Swire Properties Announces 2016 Interim Results

Transcription

1 For Immediate Release Swire Properties Announces 2016 Interim Results Results Six months ended 30th June Note Change Revenue 7,886 9, % Operating profit 6,730 9, % Profit attributable to the Company's shareholders Underlying (a), (b) 3,559 3, % Reported 5,334 8, % Cash generated from operations 3,964 5, % Net cash inflow before financing 1,083 2, % HK$ HK$ Earnings per share Underlying (c) % Reported (c) % Dividends per share First interim % 30th June 31st December Change Financial Position Total equity (including non-controlling interests) 220, , % Net debt 35,074 33, % Gearing ratio (a) 15.9% 15.3% +0.6%pt. HK$ HK$ Equity attributable to the Company s shareholders per share (a) % Notes: (a) Refer to glossary on page 59 of the announcement of 2016 Interim Results of Swire Properties Limited dated 18 August 2016 (the Results Announcement ) for definition. (b) A reconciliation between reported profit and underlying profit,attributable to the Company s shareholders is provided on page 5 of the Results Announcement. (c) Refer to Note 11 in the financial statements in the Results Announcement for the weighted average number of shares.

2 18 August 2016, Hong Kong - Swire Properties Limited today announced its interim results for Underlying profit attributable to shareholders, which principally adjusts for changes in the valuation of investment properties, decreased by HK$379 million from HK$3,938 million in the first half of 2015 to HK$3,559 million in the first half of The decrease in underlying profit principally reflected lower trading profits from the sale of luxury residential properties in Hong Kong. The Directors have declared a first interim dividend of HK 23 (2015: HK 23) per share for the year ending 30th June Underlying profit from property investment decreased slightly. This principally reflects a lower contribution from retail properties in Hong Kong and pre-opening expenses at Brickell City Centre in the U.S.A. Aggregate gross rental income was little changed at HK$5,367 million. Gross rental income from office properties in Hong Kong and Mainland China and from retail properties in Mainland China grew slightly. There was an operating profit of HK$525 million from property trading in the first half of 2016, compared to an operating profit of HK$1,025 million in the first half of Profits in the first half of 2016 largely arose from the handover of 226 pre-sold units at the Reach development in the U.S.A. and from the sales of units at the AREZZO development in Hong Kong. The increase in operating losses of the hotel division (from HK$23 million in the first half of 2015 to HK$89 million in the first half of 2016) principally reflects pre-opening expenses at EAST, Miami in the U.S.A. In his published statement about the interim results for 2016, John Slosar, Chairman of Swire Properties said this about prospects: Given the uncertain economic outlook, demand for office space in Hong Kong is likely to be subdued in the second half of the year. However, high occupancy in our properties is likely to underpin rents. Demand for Grade-A office space in the Tianhe business district in Guangzhou is expected to be robust despite a substantial supply of new office space. In Beijing, office rents are expected to be weak. There is reduced demand and increased supply. The fall in retail sales in Hong Kong has made retailers more cautious. Swire Properties retail properties in Hong Kong are fully let. We are changing the mix of retail tenants in order to accommodate changing consumer preferences and to attract new consumers. Retail sales are expected to grow modestly in the second half of 2016 in Mainland China. Demand for high quality space in prime areas is expected to remain firm. Mr Slosar added: In Hong Kong, property buyers are cautious in light of the slowing Hong Kong economy. In Miami, the strength of the US dollar against major South American currencies since the latter part of 2015 has adversely affected demand for condominiums by non-us buyers. In the second half of 2016, property trading profits are expected to continue to be recognised on the sales of residential units in Miami and in Hong Kong. Our hotels are expected to continue to face difficult conditions in the second half of End -

3 About Swire Properties Swire Properties develops and manages commercial, retail, hotel and residential properties, with a particular focus on mixed-use developments in prime locations. Swire Properties is listed on the Main Board of the Stock Exchange of Hong Kong and its investment portfolio in Hong Kong comprises Taikoo Place, Cityplaza and Pacific Place as its core holdings. In addition to Hong Kong, the Company has investments in Mainland China, the United States and Singapore. Visit Swire Properties website at For media enquiries, please contact: Swire Properties Limited May Lam-Kobayashi Head of Public Affairs Tel: (852) MayLam@swireproperties.com Wayne Leung Public Affairs Manager Tel: (852) / WayneLeung@swireproperties.com

4 Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement. SWIRE PROPERTIES LIMITED (Incorporated in Hong Kong with limited liability) (Stock Code: 1972) 2016 Interim Results

5 CONTENTS Page Financial Highlights 1 Chairman s Statement 2 Review of Operations 4 Financing 25 Report on Review of Condensed Interim Financial Statements 31 Interim Financial Statements 32 Notes to the Interim Financial Statements 37 Supplementary Information 55 Glossary 59 Financial Calendar and Information for Investors 60

6 FINANCIAL HIGHLIGHTS Six months ended 30th June Note Change Results Revenue 7,886 9, % Operating profit 6,730 9, % Profit attributable to the Company's shareholders Underlying (a), (b) 3,559 3, % Reported 5,334 8, % Cash generated from operations 3,964 5, % Net cash inflow before financing 1,083 2, % HK$ HK$ Earnings per share Underlying (c) % Reported (c) % Dividends per share First interim % 30th June 31st December Change Financial Position Total equity (including non-controlling interests) 220, , % Net debt 35,074 33, % Gearing ratio (a) 15.9% 15.3% +0.6%pt. HK$ HK$ Equity attributable to the Company s shareholders per share (a) % Notes: (a) Refer to glossary on page 59 for definition. (b) A reconciliation between reported profit and underlying profit attributable to the Company s shareholders is provided on page 5. (c) Refer to Note 11 in the financial statements for the weighted average number of shares. 1

