Keppel Land Limited Report to Shareholders 2003 BUILDING OUR FUTURE

Transcription

1 Keppel Land Limited Report to Shareholders 2003 BUILDING OUR FUTURE Report to Shareholders 2003

2 Contents Corporate Profile 2 Corporate Stewardship Chairman s Message 6 Board of Directors 10 Senior Management 18 Profile of Directors and Senior Management 23 Interested Person Transactions 26 Group Financial Highlights 27 Simplified Balance Sheet 29 Five-Year Financial Profile 30 Group Quarterly Results 31 Creating Value Shareholder Value Creation Corporate Governance 34 Risk Management 47 Investor Relations 49 Increasing Advantage Pursuit of Excellence Product Showcase 54 Awards and Accolades 56 Nurturing People People and Environment People in Review 60 Community Relations 64 Environmental Responsibility 70 Leveraging Strengths Special Feature: Asia s Urban Leap 78 Structure of Keppel Land Group 135 Significant Events 136 Strategic Directions and Outlook 138 Financial Review 140 Business Analyses Sensitivity Analysis 148 Property Portfolio Analysis 149 Value Added Statement 151 Productivity Analysis 153 Economic Value Added 155 Corporate Liquidity and Capital Resources 156 Business Dynamics and Risk Factors 158 Critical Accounting Policies 159 Statutory Reports and Accounts Directors Report 162 Statement by the Directors 166 Auditors Report 167 Consolidated Profit and Loss Account 168 Balance Sheets 169 Consolidated Statement of Changes in Equity 170 Consolidated Cash Flow Statement 172 Summary of Significant Accounting Policies 174 Notes to the Accounts 179 Subsidiary and Associated Companies 202 Corporate Information Corporate Information 212 Key Personnel 213 Calendar of Financial Events 215 Corporate Structure 216 Property Portfolio 218 Expanding Reach Operating and Financial Review Asian Economic and Property Round-up 87 Operations and Market Review 95 Shareholder Information Statistics of Shareholdings 233 Notice of Annual General Meeting 235 Share Transaction Statistics 239

3 Report to Shareholders 2003 CORPORATE PROFILE VISION To be a premier property multi-national corporation, focusing on property development and property fund management to achieve higher returns. 2

4 Corporate Profi le Keppel Land Limited began in 1890 as Straits Steamship Company Limited, a ship operator and owner. In 1973, the Group forayed into new businesses such as property, warehousing and distribution, and leisure. In 1983, Straits Steamship Company became a subsidiary of Keppel Corporation Limited. As property became its core business, the Company was renamed Straits Steamship Land Limited in Property Development for Sale Keppel Land aims to be a leading developer of quality housing in the region. Riding on favourable demographics and urbanisation trends, it is presently focused on China, Thailand and Vietnam, and actively seeking opportunities in promising countries such as India, Indonesia and Malaysia. The Company is on target towards achieving 50% of its total earnings from overseas by In 1997, in a Keppel Group-wide exercise to adopt a fresh cohesive identity, Straits Steamship Land became Keppel Land, the property arm of Keppel Group, one of Singapore s largest multi-national groups with core businesses in offshore and marine, infrastructure and property. Today, Keppel Land is one of the largest listed property companies by total assets on the Singapore Exchange. The Company is an established developer of premier residential properties and investment-grade offices. It is geographically diversified in Asia including Singapore, China, Thailand, Vietnam, Hong Kong, India, Indonesia, Japan, Malaysia, Philippines, South Korea, Australia and Myanmar. Property Fund Management Keppel Land has identified property fund management as a business to grow for recurring fee-based income. The Group targets to build its fund management unit, Alpha Investment Partners Limited, into a successful manager of property funds, leveraging on Keppel Land s reputation as a developer, owner and manager of premier properties, extensive network in Asia, good corporate disclosure and investor relations efforts as well as in-depth market knowledge in the region. Keppel Land is currently focused on two core businesses of property development for sale and property fund management to achieve higher returns. The Company will divest low-yielding investment properties and re-deploy resources into higheryielding businesses and assets. 3

5 The cornerstone of our earnings growth is leveraging on our strengths. In developing our businesses in strategic markets, we will continue to invest in our brand equity and develop quality products and solutions to further enhance our competitive edge. Backed by our shared vision and strong core values, our talents encourage cross-border exchange to build our future and increase shareholder wealth.

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7 Report to Shareholders 2003 CHAIRMAN S MESSAGE Keppel Land has achieved a growth of 34% in its profit before exceptional items. It has also grown its overseas earnings from 3% of total earnings in 2002 to 32%. The Company is on track to achieve 50% earnings from overseas by Mr Lim Chee Onn On behalf of the Board, I present the Keppel Land Group report for the year ended 31 December Financial Performance Keppel Land s revenues increased by 127% to $678.8 million against $299 million in 2002 due mainly to higher progressive recognition of sales for its trading projects in Singapore, and strong sales of its Shanghai residential project, One Park Avenue. With the benefit of group tax relief and the write-back of deferred tax provision, the Group achieved a profit before exceptional items of $126.4 million, 34% higher than the $94.3 million the year before. Owing to the continued uncertainty in Myanmar, Keppel Land took an impairment charge of $25.8 million against the value of its two hotels in the country. Including this exceptional item, the Group made an attributable profit of $100.6 million. The performance of the Group s hotels and resorts was, however, hit by the Severe Acute Respiratory Syndrome (SARS) outbreak in the second quarter. Fortunately, business and leisure travel resumed post-sars and the losses were contained for The Group s tax charge for the year was $11.4 million, lower than the previous year s $32.8 million. This represented an effective tax rate of 8.5%, which was lower than the prevailing tax rate of 22% as a result of the Group benefiting from savings of $13.4 million under the group tax relief system. As the Singapore office market softened, the Company wrote down the capital values of its investment buildings. This amounted to $143.1 million which reflected a decline of 9.2% of the market value of the Group s office buildings (or 8.4% for its overall investment buildings), after taking into account minority interests share. The revaluation deficit was charged against previous years surplus of $535 million held in capital reserves in the balance sheet. The Group s net tangible assets per share remained unchanged at $2.09, the same level a year ago. 6

8 Corporate Stewardship The Group reduced its net debt/equity ratio further to 0.95 at 31 December 2003 from 1.09 at end Shareholders funds increased slightly from $1.48 billion a year ago to $1.49 billion at 31 December The Group did not divest any of its investment buildings in Singapore in 2003 as capital values of office buildings were depressed by the weak economic environment. We shall continue with our divestment efforts, be it by direct sale, securitisation or real estate investment trusts. Proposed Dividend The Board is recommending to shareholders a final gross dividend of 8% or 4 cents per share less tax, up from 7% and 3.5 cents per share in 2002, and 6% and 3 cents per share in The dividend payout, amounting to $22.7 million is subject to shareholders approval at the Annual General Meeting to be held on 28 April If approved, the dividend will be paid on 21 May Strategic Review 2003 saw a weakening in the global economy, aggravated by the US-Iraq war and continued terrorist threats. The sudden unexpected outbreak of SARS in April-May put a brake on the region s economic recovery. In particular, air travel and tourism were severely hit. Fortunately, the slowdown in many parts of Asia was offset by the strong economic growth in China, India, Thailand and Vietnam. Against this backdrop, I am pleased to inform shareholders that we have made good progress in executing our strategy in regional residential development. The Group has achieved overwhelming sales for its residential development, One Park Avenue in Shanghai. Contribution from overseas grew from 3% in 2002 to 32% of total earnings before exceptional items. Keppel Land is on track towards achieving 50% of net earnings from overseas by During the year, several more sites in China, Thailand and Vietnam were acquired for residential development. The Group will continue to work towards securing a continuing stream of overseas earnings. The Group s Singapore operations, despite the unfavourable market conditions, achieved reasonable residential sales including three good class bungalow sites at Cluny Hill. With the expected economic upturn in 2004, the Company has lined up several projects including Caribbean at Keppel Bay, Urbana, Wee Nam and The Tresor for launch. The Company is also optimistic that more bungalow plots in the exclusive Cluny Hill enclave will be sold. Major Developments in 2003 Singapore With the GDP growth dropping to 1.1% from the previous year s 2.2%, demand in both the residential and office markets were severely hit. Restructuring and downsizing drove down office occupancies while job uncertainty kept potential buyers from committing to home purchases. As a result, residential sales in the primary market fell by 45.6% to 5,156 units from 9,485 a year ago. Despite these difficult market conditions, Keppel Land s two residential projects Freesia Woods and The Linc managed to achieve take-up of 58% and 45% respectively. Sale of three good class bungalow plots in the exclusive Cluny Hill area contributed a net profit of $16.5 million while the divestment of the Norfolk Road site added another $6.6 million to the bottom-line. Meanwhile, the office sector saw a second year of negative take-up. Demand shrunk by 1.1 million sf, declining a further 0.2 million sf from the previous year. Islandwide office occupancies fell to 82.1% at end-2003 compared with 84.3% the year before. Keppel Land s office buildings were similarly affected. The office sector is regarded as a proxy for the economy, and there are signs that the office market is on the mend with the financial sector hiring selectively again, and the US-Singapore Free Trade Agreement kicking in from January These will be further supported by the limited supply of new prime office space over the next few years. Overseas China All 1,118 units of One Park Avenue in Shanghai, the Group s first residential project in China, were sold out by end-october The close proximity to the heart of the shopping and entertainment belt of Nanjing Road West, and the excellent quality design and finishes have made the high-rise condominium popular with local and foreign buyers. For its unique attributes, One Park Avenue won two awards: the Gold Award in the Environment category of Top 10 properties 7

