PERFORMANCE
Net profit for the six months ended 30th June 2000 was US$118 million compared with US$149 million in the first half of 1999. The decline of 21% is mainly due to the negative rental reversions working through the Group's Hong Kong property portfolio. Earnings per share were US¢4.68 for the period, also a decline of 21%.
Hongkong Land's investment and development properties are held at their end 1999 valuation and will not be revalued until the year end. Rentals have since shown a good recovery, whose positive impact on capital values will be measured at the year end.
The Group's balance sheet remains strong with substantial cash and bank facilities at its disposal. Net borrowings increased from US$608 million at 31st December 1999 to US$687 million mainly as a result of capital expenditure on development properties.
The Board has declared an unchanged interim dividend of US¢3.50 per share, payable in cash.
BUSINESS REVIEW
Commercial Property
Turning to the operations, the Chairman, Simon Keswick, said that in Hong Kong's Central District, vacancy in good quality buildings fell below 5% in the first quarter. Shrinking supply coincided with an abrupt recovery in demand, as a range of tenants implemented expansion plans, adding to the demands of new entrants to the portfolio. Face rents improved by over 25%, with effective rents rising by more than 50% as incentives quickly reverted to market norms. Vacancy is now 2% in the office portfolio and is likely to remain at very low levels in the absence of any significant supply over the next two years. At the end of that period, 11 Chater Road will be ready for occupation. It is expected to release the final designs for this building at the end of the year. Investment in the rest of the Central portfolio has continued, both in physical refurbishment in the Exchange Square Podium and the footbridge network, and in positioning Central as the location of choice for both office and retail tenants through the "Brand Central" media campaign.
The Group's flagship office development in Singapore, One Raffles Link, opened fully let in the first half, setting new standards for the market. The retail element of the development, CityLink Mall, was successfully launched with all 70,000 sq. ft of lettable space committed. Complementing One Raffles Link, CityLink Mall brings a new concept to Singapore retail, an air-conditioned underground destination, with substantial footfall guaranteed by its unique location.
e-business
Supporting the Brand Central campaign, the Group's forthcoming community website Centralhk.com was recently launched. The Group also positioned itself to benefit from the growth of e-business start-ups by acquiring a 25% stake in a new virtual office business, Network Centers. Presently located in Landmark East in Hong Kong, Network Centers plans to expand to Singapore and elsewhere in the region.
Residential Property
The Group's joint venture with Grosvenor Estates, formed at the end of 1999 to make small-scale investments in luxury residential units in the region, has made a series of investments in Hong Kong and now plans to raise third party funds to support its continued expansion. The Group's small wholly-owned portfolio in Hong Kong is fully let at encouraging yields. In Beijing, the Group's 40% associate Beijing Riviera has steadily improved occupancy to over 75% with rental levels beginning to stabilise as market sentiment improves.
Infrastructure
In Hong Kong, the Group's 28.5% owned associate Asia Container Terminals successfully completed its debt financing and awarded the main construction contract. With capital costs and the terms of the debt financing comparing favourably with earlier projections, and the throughput in the Hong Kong port increasing strongly, the outlook for this investment is very encouraging.
In Mainland China, both China Water Company (CWC) and Central China Power (CCP) have made progress. CWC has commenced two new investments, in Taixing and Changchun, while CCP has commissioned its most recent plant and reorganised its capital structure to reduce its risk exposure. As a result of this reorganisation, Hongkong Land's stake is now 36%. Its infrastructure business has also made a small investment in the India Project Development Fund (IPDF), which develops infrastructure projects to a bankable stage.
Management
Management accountabilities have been restructured to reflect the Group's focus in three distinct business segments. In place of functionally-related accountabilities, the management team has been reorganised into three business groups led by a Director of Commercial Property, a Director of Residential Property and a Director of Infrastructure. The Projects, Property Management and Financial teams have been restructured as professional teams delivering services to its core businesses. It is believed this structure will clarify roles and improve accountabilities.
Kuah Boon Wee was appointed as Chief Financial Officer in May.
OUTLOOK
In conclusion, Simon Keswick said, "The healthy upturn in our core market, together with the limited supply over the next two years, will provide a firm platform for the growth of our business. As Asia generally, and Hong Kong in particular, extends its recovery, sensibly-priced investment opportunities are becoming more common. Although in the short-term the impact on earnings of the final period of reversions in this cycle will be negative, with our conservative financial structure we are well-positioned to take opportunities without creating undue financial risk."