7 CHAIRMAN S STATEMENT Our consolidated profit attributable to shareholders in the first half of 2016 was HK$5,334 million, compared to HK$8,493 million in the first half of Underlying profit attributable to shareholders, which principally adjusts for changes in the valuation of investment properties, decreased by HK$379 million from HK$3,938 million in the first half of 2015 to HK$3,559 million in the first half of Dividends The Directors have declared a first interim dividend of HK 23 (2015: HK 23) per share for the year ending 31st December The first interim dividend, which totals HK$1,346 million (2015: HK$1,346 million), will be paid on 5th October 2016 to shareholders registered at the close of business on the record date, being Friday, 9th September Shares of the Company will be traded exdividend from Wednesday, 7th September Key Developments In March 2016, Swire Properties opened the first of two office towers in Phase I of the Brickell City Centre development in Miami, U.S.A. In April 2016, Swire Properties started to presell units in ALASSIO, a residential development in Mid-Levels West, Hong Kong. The development consists of a 50-storey tower of 197 residential units, and is expected to be completed in the second half of 2016 and available for handover in of the 197 units had been pre-sold at 16th August In June 2016, EAST, Miami was opened at the Brickell City Centre development in Miami, U.S.A. It has 352 rooms including 89 serviced apartments. In July 2016, Swire Properties announced the HK$15 billion redevelopment of Taikoo Place. Two new Grade-A office buildings, each with an aggregate gross floor area ( GFA ) of around one million square feet, are to be constructed. They are expected to be completed in 2018 and 2021 respectively. Operating Performance The decrease in underlying profit from HK$3,938 million in the first half of 2015 to HK$3,559 million in the first half of 2016 principally reflected lower trading profits from the sale of luxury residential properties in Hong Kong. Underlying profit from property investment decreased slightly. This principally reflects a lower contribution from retail properties in Hong Kong and pre-opening expenses at Brickell City Centre in the U.S.A. Aggregate gross rental income was little changed at HK$5,367 million. Gross rental income from office properties in Hong Kong and Mainland China and from retail properties in Mainland China grew slightly. There was an operating profit of HK$525 million from property trading in the first half of 2016, compared to an operating profit of HK$1,025 million in the first half of Profits in the first half of 2016 largely arose from the handover of 226 pre-sold units at the Reach development in the U.S.A. and from the sales of units at the AREZZO development in Hong Kong. The increase in operating losses of the hotel division (from HK$23 million in the first half of 2015 to HK$89 million in the first half of 2016) principally reflects pre-opening expenses at EAST, Miami in the U.S.A. Net finance charges in the first half of 2016 were HK$621 million, a 2% decrease from 2

8 HK$631 million in the first half of The decrease principally reflected a reduction in the cost of borrowings in Hong Kong and Mainland China, partially offset by an increase in finance charges arising from the change in the fair value of a put option in respect of a non-controlling interest in the Brickell City Centre development. On an attributable basis, net investment property valuation gains in the first half of 2016, after deferred tax relating to investment properties in Mainland China and the U.S.A., were HK$1,850 million, compared to net gains in the first half of 2015 of HK$4,610 million. Finance Net debt at 30th June 2016 was HK$35,074 million, compared with HK$33,348 million at 31st December Gearing increased from 15.3% at 31st December 2015 to 15.9% at 30th June The increase in net debt was mainly due to expenditure on investment properties in Hong Kong and on the Brickell City Centre development in Miami, partially offset by the sales proceeds from trading properties in Hong Kong and in Miami. Cash and undrawn committed facilities were HK$10,797 million at 30th June 2016, compared with HK$12,193 million at 31st December We are changing the mix of retail tenants in order to accommodate changing consumer preferences and to attract new consumers. Retail sales are expected to grow modestly in the second half of 2016 in Mainland China. Demand for high quality space in prime areas is expected to remain firm. In Hong Kong, property buyers are cautious in light of the slowing Hong Kong economy. In Miami, the strength of the US dollar against major South American currencies since the latter part of 2015 has adversely affected demand for condominiums by non-us buyers. In the second half of 2016, property trading profits are expected to continue to be recognised on the sales of residential units in Miami and in Hong Kong. Our hotels are expected to continue to face difficult conditions in the second half of John Slosar Chairman Hong Kong, 18th August 2016 Prospects Given the uncertain economic outlook, demand for office space in Hong Kong is likely to be subdued in the second half of the year. However, high occupancy in our properties is likely to underpin rents. Demand for Grade-A office space in the Tianhe business district in Guangzhou is expected to be robust despite a substantial supply of new office space. In Beijing, office rents are expected to be weak. There is reduced demand and increased supply. The fall in retail sales in Hong Kong has made retailers more cautious. Swire Properties retail properties in Hong Kong are fully let. 3

