HONG KONG PROPERTY
Through thoughtful consideration, tenant mix optimization and vigorous asset upgrades, Hang Lung further strengthened the overall performance of the Hong Kong portfolio and succeeded in generating stable growth despite the uncertainties in the economy.
Government measures led to the cooling down of the property market in 2013. Property transactions were suppressed over the course of the year with the result that owners were discouraged from selling their properties. In turn, these measures affected consumer sentiment, and the sales performance of some of our anchor tenants suffered as a result.
Nevertheless, our commercial properties continued to do well. The occupancy rate of our retail properties increased by two points to 98% and that of our office properties went up one point to 94%.
We saw many positive rental reversions over the course of the year in 2013. We saw growth in rental turnover and operating profit of 10% to HK$3,232 million and 11% to HK$2,736 million, respectively, on a comparable basis. Overall rental turnover and operating profit were up 1% and 3%, respectively, compared to a year ago.
Despite the economic environment is full of challenge in 2014, due to the prime locations of our commercial and retail properties, together with our sustained efforts to improve our tenant mix and quality of service, we still expect a sustainable growth in tenant sales and rental turnover.
COMMERCIAL
Our shopping malls performed satisfactorily, reporting an increase of 7% in rental turnover to HK$1,738 million. The overall occupancy rate also recorded a rise of two points to 98%.
The Peak Galleria has been performing well after Chow Tai Fook, Sa Sa, Coach and Tommy Bahama joined the mall. These businesses not only contributed to our strong rental situation, but also increased sales within the mall and improved the overall shopping experience.
What’s more, bringing in stores with a unique local story such as Hong Kong Trams Station, Cookie Galerie and Tai Cheong Bakery increased media exposure for the mall and strengthened our Love Hong Kong Style branding. To maximize the potential of its unique location, The Peak Galleria joined with the Peak Tower and the Hong Kong Tourism Board for the first time to organize the Twinkle Twinkle Wishing Star Christmas event, which was well received by the public.
Supporting our vision to reshape Fashion Walk as a “distinctive lifestyle destination” for affluent and sophisticated fashion or food lovers and trendsetters, progressive tenant mix improvements continued to take place in 2013. New brands such as COS, Francfranc and King Ludwig German Restaurant have been introduced and they were all well received by our target customers. Novel pop-up stores including droog and GumGumGum, complemented with a bustling schedule of promotional activities and social media efforts, further engaged shoppers with our area brand and injected exciting energies to Fashion Walk.
A lease agreement was signed with H & M Hennes & Mauritz AB (H&M), one of the world’s largest, most well-known fashion retailers. H&M will open its first Asian and the biggest global flagship store at Hang Lung Centre in the summer of 2015. Undoubtedly, this will add to the strength and appeal of our retail portfolio in Causeway Bay, underscoring the importance of Hang Lung Centre and Fashion Walk as the retail and entertainment hub in the district.
Kornhill Plaza remained virtually fully let throughout 2013. This achievement can be attributed, in large part, to the major upgrade of the mall’s restaurant businesses in 2012. Additionally, the mall held numerous promotional activities that further enhanced the shopping experience of customers. As a result of these promotions, the mall was able to improve sales performance and achieve remarkable growth.
Almost completed in 2013, the interior renovation of Grand Plaza contributed to an outstanding rental turnover growth of approximately 22%. Work is now underway to complete the façade, with a completion date scheduled in the first quarter of 2015. Continued improvements to the tenant mix at Grand Plaza are being planned in 2014, including the arrival of new duplex shops soon.
The continued growth in tourism, particularly of mainland Chinese tourists with medium range of spending power, will be a prevailing theme in the coming years. Grand Plaza is ideally positioned to match the profile of this important group of retail customers.
Amoy Plaza underwent a tenant reshuffle during 2013. The goal was to replace the original F&B tenants with younger, more energetic fashion brands and cosmetics retailers. These new tenants have the ability to pay higher rents. Together with the satisfactory rent reversion rate upon tenancy renewals, the overall rental turnover increased by 9% in the year. In the same vein, another major tenant upgrading plan is underway and making good progress. We believe this upgrade will result in even higher sales growth in 2014 in the mall.
OFFICE AND INDUSTRIAL/OFFICE
During 2013, we increased total rental turnover in our office and industrial properties by 9% to HK$1,077 million, on a comparable basis, and maintaining a high occupancy rate of 94%.
