The principal activities of the Group are investment properties (“IP”) and development properties (“DP”) in Hong Kong and the Mainland, hotels and management, and logistics.
The Group's profit attributable to shareholders for the 6 months ended 30-06-2019 amounted to HKD 2.45 billion, a decrease of 14.3% compared with previous corresponding period. Basic earnings per share was HKD 0.8041. An interim dividend of HKD 0.25 per share was declared. Turnover amounted to HKD 8.06 billion, an increase of 3.1% over the same period last year, gross profit margin up 9.7% to 61.7%. (Announcement Date: 08 Aug 2019)
Business Review - For the six months ended June 30, 2019
HONG KONG PROPERTIES
The Mount Nicholson project remains the key contributor of DP contracted sales in Hong Kong. Alongside the Peak Portfolio, the development pipeline also comprises the Kowloon Tong Residential Project and the Kowloon East Waterfront Portfolio. Experience indicates demand for luxury homes is steady but has a tempo different from mass market sales.
THE PEAK PORTFOLIO
Perched on the Peak with the most sought-after address in town, this inspiring collection of the most respected residences redefines the parameters of contemporary ultra-luxury living and is poised to offer the ultimate home for the most discerning residents.
Mount Nicholson, a 50:50 joint venture development, represents the epitome of exclusivity and luxury living atop Hong Kong’s highest elevation. Enjoying full and unobstructed views of Victoria Harbour, the distinctive collection comprises 19 houses and 48 apartments. During the first half of 2019, four houses and two apartments were sold for a total contracted sales of HK$3.6 billion or an average of HK$94,000 per square foot.
The re-development of 11 Plantation Road and 77 Peak Road are making good headway to provide seven houses (total gross floor area (“GFA”): 46,000 square feet) and eight houses (total GFA: 42,000 square feet) respectively. Superstructure works of these projects were completed in 2017. The re-development of 1 Plantation Road for 20 houses (total GFA: 91,000 square feet) is progressing well. Chelsea Court and Strawberry Hill have been leasing well.
KOWLOON EAST WATERFRONT
With an aim of creating another core business district for Hong Kong, the Government’s visionary “Energising Kowloon East” initiative is gradually bringing to fruition. The enhanced integration and connectivity have best positioned the district to benefit from the ongoing trend towards office decentralisation of the city. The Group’s Kowloon East Waterfront Portfolio, comprising the Kowloon Godown and 15%-owned Yau Tong Bay joint-venture project at the harbourfront, is poised to fully tap the massive potential from this vibrant transformation.
Various redevelopment options are under consideration for Kowloon Godown which comprises a warehouse and an open yard with an existing operating GFA of one million square feet. General building plans for a revitalisation scheme for the warehouse was approved in June 2018. In parallel, applications for lease modification for a commercial scheme at the open yard and warehouse sites were submitted in 2017.
Yau Tong Bay features a total GFA of four million square feet and is set to provide over 6,300 residential units. This harbourfront residential project enjoys stunning view over the Victoria Harbour and is in close proximity to the MTR Station. General building plans have been approved and lease modification is under way.
KOWLOON TONG RESIDENTIAL PROJECT
This residential land parcel site commands a fantastic view towards Kowloon Peninsula with its prime location at the junction of Lion Rock Tunnel Road and Lung Cheung Road, adjacent to the traditional luxury residential cluster of Beacon Hill. Capitalizing on the Group’s proven track record in developing exquisite residences, it is poised to set a new standard for ultra-luxury living in the Kowloon Peninsula.
With a total developable GFA of 436,000 square feet, approval has been granted to build four blocks of 13-storey residential buildings. Foundation work is in progress.
CHINA DEVELOPMENT PROPERTIES
Underlying demand for quality properties in Mainland China remained firm in top-tier cities. However, as primary sales pricing is effectively controlled by government which seriously affects future project profitability, the Group has been prudent and not made any new land purchase for nearly one year.
Inclusive of joint ventures and associates on an attributable basis, revenue recognised in the first half of 2019 decreased by 10% to HK$5,232 million and operating profit by 1% to HK$1,828 million. Operating profit margin, however, increased by 3 percentage points to 35%. 105,200 square metres of GFA were completed and recognised during the period (2018: 182,300 square metres).