9 REVIEW OF OPERATIONS Six months ended 30th June Year ended 31st December 2015 Revenue Gross Rental Income derived from Offices 3,028 2,994 5,972 Retail 2,148 2,187 4,366 Residential Other Revenue (1) Property Investment 5,428 5,433 10,857 Property Trading 1,954 3,403 4,463 Hotels ,127 Total Revenue 7,886 9,386 16,447 Operating Profit/(Loss) derived from Property investment 3,987 4,145 8,097 Valuation gains on investment properties 2,307 4,458 7,116 Property trading 525 1,025 1,328 Hotels (89) (23) (334) (2) Total Operating Profit 6,730 9,605 16,207 Share of Post-tax Profits from Joint Venture and Associated Companies ,241 Profit Attributable to the Company s Shareholders 5,334 8,493 14,072 (1) Other revenue is mainly estate management fees. (2) Including a loss of HK$229 million on disposal of four hotels in the U.K. in December Additional information is provided in the following section to reconcile reported and underlying profit attributable to the Company s shareholders. These reconciling items principally adjust for the net revaluation movements on investment properties and the associated deferred tax in Mainland China and the U.S.A., and for other deferred tax provisions in relation to investment properties. There is a further adjustment to remove the effect of the movement in the fair value of the liability in respect of a put option in favour of the owner of a non-controlling interest. 4

10 Underlying Profit Note Six months ended 30th June Year ended 31st December 2015 Profit attributable to the Company s shareholders per financial statements 5,334 8,493 14,072 Adjustments in respect of investment properties: Revaluation of investment properties (a) (2,617) (5,202) (8,186) Deferred tax on investment properties (b) ,090 Realised profit on sale of properties (c) Depreciation of investment properties occupied by the Group (d) Non-controlling interests share of revaluation movements less deferred tax Movements in the fair value of the liability in respect of a put option in favour of the owner of a non-controlling interest (e) Underlying Profit Attributable to the Company s Shareholders 3,559 3,938 7,078 Loss on disposal of four hotels in the U.K Adjusted Underlying Profit Attributable to the Company s Shareholders 3,559 3,938 7,307 Notes: (a) This represents the net revaluation movements as shown in the consolidated statement of profit or loss and the Group's share of net revaluation movements of joint venture companies. (b) This represents deferred tax movements on the Group's investment properties, plus the Group's share of deferred tax movements on investment properties held by joint venture companies. These comprise deferred tax on revaluation movements on investment properties in Mainland China and the U.S.A., and deferred tax provisions made in respect of investment properties held for the longterm where it is considered that the liability will not reverse for some considerable time. (c) Prior to the implementation of HKAS 40, changes in the fair value of investment properties were recorded in the revaluation reserve rather than the consolidated statement of profit or loss. On sale, the revaluation gains were transferred from the revaluation reserve to the consolidated statement of profit or loss. (d) Prior to the implementation of HKAS 40, no depreciation was charged on investment properties occupied by the Group. (e) The value of the put option in favour of the owner of a non-controlling interest is calculated principally by reference to the estimated fair value of the portion of the underlying investment property in which the owner of the non-controlling interest is interested. 5

11 Underlying Profit Movement in Underlying Profit Underlying profit in the first half of ,938 Decrease in profit from property investment (22) Decrease in profit from property trading (304) Change in results from hotels (53) Underlying Profit in the first half of ,559 The decrease in underlying profit from HK$3,938 million in the first half of 2015 to HK$3,559 million in the first half of 2016 principally reflected lower trading profits from the sale of luxury residential properties in Hong Kong. Underlying profit from property investment decreased slightly. This principally reflects a lower contribution from retail properties in Hong Kong and pre-opening expenses at Brickell City Centre in the U.S.A. Property trading profits in the first half of 2016 largely arose from the handover of 226 pre-sold units at the Reach development in the U.S.A. and from the sales of units at the AREZZO development in Hong Kong. Losses from hotels were higher than in the first half of 2015, principally due to pre-opening expenses at EAST, Miami in the U.S.A. Portfolio Overview The aggregate GFA attributable to the Group at 30th June 2016 was approximately 30.6 million square feet. Out of the aggregate GFA attributable to the Group, approximately 27.2 million square feet are investment properties, comprising completed investment properties of approximately 21.7 million square feet and investment properties under development or held for future development of approximately 5.5 million square feet. In Hong Kong, this investment property portfolio comprises approximately 15.8 million square feet attributable to the Group of primarily Grade-A office and retail premises, hotels, serviced apartments and luxury residential properties. In Mainland China, Swire Properties has interests in five major commercial mixed-use developments in prime locations in Beijing, Guangzhou, Shanghai and Chengdu. These developments are expected to comprise approximately 8.7 million square feet of attributable GFA when they are all completed. Outside Hong Kong and Mainland China, the investment property portfolio principally comprises the Brickell City Centre development in Miami, U.S.A. 6

12 The tables below illustrate the GFA (attributable to the Group) of the investment property portfolio at 30th June Completed Investment Properties (GFA attributable to the Group in million square feet) Residential/ Office Retail Hotels (1) Serviced Apartments Under Planning Total Hong Kong Mainland China U.S.A Total Investment Properties Under Development or Held for Future Development (expected GFA attributable to the Group in million square feet) Residential/ Office Retail Hotels (1) Serviced Apartments Under Planning Total Hong Kong Mainland China U.S.A. and elsewhere (2) 2.0 Total Total Investment Properties (GFA (or expected GFA) attributable to the Group in million square feet) Residential/ Office Retail Hotels (1) Serviced Apartments Under Planning Total Total (1) Hotels are accounted for under property, plant and equipment in the financial statements. (2) The site is accounted for under properties held for development in the financial statements. The trading portfolio comprises a luxury residential project under development (ALASSIO) on Hong Kong Island, a residential tower under development (Rise) at the Brickell City Centre development in Miami, U.S.A., and completed developments available for sale. The principal completed developments available for sale are the MOUNT PARKER RESIDENCES, AREZZO and WHITESANDS developments in Hong Kong, the remaining portion of the office property at Sino-Ocean Taikoo Li Chengdu (Pinnacle One) in Mainland China and the Reach development at Brickell City Centre in Miami. There are also land banks in Miami and Fort Lauderdale in Florida, U.S.A. 7