9 Report to Shareholders 2003 in Shanghai by Hong Kong s Da Gong Bao newspaper and the Fully-fitted Award by the Shanghai s Municipal Government. Riding on the success of One Park Avenue, the second project in the Park Avenue precinct to be launched is 8 Park Avenue. The modern contemporary development with 945 units has a range of one to four-bedroom apartments, as well as duplexes and penthouses. The first block, comprising 85 one-bedroom units, soft-launched in January 2004 with good response. Thailand During the year, Keppel Land s Thai listed property arm Keppel Thai Properties Public Company Limited (KTP) acquired two well-located residential sites for detached housing, the segment with the greatest demand. Both projects, which are within 20 km of Bangkok s central business district, are designed to cater to the middle and upper income buyers. A 7.8-ha freehold site off Srinakarin Road was acquired in early 2003 and will be combined with a previously acquired adjoining site to form a 16-ha site which will yield some 367 landed detached houses. The second site of about 12.5 ha was jointly purchased by Keppel Land and KTP in September to develop 270 houses in Watcharapol, about 4 km southeast of the Don Muang International Airport. KTP has launched the Arcadia brand for its residential developments, and hopes to develop the name into a hallmark for quality homes. Villa Arcadia at Srinakarin will be the first development to enter the market with the brand name in the first half of Villa Arcadia at Watcharapol will be launched in the second half of Vietnam Keppel Land expects to launch its first residential development in Vietnam called Villa Riviera comprising 113 exclusive villas in Ho Chi Minh City in the first half of Fund Management Keppel Land is nurturing its fledging property fund management business, capitalising on growing interest from global institutional funds in Asian real estate and Singapore s move to grow the fund management industry. Its fund management vehicle, Alpha Investment Partners Ltd will leverage on the Group s brand name and extensive Asian networks to create a value-added fee-based business for recurring income. The Group achieved a first closing of Asia No. 1 Property Fund of about $180 million in May The fund is managed jointly with Henderson Global Investors through a 50:50 joint venture. Forging Forward Riding on favourable demographics and urbanisation trends in Asia, the Group will focus on building quality homes targeted at the middle income group in up-and-coming cities in the region. Keppel Land tied up with HDB Corporation Pte Ltd (HDBCorp) in May 2003 to develop well-planned residential townships in China. HDBCorp has an excellent track record in the masterplanning, development and management of large housing estates in Singapore. Together with Keppel Land s network and experience in China, the 50:50 joint venture CityOne Township Development Pte Ltd (CityOne) has a strong competitive advantage. CityOne will kick-start its first township project in Chengdu, Sichuan where it has secured a 42-ha site to develop a total of 8,000 residential units. The first parcel, comprising about 980 units, is slated for launch in the first half of Keppel Land aims to be a leading developer of quality housing in Asia. It will continue to focus on China, Thailand and Vietnam as the demand drivers for residential housing remain strong. It will also continue to explore growth markets such as India, Indonesia and Malaysia. In Ho Chi Minh City, the Company has also tied up with the Hong Kong-based Chiap Hua Group in a 90:10 joint venture to develop more than 2,200 homes in a good class residential estate on a 68.7-ha site. Called Saigon Sports City, the largescale residential estate will be supported by commercial and recreational amenities. The first phase of Saigon Sports City, comprising 250 units of high-rise apartments, will be launched in The Road Ahead The outlook for Keppel Land is expected to improve with the expected economic recovery in the region. However, some uncertainty could prevail pending the major elections being held in various parts of Asia including India, Indonesia, Malaysia, Philippines, South Korea, Taiwan and Thailand. 8

10 Corporate Stewardship Terrorist threats continue to exist although governments have taken positive steps to deal with the situation. Lately, the bird flu has hit parts of Asia including China, Vietnam and Thailand. So far, the impact has not been significant. However, should the situation take an unexpected turn for the worse, a more serious outcome could result. Commitment to Growth and Shareholder Value Although the year has been a difficult one, Keppel Land has achieved a growth of 34% in its profit before exceptional items. It has also grown its overseas earnings from 3% of total earnings in 2002 to 32%. The Company is on track to achieve 50% earnings from overseas by The Company s return on equity before exceptional items has improved to 8.5% from 6.4% in Barring unforeseen circumstances, the Company expects a growth in earnings from both Singapore and overseas in the next few years. Singapore is expected to achieve a GDP growth of % in With an upturn in the economy, the Group expects an improvement in both the residential and office sectors. The Group still has a good residential landbank of 2.3 million sf of attributable gross floor area in Singapore. This can provide about 1,550 residential units which would enable the Group to push out quality projects into the market as demand improves. Runner-up in the properties category of the Most Transparent Company competition organised by the Securities Investors Association (Singapore). Third-most transparent company in a recent National University of Singapore study of 180 property firms in the Asia Pacific. Acknowledgements During the year, two new independent Directors, Mr Tan Yam Pin and Mr Niam Chiang Meng were appointed. With their broad experience, I am confident they will help the Board chart the direction of the Group s future growth, especially overseas. The addition of independent Directors has strengthened and contributed to a well-balanced Board. The Company s Audit, Nominating and Remuneration Committees are now fully constituted with independent Directors. Mr Loh Wing Siew retired on 20 May 2003 after about 20 years of service on the Board. In July 2003, Mr Lim Leong Geok resigned as Director after serving more than six years. My colleagues and I would like to thank them for their valuable contribution. Over the past few years, our staff worked hard to stage a turnaround each time the economy took an unexpected downturn. I wish to thank them for their unstinting efforts and personal sacrifices. With the office recovery, the Company will continue to work at divesting its low-yielding investment assets, and re-deploy resources into higher-yielding core businesses and assets. The Group s attributable gross lettable area of office space amounts to 1.3 million sf. Overseas, Keppel Land expects to launch more than 5,000 residential units (excluding townships) in China, Thailand and Vietnam over the next few years. I would also like to take this opportunity to thank shareholders, business partners and customers for their continued support. The next few years will pose its share of challenges. However, with the Board s guidance and the efforts of the management and staff, the Company will continue to focus on improving returns for shareholders. Corporate Governance and Transparency As part of the Keppel Group, Keppel Land remains committed to best practices in corporate governance. During the year, Keppel Land received the following recognition for its efforts in disclosure and transparency: First runner-up award for the Annual Report Award for Sixth position out of 285 companies in the Business Times Corporate Transparency Index for 2002 results. Lim Chee Onn Chairman 6 February

11 Report to Shareholders 2003 BOARD OF DIRECTORS Lim Chee Onn Chairman, Keppel Land Limited Khor Poh Hwa Member, Nominating Committee Kevin Wong Kingcheung Managing Director, Keppel Land Limited Thai Chee Ken Chairman, Audit Committee Member, Nominating Committee Lim Ho Kee Chairman, Nominating Committee Member, Remuneration Committee Tsui Kai Chong Member, Audit Committee Member, Remuneration Committee 10