Attributable contracted sales decreased by 10% to RMB6.5 billion for 1,400 units totalling 192,000 square metres during the period under review. Among which, approximately 80% was generated in Top 4 cities, namely Hangzhou, Beijing, Shanghai and Suzhou, or from the top 10 projects. Various projects drew favourable responses from buyers, including Beijing West Manor, Hangzhou Jade Mansion and Guiyu Chaoyang in Hangzhou. Average selling price increased sharply by 34% to RMB31,600 per square metre. As at the end of June, the net order book increased to RMB23.5 billion for 0.8 million square metres. The land bank totalled 3.6 million square metres.
CHINA INVESTMENT PROPERTIES
The inauguration of Changsha IFS last year further added to the Group’s IP portfolio. Revenue increased by 22% to HK$1,958 million and operating profit by 30% to HK$1,162 million. However, over-supply in the office sector in most cities may increase in coming years.
As a one-stop destination from entertainment to lifestyle, retail, culture and dining, the retail-led Changsha IFS has promptly emerged as the new landmark in Central China. Top architecture, retail diversity and quality service, alongside the unparalleled location in the bustling heart of the city with underground linkage to Wuyi Plaza Station (the interchange station for Metro Lines 1 and 2), collectively gave rise to an intense concentration of foot traffic. Overall revenue and operating profit reached HK$378 million and HK$130 million respectively during the period.
Complementing and feeding the 246,000-square metre mega mall are two best-of-class office cum luxury hotel towers. Tower 1, at 452 metres, is the tallest building in Hunan Province and houses Niccolo Changsha, the tallest hotel in Central China. It opened in late 2018. Tower 2 is due to open in 2021.
The 246,000-square-metre mega mall has won wide critical acclaim since its opening in May 2018 and has recently been crowned as “RLI International Shopping Centre 2019” in the Global RLI Awards 2019, a testament to the success of the exclusive retail destination. Other notable accolades received included the 2019 Winner of “Commercial Project of the Year” awarded by Royal Institution of Chartered Surveyors, as well as two Gold Awards and one Silver Award in “2019 China Shopping Centre & Retailer Awards” by International Council of Shopping Centers (“ICSC”).
The nine-storey retail podium is home to over 370 brands strategically arrayed in well-defined zones covering high-end luxury, affordable luxury, high street, internationalised Chinese designers’ labels, fast fashion, sportswear, kids, entertainment and F&B, forming critical mass of diversified trades.
The exceptional trade mix across every category comprises over 70 debuts for Hunan Province, over 30 split-gender duplex flagships of renowned fashion brands and over 100 brands which staged their first-ever collaboration with Wharf in the Mainland. Occupancy reached 98% and opening rate 97% at the end of June. Tenant sales maintain strong momentum and achieved RMB2,138 million during the first half of 2019.
The L7 Sculpture Garden, housing the first permanent outdoor bronze KAWS sculpture in Greater China and other precious pieces, has become one of the most photogenic spots in the city and consistently attracts substantial patronage.
As part of the 1st anniversary celebrations, Changsha IFS hosted the “Ciao Changsha! Nihao Firenze!” Sino-Italy Cultural and Economic Exchange Program in collaboration with Florence and Hunan Governments, which played a pivotal role in elevating the international exposure of the city.
An exhilarating array of marketing campaigns was also lined up to promote cultural values of the community. These included French themed promotions encompassing exhibitions and busking performance, Strawberry Music Festival, as well as Health China Sports Competition held at the Ice Rink with the Provincial Department of Sports and Health.
Office and Hotel
Two top-notch office towers include the 452-metre towering city icon, being the tallest building in Hunan province. The towers offer a prestigious office address in the prosperous business square of Jiefang West Road, and continue to draw favourable demands from financial institutions and major corporations in the region.
Niccolo Changsha, the new luxury sky hotel inaugurated in late 2018, features 243 contemporary chic rooms and spectacular suites in the vibrant part of the city. Crowning the top floors of Changsha IFS, this tallest hotel in Central China strives to set a new benchmark for luxury and ultra-exclusive residences by providing impeccable hospitality and exceptional services for global travellers, local and regional residents.
Chengdu IFS, our flagship IP in western China with unrivalled architectural design, operation and marketing excellence, has extended its growth momentum to deliver solid results. Overall revenue increased by 14% to HK$859 million and operating profit by 28% to HK$463 million.
With an expansive retail space of 204,000 square metres, the world-class retail landmark boasts an impressive collection of over 600 top-tier international brands including over 100 debuts in China under one roof, enjoying nearly full occupancy at the end of June. Tenant sales increased by 13% to RMB3,297 million during the period, reaffirming the leading position of Chengdu IFS in sales productivity in the Western region. Foot traffic increased by 9%.
