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2000
Overview
Investment Properties
Swire Properties' investment portfolio in Hong Kong largely
comprises office and retail premises in prime locations in Hong Kong,
as well as quality residential accommodation. The completed portfolio
totals 11.9 million square feet of gross floor area and a further 2.0
million square feet, principally of office space, is pending or under
development. In addition, Swire Properties owns a 20% interest in each
of the three hotels in Pacific Place, and an interest in the CITIC Square
development in Shanghai. The Swire Pacific group also owns an interest
in a hotel in Miami, Florida.
Net rental income from the investment portfolio amounted
to HK$3,562 million in 2000, compared with HK$3,635 million in 1999. Substantial
progress was achieved in 2000 with fresh or renewed lettings which covered
some 1.9 million square feet of lettable floor space, mainly in Island
East. As a result of this, high occupancy levels were maintained during
the course of 2000 and are expected to remain firm. Although gross rental
income declined slightly, the contraction in the recurring income base
had been halted by mid-2000. The coming year should continue to see a
steady recovery as leases are progressively reviewed or renewed at higher
levels.
OFFICES
Swire Properties' office portfolio is concentrated mainly in Island
East, at TaiKoo Place and Cityplaza, and at Pacific Place in the Central
District. The Island East completed portfolio comprises 5.7 million square
feet of space with linkages to the Quarry Bay and Taikoo MTR stations.
This space includes the Warwick, Somerset and Cornwall House "techno-centres",
which were formerly more suited to industrial users, but which now have
a tenancy profile focused on telecommunication and technology support
services.
Lincoln and Oxford Houses at TaiKoo Place, which were completed in 1998
and 1999 respectively, had nearly 240,000 square feet of space remaining
to let at the beginning of 2000. This was substantially committed in the
early part of the year at satisfactory rentals. Overall, Island East achieved
fresh or renewed lettings during the course of 2000 covering some 1.5
million square feet of lettable floor space in a steadily recovering market.
The 625 King's Road office tower, which is 50% owned by Swire Properties,
was only 40% let at the beginning of 2000 but was fully let by May 2000.
Occupancy levels in One and Two Pacific Place remained high throughout
the year and average achieved rents, as with the Island East portfolio,
continued to show steady recovery. Lease maturity profiles are well established
and the incidence of lease renewals in any one year is contained within
manageable limits.
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Pacific
Place is recognised as one of
Asia's most successful multi-use
developments. |
RETAIL
The contributions from Swire Properties' two main established
retail centres on Hong Kong Island, at Pacific Place and Cityplaza, steadily
improved during the course of 2000 and this trend is expected to continue
into 2001. The performance of Festival Walk in Kowloon, which opened in
November 1998, has exceeded expectations and the coming year should see
further improvements in contribution, mainly through mid-term rent reviews
of existing leases. The Island Place shopping centre also performed satisfactorily.
Taken overall, retail sales growth at Swire Properties' shopping centres
has continued to outpace the general recovery in the Hong Kong retail
sector since the downturn in 1997/98.
Cityplaza has been much enhanced by renovation works, the second
phase of which was completed in 2000. The centre continues to maintain
its position as the primary shopping destination in Island East. Uny,
Wing On and Marks & Spencer remain the major anchor tenants at Cityplaza;
other tenants comprise over 170 retail and catering outlets and the Cityplaza
Ice Palace.
The trade mix of The Mall at Pacific Place remained largely unchanged
during 2000 but the Seibu department store underwent significant reconfiguration
and the basement food-hall re-opened in December 2000 under a new tenancy.
Seibu, Lane Crawford, Marks & Spencer and UA Cinemas remain the anchor
tenants together with 160 other retail and catering outlets.
Festival Walk, owned 50:50 by Swire Properties and CITIC Pacific, is firmly
established as a major shopping destination in Kowloon and now has a bridge
to the KCR station as well as an underground pedestrian link to the MTR/KCR
interchange at Kowloon Tong. The trade mix comprises anchor tenants such
as ParkNShop, Marks & Spencer, Page One Books and the 11 screen AMC Cinema,
plus over 200 retail and catering outlets and The Glacier ice rink.
The Citygate commercial centre of Tung Chung new town has been developed
under an agreement between the MTRC and a consortium of five developers,
in which Swire Properties has a 20% equal interest. It comprises a 463,000
square foot retail centre and a 161,000 square foot office tower, both
completed in 1999, as well as provision for a 350-room hotel. Although
only 17% of the office space has been secured so far, the retail space
is now 48% let.
RESIDENTIAL
The residential portfolio comprises mainly The Atrium and Parkside
serviced suites at Pacific Place and The Albany apartments in Mid-Levels.
Although occupancy levels have generally held up well, the larger units
at Parkside experienced higher vacancies towards the end of the year.
Swire Properties' other luxury residential properties on Hong Kong Island
were fully let. Overall rental income from the portfolio was slightly
lower in 2000 but the performance is considered generally satisfactory,
given relatively difficult market conditions.
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TaiKoo
Place is part of
Swire Properties' Island
East Matrix, a six million
sq.ft. wired commercial
campus with eight office
buildings and three
techno centres on the
east side of Hong Kong
Island. |
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Investment Properties under Development
In May 2000, a site at TaiKoo Place, adjacent to Devon House, with
a frontage onto King's Road, was acquired for HK$435 million. An office
tower, to be known as Cambridge House, is now under construction. On completion
in 2003, this will provide approximately 255,000 square feet of additional
office space linked to Devon House.
The Cityplaza Two tower planned for the now vacant Mount Parker House
site next to the Cityplaza shopping centre will comprise 610,000 square
feet of office space. The Cityplaza One planned extension will add a further
445,000 square feet of office space in 16 storeys to the superstructure
of the existing tower. These projects are currently on hold whilst the
potential impact of the Taikoo Shing arbitration award is assessed, as
both schemes may now be subject to agreement of land premium with Government.
