HONGKONG LAND

 

We like this blue-chip company because it is regionally diversified and it owns prime properties in Asia  and its management are known to have high standards.    They are Hong Kong's largest landlord of Class A space and under the Jardine Matheson umbrella.   Over the years, some of Hongkong's Chinese developers have taken a run at securing this irreplacable portfolio.     We have therefore saved a number of clippings to help organize us some of the facts but by no means comprehensive.

Hongkong Land, the biggest landlord in Central, says its office vacancy rate in the prime business district has fallen to 3.7 percent, a five-year low.

The market average vacancy rate in the prime business district is 7 percent, according to the company.

In 2000, Hongkong Land's vacancy rate in Central was as low as 2.8 percent.

Office rents in the district's core have more than doubled in the past 12 months, property consultants Knight Frank said.

Overall Grade A office rents in the territory jumped 20 percent in the second quarter of the year to an average of about HK$30 per square foot per month, a level last seen in 2000, said Knight Frank. Central remained the most expensive area, with monthly rents as high as HK$75 psf.

The vacancy rate in the district continues to fall as financial institutions and business services firms expand, the consultancy said.

Despite having five million square feet of office and retail space in Central, Singapore-listed Hongkong Land, part of the Jardine Matheson group, failed to derive much benefit in the first half. Its problem was one common to SAR landlords - rent concessions, granted during the slump that followed the Asian financial crisis of 1997-98, which have yet to run out.

The company had first-half underlying profit of US$105 million (HK$819 million), up 2 percent from US$104 million a year earlier.

Hongkong Land follows international financial reporting standards, which require property revaluations to be reflected in the profit and loss account.

Thanks to a substantial rise in the value of its investment properties, Hongkong Land's net profit was US$1.195 billion for the first six months, compared with US$783 million in the first half of last year. Net assets per share jumped 21 percent to US$2.83.

Hongkong Land expects office rents to increase in the second half.

As new leases began to be negotiated at higher rates, net rental income in the first half rose when compared with the second half of last year.

``Rents are moving in the right direction, but the increase won't be significant in terms of the bottom line until 2006,'' chief executive Nicholas Sallnow-Smith said.

Hongkong Land's tenants typically sign three-year leases.

Meanwhile, Singapore-listed Mandarin Oriental International, the luxury hotel arm of Jardine Matheson, reported first-half profit jumped 10 times to US$55.3 million, compared with a restated US$5.5 million a year ago, due to rising room rates and a one-time gain from selling a hotel stake.   - by Raymond Wang    THE STANDARD     27 July 2005

BLUE CHIPS
HK Land: a regional property play

Hongkong Land may not immediately come to mind when investors talk about Singapore-listed property stocks, but those who want to benefit from the upswing in the property cycle this year could do well to take a second look at this Hong Kong-based blue chip counter.

'I would say that the pick-up in the Hong Kong property market is better and faster than that of the Singapore market,' a Hong Kong-based property analyst said, adding: 'Comparing the two cities almost always lands one in trouble, but I think in this case, there is little doubt.'

Hongkong Land is a major property investment, management and development group with a major portfolio in Hong Kong and other property and infrastructure interests in Asia.

Bottomed out

Analysts generally think that rents in Hong Kong have bottomed out. 'The question is how fast rates will rise and by when,' said Eva Lee, a property analyst of ING Financial Markets in Hong Kong. 'I think landlords, including Hongkong Land, will get out of the negative rental situation before the second quarter of next year.'

Data from Knight Frank shows Grade A office rents in Hong Kong averaged HK$15.64 (S$3.42) per square foot/month in March, representing an average increase of 2.6 per cent over the first three months of the year.   In  Central - where Hongkong Land is the biggest commercial landlord - core office rents increased 6.4 per cent over the first quarter to average HK$20.24 psf/month in March.

Vacancy rates for Grade A offices in Central have also fallen slightly from 14.7 per cent last December to 13.8 per cent in March. In Central, Hongkong Land owns 12 buildings that make up about 90 per cent of 4.9 million sq ft the company owns and leases out. Financial institutions account for about 45 per cent of Hongkong Land's tenants, and law firms, the second-biggest group, make up about a fifth. 

The signs suggest things are looking up for Hongkong Land but the stock has had a mixed history in Singapore.  With its primary listing in London, Hongkong Land previously maintained secondary listings in Hong Kong and Singapore. But in December 1994, the developer delisted from the Hong Kong Stock Exchange in favour of the Singapore bourse, along with parent Jardine Matheson Holdings and other Jardine-owned affiliates. It was seen as a great boost for the Singapore market.

