profit for the year ended 31st December 1999 increased by 112% to US$267 million from US$126 million in 1998. The increase was due to the movement in provisions against impairment of asset values, mainly development properties, which reduced profit in 1998 by US$248 million, while 1999 saw a small net write back of US$2 million. Excluding these items from both years, net profit declined by 28% from US$370 million to US$265 million, largely as a result of negative rent reversions in the Central portfolio.
Earnings per share rose by 113% to US¢10.59. Excluding asset impairment movements from both years, earnings per share fell by 28% to US¢10.48 compared with recurring earnings per share in 1998 of US¢14.65.
The annual valuation of the Group's investment properties was carried out at the end of 1999 by independent professional valuers and produced a net valuation surplus for the year of US$160 million, which has been credited to reserves. Shareholders' funds at the year end were US$5,226 million, up 3% from US$5,072 million in 1998. Net asset value per share rose 3% in 1999, from US$2.01 to US$2.07. Net balance sheet gearing rose from 9% at the end of 1998 to 12%.
The Directors recommend a final dividend of US¢5.50 per share which, together with the interim dividend of US¢3.50 per share, will make a total annual dividend of US¢9.00 per share, unchanged from that of 1998.
GROUP REVIEW
Turning to the operations, the Chairman, Simon Keswick, said that the Group's strategy continues to focus on maximising the revenue from its Central portfolio in Hong Kong, developing investment and trading properties in the region, and growing its infrastructure portfolio.
Redevelopment of 11 Chater Road, which lies at the heart of the Group's Central portfolio of properties, continued satisfactorily during 1999 and is on schedule for completion in mid-2002. It also undertook a number of initiatives to upgrade the fabric of the portfolio and keep it fully competitive. Importantly, overall occupancy was maintained above 94% throughout the year. The retail element of the portfolio showed a good recovery from a very difficult 1998.
The Group's development properties at One Raffles Link, Singapore and 1063 King's Road, Hong Kong were completed and are letting well.
Progress on the development of its infrastructure portfolio was slow, but the Group's investment in Hong Kong's Container Port has moved forward and construction of the new terminal will commence shortly.
OUTLOOK
In conclusion, Simon Keswick said, "In the near term Hongkong Land's revenue stream will continue to be adversely affected by negative rent reversions. It is, however, encouraging that, notwithstanding the recent recession, Hong Kong continues to develop and expand its role as a regional financial centre. Hong Kong's financial heart lies in Central, where the Group continues to focus its investment in order to maximise the long-term return on its assets."
CHIEF EXECUTIVE'S REVIEW
STRATEGIC FOCUS
Hongkong Land's principal objectives remain:
- To maximise the long-term returns on the portfolio of properties it owns in the heart of Hong Kong's Central business district.
- To pursue profitable property investment opportunities both in Hong Kong and elsewhere in Asia.
- To expand its portfolio of infrastructure investments.
THE CENTRAL PORTFOLIO
Commercial
Asking rents, after falling for two years as a result of recession and major new supply stabilised in mid-1999 and are slowly recovering.
Hongkong Land took steps to minimise the impact of the new space in Central well in advance of its completion and this has allowed occupancy levels to be maintained at around 95% over the last 3 years. Rent reversions were, however, sharply negative in 1999 and this will continue through 2000, which will be reflected in further declines in average rents.
A shortage of new office supply over the next two years and the resumption of growth in the Hong Kong economy encourage a more optimistic view of asking rents in the medium term.
Hongkong Land continued to invest vigorously in maintaining and improving its Central portfolio. The redevelopment of the 11 Chater Road site is going ahead on schedule for completion in mid-2002. The new building will comprise an office tower above a retail podium totalling some 580,000 square feet gross.
In addition to this, the telecommunications infrastructure of the portfolio continues to be upgraded and a major refit of the mechanical and electrical installations in Edinburgh and Gloucester Towers will be completed in 2000.