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13 Report to Shareholders 2003 BOARD OF DIRECTORS Lee Ai Ming Member, Audit Committee Choo Chiau Beng Tan Yam Pin Chairman, Remuneration Committee Teo Soon Hoe Niam Chiang Meng Member, Nominating Committee 12

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15 Report to Shareholders 2003 INFORMATION ON DIRECTORS Lim Chee Onn, 59 Mr Lim is the Executive Chairman of Keppel Corporation Limited. He is also Chairman of Keppel Land Limited, MobileOne Ltd, and Singapore-Suzhou Township Development Pte Ltd, and a Director of the Monetary Authority of Singapore and k1 Ventures Limited. Mr Lim started his career in the civil service. He was Deputy Secretary, Ministry of Communications until elected as Member of Parliament for Bukit Merah in July He served as Political Secretary, Ministry of Science and Technology from August 1978 to September Mr Lim was Secretary-General, National Trades Union Congress from May 1979 to June 1983 and concurrently Minister without Portfolio, Prime Minister s Office from September 1980 to July 1983, and remained as Member of Parliament, Bukit Merah Constituency until August He was then elected Member of Parliament for Marine Parade GRC from September 1991 to December In addition, Mr Lim is co-chairman of the Philippines-Singapore Business Council, consultant of the Advisory Mission for Economic and Social Development of the People s Government of Yunnan Province, PRC, Deputy Council President, China Foreign Trade Council, and Deputy Chairman of the Seoul International Business Advisory Council. He is a member of the Suzhou Industrial Park Development Advisory Committee, the Singapore-US Business Council and Singapore representative, ASEAN Business Advisory Council. Mr Lim is also Global Counsellor of The Conference Board s Global Advisory Council on Economic Issues and a member of the INSEAD Singapore International Council. Mr Lim holds a Bachelor of Science (First Class Honours) in Naval Architecture, Glasgow University and a Master in Public Administration, Kennedy School of Government, Harvard University, is a member of Wharton Society of Fellows, University of Pennsylvania, and also holds a Honorary Doctor of Engineering, Glasgow University. Kevin Wong Kingcheung, 48 Mr Wong has been Managing Director, Keppel Land Limited since January Prior to this appointment, he was Executive Director since November He is Chairman and Director of Keppel Philippines Properties, Inc. (in Philippines), Chairman and Director of Keppel Thai Properties Public Co Limited (in Thailand), and Vice-Chairman and Director, Dragon Land Limited. He is also a Director of HDB Corporation Pte Ltd. Prior to joining Keppel Land Limited, Mr Wong had diversified experience in the industry working with companies in the UK, USA and Singapore. Mr Wong holds a Bachelor degree in Civil Engineering with First Class Honours from Imperial College, University of London, and a Master degree from the Massachausetts Institute of Technology, USA. Thai Chee Ken, 65 Mr Thai is currently Director, Keppel Land Limited. He is also Deputy Chairman of Dynasty Corporation (S) Pte Ltd, Director of United Engineers Limited, Lindeteves-Jacoberg Ltd, Prudential Assurance Company Singapore (Pte) Ltd and Schroder Investment Management (Singapore) Ltd. Mr Thai is a member of Board of Inland Revenue Authority of Singapore, and Chairman of Board of Governors of Nanyang Polytechnic. Mr Thai is a Certified Public Accountant. 14

16 Corporate Stewardship Khor Poh Hwa, 54 Mr Khor is the President and Chief Executive Officer of CPG Corporation, Director of Keppel Land Limited since 1998 and China- Singapore Suzhou Industrial Park Pte Ltd. Mr Khor is a member of the Network China Steering Committee, Singapore-British Business Advisory Council. He is the President of the Singapore-Suzhou Club (since its formation in February 2002) and the immediate Past President of the Society of Project Managers. Mr Khor is a civil engineering graduate with Bachelor and Master degrees from the National University of Singapore. Lim Ho Kee, 58 Mr Lim is Director of Keppel Land Limited and a number of private and public companies including Cycle & Carriage Limited, MCL Land Limited, Singapore Post Limited and Belgacom, S.A.. He was a Director of Singapore Telecommunication Ltd from October 1986 till September 2000 as well as Chairman of its Finance and Investment Committee. He was also previously the Chairman, Region East Asia of Union Bank of Switzerland. Mr Lim served on the Board of the Civil Service College as well as the Singapore Government s Public Sector Divestment Committee in He also sat on the Singapore Government s Economic Planning Committee from December 1989 to October He was also a member of the Committee on Singapore s Competitiveness from May 1997 to October Mr Lim studied at the London School of Economics where he obtained his Bachelor of Science (Economics) Honours degree in Tsui Kai Chong, 48 Associate Professor Tsui is a Director of Keppel Land Limited since He was the founding Dean of the School of Business and the Vice Provost of Undergraduate and Graduate Education at the Singapore Management University. He was previously an Associate Professor in the Department of Finance and Accounting, Faculty of Business Administration, the National University of Singapore and Deputy Director of the Graduate School of Business. His current research interests include market microstructure and behavioural finance. He has studied and published papers on prediction of corporate financial distress, corporate capital structure, dividend policy, stock price behaviour and the Eurodollar futures market. He received his PhD in Finance from New York University in 1988 and his Certified Financial Analyst qualification in Lee Ai Ming, 49 Mrs Lee was appointed to the Board in November She is currently the Deputy Managing Partner of the law firm of Rodyk & Davidson. She has practiced law for more than 20 years in the areas of commercial litigation, real estate and intellectual property. Mrs Lee is also an independent Director and Chairperson of the Nominating Committee of HTL Holdings Limited. Mrs Lee has, over the years, served on various forums, including as Vice-Chairperson, Asian Patent Attorney s Association Singapore Group, member of the International Panel of Neutrals of the International Trade Marks Association, Vice-Chairperson, 15

17 Report to Shareholders 2003 Intellectual Property Sub-committee of the Inter-Pacific Bar Association, member, Advisory Panel of the Trade Development Board on Franchising, and member of the CEO s Round Table on Branding organised by the Trade Development Board. Mrs Lee holds a Bachelor of Laws (Honours) from the University of Singapore, and is an Advocate & Solicitor of the Supreme Court of Singapore. Niam Chiang Meng, 46 Mr Niam was appointed to the Board on 1 June He is the Chief Executive Officer of Housing & Development Board. He is also a Director of the SMRT Corporation Ltd. Prior to his current appointment with the Housing & Development Board, Nr Niam held various positions in other Government Ministries and Statutory Boards. He had served as Chairman of the Singapore Broadcasting Authority, Permanent Secretary with the Ministry of Information, Communications and the Arts, Permanent Secretary of Law, Deputy Secretary with the Ministry of Health and Vice-President (News) with the Television Corporation of Singapore. Mr Niam graduated from the National University of Singapore with a Bachelor of Social Science degree in Economics. He obtained a Masters in Public Administration from Harvard University in Tan Yam Pin, 62 Mr Tan was appointed a Director on 1 June A Chartered Accountant by profession, he retired as Managing Director of the Fraser and Neave Group in October Mr Tan served as Chief Executive Officer of Asia Pacific Breweries Limited, a subsidiary of Fraser and Neave Group and in 1993 was appointed the Managing Director of the Fraser and Neave Group. Mr Tan has been a Member of the Public Service Commission of Singapore since Mr Tan currently holds non-executive directorships in BHP Steel Limited (Australia), The East Asiatic Company Limited A/S (Denmark), and PowerSeraya Limited (Singapore). He is also a Board member of International Enterprise Singapore. Mr Tan holds a Bachelor of Arts in Economics, University of Singapore; Master of Business Administration, University of British Columbia and is a member of the Canadian Institute of Chartered Accountants. 16