Small following

While Hongkong Land's secondary listing in Singapore before December 1994 attracted virtually no trade mainly because of higher broking commissions here compared to Hong Kong, things were supposed to change after Singapore became the main Asian market for stocks of the Jardine Group.  Such hopes mostly failed to materialise. By September 1995, the average daily trading in Jardine Matheson - the main Jardine company - in Singapore had dwindled by about a quarter to an average of about 8 million shares a day.

Some investors complained that analysts' research on the companies has fallen through the cracks. 'Research coverage is definitely lacking and there is not a lot known in Singapore about the operations of Hongkong Land, although it's listed here and has a market capitalisation of US$4.1 billion,' said Nicholas Mak of Chesterton International.

Singapore is certainly not the focus of the developer's operations. 

Elsewhere in South-east Asia, Hongkong Land has a 63,000 sq ft Central Building and a 140,000 sq ft commercial building in Hanoi, Vietnam. In Bangkok, Hongkong Land is working with Thai companies Finance One and Italthai to focus on CBD office projects. The group is also exploring opportunities in Manila.

Two months ago, Hongkong Land said it is eyeing the booming China property market for potential investments in Beijing or Shanghai.

Reuters quoted Ian Hawksworth, Hongkong Land's executive director for commercial property, as saying the company was more interested in commercial rather than residential properties and is keen on the premier sector.

'Hong Kong is getting a lot of positive effects from the expansion of China's economy,' said Ms Lee. 'Quite a few Chinese companies are setting up representative offices in Central and as the finance sector expands, so will related professional services.' She said some institutions had scaled back their Hong Kong operations last year amid the slow economy, but they were now filling up vacant space. A true expansion was expected this year.

Mr Mak said tourist arrivals from the mainland and Chinese investments will greatly boost the Hong Kong property market. 'A lot of money will go into retail,' he said. 'And many Chinese are buying homes in Hong Kong.'

Hong Kong already enjoys one of the highest hotel occupancy rates in the world, according to consultants Horwath Asia Pacific. The Hong Kong Hotels Association said 83 per cent of the island's rooms were filled during the first quarter. Hongkong Land is spending US$210 million to develop a 114-room boutique hotel in Central that will be managed by sister firm Mandarin Oriental International.

Hongkong Land's position as a premier developer also means that it has a long distinguished tradition. 'They have a reputation to maintain so they do analyse very thoroughly before they go into their developments,' said Mr Mak. 'They are a stable, steady company.'

Mr Mak said Hongkong Land's options in China are to target the upper segment of the residential market and develop luxury office space in the big cities.

Last year, Hongkong Land's underlying profit fell to US$174 million from US$192 million on lower rental income. Net income excluding property revaluations fell 10 per cent to 7.8 US cents a share from 8.64 US cents ashare. It paid a final dividend of four US cents, unchanged from last year, taking the full-year payout to six US cents.

  SOUTH CHINA MORNING POST graphic

The stock has fallen 7.7 per cent this year. It finished at US$1.57 on Wednesday, down one US cent.

But some still find the stock's valuations stretched. Anton Kwang, property analyst for ABN Amro in Hong Kong, thinks that the stock is too expensive.

'It's not that I am pessimistic about its prospects,' he said. 'I just think it might not justify the valuation and recommend a 'sell'.'

Goldman Sachs, meanwhile, has a 12-month target price of US$1.85. The stock is trading at about 22 times forward earnings, according to the US investment bank.                - by Jean Chua    SINGAPORE BUSINESS TIMES      June 2004

Central's largest retail and office landlord has been giving Central Hong Kong a facelift, including refurbishing the maze of overhead walkways connecting buildings in the area.  

Swire House was demolished on Chater Road and has evolved as 355,391 sq ft  of new development completed in 2002.

All of Hongkong Land's buildings have been wired to give access to full range of state-of -the art communication services, from fixed lines to broadband telphony.    The buildings are already equipped to provide satellite TV, cable TV and broadband access.  Prime office space in central is drying up due to the number of new companies coming to HK, primarily from telecommunications and IT related sector                                    >>  LISTED COMPANY

NEWS STORIES

Conversion of Landmark office space in Edinburgh Tower would help create a 100-room boutique establishment

The Jardines group is preparing to develop a "boutique" 100- room Central hotel by converting 14 floors of office space within Edinburgh Tower, located in the Landmark development.