13 The table below illustrates the GFA (or expected GFA) attributable to the Group of the trading property portfolio at 30th June Trading Properties (GFA (or expected GFA) attributable to the Group in million square feet) Completed Under Development or Held for Development Total Hong Kong Mainland China U.S.A Total Investment Properties Hong Kong Offices Overview The completed office portfolio in Hong Kong comprises an aggregate of 10.5 million square feet of space on a 100% basis. Total attributable gross rental income from our office properties in Hong Kong was HK$2,977 million in the first half of At 30th June 2016, the office properties in Hong Kong were valued at HK$135,426 million. Of this amount, Swire Properties attributable interest represented HK$129,082 million. Hong Kong Office Portfolio GFA (sq. ft.) (100% Basis) Occupancy (at 30th June 2016) Attributable Interest Pacific Place 2,186,433 98% 100% Cityplaza 1,632, % 100% Taikoo Place Office Towers (1) 3,136,717 99% 50%/100% One Island East 1,537, % 100% Techno Centres (2) 893,516 77% 100% Others (3) 1,077, % 20%/50%/100% Total 10,463,768 (1) Including PCCW Tower, of which Swire Properties owns 50%. (2) Excluding Somerset House (the redevelopment of which into a Grade-A office building commenced in 2014) and approximately 187,000 square feet in Cornwall House owned by the Hong Kong Government. (3) Others comprise One Citygate (20% owned), 625 King s Road (50% owned), Berkshire House (50% owned), Generali Tower (whollyowned) and 28 Hennessy Road (wholly-owned). Gross rental income from the Hong Kong office portfolio in the first half of 2016 was HK$2,815 million, a slight increase from the first half of Rental reversions were generally positive. Occupancy remained high at Taikoo Place, Cityplaza and Pacific Place. At 30th June 2016, the Hong Kong office portfolio (excluding Techno Centres) was 99% let. Demand for the Group s office space in Hong Kong was strong in all districts. However, gross rental income decreased at the Techno Centres, as tenants vacated prior to the Taikoo Place redevelopment, and at Cityplaza, as floors were handed over to the Hong Kong Government. 8

14 The table below shows the mix of tenants of the office properties by the principal nature of their businesses (based on internal classifications) as a percentage of the office area at 30th June Office Area by Tenants Trades (At 30th June 2016) Banking/Finance/Securities/Investment 25.1% Trading 16.4% Technology/Media/Telecoms 14.5% Insurance 12.2% Real estate/construction/property development/architecture 9.2% Professional services (Accounting/Legal/Management consulting/corporate secretarial) 8.9% Advertising and public relations 4.0% Others 9.7% At 30th June 2016, the top ten office tenants (based on attributable gross rental income in the six months ended 30th June 2016) together occupied approximately 21% of the total attributable office area in Hong Kong. Hong Kong Office Market Outlook Given the uncertain economic outlook, demand for office space in Hong Kong is likely to be subdued in the second half of the year. However, high occupancy in our properties is likely to underpin rents. The following table shows the percentage of attributable gross rental income from the office properties in Hong Kong, for the month ended 30th June 2016, derived from leases expiring in the periods with no committed renewals or new lettings. Tenancies accounting for approximately 6.5% of the attributable gross rental income in the month of June 2016 are due to expire in the second half of 2016, with tenancies accounting for a further 17.2% of such rental income due to expire in Office Lease Expiry Profile (At 30th June 2016) July December % % 2018 and later 76.3% 9

15 Retail Overview The completed retail portfolio in Hong Kong comprises an aggregate of 2.8 million square feet of space on a 100% basis. The portfolio principally consists of The Mall at Pacific Place, Cityplaza in Taikoo Shing and Citygate Outlets at Tung Chung. The malls are wholly-owned by Swire Properties (except for Citygate Outlets, in which Swire Properties has a 20% interest) and are managed by Swire Properties. Total attributable gross rental income from our retail properties in Hong Kong was HK$1,351 million in the first half of At 30th June 2016, our retail properties in Hong Kong were valued at HK$52,798 million. Of this amount, Swire Properties attributable interest represented HK$46,462 million. The Hong Kong retail market was weak, resulting in lower retail sales at Pacific Place and Citygate. Sales were slightly lower at Cityplaza due to changes to the tenant mix. Hong Kong Retail Portfolio GFA (sq. ft.) (100% Basis) Occupancy (at 30th June 2016) Attributable Interest The Mall, Pacific Place 711, % 100% Cityplaza 1,105, % 100% Citygate Outlets 462, % 20% Others (1) 556, % 20%/60%/100% Total 2,835,655 (1) Others largely comprise Taikoo Shing neighbourhood shops and StarCrest retail premises (which are wholly-owned), Island Place retail premises (60% owned) and Tung Chung Crescent neighbourhood shops (20% owned). Gross rental income from the Group s retail portfolio in Hong Kong was HK$1,312 million in the first half of 2016, compared with HK$1,363 million in the same period in The decrease principally reflects a change in tenant mix and lower turnover rent at The Mall at Pacific Place. Occupancy levels at the Group s malls were effectively 100% during the period. The table below shows the mix of the tenants of the retail properties by the principal nature of their businesses (based on internal classifications) as a percentage of the retail area at 30th June Retail Area by Tenants Trades (At 30th June 2016) Fashion and accessories 28.2% Department stores 17.0% Food and beverages 17.0% Cinemas 7.1% Supermarkets 5.0% Jewellery and watches 1.5% Ice rink 0.9% Others 23.3% At 30th June 2016, the top ten retail tenants (based on attributable gross rental income in the six months ended 30th June 2016) together occupied approximately 25% of the total attributable retail area in Hong Kong. 10