18 Corporate Stewardship Choo Chiau Beng, 56 Mr Choo is a Director of Keppel Land Limited, Chairman and Chief Executive Officer of Keppel Offshore & Marine Ltd, Executive Director of Keppel Corporation Limited, Chairman of Singapore Petroleum Company Limited, Singapore Refining Company Pte Ltd and SMRT Corporation Limited. Mr Choo sits on the Board of Directors of k1 Ventures Limited and is a Board member of the Maritime and Port Authority of Singapore and EDB Investment Pte Ltd. He is member of the Nanyang MBA Advisory Committee. He is also Chairman of Det Norske Veritas South East Asia Committee and Council Member of the American Bureau of Shipping. He is a member of the American Bureau of Shipping s Southeast Asia Regional Committee and Special Committee on Mobile Offshore Drilling Units. He has recently been appointed as Singapore s Non-Resident Ambassador to Brazil. Mr Choo obtained a Bachelor of Science (First Class Honours) from the University of Newcastle upon Tyne in 1970 (under a Colombo Plan Scholarship to study Naval Architecture) and a Master of Science degree in Naval Architecture from the same University in He attended the Programme for Management Development in Harvard Business School in 1982 and is a member of Wharton Society of Fellows. Teo Soon Hoe, 55 Mr Teo is a Director of Keppel Land Limited, Executive Director and Group Finance Director of Keppel Corporation Limited, Chairman of Keppel Telecommunications and Transportation Limited and Keppel Philippines Holding, Inc. and Director of MobileOne Limited, k1 Ventures Limited and Singapore Petroleum Company Limited. In addition, Mr Teo is a Director of several companies within Keppel Corporation Group including Keppel Offshore and Marine Ltd. Mr Teo commenced his career with the Keppel Group when he joined Keppel Shipyard Pte Ltd in He rose through the ranks and was seconded several times to various subsidiaries of the Keppel Group before assuming the position of Group Finance Director in Mr Teo holds a Bachelor of Business Administration degree from the University of Singapore. He is a member of the Wharton Society of Fellows, University of Pennsylvania. 17

19 Report to Shareholders 2003 SENIOR MANAGEMENT Kevin Wong Kingcheung Managing Director Choo Chin Teck Director, Corporate Services Tan Swee Yiow Director, Singapore Ang Wee Gee Director, Regional Investments Yeo Kah Tiang General Manager, Group Finance and Adminstration Loh Chin Hua Managing Director, Alpha Investment Partners Limited 18

20 Corporate Stewardship From left: Choo Chin Teck, Loh Chin Hua, Tan Swee Yiow, Kevin Wong Kingcheung, Yeo Kah Tiang, Ang Wee Gee 19

21 Report to Shareholders 2003 SENIOR MANAGEMENT Augustine Tan General Manager, Marketing Lim Tow Fok General Manager, Property Management Lim Seng Bin General Manager, Indonesia Tong Kok Wing General Manager, Retail Management Vincent Tan Vice President, Sedona Hotels International Pte Ltd Quah Kim Boon President, Keppel Services Staff Union 20

22 Corporate Stewardship From left: Lim Seng Bin, Quah Kim Boon, Tong Kok Wing, Augustine Tan, Vincent Tan, Lim Tow Fok 21

23 Report to Shareholders 2003 INFORMATION ON SENIOR MANAGEMENT Choo Chin Teck, 59 Mr Choo is concurrently Director, Corporate Services, Keppel Land International Limited and Chief Financial Officer and Company Secretary, Keppel Land Limited. Mr Choo, who has held various senior positions in Keppel Land Group for about 30 years, is presently a Director of a number of subsidiaries and associated companies of Keppel Land Limited and is a member of the Nanyang MBA Advisory Committee of the Nanyang Technological University. He has many years of accounting, audit, taxation, corporate treasury, human resource management, investor relations and corporate secretaryship experience. Mr Choo holds a Master of Business Administration from Brunel University, UK. As a Bachelor of Accountancy graduate from the University of Singapore, he received the gold medal for being the best all-round student. He is also an associate member of the Chartered Institute of Management Accountants, UK. Tan Swee Yiow, 44 Mr Tan is Director, Singapore, of Keppel Land International Limited with responsibility for the Keppel Land Group s investment and development operations in Singapore. Since joining the Keppel Land Group in 1990, Mr Tan has held various positions including head of project development and corporate development before assuming his present appointment. Mr Tan holds a Bachelor of Science (First Class Honours) in Estate Management from the National University of Singapore and a Master of Business Administration in Accountancy from the Nanyang Technological University. He is currently a member of the Building Construction Authority s Construction Excellence Awards Committee, the Singapore Institute of Surveyers and Valuers and is also the Assistant Honorary Treasurer of the Real Estate Developers Association of Singapore. Ang Wee Gee, 42 Mr Ang is Director, Regional Investments, of Keppel Land International Limited in charge of the Keppel Land Group s overseas investments. Prior to joining the Keppel Land Group in 1991, Mr Ang had many years of diversified experience in the property, hotel and management consultancy business in the USA, Hong Kong and Singapore. Mr Ang is a Director of Dragon Land Limited, Keppel Philippines Properties, Inc and Keppel Thai Properties Public Co Limited, property companies listed on the Singapore Exchange, Philippines Stock Exchange and the Stock Exchange of Thailand respectively. He is also a Director of Sedona Hotels International Pte Ltd, the hotel management arm of Keppel Land Limited, and a number of other Keppel Land Group s subsidiaries and associated companies. Mr Ang holds a Master of Business Administration from Imperial College, University of London. He received his Bachelor of Science summa cum laude from the University of Denver, USA. Loh Chin Hua, 43 Mr Loh is the Managing Director of Alpha Investment Partners Limited ( AIP ), the real estate fund management arm of the Keppel Land Group. He joined AIP in September 2002 with over 18 years of experience in real estate investing and fund management. Prior to joining AIP, Mr Loh was the Managing Director of GRA (Singapore) Pte Ltd ( GRA ), the Asian real estate fund management arm of the Prudential Insurance Company of America. During his eight years at GRA, Mr Loh was responsible for overseeing all investment and asset management activities for the funds that GRA managed. Mr Loh built up GRA into one of the more established fund managers in Asia. Mr Loh started his career in real estate investment with the Government of Singapore Investment Corporation ( GIC ). During his ten years with GIC, Mr Loh held appointments in the San Francisco office and was head of the European real estate group in London before returning to Singapore to head the Asian real estate group. Mr Loh, a Colombo Plan scholar, graduated from Auckland University with a Bachelor of Property Administration and Pepperdine University s Presidential/Key Executive MBA Program. Mr Loh is a Chartered Financial Analyst and is also a registered valuer with the New Zealand Institute of Valuers. 22

24 Corporate Stewardship PROFILE OF DIRECTORS AND SENIOR MANAGEMENT (a) Directors Details of the Directors present responsibilities and qualifications are set out on pages 14 to 17. Principal directorships held by the Directors in the past five years are as follows: Lim Chee Onn China-Singapore Suzhou Industrial Park Development Co Ltd Glory Central Holdings Ltd k1 ebiz Holdings Pte Ltd K Investment Holdings Ltd Kepital Holdings Ltd Keppel Capital Holdings Ltd Keppel Harbour Redevelopment Ltd Keppel Power Systems Pte Ltd Keppel TatLee Bank Limited Keppel Telecoms Pte Ltd Singapore Airlines Limited Temasek Holdings (Pte) Ltd Various subsidiaries and associated companies in the Keppel Group Kevin Wong Kingcheung Keppel TatLee Finance Limited TLB Land Limited Various subsidiaries and associated companies of Keppel Land Limited Thai Chee Ken Inchcape Marketing Services Ltd Inchcape Motors Limited Keppel Hitachi Zosen Limited National Cancer Centre of Singapore Pte Ltd National University Hospital (Singapore) Pte Ltd Natsteel Broadway Ltd Natsteel Electronics Limited Natsteel Limited Schroder International Merchant Bankers Ltd Tuan Sing Holdings Limited United Infrastructure Pte Ltd Lim Ho Kee Singapore Telecommunication Ltd Union Bank of Switzerland Tsui Kai Chong Keppel Capital Holdings Ltd Keppel TatLee Bank Limited 23