The move comes amid speculation that Jardines hotel arm, Mandarin Oriental, is considering redevelopment of the 40-year-old Mandarin Hotel which faces intense competition for high-end business travellers with a scheduled 2005 opening of a luxury Four Seasons hotel on the Central reclamation site.

"The conversion to a boutique hotel is part of a comprehensive plan due to be completed by 2006 upgrading the value of the whole of Hongkong Land's portfolio," said a source close to the company.

Both Hongkong Land - owner of the Landmark project - and Mandarin Oriental Group declined to comment on the Edinburgh Tower project while a Mandarin spokesman said talk of plans to redevelop its flagship hotel property was "purely speculation".

Both firms are part of the Jardines Group, ultimately controlled by the London-based Keswick family.

Hongkong Land - historically the dominant landlord in Central - faces intense competition from new projects such as the 88-storey Two International Finance Centre where a recent letting was struck at HK$20 per square foot.

With some analysts predicting Central rents to fall to less than HK$10 per square foot, Hongkong Land is especially exposed due to an ageing portfolio, most of which was built in the 1980s.

Lehman Brothers, in a research report, argued that Hongkong Land could convert Edinburgh Tower into a luxury hotel, freeing a comprehensive re-development of the 541-room Mandarin Oriental Hotel.

"Mandarin Oriental International's flagship in Central is poised to lose further market share once Four Seasons at Two International Finance Centre opens in 2005, in time for Disneyland's completion in the same year," the Lehman Brothers report said.

Commenting on the reports Dan Lee, vice-chairman at the Hong Kong Hotels Association, said a redevelopment was logical while demand for a centrally located boutique hotel was likely to be strong.

Access to the project is expected to be from Queen's Road Central with guests taking a lift to the hotel which will sit on top of the popular Landmark shopping centre, according to a source close to Hongkong Land.

The project would involve the conversion of 170,000 square feet of office space while the adjacent low-rise Landmark East tower would be expanded to include nine floors of retail and office space, said the source.

The source said Hongkong Land had a broader plan to upgrade Central to be run in conjunction with government departments. These included more overhead walkways, road widening schemes and improved pedestrian flows.

Edinburgh Tower office tenants asked to vacate their premises within six months include the Securities and Futures Commission and Bank of Bermuda.

The Mandarin Oriental spokesman said: "Next year is our 40th anniversary and it is an on-going plan to have activities in the hotel.

"We will continue enhancing facilities at the hotel.

"Among them, we have installed a new lift as part of our ongoing enhancement programme for the hotel."

In recent years, Hongkong Land has redeveloped the former Swire House, spruced up its retail space in the Prince's Building and spent about HK$200 million refurbishing Alexandra House, expanding its retail podium by 10,000 sq ft.   - by Sophia Wong      South China Morning Post     21 Feb 2003

Hongkong Land seeks return to residential development

Jardine Group property flagship Hongkong Land plans to re-enter the SAR residential market after playing almost no role during the past 20 years.

Having stood on the sidelines of the housing boom in the 1980s and 1990s, Hongkong Land is looking to build a portfolio of high-quality projects in the coming five years, director of residential development Tony Tse Wai-chuen said.

Hongkong Land, the largest grade-A office landlord in Central, was hunting for prime residential sites and saw good medium-term profit returns from the sector, he said.

"It is a good chance to enhance our strength during a market slump."

The group had received three proposals for high-end residential projects in the past three months but no concrete deals had been struck, he said.

It has committed to a redevelopment of Lai Sing Court in Tai Hang - a project that was complicated by the need to offer former tenants termination compensation of HK$400,000 and owners a new flat in the 320-unit twin tower development.

"We will not cut the budget for construction in order to achieve high building quality and establish a reputable brand name," he said.

Hongkong Land was formerly a major developer of high-end properties, but in the 1980s, it sold its portfolio Mid-Levels, Island South and Peak properties, choosing instead to focus on office development.

Its last residential project was Tregunter (Block one and two), completed more than 20 years ago.

Mr Tse said office leasing would remain the firm's core business and residential units would be sold rather than held for investment purposes.

"We are planning to expand our residential portfolio in major Southeast Asian cities and we have earmarked Hong Kong and Beijing after detailed studies."

Hongkong Land began a US$300 million joint-venture residential development, Central Park, in the Chaoyang business district in Beijing in 2000.