16 Hong Kong Retail Market Outlook The fall in retail sales in Hong Kong has made retailers more cautious. Swire Properties retail properties in Hong Kong are fully let. We are changing the mix of retail tenants in order to accommodate changing consumer preferences and to attract new consumers. The following table shows the percentage of attributable gross rental income from the retail properties in Hong Kong, for the month ended 30th June 2016, derived from leases expiring in the periods with no committed renewals or new lettings. Tenancies accounting for approximately 7.2% of the attributable gross rental income in the month of June 2016 are due to expire in the second half of 2016, with tenancies accounting for a further 29.6% of such rental income due to expire in Retail Lease Expiry Profile (At 30th June 2016) July December % % 2018 and later 63.2% Residential The completed residential portfolio comprises Pacific Place Apartments at Pacific Place, Taikoo Place Apartments in Taikoo Place and a small number of luxury houses and apartments on Hong Kong Island, with an aggregate GFA of approximately 546,467 square feet. Overall occupancy at the residential portfolio was approximately 84% at 30 June 2016, reflecting stable demand for Pacific Place Apartments and increasing demand for the newly opened Taikoo Place Apartments. The residential leasing market is expected to be stable in the second half of Investment Properties Under Development New Kowloon Inland Lot No This commercial site at the junction of Wang Chiu Road and Lam Lee Street in Kowloon Bay is being developed into an office building with an aggregate GFA of approximately 555,000 square feet. Superstructure work is proceeding. The development is expected to be completed in Tung Chung Town Lot No. 11 This commercial site next to Citygate Outlets is being developed into a commercial building with an aggregate retail and hotel GFA of approximately 477,000 square feet. Excavation, foundation and substructure works are in progress. The development is expected to be completed in Swire Properties has a 20% interest in the development. 11

17 Taikoo Place Redevelopment The first phase of the Taikoo Place redevelopment (the redevelopment of Somerset House) is the construction of a 50-storey office building with an aggregate GFA of approximately 1,020,000 square feet, to be called One Taikoo Place. The redevelopment is expected to be completed in The second phase of the Taikoo Place redevelopment (the redevelopment of Cornwall House and Warwick House into an office building with an aggregate GFA of approximately 1,000,000 square feet, to be called Two Taikoo Place) is being planned, with completion expected in Wong Chuk Hang Road This commercial site at 8-10 Wong Chuk Hang Road is being developed into an office building with an aggregate GFA of approximately 382,500 square feet. Excavation and foundation works are proceeding. The development is expected to be completed in Swire Properties has a 50% interest in the development. 12

18 Investment Properties Mainland China Overview The property portfolio in Mainland China comprises an aggregate of 13.0 million square feet of space, 9.1 million square feet of which is attributable to the Group. Completed properties amount to 9.5 million square feet, with 3.5 million square feet under development. Total attributable gross rental income from investment properties in Mainland China was HK$1,287 million in the first half of At 30th June 2016, the investment properties in Mainland China were valued at HK$59,604 million. Of this amount, Swire Properties attributable interest represented HK$42,179 million. Mainland China Property Portfolio (1) GFA (sq. ft.) (100% Basis) Investment Properties Hotels, Trading Properties and Others Attributable Interest Total Completed Taikoo Li Sanlitun, Beijing 1,465,771 1,296, , % TaiKoo Hui, Guangzhou 3,840,197 3,256, ,184 97% INDIGO, Beijing 1,893,226 1,534, ,269 50% Sino-Ocean Taikoo Li Chengdu (2) 2,197,666 1,376, ,349 50% Hui Fang, Guangzhou 90,847 90, % Others 5,825 2,913 2, % Sub-total 9,493,532 7,557,355 1,936,177 Under Development HKRI Taikoo Hui, Shanghai (3) 3,468,933 3,079, ,711 50% Total 12,962,465 10,636,577 2,325,888 (1) Including the hotel and property trading portions of these developments. (2) The office portion of Sino-Ocean Taikoo Li Chengdu, Pinnacle One, was developed for trading purposes. (3) HKRI Taikoo Hui is expected to open in phases from the second half of Gross rental income from the Group s investment property portfolio in Mainland China was HK$1,025 million in the first half of 2016, HK$15 million higher (despite a 5% depreciation of the Renminbi against the Hong Kong dollar) than the same period in 2015, reflecting positive rental reversions and higher retail sales. 13

19 The table below illustrates the expected growth in the attributable area of the completed property portfolio (excluding the property trading portion) in Mainland China. Attributable Area of Completed Property Portfolio (excluding the property trading portion) in Mainland China 31st December GFA (sq. ft.) 30th June and later Taikoo Li Sanlitun, Beijing 1,465,771 1,465,771 1,465,771 TaiKoo Hui, Guangzhou 3,724,991 3,724,991 3,724,991 INDIGO, Beijing 946, , ,613 Sino-Ocean Taikoo Li Chengdu 802, , ,264 Hui Fang, Guangzhou 90,847 90,847 90,847 HKRI Taikoo Hui, Shanghai - 1,115,774 1,734,465 Others 5,825 5,825 5,825 Total 7,036,311 8,152,085 8,770,776 Retail The Mainland China retail portfolio s gross rental income for the first half of 2016 was HK$836 million. In Renminbi terms, this represents an increase of 7% compared to the same period in Gross rental income at Taikoo Li Sanlitun in Beijing increased in the first half of 2016, as the portfolio continues to gain popularity. Retail sales increased by 4%. The overall occupancy rate was 93% at 30th June Gross rental income at TaiKoo Hui in Guangzhou increased in the first half of 2016, reflecting in part improvements to the tenant mix. Retail sales grew by 4%. The mall was 99% let at 30th June The mall at INDIGO in Beijing was 99% let at 30th June Retail sales increased by 13% in the first half of 2016, which supported rental growth. Continuing improvements to the tenant mix were made following the expiry of leases. Gross rental income at Sino-Ocean Taikoo Li Chengdu increased in the first half of Retail sales increased by 113% as more shops were open than in the first half of At 30th June 2016, tenants had committed (including by way of letters of intent) to lease 91% of the space and 86% of the shops in the development were open. Retail sales are expected to grow modestly in the second half of 2016 in Mainland China. Demand for high quality space in prime areas is expected to remain firm. 14