Preparations continue for the construction of Pacific Forum which is located
at One Queen's Road East close to Pacific Place. This is planned to comprise
an office tower with a gross floor area of 632,000 square feet, plus 130
carpark spaces.
Swire Properties has now acquired a 91% interest in the Aik San Factory
Building on Westlands Road, Quarry Bay. An application will shortly be
made to Government for a compulsory sale by auction of the whole building
as a means of acquiring the 9% interest not already held. The building
has a redevelopment potential of 464,000 square feet of office space.
No land premium is payable to Government on any office redevelopment on
this site.
The 14,500 square foot luxury residential scheme at 3 Coombe Road, The
Peak is expected to be completed in 2002.
2000 Valuation of Investment Properties
The portfolio of completed investment properties in Hong Kong, as
well as properties under or pending development which are intended for
investment, were revalued as at 31st December 2000 by DTZ Debenham Tie
Leung Limited. As a result of this valuation, Swire Pacific's property
valuation reserve increased by HK$9,230 million. The increase in 2000,
following an increase of HK$2,716 million as at the end of 1999, is largely
attributable to the strengthening recovery in commercial rental levels.
However, as previously noted, a charge of HK$4,250 million has been made
against the property valuation reserve to reflect an estimate of Government's
claim for premium and interest on the Cityplaza Four, Cityplaza Three
and Cityplaza One office towers. Swire Pacific's property valuation reserve
at 31st December 2000 showed a surplus of HK$35,735 million. Particulars
of the properties in Hong Kong and the USA, both for investment and development
for sale, are set out on pages 66 to 73.
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Festival
Walk, a one million sq.ft. shopping center, has established itself
as the new center for Kowloon |
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Property Trading Portfolio
The portfolio of developments for sale mainly comprises residential
apartments in Hong Kong. Nearly 8,000 units are under development by subsidiary
or jointly controlled companies. Operating profit from property trading
in 2000 amounted to HK$145 million, as compared with HK$209 million in
1999. The year 2000 contribution is stated prior to the deduction of a
provision in respect of Government's claim in relation to Horizon Gardens
and a further non-recurring provision against the Ocean Shores residential
project in Tseung Kwan O. The development of Ocean Shores is being undertaken
in joint venture with Sun Hung Kai Properties and comprises 5,728 residential
units in 15 towers with over four million square feet of residential floor
area, plus 1,176 carpark spaces and 32,000 square feet of neighbourhood
shopping. The whole scheme is expected to be completed in early 2003.
1,656 units in Phase 1 have been sold so far and are shortly to be handed
over to purchasers. Marketing of Phase 2 will start shortly.
Swire Properties sold a further 136 units in its StarCrest residential
scheme close to Pacific Place at satisfactory prices during the course
of 2000, and only 30 units remain to be sold. The 10,700 square feet of
ground floor retail space and the 83 carpark spaces are being retained
for investment.
The Les Saisons residential scheme in Aldrich Bay was launched successfully
in September 2000. To date, 540 units have been pre-sold at satisfactory
prices. The scheme is expected to be completed in mid-2001. Les Saisons
is owned by Swire Properties, Sun Hung Kai Properties and China Motor
Bus in the proportion 50:30:20 and comprises 742,000 square feet of accommodation
in 864 units plus 216 carpark spaces.
A modification premium of HK$799 million was paid by Swire Properties
to Government in August 2000 relating to the Taikoo Valley Site V residential
site on King's Road. The scheme comprises two residential towers with
395,000 square feet of space in 432 units, 144 carpark spaces, a new school
and a community centre and is expected to be completed by mid-2003.
At Tung Chung Crescent, the 2,158 unit residential scheme developed in
conjunction with the Citygate commercial centre under the agreement with
MTRC, a further 403 units were sold during 2000 and 530 units remain to
be sold. The second residential phase at Tung Chung, comprising over 1.0
million square feet of accommodation in 1,344 units, is presently under
construction.
The former bus depot site on Wong Chuk Hang Road, Aberdeen, owned 50:50
by Swire Properties and China Motor Bus, remains let to a carpark operator
and will not be redeveloped until market conditions improve. It has an
industrial development potential of 382,000 square feet.
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StarCrest, a residential
development by Swire
Properties, has consistently
maintained its average price
level of over HK$7,000 per sq.ft.
since its launch in 1999.
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Hotels
In line with a general recovery in the Hong Kong hotel industry, the
performance of the JW Marriott, Conrad International and Island Shangri-La
hotels at Pacific Place improved appreciably during the course of 2000,
mainly as a result of a recovery in occupancy levels. Room rates have
exceeded budget expectations but have not yet recovered to the levels
seen in the mid 1990s.
Shanghai
Swire Properties has a 10% interest in CITIC Square on Nanjing Road
West, which offers 1.1 million square feet of retail and office space.
This development was completed in April 2000 and premises were progressively
handed over to tenants during the latter part of 2000. Despite considerable
oversupply in Shanghai, the building is now over 90% let.
U.S.A.
The 236-unit Three Tequesta Point condominium
tower on Brickell Key, Miami is expected to be completed in the latter
part of 2001. So far, 207 units have been sold. In view of the continuing
strength of the residential market in Miami, it has been decided to proceed
with the construction of a further condominium tower on Brickell Key,
to be known as Courts Brickell Key, which will comprise 317 units for
completion in 2002. The 329 room Mandarin Miami hotel, which is 75% owned
by the group and is managed by Mandarin Oriental, opened in November 2000
and represents a significant enhancement to the Brickell Key development.
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