The firm was also undertaking two staff-quarter redevelopments in Western District to provide 185,000 sq ft residential floor area for the mass market, Mr Tse said. It is also holding a 1.1 million sq ft agricultural site in Yuen Long, together with Sun Hung Kai Properties.

As a senior vice-president of Hong Kong Institute of Surveyors, he said: "Personally, I am pessimistic in the short term, but in the medium term, the market can recover." - Sophia Wong    South China Morning Post    30 Dec 2002


Central's largest retail and office  landlord has been giving Central Hong Kong a facelift, including refurbishing the maze of overhead walkways connecting buildings in the area.  

The group engaged New York architectural firm, Kohn Pedersen Fox to undertake the  substantial refurbishment.   Swire House was demolished on Chater Road and will evolve soon as 355,391 sq ft  of new development scheuled to complete in 2002.

The immediate area has already  experienced refurbishment - Prince's Building and The Landmark have undergone extensive refurbishment.  太太's own MARIANNE KWOK  worked for KPF on further Landmark renovations.  

All of Hongkong Land's buildings have been wired to give access to full range of state-of -the art communication services, from fixed lines to broadband telphony.    The buildings are already equipped to provide satellite TV, cable TV and broadband access.  Prime office space in central is drying up due to the number of new companies coming to HK, primarily from telecommunications and IT related sector              >>  LISTED COMPANY

Hongkong Land hits red

Hongkong Land Holdings, the biggest landlord in Central, plunged to a net loss of US$506 million (HK$3.95 billion) in the first half due to a revaluation of its investment properties under new accounting standards.

The loss of 22.73 US cents a share in the first six months reversed a gain of US$114 million, or 4.78 US cents a share, a year earlier, when its investment properties were not revalued.

The firm proposed an interim dividend of 3.5 US cents a share.

Hongkong Land is the only major property developer in Hong Kong to adopt International Accounting Standards 40 (IAS 40). It is listed in London and Singapore, and Hong Kong's accounting standards do not include the change.

``That creates a big swing in our profits,'' chief executive Nicholas Sallnow-Smith said. ``[If property values are] on the way down, of course it creates a big reported loss; if the market recovers then it will create a big reported profit.''

The IAS 40, which Hongkong Land started using last year, stipulate that companies must revalue investment properties every year and reflect the change on the profit and loss accounts instead of charging it against capital reserves.

Hongkong Land recorded a loss of US$601 million to show a 7 per cent drop in the value of its investment properties. Due to the reversionary pattern of the company's leases, the figure was much better than a 13 per cent decrease in the Central District's general rentals. Even if the effect of IAS 40 was stripped out, interim underlying profit still fell 16 per cent from a year ago to US$96 million, reflecting lower rental income.

The contraction in net income to US$29.7 million was due to a US$5 million increase in financial costs, incurred mainly from share repurchases.

``We still have a very weak office market in Central, because there's no significant new demand that's coming into the market in the first half this year,'' Sallnow-Smith said.

Rental income, the company's major revenue source, fell 4.7 per cent in the first half to US$161 million from US$169.1 million a year ago.

To combat the weak market, Hongkong Land has been upgrading its buildings to improve returns, Sallnow-Smith said. It had completed the redevelopment of Chater House in Central, which was 53 per cent pre-let, he said. ``Even if it's a difficult market, you don't sit back and do nothing.'' He said the company would probably demolish the Landmark East Wing for other uses including a hotel, but no final decision had been made.

Hongkong Land received approval from the Planning Department early last year to add an additional 96,000 square feet gross floor area to the Landmark complex.

Work on the Landmark would probably begin after renovation of Alexandra House, which was expected to be finished at the end of 2003, Sallnow-Smith said.

Regarding residential property, the company's Central Park joint-venture in Beijing with the Vantone Group received permission to pre-sell units in April and almost half of the first phase of 600 units has been sold.

The first phase is expected to be completed in 2004. The firm's joint venture with UK-based Grosvenor Estates, Grosvenor Land, has spent more than US$80 million, on ten acquisitions. Sallnow-Smith said Hongkong Land planned to sell its 36 per cent-owned Central China Power, due to continuing market difficulties.

Chairman Simon Keswick said the full year's result ``is expected to remain in line with current trends''.

``A revival of demand in the Hong Kong office market, which remains the key driver of our earnings, will depend on a recovery in global business confidence,'' Keswick said. Jonathan Tam      31 July 2002  THE STANDARD

HONG KONG (Reuters) - Property firm Hongkong Land Holdings Ltd reported first-half profits fell 16 percent on Tuesday, due to lower rental income and higher finance charges and said full year results would reflect the weak office market.