20 Offices The Mainland China office portfolio s gross rental income for the first half of 2016 was HK$182 million. In Renminbi terms, this represents an increase of 6% compared to the same period in Occupancy at TaiKoo Hui s office towers in Guangzhou was 100% at 30th June Demand for Grade-A office space in the Tianhe business district in Guangzhou is expected to be robust in the second half of 2016 despite a substantial supply of new office space. Occupancy at ONE INDIGO in Beijing was 91% at 30th June Demand for office space in Beijing weakened during the first half of Office rents in Beijing are expected to be weak in the second half of 2016, with reduced demand and increased supply. Investment Properties under Development Shanghai HKRI Taikoo Hui in Shanghai will comprise a retail mall, two office buildings, two hotels and one serviced apartment tower. Structural work has been completed. Interior decoration and mechanical and electrical installation works for the office towers and the retail mall are in progress. The development is expected to open in phases from the second half of Investment Properties U.S.A. Brickell City Centre, Miami Brickell City Centre is an urban mixed-use development in the Brickell financial district of Miami, Florida. It has a site area of 504,017 square feet (approximately 11.6 acres). Phase I of the Brickell City Centre development consists of a shopping centre, two office buildings (Two Brickell City Centre and Three Brickell City Centre), a hotel and serviced apartments (EAST, Miami) managed by Swire Hotels and two residential towers (Reach and Rise). The residential towers are being developed for sale. Three Brickell City Centre opened in March At 30th June 2016, its occupancy rate was 84%. EAST, Miami opened in June The shopping centre is expected to open by the end of Swire Properties has agreements with Bal Harbour Shops and Simon Property Group to develop the retail portion of Brickell City Centre. Swire Properties remains the primary developer of Brickell City Centre. At 30th June 2016, Swire Properties owned 100% of the office, hotel and residential portions and 60.9% of the retail portion of Phase I. The remaining interest in the retail portion is held by Simon Property Group (25%) and Bal Harbour Shops (14.1%). Bal Harbour Shops has an option, exercisable from the second anniversary of the grand opening of the retail portion, to sell its interest to Swire Properties. Phase II of the Brickell City Centre development is planned to be an 80-storey mixed-use development comprising retail, office, hotel and residential space in one tower to be called One Brickell City Centre. Phase II will incorporate the site at 700 Brickell Avenue acquired by Swire 15

21 Properties in Development of this site will connect the Brickell City Centre development with Brickell Avenue. Swire Properties owns 100% of Phase II. At 30th June 2016, the Brickell City Centre Phase I development (excluding the hotel and residential trading portions) was valued at HK$5,662 million. Brickell City Centre, Miami Phase I (3) GFA (sq. ft.) (100% Basis) Attributable Interest Retail 490, % Two and Three Brickell City Centres 260, % EAST, Miami - hotel (1) 218, % EAST, Miami - serviced apartments 109, % Reach and Rise (2) 834, % Carpark, roof top and circulation areas 2,706, % Total Phase I 4,617,000 Phase II Residential 523,000 (4) 100% Future mixed-use tower 1,444,000 (4) 100% Total Phase I and Phase II 6,584,000 (1) The hotel is accounted for under property, plant and equipment in the financial statements. (2) Remaining unsold units at 30th June (3) Represents leasable/saleable area except for the carpark, roof top and circulation areas. (4) These developments are still being planned. The GFA is under review. Miami Market Outlook Retail sales have declined since This has made retailers cautious about expansion. The office market continues to recover from the adverse effects of the 2008 recession. There is little new supply. 16

22 Valuation of Investment Properties The portfolio of investment properties was valued at 30th June 2016 (93% of the total value by DTZ Cushman & Wakefield Limited and a further 3% by another independent valuer) on the basis of open market value. The amount of this valuation was HK$231,238 million, compared to HK$228,449 million at 31st December The modest increase in the valuation of the investment property portfolio is mainly due to an increase in the valuation of the office properties in Hong Kong, partially offset by a decrease in the valuation of the retail properties in Hong Kong. Under HKAS 40, hotel properties are not accounted for as investment properties but are included within property, plant and equipment at cost less accumulated depreciation and any provision for impairment. 17