25 Report to Shareholders 2003 Niam Chiang Meng Inland Revenue Authority of Singapore National Arts Council National Heritage Board Singapore Broadcasting Authority Singapore MRT Ltd Singapore Pools (Pte) Ltd Singapore Totalisator Board Temasek Management Services Ltd The Esplanade Co Ltd Tan Yam Pin Centrepoint Properties Limited Fraser & Neave Limited Choo Chiau Beng AMFELS Inc Brightway Property Pte Ltd Caspian Shipyard Company Ltd FELS Baku Ltd FELS China Investment Pte Ltd FELS Consultancy Pte Ltd FELS SES International Ltd Fornost Ltd Grandland Properties (Pte) Ltd Goodways Property Pte Ltd Hydro Asia Pacific Pte Ltd Keppel Australia Investment Pte Ltd Keppel Capital Holdings Ltd Keppel FELS (China) Ltd Keppel Integrated Engineering Limited Keppel Insurance Pte Ltd Keppel Infrastructure Environmental Development Pte Ltd Keppel TatLee Bank Limited Keppel-UAE Investment Pte Ltd MobileOne (Asia) Pte Ltd Norms Engineering Company Ltd Pacven Walden Management Singapore Pte Ltd Pacven Investment Ltd Petro Tower Ltd Steamers Containers Holdings Pte Ltd Weissville Pte Ltd TatLee Bank Limited Various subsidiaries and associated companies in the Keppel Group 24

26 Corporate Stewardship Teo Soon Hoe DataOne Corporation Pte Ltd Echo Broadband (Singapore) Pte Ltd Indotel Ltd KAC Holdings Ltd Keppel Capital Holdings Ltd Keppel Factors Pte Ltd Keppel Insurance Pte Ltd Keppel Integrated Engineering Limited Keppel Philippines Marine, Inc Keppel Realty Pte Ltd Keppel-SPH Investment Pte Ltd Keppel TatLee Bank Limited Keppel TatLee Finance Limited KF Ltd Radiance Communications Pte Ltd Southern Bank Bhd Southern Finance Company Bhd Steamers Fortune Shipping Pte Ltd Steamers Kimanis Shipping Pte Ltd Steamers Perak Shipping Pte Ltd Various subsidiaries and associated companies in the Keppel Group (b) Senior Management Details of the Senior Management s present responsibilities and qualifications are set out on page 22. Principal directorships held by the senior management in the past five years are as follows: Choo Chin Teck Keppel Telecommunications and Transportation Limited (KTT) Various subsidiaries and associated companies of Keppel Land Limited and KTT Tan Swee Yiow Various subsidiaries and associated companies of Keppel Land Limited Ang Wee Gee Various subsidiaries and associated companies of Keppel Land Limited Loh Chin Hua GRA (Singapore) Pte Ltd 25

27 Report to Shareholders 2003 INTERESTED PERSON TRANSACTIONS Interested person transactions conducted during the year were as follows: Name of Interested Person Aggregate Value of all Interested Person Transactions during the Financial Year under Review (excluding Transactions less than $100,000 and Transactions Conducted under Shareholders Mandate Pursuant to Rule 920) Aggregate Value of all Interested Person Transactions Conducted under Shareholders Mandate Pursuant to Rule 920 of the SGX Listing Manual Property transactions Keppel Corporation Limited Group: Rental Project management fees Property management fees Marketing commission 1, , ,680 4,678 Other services and products Keppel Corporation Limited Group: Treasury Interest income Treasury Interest expense Management fees 2,291 (17,390) (3,627) (1,391) 3,195 (31,641) (2,639) (5,074) Other services Temasek Group (4,502) (4,220) The above transactions were carried out on normal commercial terms and are not prejudicial to the interests of the Company and its minority shareholders. 26

28 Corporate Stewardship GROUP FINANCIAL HIGHLIGHTS % Increase/ (Decrease) FOR THE YEAR Sales excluding associated companies 678, , Profi t Operating 127, , Before tax Before exceptional items 135, , After exceptional items 109,462 61, After tax and minority interests 100,551 26, Funds generated from operations 316, , Development expenditure 251, ,525 (29.4) Capital expenditure 2,230 4,430 (49.7) Dividends paid 19,347 16, Value added from operations 176, , AT YEAR-END Share capital 354, , Shareholders funds 1,486,904 1,480, Minority interests 206, , Short and long-term borrowings 2,100,945 2,051, Total funds invested 3,794,151 3,721, Debt/equity ratio (%) Excluding minority interests (12.2) Including minority interests (12.8) PER SHARE Profi t before tax but after exceptional items (cents) Profi t after tax but before exceptional items (cents) Profi t after tax and exceptional items (cents) Dividends Less tax (cents) Gross equivalent (cents) Cover (no. of times) Net tangible assets ($) RETURN ON SHAREHOLDERS EQUITY (%) Before tax but after exceptional items After tax but before exceptional items After tax and exceptional items EMPLOYEES Number (average) 1,835 1, Wages and salaries () 38,012 33, Pre-tax profi t per employee ()

29 Report to Shareholders 2003 GROUP FINANCIAL HIGHLIGHTS Overview In 2003, the Group continued to pursue its focus on property development for sale while growing property fund management and maintaining efforts to divest its investment properties. During the year, the Group s maiden project in Shanghai, One Park Avenue, was fully sold. In Singapore, the Group sold three Cluny Hill land plots and launched The Linc. Freesia Woods and The Edgewater obtained their temporary occupation permits. In view of an improving economic outlook and firming residential prices, the Group acquired a 8,533-sm site adjoining the existing site for the Wee Nam development for an amalgamated development with a land area of 21,773 sm. The new acquisition will enable the Group to achieve better design efficiency and economies of scale, and higher returns for shareholders while at the same time increasing the number of units for sale from 280 previously to 480. In May 2003, the Group had its first closing of $180 million for the Asia No. 1 Property Fund. The Group continues to build its presence in the region and aims to be a leading developer of quality housing. In the course of the year, it acquired several sites in Thailand, Vietnam and China which are intended for landed housing, a well-planned residential sports city and a township development respectively. Financial Performance Group turnover for the year increased by 127% to $678.8 million compared with last year s turnover of $299 million due to higher progressive recognition of sales for the Group s trading projects under development. Contributions also came from the sale during the year of three Cluny Hill land plots and the Norfolk Road site. Rental income from the Group s office buildings in Singapore was, however, reduced due to the soft office market in 2003, and the disposal of Capital Square in November Group pre-tax profit before exceptional items was $135.3 million, 5% higher than that of last year. This improvement came on the back of higher earnings from One Park Avenue, Caribbean at Keppel Bay, the sale of three Cluny Hill land plots, the write-back of provisions for the Norfolk Road site and further cost adjustments from completed projects which include Freesia Woods and The Edgewater. The better performance from property trading was partly offset by lower rental income from the Group s office buildings in Singapore, higher losses incurred by its hotels and resorts, and higher net interest expense due to funding for new projects. The Group took an impairment charge of $25.8 million against its two hotels in Myanmar as an exceptional item in the results for the year. Group tax expense of $11.4 million was lower than that of $32.8 million for 2002, representing an effective tax rate of 8.5% which was lower than the prevailing tax rate of 22%. The lower tax expense was due to the Group benefiting from savings of $13.4 million under the group tax relief system. The Group s return on equity before exceptional items increased to 8.5% from 6.4% in 2002, a 32.8% improvement. After taking into account exceptional items, Group attributable profit of $100.6 million was higher than the previous year s corresponding profit of $26.4 million. Net debt/equity ratio for the Group was lowered to 0.95 from 1.09 as at 31 December Shareholders funds increased to $1.49 billion from $1.48 billion a year ago, while net tangible assets per share remained unchanged at $2.09 compared with end

30 Corporate Stewardship SIMPLIFIED BALANCE SHEET Total Assets Owned Total Liabilities Owed and Capital Invested ,735 (38%) 1,487 (32%) 1,876 (41%) 1,480 (33%) (4%) (4%) 897 (19%) 170 (4%) 785 (17%) 61 (1%) 812 (17%) 190 (4%) 34 (1%) 788 (17%) What We Owned Fixed Assets Properties Held for Development Investments ,172 (25%) 1,341 (30%) 1,853 (41%) 1,914 (42%) Properties Held for Sale Trade Debtors Cash and Bank Balances Other Assets 1000 What Shareholders Invested 17 (0%) 501 (11%) Shareholders' Funds Minority Interests (3%) 2003 $4,664 m (100%) 18 (0%) 237 (5%) 117 (3%) 2002 $4,544 m (100%) 248 (5%) 2003 $4,664 m (100%) 138 (3%) 2002 $4,544 m (100%) What We Owed Trade Creditors Other Liabilities Long-term External Borrowings Short-term External Borrowings 29