The company, a unit of Jardine Strategic Holdings which focuses on Hong Kong property, posted an underlying profit of US$96 million, which translated into earnings of 4.3 US cents a share from 4.78 US cents a year ago.

Net rental income, the group's main source of revenue, slipped six percent to US$153.6 million as demand remained weak amid sluggish economic conditions in Hong Kong.

"There's no net demand in the market and until that demand recovers, it's difficult to see how we can get rents recovering," Hongkong Land chief executive Nicholas Sallnow-Smith told reporters.

A revival of demand in the central business district, where the company owns and manages some five million square feet of prime office and retail space, would depend on a recovery on global financial markets and better corporate earnings, he said.

Hongkong Land's underlying profit was also dented by net financing charges, which rose to US$29.7 million from US$24.7 million a year earlier, as higher debt levels from share buybacks more than offset lower interest rates.

But under new accounting rules, which knocked US$601.1 million off the value of its property portfolio, Hongkong Land recorded a net loss of US$506 million for the first half versus a net profit of US$114 million a year earlier.

OCCUPANCY MAINTAINED

Despite a weak office market in Hong Kong, occupancy at the company's Central portfolio was maintained at 96 percent compared with the industry average of 90.4 percent.

While rentals in the prime business district fell by about 13 percent in general, the impact on Hongkong Land's net rental income was smoothed by the reversionary pattern of its leases, Sallnow-Smith said.

Hongkong Land's Central portfolio includes the Landmark, an upscale commercial and retail complex, and Exchange Square which houses the Hong Kong stock exchange.

The company is considering a range of options to build an additional 96,000 square feet of gross floor area at the Landmark, which could involve a new hotel project or a new office building.

"There are a whole range of options that we could go for. One of them does indeed involve creating a hotel within the Landmark complex," Sallnow-Smith said, adding that the announce its final plan at a later date.

Meanwhile, construction of the company's Chater House was completed in June and is now 53 percent pre-let. Retail shops would open for business before the Christmas season, while office tenants would move in before the end of the year.

Hongkong Land declared an interim dividend of 3.50 US cents per share, unchanged from last year.

Hongkong Land shares listed in Singapore closed one US cent higher at US$1.40 on Tuesday after setting a year low of US$1.37 on July 26. Its shares in London were up 1.44 percent at US$1.41.     - The Standard   1 August 2002

SINGAPORE (Reuters) - Property giant Hongkong Land Ltd said on Thursday it was open to selling one of two office towers at its commercial development in Singapore's central business district.

Hongkong Land, a unit of Jardine Strategic Holdings, paid S$290 ($165) per square foot for the site in March 2001 as part of a consortium with Hong Kong's Cheung Kong Holdings and Singapore's Keppel Land.

"We are open to selling one of the towers but this is something that has to be reviewed along the way," Francis Heng, Hongkong Land's finance director, told reporters at a luncheon.

Singapore-listed Hongkong Land said the two office towers had a gross floor area of around 1.59 million square feet. The development is expected to be completed in 2005.

It is believed the taller 50-storey tower will be put up for sale, according to industry sources.

Heng said the projected cost to completion was "quite a bit lower" than the current market price for comparable high-end buildings, which was around S$1,200 per square foot.

Reflecting weak office property conditions, Heng said there had been writedowns for One Raffles Link, its other commercial site in Singapore's central business district, which was bought in August 1996 at a time when prices were at their peak.

Hongkong Land said it would continue to evaluate opportunities in key cities like Hong Kong, Tokyo and Singapore, as well as Beijing and Shanghai.

Heng said there were no specific residential projects planned for Singapore for now.

He said the firm was comfortable with its gearing of 27 percent and had no plans to pare down its debt by setting up a real estate investment trusts (REITs).

"Compared with Hong Kong and Singapore property companies, our gearing is not on the high side," Heng said. "We are not actually focusing on REITs. In future, if it does make economic sense...we would definitely pursue it."

The firm reported a 16 percent drop in first-half profit to US$96 million due to lower rental income and higher finance charges. It said full-year results would reflect the weak office market.

Hongkong Land shares ended five cents lower at US$1.47 on Thursday    -   3 August  2002  Yahoo!

Keswick | Jardine Challenge

graphic courtesy of South China Morning Post

 


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