Constant tenant mix optimization continued to offer pleasant surprises and wow visitors. New commitments include 7 for All Mankind, Amelie Wang, ba&sh, CARA BLUE, Givenchy Kids, Liquides Imaginaires, PAPAHUG, Roger Dubuis, Segway Ninebot and Tom Ford Beauty. Retailtainment experiences were further enriched by not only the 7,700-square-metre Sculpture Garden that encourages greenery space and art, but also the attractive entertainment offerings including the IMAX movie theatre and an ice skating rink.
Various unique events and exhibitions contributed to additional footfall and helped spur success. These included “Shoes On Show Off” Sneakers Exhibition showcasing 130 pairs of limited-edition sneakers by over 20 young fashion and sports brands at Chengdu IFS, as well as “Discovering the Himalaya” Tibetan Contemporary Art Exhibition displaying 30 art works from 17 contemporary artists.
In recognition of the outstanding performance, Chengdu IFS has garnered 24 awards during the first half of 2019, of which eight are significant international awards. In the 13th Heavent Awards, Chengdu IFS won the “Sport, Cultural, Educational or Entertainment Event Award” for a range of events under its “sister street partnership” with Le Comite Saint Germain des Pres of Paris and became the sole winner from the Asia Pacific region. The retail landmark also received two Silver Awards for Marketing Excellence in “2019 China Shopping Centre & Retailer Awards” by ICSC.
Office, Hotel and IFS Residences
Located at the epicenter of the metropolitan city with convenient access to commercial areas and major transportation hub, the three premium Grade A office towers command among the highest rental rates in Chengdu. With a selective tenant portfolio comprising multinationals, financial institutions and major corporations in China West, commitment rate increased to 80%.
The award-winning Niccolo Chengdu has achieved a room occupancy of 82%, while revenue per available room (“RevPAR”) increased by 14%. It is consistently leading the market in terms of room yield and room rate.
IFS Residences has been awarded “Expatriates’ Favorite Serviced Apartment” in the list of Top 10 hotels and serviced apartment of Chengdu by well-known media, China Real Estate.
Chongqing IFS is one of the largest integrated projects in Jiangbeizui CBD, a vibrant new business hub for south-western China. The top-notch development enjoys an accessibility advantage with its seamless linkage to the interchange station (Jiangbei Town Station) for metros Line 6 and Line 9 (under construction), as well as the newly-opened bridge connecting to Jiangbeizui Financial Center. Its prominent location at the intersection of Yangtze River and Jialing River offers a splendid river view to the iconic 300-metre towering landmark and the four other towers.
The 109,000-square-metre retail podium houses over 170 brands, of which nearly 30 brands are exclusive or debuts in the city, and represents the largest cluster of first-tier brands in Chongqing. Captivating experiences are further enhanced by the diverse range of exciting dining options, as well as the exclusive lifestyle facilities such as ice skating rink and luxury cinema. Occupancy reached 99% at the end of June. Meanwhile, the Grade-A office towers, adjacent to a cluster of financial institutions, are coveted office addresses for multinationals, Global 500 and state enterprises in the area and provide a quality work environment for high-flying executives to excel.
Niccolo Chongqing, the city’s highest sky hotel located on levels 52 to 62 of Tower 1 Chongqing IFS, accommodates 252 elegant guestrooms and suites offering stunning city views. The luxury hotel achieved a room occupancy of 73%, while RevPAR increased by 31%.
SHANGHAI WHEELOCK SQUARE
Commanding a prime location in Puxi with unparalleled accessibility, the 270-metre landmark skyscraper is among the most preferred office addresses for multinationals and major corporations. It continued to enjoy high occupancy rate of 94%.
SHANGHAI TIMES SQUARE
Shanghai Times Square is an exclusive retail destination surmounted by prime offices and quality serviced apartments in the heart of the shopping, entertainment and business hub of Huaihai Zhong Road. Retail spaces at the cosmopolitan landmark were nearly fully let. Offices were 94% leased. Overall commitment rate at Times Square Apartments was 89%.
The Group’s two Times Outlets continued to benefit from China’s rapidly-rising middle class. As one of the most visited outlet destinations nationwide, Times Outlets Chengdu achieved a solid growth of 13% in retail sales during the period, while its sister mall in Changsha experienced a strong retail sales growth of 17%.