Office units at the Standard Chartered Bank Building have been fully let since October 2012. In addition, all the shops in the commercial podium of the building have been leased. Among the new tenants acquired during 2013 were Escada, a luxury fashion brand with many loyal and upscale customers, and Mott//32, a modern high-end Chinese restaurant.
Escada and Mott//32 will open their doors in the first quarter of 2014. Both are prestigious tenants, and both will enhance the building’s profile as a Grade A office tower in the central business district. Their presence will also create greater synergy with other shops in this exclusive shopping area of Hong Kong.
Our major tenant, Standard Chartered Bank, set up its first digital branch in Hong Kong at the Standard Chartered Bank Building. The stylish façade features a giant TV screen that brought a completely fresh new look to the building.
2012 was a year of aggressive expansion by international retailers along Queen’s Road Central, followed in 2013 by a cooling of the rental climate in the central business district. High rents on Queen’s Road Central and lower-than-anticipated sales performance drove the retailers to look for other rental alternatives in the area. Against this backdrop, we expect stable income growth for our commercial and office leases in the Standard Chartered Bank Building in 2014.
A new F&B tenant, Duddell’s, which was just awarded a Michelin One Star has been introduced within the Shanghai Tang premises at 1 Duddell Street in 2013. Overall our strategic leasing and marketing initiatives aiming to strike a balance between pure office and non-office tenants succeeded in generating moderate growth among the buildings in the portfolio of Duddell Street. Taking advantage of the coming lease expiry, we are also planning for a tenant mix upgrade in the commercial segment of Printing House and Baskerville House, which will also help to enhance the overall shopping environment of Duddell Street and bring a synergy effect to existing tenants.
The educational concept of Kornhill Learnscape at the Office Tower of Kornhill Plaza has been well-developed and has gained a good reputation in the community, creating a synergy effect with the shopping mall by attracting more shoppers, maximizing the business potential of the whole portfolio.
Rental turnover of Office Tower One of Grand Plaza recorded steady growth in 2013. This was attributable to the medical and beauty trades which have a higher rental affordability compared to tenants of pure office use. We will continuously enhance these theme zones by upgrading the hardware as well as the professional management services to our tenants and customers.
RESIDENTIAL AND SERVICED APARTEMNT
In 2013, the overall occupancy rate of our residential and serviced apartments kept at 74%, with total rental turnover recording an increase of 3% to HK$289 million, when excluding the impact of discontinued operations.
PROPERTY DEVELOPMENT AND SALES
Hang Lung Group builds top quality residential properties in prime locations. We take a highly disciplined approach to sales in order to optimize value. The result is that our properties are consistently well received in the market.
The year 2013 saw a change in the property market. Activity slowed down due to uncertain global economic factors, and the Hong Kong government’s cooling measures caused a decline in the number of buyers from mainland China and overseas.
The proceeds generated from the sales of The Long Beach, The HarbourSide, AquaMarine and other properties amounted to HK$2,518 million, up by 97% compared with the 2012 financial year.
THE LONG BEACH
With a prime location in southwestern Kowloon, The Long Beach is a high-end residential complex featuring a total of 1,829 units in eight towers. The project offers the best in contemporary living and includes a wave-like design, spectacular sea views and a best-in-class clubhouse comprised of four-story of luxury facilities and recreational services.
In 2013, we sold 267 units and the profit margin on total sales of HK$2,417 million was 60%.
THE HARBOURSIDE
Rising above Kowloon Station, The HarbourSide is a prestigious, top-end residential development located in a prime area of southwestern Kowloon.
With a total of 1,122 units in three connected towers, this ultra-modern property enjoys sweeping 180-degree views of Victoria Harbour and the best in contemporary lifestyle facilities.
During 2013, one unit was sold with total proceeds amounting to HK$53 million.
23-39 BLUE POOL ROAD
A unique and prestigious project, 23-39 Blue Pool Road in Happy Valley is a luxury development in a prime location on a site area of 7,850 square meters. The U.S. Green Building Council awarded the residential project its Gold Level certificate under the Leadership in Energy and Environmental Design (LEED) for Homes. To date, this is the largest project in China to gain this certification, and the first project in the world registered under the International Pilot Scheme.
The project was also awarded a Certificate of Excellence in Architecture (Best Residential) in the professional category at the 10th Perspective Awards in 2013.