31 Report to Shareholders 2003 FIVE-YEAR FINANCIAL PROFILE Income Statement () Sales 995, , , , ,781 Operating profi t 157, , , , ,971 Profi t / (loss) before taxation Before exceptional items 141, , , , ,262 After exceptional items (Note 1) 214, ,600 (371,514) 61, ,462 Profi t / (loss) after taxation and exceptional items (Note 1) 175, ,238 (385,675) 28,523 98,030 Profi t/ (loss) attributable to shareholders 152, ,114 (368,357) 26, ,551 Balance Sheet () Fixed assets and investment properties 2,784,299 2,972,897 2,622,603 1,876,296 1,734,728 Investments 571, , , , ,032 Properties held for development 262, , , , ,147 Net current assets (Note 2) 1,058,548 1,132, ,833 1,229,242 1,300,771 Proceeds from sale of residential receivables (302,000) (302,000) Deferred liabilities (35,059) (36,443) (31,527) Assets employed 4,676,687 4,945,330 4,498,320 3,721,529 3,794,151 Shareholders funds 2,150,552 2,252,660 1,582,349 1,480,288 1,486,904 Minority interests 397, , , , ,302 Short and long-term borrowings 2,128,535 2,328,951 2,638,067 2,051,637 2,100,945 Total funds invested 4,676,687 4,945,330 4,498,320 3,721,529 3,794,151 Per Share Earnings (cents) (Note 3) Before tax but after exceptional items (54.3) After tax but before exceptional items After tax and exceptional items (52.0) Dividends Less tax (cents) Gross equivalent (cents) Cover (no. of times) (23.0) Net tangible assets $3.04 $3.18 $2.23 $2.09 $2.09 Financial Ratios Return on shareholders equity (%) (Note 4) Before tax but after exceptional items (20.1) After tax but before exceptional items After tax and exceptional items (19.2) Interest cover ( before exceptional items ) Debt/equity ratio (%) (Note 5) Employees Number 1,245 2,008 4,565 1,831 1,835 Wages and salaries () 24,503 28,009 33,702 33,498 38,012 Pre-tax profi t per employee () (Note 6) Notes: 1. The extraordinary gain in 1999 is reclassifi ed as an exceptional item. Earnings per share and return on equity are adjusted accordingly. 2. In arriving at net current assets, short-term borrowings have been excluded. 3. Earnings per share are calculated by reference to the weighted average number of shares in issue during the year. 4. In calculating returns on shareholders equity, the simple average basis has been used. 5. In the calculation of debt/equity ratio, debt includes borrowings net of cash and equity includes minority interests in subsidiary companies. 6. In the calculation of pre-tax profi t per employee, the profi t of associated companies and exceptional items are excluded. 30

32 Corporate Stewardship GROUP QUARTERLY RESULTS Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total Year % % % % Sales , , , , , , , , , ,968 Operating profi t , , , , , , , , , ,215 Profi t before taxation and exceptional items , , , , , , , , , ,189 Profi t/(loss) before taxation but after exceptional items , , , , , , , , (19,608) (32) 61,303 Profi t / (loss) attributable to shareholders , , , , , , , , (34,689) (131) 26,373 Turnover was maintained on an uptrend through the four quarters largely due to higher progressive recognition of sales for the Group s trading projects in Singapore, One Park Avenue in Shanghai and Botanic Cove in Sydney. Operating profit and pre-tax profit before exceptional items peaked at $44.9 million and $46.1 million respectively in the fourth quarter due to the sale of two Cluny Hill land plots and further cost adjustments from completed projects including Freesia Woods and The Edgewater. However, profit before tax but after exceptional items of $20.3 million was lower in the fourth quarter than in the preceeding quarters. This was due to an impairment charge of $25.8 million taken against the Group s two Myanmar hotels owing to continued uncertainty in that country. Except for the first quarter, 2003 results at the attributable profit level were better compared with The better performance came on the back of the sale of three Cluny Hill land plots and Norfolk Road site, cost adjustment for completed projects as mentioned earlier and profits from One Park Avenue. A further boost to profits also came from tax savings of $13.4 million arising from the group tax relief system. 31

33 Our quality developments command premium value, and continue to drive Group earnings and shareholder value.

34 CREATING VALUE

35 Report to Shareholders 2003 CORPORATE GOVERNANCE Corporate Governance Structure Shareholders Nominating Committee Audit Committee Board of Directors Remuneration Committee Enterprise Risk Management Committee Group Internal Audit Management Property Development & Investment Property Services Hotels, Serviced Apartments & Resorts Property Fund Management The Company believes in having high standards of corporate governance, and is committed to ensure that self-regulatory controls exist to protect shareholders interests and maximise long-term shareholder value. Good corporate governance helps companies to be more open and transparent, less bureaucratic, forward-looking with fresh ideas, and more decisive in the execution of strategies and initiatives, and is an effective safeguard against frauds and dubious financial engineering. These self-regulatory controls include a Board of Directors comprising high-calibre members, Board Committees, and enterprise risk management and internal audit functions, and aim to comply with the principles and spirit of the Code of Corporate Governance. The controls are explained in the paragraphs which follow. 34

36 Creating Value 1 Board Matters Principle 1: Every company should be headed by an effective Board to lead and control the company. 1.1 The Board s Conduct of its Affairs The Board is responsible for the Company s system of corporate governance, and is ultimately accountable for the Company s activities, strategies and financial performance. The Board meets regularly on a quarterly basis and as warranted. Telephonic and video-conferencing meetings of the Board are allowed under Article 102 of the Company s Articles of Association. The Directors attendances at the meetings of the Board and Board Committees are as shown below: Board Committees Board/ Committees Board Audit Remuneration Nominating No. of meetings held Directors No. of Meetings Attended Lim Chee Onn 3 Kevin Wong Kingcheung 4 5 Lim Leong Geok (Resigned on 16 July 2003) 1 (a) 2 (a) 1 (a) Thai Chee Ken Khor Poh Hwa 4 2 Lim Ho Kee Tsui Kai Chong Lee Ai Ming 4 2 (a) Tan Yam Pin (Appointed on 1 June 2003) 2 (a) 1 (a) Niam Chiang Meng (Appointed on 1 June 2003) 1 (a) 1 (a) Loh Wing Siew (Retired on 20 May 2003) 1 (a) Choo Chiau Beng 3 Teo Soon Hoe 3 (a) Number of meetings attended while a member The Company has adopted internal guidelines setting forth matters that require Board approval. Under the guidelines, new investments or increase in investments in businesses or fixed assets, and any divestments or sales exceeding $10 million by any Group company, as well as all commitments to term loans and lines of credit from banks and financial institutions exceeding $10 million by any Group company, require the approval of the Board. Each Board member has equal responsibility to oversee the business and affairs of the Company. The Managing Director is responsible for the day-to-day operation and administration of the Company. Matters which are delegated to the Board Committees are reported to and monitored by the Board. 35

37 Report to Shareholders 2003 Directors are given appropriate training when they are first appointed to the Board. They are also given further appropriate training from time to time. During the year, the Company arranged: (a) (b) One orientation training programme for two new Directors; and sent Two Directors to the International Directors Forum organised by INSEAD in France. 1.2 Board Composition and Balance Principle 2: There should be a strong and independent element on the Board, which is able to exercise objective judgement on corporate affairs independently, in particular, from Management. No individual or small group of individuals should be allowed to dominate the Board s decision-making. Mr Loh Wing Siew retired from the Board on 20 May 2003, while Mr Lim Leong Geok resigned on 16 July Mr Tan Yam Pin and Mr Niam Chiang Meng were appointed as additional Directors on 1 June With all these changes, the Board took the opportunity to change the composition of the Audit, Nominating and Remuneration Committees. Presently, there are 11 Directors, ten of whom are non-executive Directors. Seven out of the 11 Board members are independent Directors. The nature of the Directors appointments on the Board, and details of their memberships in the Board Committees are set out below: Committee Membership Director Board Membership Audit Nominating Remuneration Lim Chee Onn Non-Executive Chairman Non-ID Kevin Wong Kingcheung Managing Director Non-ID Thai Chee Ken ID Chairman Member Khor Poh Hwa ID Member Lim Ho Kee ID Chairman Member Tsui Kai Chong ID Member Member Lee Ai Ming ID Member Tan Yam Pin ID Chairman Niam Chiang Meng ID Member Choo Chiau Beng Non-ID Teo Soon Hoe Non-ID ID: Independent Director Non-ID: Non-independent Director 36