Currently, the Group manages 17 hotels (with a total of 5,750 rooms) in Mainland China, Hong Kong and the Philippines, including 13 under the Marco Polo flag and four under the Niccolo collection of contemporary chic hotels featuring impeccable hospitality and effortless luxury at the most coveted addresses.
The Murray has earned various prestigious and authoritative awards, including “Best Luxury Hotel in Hong Kong” by TTG China Travel Awards 2019 and “Best Hotel Openings in the past 12 months” by Travel + Leisure “Hotels It List 2019”. Moreover, in recognition of the unique signature experiences, the rooftop restaurant and bar Popinjays was named one of “The 15 Best Rooftop Bars in the World” by Conde Nast Traveler Online.
Emulating the success of its sister hotels, namely The Murray and Niccolo hotels in Chengdu and Chongqing, Niccolo Changsha elevates luxury hospitality to new heights with its 243 sophisticated rooms and suites alongside the sky-high dining destinations. The award-winning culture continues, with Niccolo Changsha garnering numerous industry awards since its opening including “2018 Best Newly Opened Hotel” by Voyage, “The Best New Opening Hotel” by City Traveler, and “Best Business Hotel in Central South and Southwest China” by TTG China Travel Awards 2019.
Niccolo Suzhou, the upcoming project in the pipeline, is scheduled for opening in 2021.
Meanwhile, Marco Polo Ortigas, Manila, has once again been selected as a Forbes Travel Guide Five-Star hotel, and became the only Philippine non-gaming hotel to receive the highly esteemed award for three consecutive years, a testament to our dedication to providing service excellence.
Looming macro concerns from Sino-US trade tension, economic slowdown and geopolitical instability continued to challenge the logistics industry. During the period under review, segment revenue from Modern Terminals (“MTL”) and Hong Kong Air Cargo Terminals (“HACTL”) slightly decreased to HK$1,253 million and operating profit by 9% to HK$224 million.
Amidst growing regional port competition faced by Hong Kong as a major international hub, container throughput in South China declined by 2%, with Shenzhen’s throughput increasing by 2% and Kwai Tsing’s decreasing by 8%. Market shares of Shenzhen and Kwai Tsing were 63% and 37% respectively.
Throughput handled by MTL in Hong Kong was down by 8% to 2.5 million TEUs. In Shenzhen, throughput at DaChan Bay Terminals (MTL’s stake: 65%) was 628,000 TEUs, in line with last year, while that at Shekou Container Terminals (MTL’s stake: 20%) increased by 4% to 2.9 million TEUs. Chiwan Container Terminal (MTL’s stake: 8%) recorded a throughput of 1.2 million TEUs.
Consolidated revenue edged down to HK$1,247 million (2018: HK$1,251 million), partly resulting from the continued adjustment in volume mix with more barge and transshipment. Operating profit decreased to HK$218 million (2018: HK$242 million).
In the face of the ever-changing business environment and fierce competition from regional rivals, MTL is proactively implementing different measures to restore the competitive edge of Hong Kong’s port business. With an aim of improving the value proposition of the Port of Hong Kong, MTL entered into a Joint Operating Agreement in January 2019 with three other terminal operators to form Hong Kong Seaport Alliance to enhance operational efficiency and resources utilization. The progressive implementation of the joint operation of 23 berths in the Kwai Tsing Container Terminals commenced on 1 April 2019 and the efficiency gains will be realized over a three year period.
HONG KONG AIR CARGO TERMINALS
HACTL, 20%-owned by the Group, is a leading air cargo terminal operator in Hong Kong with unique world-class facilities, highly efficient operation, and innovative technology. It handled 0.7 million tonnes in the first half of 2019.
Business Outlook - For the six months ended June 30, 2019
Currently, the Group’s businesses are largely property-focused, comprising Investment Properties and Development Properties (“DP”) in Hong Kong and the Mainland, and Hotel and Management. During the period under review, properties contributed to 67% of Group revenue and 84% of Group underlying net profit. Bolstered by the International Finance Square (“IFS”) series, together with the Times Square series, the IP portfolio constitutes a solid recurring income base for the years to come, while the DP portfolio of premium quality projects represents asset turns to capture potential growth prospects. Other businesses include Logistics with the engagement in Modern Terminals and Hong Kong Air Cargo Terminals.
Source: Wharf (Holdings) (00004) Interim Results Announcement