HOPEWELL HOLDINGS FINAL RESULTS FY 2013/14, PROFITS UP 7%

Analysis, Slider 27 Aug 2014
HOPEWELL HOLDINGS FINAL RESULTS FY 2013/14, PROFITS UP 7%

Hopewell Holdings Limited, the Hong Kong-based property, infrastructure, hotel and hospitality group, today announced its final results for the year ended 30 June 2014.

For the year ended 30 June 2014, Hopewell Holdings’ revenue from prime-earning businesses, namely investment property and hospitality businesses and toll road investment continued to grow healthily. The first full-year operation of Phase III of the Western Delta Route (“Phase III West”) and increased sales of the Hopewell New Town project helped boost the revenue.

However, these positive factors were offset by the recognition of fewer sales of residential units at Broadwood Twelve, as well as a decline in Heyuan Power Plant’s sales of electricity.

As a result, revenue (including the sales proceeds of investment properties held for sale (i.e. Broadwood Twelve), treasury income, and shares of the revenue of JVs engaged in toll road and power plant operations) for FY14 was HK$5,992 million, 3% lower than the previous year.

Excluding the one-off land conversion gain of HCII in the previous year, the Company’s earnings before interest and tax (“EBIT”) increased by 1% year-on-year to HK$1,920 million. The EBIT of the property letting, agency and management operations, property development of the Hopewell New Town project and Phase II of the Western Delta Route for the year ended 30 June 2014 continued to grow.

However, the growth of these operations was partly offset by (i) a net loss of Phase III West following its first full-year operation; and (ii) a reduction in the EBIT of Panda Hotel.
Profit attributable to HHL’s owners decreased from HK$12,206 million last year to HK$1,358 million, mainly due to the lower fair value gain of completed investment properties recorded and the absence of the one-off land conversion gain of HCII that was recognised in the previous financial year.

Excluding land conversion gain and fair value gain of the completed investment properties, the core profit attributable to owners of the Company during the year was HK$1,233 million, an increase of HK$2 million compared with the HK$1,231 million recorded in the previous financial year.

Mr. Thomas Wu, Managing Director of Hopewell Holdings, said:

“We are pleased to have achieved encouraging performance during the year under review, backed by strong property rental business which recorded rising rental rates while sustaining high occupancy rates.This again solidly proved our proactive asset management strategies to enhance the value of our assets.”

As at 30 June 2014, net debt for HHL at the corporate level (excluding HHI) amounted to HK$1,056 million (30 June 2013: HK$2,172 million), and net gearing ratio was 3% (30 June 2013: 6%). As of 30 June 2014, HHL has received approximately HK$1.1 billion net proceeds from the sale of The Avenue, which helped decrease the net gearing ratio. Total cash on hand at HHL corporate level stood at HK$4,194 million.

INVESTMENT PROPERTIES AND HOSPITALITY

HHL’s investment property and hospitality businesses continued to show healthy growth during the year under review, with revenue increasing by 7% to HK$1,344 million. The Company has made significant progress in promoting and enhancing its property projects:

Hopewell Centre

Hopewell Centre’s office rental income increased by 27% to a historical high of HK$236 million in the year under review, benefitting from decentralisation trend in the office market, the Company’s efforts to continuously enhance the property’s building specifications and services, as well as refining the tenant mix to maintain its competitiveness. The average occupancy rate for office remained at high level of 95% for FY14. Average passing rent increased 19% to HK$37.7 per sq.ft. and average spot rent for office rose 9% to HK$46.5 per sq.ft.

The Company aims to achieve an average passing rent for office of not less than HK$40 per sq.ft. in FY15, a 6% increase year-on-year. The adoption of a co-termination strategy has increased the number of quality and sizeable tenants.

Nissan Global Company Limited, which is currently located in Central, has committed to lease approximately 46,000 sq.ft. of office space in Hopewell Centre as its global headquarter in June 2014. Besides, its luxury vehicle division, INFINITI, has committed to lease a duplex showroom on G/F. A multi-national insurance company has also committed to lease the entire 57/F in June 2014. With the new leases signed, the average spot rent for office had exceeded HK$50 per sq.ft. in June 2014.