38 Creating Value The principal functions of the Board are to: (a) (b) (c) (d) (e) Review and, where required, approve the major strategies, the objectives and plans of the Company, and the appropriate financial and operational matters; Advise Management on significant issues facing the Group; Oversee processes for evaluating the adequacy of internal controls, risk management, financial reporting and compliance, and satisfy itself as to the adequacy of such processes; Nominate Directors, and ensure that the structure and practices of the Board provide for sound corporate governance; and Supervise and appropriately remunerate executive management. No individual or small group of individuals dominates the Board s decision-making. The Board is of the view that its current size of 11 Directors is appropriate taking into account the scope and nature of the operations of the Company. As a Group, the Directors possess all the necessary competencies to lead and govern the Company effectively. Brief details of the Directors responsibilities and qualifications are set out on pages 14 to 17, and 23 to Chairman and Managing Director Principle 3: There should be a clear division of responsibilities at the top of the company the working of the Board and the executive responsibility of the company s business which will ensure a balance of power and authority, such that no one individual represents a considerable concentration of power. To ensure an appropriate balance of power, increased accountability and a greater capacity of the Board for independent decision-making, the Company has a clear division of responsibilities at the top of the Company, with the non-executive Chairman and Managing Director having separate roles. The Chairman s responsibilities include, inter-alia, the following: (a) (b) (c) (d) Scheduling of meetings to enable the Board to perform its duties responsibly while not interfering with the flow of the Company s operations; Preparing meeting agenda in consultation with the Managing Director and Company Secretary; Exercising control over the quality, quantity and timeliness of the flow of information between Management and the Board; and Assisting in ensuring compliance with the Code. 1.4 Board Membership Principle 4: There should be a formal and transparent process for the appointment of new Directors to the Board. As a principle of good corporate governance, all Directors should be required to submit themselves for re-nomination and re-election at regular intervals. The Nominating Committee was established on 19 April 2002 and reconstituted on 16 July It comprises four Directors, Mr Lim Ho Kee (Chairman), Mr Thai Chee Ken, Mr Khor Poh Hwa and Mr Niam Chiang Meng, who are all independent Directors. 37

39 Report to Shareholders 2003 The main role of the Committee is to make the process of Board appointments and re-appointments transparent, and to assess the effectiveness of the Board as a whole and the contribution of individual Directors to the effectiveness of the Board. The terms of reference of the Committee are as follows: (a) (b) (c) (d) (e) (f) (g) (h) Recommend appointment or reappointment of Directors (having regard to their performance and contribution); Perform annual review of skills required by the Board, and the size of the Board; Perform annual review of independence of each Director, and ensure that the Board comprises at least one-third independent Directors; Decide, where a Director has multiple board representation, whether the Director is able to carry on and has been adequately carrying out his or her duties as Director of the Company; Decide how the Board s performance may be evaluated, and propose objective performance criteria, to assess the effectiveness of the Board as a whole and the contribution of each Director; Perform annual assessment of the effectiveness of the Board as a whole and the contribution of individual Directors; Formulate succession plan for Board positions; and Report to the Board. The Directors submit themselves for re-election at regular intervals of at least once every three years. One-third of the Directors retires at the Company s Annual General Meeting each year. The years of initial appointment and last re-election of the Directors are set out below: Director Position Age Date of Initial Appointment Date of Last Re-election Lim Chee Onn Non-Executive October 1983 (Director) 16 May 2002 Chairman 1 January 1997 (Chairman) Kevin Wong Kingcheung Managing Director 48 1 November 1993 (Executive Director) 7 June January 2000 (Managing Director) Thai Chee Ken Director 65 1 June May 2000 Khor Poh Hwa Director 54 1 April May 2001 Lim Ho Kee Director 58 8 November May 2002 Tsui Kai Chong Director 48 8 November May 2002 Lee Ai Ming Director 49 1 November May 2003 Tan Yam Pin Director 62 1 June 2003 Niam Chiang Meng Director 45 1 June 2003 Choo Chiau Beng Director January May 2002 Teo Soon Hoe Director May May 2003 Internal guidelines have been established to address multiple board representation. The Committee also reviews the independence of the Directors annually. 38

40 Creating Value 1.5 Board Performance Principle 5: There should be a formal assessment of the effectiveness of the Board as a whole and the contribution by each Director to the effectiveness of the Board. The Nominating Committee has decided on the process for evaluating the effectiveness of the Board as a whole and the contribution of each Director to the effectiveness of the Board, and has also proposed objective performance criteria for evaluation which allow comparison with the Company s peers. In addition, the performance evaluation will include a comparison of the Company s share price performance vis-à-vis Singapore Straits Times Index and a benchmark index of industry peers. Briefly, this evaluation process is as follows: (a) (b) (c) (d) The evaluation of the Board will be done once a year by each member of the Nominating Committee and sent to an Independent Co-ordinator. The Independent Co-ordinator will consolidate the evaluation returns and present a report to the members of the Committee for discussion. Thereafter, the Independent Co-ordinator will present the final consolidated report to the Board together with the recommendations of the Committee. The evaluation of individual Directors will be done once a year by Directors on a peer evaluation basis. The completed peer evaluation returns will also be sent to the Independent Co-ordinator. The Independent Co-ordinator will consolidate the returns and present a report to the members of the Committee for discussion. Thereafter, the Independent Co-ordinator will discuss the final consolidated report with the Chairman of the Committee and the Chairman of the Board so that they may provide the Board with the necessary feedback with a view to improving Board performance and shareholder value. The first evaluation exercise was completed for the year ended 31 December Access to Information Principle 6: In order to fulfill their responsibilities, Board members should be provided with complete, adequate and timely information prior to Board meetings and on an on-going basis. As a general rule, Board papers are sent to Directors at least seven days before Board meetings so that Directors may better understand the matters before the meetings, and the Board meeting time may be conserved and discussion time focused on questions that the Directors have on the Board papers. Managers who can provide additional insight into the matters to be discussed will be present at the relevant time during the Board meetings. The Directors are also provided with the names and contact details of the Company s senior managers and the Company Secretary to facilitate direct access to Management and the Company Secretary. Management recognises its obligation to supply the Board with complete and adequate information in a timely manner. Information provided includes adequate background, details and explanatory notes. The Company Secretary is responsible to ensure that Board procedures are followed and that applicable rules and regulations, including requirements of the Companies Act, are complied with, with the assistance of the relevant senior managers. The Company Secretary attends all Board meetings. The Board takes independent professional advice as and when necessary to enable it or the independent Directors to discharge its or their responsibilities effectively. Subject to the approval of the Chairman, Directors may seek and obtain independent professional advice to assist them in their duties, at the expense of the Company. 39