23 Property Trading The trading portfolio comprises a luxury residential project under development on Hong Kong Island, a residential tower under development at the Brickell City Centre development in Miami, U.S.A., and completed developments available for sale. The principal completed developments available for sale are the MOUNT PARKER RESIDENCES, AREZZO and WHITESANDS developments in Hong Kong, the remaining portion of the office property at Sino-Ocean Taikoo Li Chengdu (Pinnacle One) in Mainland China and the Reach development at Brickell City Centre in Miami. There are also land banks in Miami and Fort Lauderdale in Florida, U.S.A. Property Trading Portfolio GFA (sq. ft.) (100% Basis) Actual/Expected Construction Completion Date Attributable Interest Completed (1) Hong Kong - 5 Star Street 408 (2) % - MOUNT PARKER RESIDENCES 2,748 (2) % - AREZZO 11,818 (2) % - WHITESANDS 60,647 (2) % Mainland China - Pinnacle One, Chengdu 593, % U.S.A. - ASIA, Miami 5,359 (2) % - Reach, Miami 266,842 (2) % Under Development Hong Kong - ALASSIO 195, % U.S.A. - Rise, Miami 567,000 (2) % Held for Development U.S.A. - Fort Lauderdale, Florida 825,000 N/A 75% - South Brickell Key, Miami, Florida 550,000 N/A 100% - Brickell City Centre, Miami, Florida - North Square site 523,000 N/A 100% (1) Remaining unsold units/portion at 30th June (2) Area shown reflects saleable area (square feet). 18

24 Hong Kong 91 of the 92 units at the MOUNT PARKER RESIDENCES development in Quarry Bay had been sold at 16th August The property is managed by Swire Properties. 118 of the 127 units at AREZZO development at 33 Seymour Road had been sold at 16th August The profit from the sales of six units was recognised in the first half of The property is managed by Swire Properties. The WHITESANDS development consists of 28 detached houses in Cheung Sha, Lantau Island. The development was completed and sales began in September Two houses had been sold at 16th August The profit from the sale of one house was recognised in the first half of The property is managed by Swire Properties. Finishing works at ALASSIO at 100 Caine Road are in progress and the development is expected to be completed in the second half of 2016 and available for handover to purchasers in The development consists of a 50-storey tower of 197 residential units with an aggregate GFA of 195,533 square feet. Presales of the units commenced in April 2016 and 184 units had been pre-sold at 16th August The profit from the sales is expected to be recognised in Mainland China At Sino-Ocean Taikoo Li Chengdu, 89% of the office s total GFA (approximately 1.15 million square feet) and 350 car park spaces were pre-sold in August In 2015, the profit from the sales of approximately 52% of the pre-sold GFA was recognised. The sale of the remaining pre-sold GFA and 350 car park spaces is being cancelled as part of the consideration has not been received according to schedule. U.S.A. The residential portion of Phase I of the Brickell City Centre development is being developed for trading purposes. There are 780 units in two towers (Reach and Rise), with an aggregate saleable area of 1,134,000 square feet. We started to sell units in Reach in June 2014 and units in Rise in November The profit from the handover of 226 pre-sold units at the Reach development was recognised in the first half of units in Reach and 174 units in Rise had been sold at 16th August Reach was completed and available for handover to purchasers in April Rise is expected to be completed and available for handover to purchasers in the second half of Since the ASIA development was completed in 2008, 122 out of the 123 units have been sold. One penthouse unit, which is not on offer, remains unsold. 19

25 Outlook In Hong Kong, property buyers are cautious in light of the slowing Hong Kong economy. In Miami, the strength of the US dollar against major South American currencies since the latter part of 2015 has adversely affected demand for condominiums by non-us buyers. In the second half of 2016, property trading profits are expected to continue to be recognised on the sales of residential units in Miami and in Hong Kong. Estate Management Swire Properties manages 20 residential estates which it has developed. It also manages OPUS, a residential property in Hong Kong which Swire Properties redeveloped for Swire Pacific. The management services include day to day assistance for occupants, management, maintenance, cleaning, security and renovation of common areas and facilities. Swire Properties places great emphasis on maintaining good relationships with occupants. 20

26 Hotels Overview Swire Properties owns and manages (through Swire Hotels) hotels in Hong Kong, Mainland China and the U.S.A. The House Collective, comprising The Upper House in Hong Kong, The Opposite House in Beijing and The Temple House in Chengdu, is a group of small and distinctive hotels. EAST hotels are business hotels. The Group also has interests in non-managed hotels in Hong Kong, Guangzhou and Miami, Florida. Hotel Portfolio (Managed by Swire Hotels) No. of Rooms (100% Basis) Attributable Interest Completed Hong Kong - The Upper House % - EAST, Hong Kong % - Headland Hotel (1) 501 0% Mainland China - The Opposite House % - EAST, Beijing % - The Temple House (2) % U.S.A. - EAST, Miami (2) % Under Development Mainland China - One hotel and one serviced apartment tower % at HKRI Taikoo Hui, Shanghai Total 2,138 (1) Headland Hotel is owned by Airline Hotel Limited, a wholly-owned subsidiary of Cathay Pacific Airways Limited. (2) Including serviced apartments in the hotel tower. 21