Retail Properties
Trading conditions for Central retailers improved substantially in 1999 following a very difficult 1998. The confidence that international brand retailers have in Central was reflected in the opening of several large new €˜flagship' stores in the portfolio during the year. In general sales activity has exceeded expectations.
The refurbishments of the retail podium of Prince's Building and the basement of the Landmark were completed during 1999 and have been well received by both retailers and shoppers. The refurbished premises have been fully let on satisfactory terms.
Hongkong Land currently derives some 17% of its Central portfolio revenues from retail activities and an increase in this level is anticipated.
E-Commerce
Demand for telecommunications capacity within the Central portfolio is increasing in line with the growth in e-commerce/internet activity. The Group continues to invest to ensure that all of its tenants have access to adequate capacity.
A comprehensive review of the opportunities for Hongkong Land created by e-commerce has commenced. This review will seek the best way to harness, internally, the latest technology so as to improve the service we offer our tenants while exploring the commercial opportunities that may be generated.
OTHER PROPERTIES
Commercial
The Group's office and retail development at One Raffles Link, Singapore was substantially completed during 1999. The office element of 240,000 square feet net has been over 90% pre-let. Tenants are fitting out and the building will be operational from April 2000. The retail element of 70,000 square feet net mainly comprises an underground mall connecting the basement of the office building to Singapore's Mass Rapid Transit. Retailer response to this space, which is still being completed, has been strong and is commanding good rents. It is now over 85% committed. Fitting out of the retail units will begin in April and the mall will be fully operational by mid-2000.
In Hong Kong, the Group's 230,000 square feet net office building at Quarry Bay, 1063 King's Road, was completed on schedule in July 1999 and has subsequently been fully let to a range of high quality tenants, many of whom operate in the internet arena. The rents obtained compare favourably with those prevailing in the area.
The World Bank was secured as a major tenant at 63 Ly Thai To, the Group's second office building in central Hanoi. Both buildings, which comprise some 120,000 square feet net, are over 90% let in what continues to be a difficult market.
Residential
In Beijing the second and last phase of Maple Place was completed, and leasing of the 209 luxury residential units has progressed satisfactorily in a difficult market. This development, which has established itself as Beijing's premier residential location, is owned 40% by the Group.
Roxas Triangle Tower, Manila, in which the Group has a 40% interest in partnership with Ayala, continued to make progress to completion, now scheduled for late-2000. The Manila property market remains depressed but there were some encouraging signs of new activity towards the end of 1999.
In Hong Kong the Group's residential holdings - principally Stanley Court - were fully occupied at satisfactory rents. The residential market in Hong Kong remains, at all levels, sluggish.
In December 1999, Hongkong Land formalised a joint venture with Grosvenor Estates of London. The objective of this venture, Grosvenor Land, is to invest in prime residential real estate in major Asian cities. Once Grosvenor Land becomes fully operational third-party investors will be approached and invited to participate in its further growth.
Infrastructure
Asia Container Terminals (ACT), in which the Group has a 28.5% interest, made further progress towards its involvement in operations at Hong Kong's container port during 1999. Financing arrangements for this long-awaited project have been concluded and construction will commence in May 2000. It is planned that ACT will take over two deepwater container berths at Container Terminal 8 in 2004. Throughput at the container port rose during 1999, and planned infrastructural upgrades will help to reinforce Hong Kong's importance as a regional container hub in the long term.
In China both Central China Power (in which the Group has a 25% interest) and China Water Company (40%) made further progress. The restructurings of the Chinese economy, however, has meant that this progress has not been as brisk as might be desired.
The 75 km Tangerang to Merak toll road in Indonesia, in which Hongkong Land has a 13% interest, benefited from improved traffic levels and lower interest rates but an increase in tolls remains elusive.
Connaught Investors
The market value of the Group's 45% holding in Connaught Investors rose from US$243 million at the beginning of 1999 to US$465 million at the end of the year.
Nicholas Sallnow-Smith
Chief Executive Officer
28th February 2000