As for the retail portion, the revolving restaurant on 62/F will become a worldwide gourmet to be run by the same operator of L’Atelier de Joël Robuchon, a three Michelin-starred restaurant in Hong Kong in the first quarter of 2015. The revamp of the podium façade is targeted to start in the fourth quarter of 2014 and complete in 2015.

Kowloon Bay International Trade and Exhibition Centre

(“KITEC”): KITEC is well positioned to benefit from the development of Kowloon East into another central business district and the decentralisation trend. KITEC’s office rental income for FY14 increased 12% to a historical high of HK$89 million. Average occupancy rate for office remained at the high level of 96% during the year.

Average passing rent increased 20% to HK$13 per sq.ft. in FY14 and average spot rent increased by 26% year-on-year to HK$19 per sq.ft. Rental revenue target for office (excluding tenancies for the Company’s own use) is aimed to be not less than HK$120million and HK$135 million for FY15 and FY16, which represent a year-on-year increase of 35% and 13% respectively.

The Company aims to achieve an average passing rent for office of not less than HK$15 per sq.ft. in FY15 which represents 15% increase year-on-year. The co-termination strategy to accommodate sizeable and quality tenants proves successful, with Hospital Authority committing to lease approximately 117,000 sq.ft. in phases at a rental rate of approximately HK$20 per sq.ft., starting from September 2014.

The Metroplex

Located on the G/F level of KITEC, this upscale cineplex comprising of 9 houses has attracted over 110,000 audiences since operation commenced in February 2014. The Metroplex has provided a solid entertainment anchor for E-Max and at the same time, increasing traffic flow, enhancing attractiveness and helping to lift rental of E-Max.

The increase in traffic flow has also benefitted the F&B tenants in E-Max.
E-Max: E-Max is an entertainment-driven shopping arcade which includes a live house (“Music Zone@E-Max”), The Metroplex and Star Hall. As part of the refurbishment plans, the duty free store on 2/F was relocated to B1/F in October 2013.

The focus of 2/F has now been changed to general retail stores. For instance, 759 Store, a Japanese style retail store chain has committed to lease over 10,000 sq.ft. on 2/F as its flagship store which opened in July 2014. The Metroplex and the live house will further upgrade the tenant mix on G/F and 2/F, encompass well-known brands to encourage more retail traffic and enable E-Max to achieve higher rental rates. The renovation work to upgrade Rotunda 2 was completed in June 2014 to boost the competitiveness of convention and exhibition and banqueting business.

Panda Place

With renovation works completed in the fourth quarter of 2012, Panda Place’s rental income rose to HK$53 million, an increase of 60% compared to FY12 prior to the revamp. The average occupancy rate was 97% in FY14. The Company has launched an asset enhancement initiative to re-layout 2/F into an Asian epicure by introducing a variety of dining options and it is targeted to open in the fourth quarter of 2014. Together with a span of gourmet restaurants introduced to B1/F, these are expected to increase the traffic flow to the shopping mall.

Panda Hotel

Total revenue decreased by 3% to HK$325 million during the year, mainly due to the implementation of the new PRC Tourism Law which had resulted in a drop in number of group tourists to Hong Kong.

Average room occupancy maintained at 93% while the average room rate was down by 3%. Revenue from F&B business stayed flat in FY14 as the drop in banquet revenue due to fewer wedding events during the year was offset by the increase in revenue from other F&B outlets such as café and bar.

Nevertheless, the negative impact from the new PRC Tourism Law has been fading out during the second half of FY14, with room revenue in the second half of FY14 increasing by 4% compared to the same period of FY13. To maintain its competitiveness and to maximize its revenue, Panda Hotel will continue to diversify its customer mix.

It has strengthened MICE business which has helped capture more certain revenue sources, increased average room rate and visitors’ length of stay as well as increased Panda Hotel’s publicity.