27 Hong Kong Swire Properties wholly-owns and manages (through Swire Hotels) two hotels in Hong Kong, The Upper House, a 117-room luxury hotel at Pacific Place, and EAST, Hong Kong, a 345-room hotel at Taikoo Shing. Swire Properties has a 20% interest in each of the JW Marriott, Conrad Hong Kong and Island Shangri- La hotels at Pacific Place and in the Novotel Citygate in Tung Chung. There were lower operating profits from the managed hotels in Hong Kong in the first half of Trading conditions were difficult because of a reduction in the number of visitors to Hong Kong. Mainland China Swire Hotels manages three hotels in Mainland China, The Opposite House, a 99-room luxury hotel at Taikoo Li Sanlitun, EAST, Beijing, a 369-room hotel at INDIGO and The Temple House, a 142-room hotel (including serviced apartments) in Chengdu. Swire Properties owns 100% of The Opposite House, 50% of EAST, Beijing and 50% of The Temple House. Swire Properties owns 97% of, but does not manage, the Mandarin Oriental at TaiKoo Hui in Guangzhou, which has 263 rooms and 24 serviced apartments. Occupancy improved slightly at The Opposite House and EAST, Beijing in the first half of 2016 despite difficult trading conditions. The Temple House is building up its occupancy levels and achieved satisfactory average room rates in the first half of Occupancy and average room rates at the Mandarin Oriental, Guangzhou were steady in the first half of 2016 despite an over-supply of hotel rooms in the city. There are one managed hotel, one managed serviced apartment tower and one non-managed hotel (all under development) at HKRI Taikoo Hui in Shanghai. U.S.A. Swire Properties wholly-owns and manages (through Swire Hotels) EAST, Miami at the Brickell City Centre development. The hotel has 352 rooms including 89 serviced apartments. It opened in June 2016 and is building up its occupancy levels. Swire Properties has a 75% interest in the 326-room Mandarin Oriental hotel in Miami. The results of the hotel were slightly worse than in the first half of 2015, due to lower average room rates. 22

28 Swire Restaurants Swire Hotels operates restaurants in Hong Kong. PUBLIC is a restaurant at One Island East. Ground PUBLICs are cafés at One Island East and in North Point. The Continental is a European restaurant at Pacific Place. Mr & Mrs Fox is a restaurant with an international menu in Quarry Bay. The Plat du Jour restaurants are French bistros at Pacific Place and in Quarry Bay. Outlook Our hotels are expected to continue to face difficult conditions in the second half of

29 Capital Commitments Capital Expenditure and Commitments Capital expenditure in the first half of 2016 on Hong Kong investment properties and hotels, including the Group s share of the capital expenditure of joint venture companies, amounted to HK$979 million (first half of 2015: HK$843 million). Outstanding capital commitments at 30th June 2016 were HK$15,741 million (31st December 2015: HK$16,029 million), including the Group s share of the capital commitments of joint venture companies of HK$1,283 million (31st December 2015: HK$1,363 million). The Group is committed to funding HK$664 million (31st December 2015: HK$689 million) of the capital commitments of joint venture companies in Hong Kong. Capital expenditure in the first half of 2016 on Mainland China investment properties and hotels, including the Group's share of the capital expenditure of joint venture companies, amounted to HK$285 million (first half of 2015: HK$395 million). Outstanding capital commitments at 30th June 2016 were HK$2,637 million (31st December 2015: HK$2,520 million), including the Group s share of the capital commitments of joint venture companies of HK$2,019 million (31st December 2015: HK$1,885 million). The Group is committed to funding HK$488 million (31st December 2015: HK$501 million) of the capital commitments of joint venture companies in Mainland China. Capital expenditure in the first half of 2016 on investment properties and hotels in the U.S.A. and elsewhere amounted to HK$651 million (first half of 2015: HK$950 million). Outstanding capital commitments at 30th June 2016 were HK$1,549 million (31st December 2015: HK$1,249 million). Profile of Capital Commitments Expenditure Forecast Year of Expenditure Commitments (1) Six Months Ended 30th June 2016 Six Months Ended 31st December and later At 30th June 2016 Hong Kong 979 3,295 3,933 2,742 5,771 15,741 Mainland China , ,637 U.S.A. and elsewhere ,549 Total 1,915 5,106 5,549 3,360 5,912 19,927 (1) The capital commitments represent the Group s capital commitments of HK$16,625 million plus the Group s share of the capital commitments of joint venture companies of HK$3,302 million. The Group is committed to funding HK$1,152 million of the capital commitments of joint venture companies. 24

30 FINANCING Summary of Cash Flows Six months ended Year ended 30th June 31st December Net cash from/(used by) businesses and investments Cash generated from operations 3,964 5,579 10,616 Dividends received Profits tax paid (367) (412) (1,267) Net interest paid (613) (713) (1,414) Cash used in investing activities (2,070) (2,369) (4,425) 1,083 2,220 3,745 Cash (paid to)/received from shareholders and net funding by debt Net increase in borrowings 5,032 1,644 2,784 Decrease in loans due to Swire Finance Limited (4,658) (1,800) (1,800) Capital contribution from a non-controlling interest Dividends paid (2,880) (2,584) (3,930) (2,427) (2,111) (2,179) (Decrease)/Increase in cash and cash equivalents (1,344) 109 1,566 Cash used in investing activities during the first half of 2016 included capital expenditure on property developments by subsidiary companies and investments in joint venture companies. Financing Arrangements with the Swire Pacific Group There are a number of financing arrangements between the Group and the Swire Pacific group. Financial Information Reviewed by Auditors On 31st March 2010, Swire Properties (Finance) Limited, the Company and Swire Finance Limited ( Swire Finance, a wholly-owned subsidiary of Swire Pacific Limited), entered into five loan agreements ( Loan Agreements ) (as amended on 31st October 2011) to record the terms of the borrowings by the Group from Swire Finance. The Loan Agreements substantially mirror the terms and maturity profile (currently ranging, disregarding the perpetual element of the financing agreements, up to two years) of the underlying borrowings of Swire Finance from third parties. The underlying borrowings are in the form of bonds issued under the Swire Pacific group s medium term note programme and perpetual capital securities. No security has been given by the Group in respect of the Loan Agreements. Upon maturity of the financing agreements provided by Swire Finance, the Group will obtain new funding (as necessary) on a stand-alone basis without recourse to the Swire Pacific group. 25