PROPERTY DEVELOPMENT

The market response of Hopewell New Town in Huadu, Guangzhou was positive. Approximately 359,100 square meters (“sq.m.”) of the development (including 158 townhouses and 2,694 apartments) were sold and booked up to 30 June 2014. Among the units sold, 695 units or 67,600 sq.m. of apartments were booked during the year under review and generated revenue of RMB631 million.

The target revenue for FY15 is RMB590 million, with a total floor area of 57,400 sq.m.
As at 14 August 2014, 59 units or 78% out of Broadwood Twelve’s 76 units were sold. To maximize income, 9 unsold units were being leased at an average monthly rental rate of about HK$67 per sq.ft., based on saleable area. The Group uploaded the sales brochure of the unsold units on the website in August 2014 and it is ready to re-launch sales.

The 200 Queen’s Road East Project

An Urban Renewal Authority (“URA”) redevelopment project, launched pre-sales of the residential portion, known as The Avenue, in November 2013 and received enthusiastic response.

As of 14 August 2014, 1,185 or 93% of the total number of units had been sold, generating total sales at joint venture level (before URA sharing) of approximately HK$12.2 billion, which is scheduled to be booked in FY15 and FY16. Based on the contracted sales and assuming all transactions completed, the Company expects to receive net proceeds of around HK$1.7 billion (after URA’s share, and settlement of outstanding project loan, construction and related costs), of which around HK$1.1 billion has been received as of 30 June 2014, and further HK$0.6 billion will be received by fourth quarter of 2015.

The project’s retail portion, known as the Avenue Walk, has received positive responses from potential tenants and is targeted for grand opening in the second half of 2015.
The site formation works of HCII is in progress and planned to be completed by the end of 2015.

Structural framework of the podium is planned to complete in 2016 and the construction of hotel is planned to complete in
2018. Recently, HHL has submitted an application to refine and enhance the development scheme approved in 2009 to the Town Planning Board. Under the current planning, this will have no impact on the
construction progress.

Upon completion, the retail portion of HCII together with the Company’s existing
retail space and the Avenue Walk, will form one of Wan Chai’s largest retail clusters.
HHL is increasing its exposure in Wan Chai to capture the growth opportunities.

In June 2014, HHL purchased a new plot of land on Schooner Street in a government land sales, which is in proximity to its Wan Chai property portfolio including Miu Kang Terrace and the Hillside Terrace Cluster, both of which are wholly owned by the Company. HHL took possession of the site in July 2014 and its development plan is currently under study.

Besides, the Company has also acquired individual units on several sites along the Queen’s Road East for redevelopment, such as 155-159 Queen’s Road East where the demolition works are underway. In May 2014, the Company submitted an application for the compulsory sale of the properties situated at 161-167 Queen’s Road East. The compulsory sale is expected to complete in the middle of 2015. A planning application for building a commercial building along 155-167 Queen’s Road East has also been submitted to the Town Planning Board.

TOLL ROAD INVESTMENT

HHL’s EBIT from toll road investment (after interest and tax of joint ventures) for the year under review decreased by approximately 11% to HK$667 million. This was mainly attributable to the increased depreciation charges and the net loss generated by Phase III West following its first full-year operation which offset the rise in net toll revenue of the toll expressways.

POWER PLANT

The Heyuan Power Plant, a joint venture between a subsidiary of HHL and Shenzhen Energy Group Company Limited, continued to record stable profit during the year under review.

Net profit increased 2% to RMB306 million, as the decline in the cost of coal offset the impact of the decreased utilisation rate and a reduction in the on-grid electricity tariff. The Heyuan JV is studying the development of a second phase of the Heyuan Power Plant which will consist of 2 x 1000MW coal-fired power plant.
Mr. Thomas Wu said: “Our development projects in the pipeline will further boost our medium to long-term growth. Together with our solid financial position, we are well placed to generate long-term value for our shareholders.”

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