41 Report to Shareholders Remuneration Matters 2.1 Remuneration Committee and Procedures for Developing Remuneration Policies Principle 7: There should be a formal and transparent procedure for fixing the remuneration packages of individual Directors. No Director should be involved in deciding his own remuneration. The Remuneration Committee was formed on 19 April 2002 and reconstituted on 16 July 2003 to facilitate appropriateness, transparency and accountability to shareholders on issues of the remuneration of the Directors and senior managers in the Company. The Committee consists of three members, Mr Tan Yam Pin (Chairman), Mr Lim Ho Kee and Assoc Prof Tsui Kai Chong, who are all independent Directors. In consultation with the Chairman of the Company, the Committee: (a) (b) (c) (d) (e) (f) (g) Recommends to the Board a framework of remuneration for the Board members and executive management; Determines specific remuneration packages for each executive Director and the Chief Executive Officer (if the Chief Executive Officer is not an executive Director); Decides compensation for the early termination of Directors; Considers whether Directors should be eligible for benefits under long-term incentive schemes (including weighing the use of share schemes against the other types of long-term incentive scheme); Reviews the terms, conditions and remuneration of the senior managers of the Company; Administers the Company s employee share option scheme (the KLL Share Option Scheme ) in accordance with the rules of the scheme; and Grants share options under the KLL Share Option Scheme as this Committee may deem fit. The aim of the Committee is to motivate and retain executives, and ensure that the Company is able to attract the best talent in the market in order to maximise shareholder value. No member of the Committee or any other Director will be involved in deliberations in respect of any remuneration, compensation, options or any form of benefits to be granted to him or her. 2.2 Level and Mix of Remuneration Principle 8: The level of remuneration should be appropriate to attract, retain and motivate the Directors needed to run the company successfully but companies should avoid paying more for this purpose. A proportion of the remuneration, especially that of executive Directors, should be linked to performance. The Committee has recommended a framework of remuneration for the Board members and executive management. Under this framework, the total remuneration mix for executives comprises three key components, viz annual fixed cash, annual performance incentive and long-term incentive. The annual fixed cash component comprises the annual basic salary plus any other fixed allowances; the annual performance incentive is tied to the Company s and individual executive s performances; and the long-term incentive is granted based on individual executive s performance and contribution. The compensation structure is designed such that the percentage of an executive s annual total remuneration at risk increases as he or she moves up the corporate ladder. However, to remain competitive and relevant, the Company aims to benchmark its annual fixed salary at market median with the variables being strictly performance-driven. To enable the Committee to carry out its duties, the Committee has access to expert advice in the field of executive compensation inside and/or outside the Company, where necessary. The executive Directors participate in a long-term incentive scheme in the form of the KLL Share Option Scheme. Directors fees are established annually for the Chairman and the other Directors. Additional fees are paid, where applicable, for participation in Board Committees. The level of fees paid take into account the size and complexity of the Company s operations, and the responsibilities and workload requirements of Directors. 40

42 Creating Value 2.3 Disclosure of Remuneration Principle 9: Each company should provide clear disclosure of its remuneration policy, level and mix of remuneration, and the procedure for setting remuneration, in the company s annual report. The level and mix of remuneration of Directors and the Company s top five senior managers for the year ended 31 December 2003 are as follows: (a) Directors Variable or Performance Remuneration Band and Name of Director Base/ Fixed Salary Related Income/Bonuses Directors Fees Share Options Granted* Above $1,500,000 to $1,750,000 Kevin Wong Kingcheung 45% 46% 9% Below $250,000 Lim Chee Onn 100% Lim Leong Geok (Resigned on 16 July 2003) 100% Thai Chee Ken 100% Khor Poh Hwa 100% Tsui Kai Chong 100% Lim Ho Kee 100% Lee Ai Ming 100% Loh Wing Siew (Retired on 20 May 2003) 100% Tan Yam Pin 100% Niam Chiang Meng 100% Choo Chiau Beng 100% Teo Soon Hoe 100% 41

43 Report to Shareholders 2003 (b) Top five senior managers Variable or Performance Remuneration Band and Name of Senior Managers Base/ Fixed Salary Related Income/ Bonuses Directors Fees Share Options Granted* Above $500,000 to $750,000 Ang Wee Gee 50% 33% 17% Loh Chin Hua 68% 32% Above $250,000 to $500,000 Choo Chin Teck 57% 26% 17% Tan Swee Yiow 54% 29% 17% Augustine Tan Wee Kiong 54% 29% 17% *The value of the share options granted is based on the Black-Scholes model. No employees of the Company and its subsidiaries was an immediate family member of any Director and whose remuneration exceeded $150,000 during the financial year ended 31 December Immediate family member means the spouse, child, adopted child, stepchild, brother, sister and parent. Details of the KLL Share Option Scheme can be found on pages 164 and Accountability And Audit 3.1 Accountability Principle 10: The Board is accountable to the shareholders while the Management is accountable to the Board. To provide shareholders with more timely information, the Company commenced quarterly reporting since In presenting the Company s annual financial statements and quarterly announcements to shareholders, it is the aim of the Board to provide the shareholders with a balanced and understandable assessment of the Company s position and prospects. Management provides the Board with balanced and understandable management accounts on the Company s performance, position and prospects on a monthly basis. 3.2 Audit Committee Principle 11: The Board should establish an Audit Committee with written terms of reference which clearly set out its authority and duties. The Audit Committee is chaired by Mr Thai Chee Ken, an independent Director. Mrs Lee Ai Ming, an independent Director was appointed as a member to replace Mr Lim Leong Geok, an independent Director. The third member of the Committee is Assoc Prof Tsui Kai Chong, also an independent Director. All members of the Committee are appropriately qualified to discharge their responsibilities, and two members have accounting and related financial management expertise and experience. The terms of reference of the Committee are as follows: (a) (b) Review audit plans and reports of the external auditors and internal auditors, and consider the effectiveness of actions taken by Management on their recommendations and observations; Perform independent review of financial statements and results (including monthly results, forecasts and annual budget); 42

44 Creating Value (c) (d) (e) (f) (g) (h) (i) (j) Examine and report on the effectiveness of financial, operating and compliance controls; Review risk policies as well as the risk profile of the Company; Review the independence and objectivity of the external auditors annually; Review the nature and extent of non-audit services performed by the external auditors; Meet with external auditors and internal auditors, without the presence of Management, at least annually; Ensure that the internal audit function is adequately resourced and has appropriate standing within the Company, at least annually; Review interested party transactions; and Investigate any matters within the Committee s terms of reference set out herein, whenever it deems necessary. The Committee has full access to and co-operation of the Management, and full discretion to invite any Director or executive staff to attend its meetings. Separate meetings were held by the Committee with the external auditors and internal auditors, without the presence of Management. During the year, the Committee held five meetings. The members attendances at the meetings are disclosed on page 35. The external and internal auditors, the Director (Corporate Services) and the Managing Director were invited to attend the meetings of the Committee. The Director (Corporate Services), who is also the Company Secretary, is the secretary to the Committee. The Committee reviewed the scope and results of the external audit, and also the independence and objectivity of the external auditors, which included the nature and extent of their non-audit services to the Company. 3.3 Internal Controls Principle 12: The Board should ensure that the Management maintains a sound system of internal controls to safeguard the shareholders investments and the company s assets. To assist the Board in the effective discharge of its responsibilities in ensuring that the Management maintains a sound system of internal controls, the Company has put in place a shareholder value-based internal control system in areas such as financial, operational and compliance controls, and risk management. The principal aim of the internal control system is the management of business risks with a view to safeguarding shareholders investments and the Company s assets. The system includes, inter-alia, enterprise risk management and internal auditing. The Board monitors the Company s risks through the Enterprise Risk Management ( ERM ) Committee, Audit Committee and Internal Audit. 3.4 ERM Committee Recognising the importance of risk management, the Company formed an ERM Committee in August 2002 to handle the implementation and integration of the corporate ERM framework into management processes. The structure of the ERM Committee as shown below comprises key members of senior management from investment, operational, financial and technical areas to oversee matters relating to the management of risks: 43

45 Report to Shareholders 2003 With ERM in place, the Committee assists the Board and Management to: (a) (b) (c) (d) Establish risk management objectives, policies and tolerances for exposure to risks that have been identified; Assess risks within the management framework, and develop cost-effective strategies and process to manage the risks. Risks which cannot be effectively managed will be ranked accordingly to the impact and likelihood; Implement, monitor, report, and improve on the risk management process; and Ensure there is adequate information and communication for decision-making. 3.5 Internal Audit Principle 13: The company should establish an internal audit function that is independent of the activities it audits. The Company has an in-house internal audit function that is independent of the activities it audits. The Internal Auditors report to the Chairman of the Audit Committee and only administratively to the Director (Corporate Services). The role of Internal Audit, as approved by the Committee, is to ensure the following: (a) (b) (c) (d) (e) Existence of assets and the maintenance of proper controls to safeguard the assets; Integrity, reliability and adequacy of information available for management decisions; Compliance with the Company s policies and procedures, appropriate laws and good business practices; Economical and efficient use of the Company s resources; Effective and efficient management of operations for the attainment of the Company s goals; and 44

46 Creating Value (f) Adequacy and effectiveness of internal systems and controls. In fulfilling this role, the Internal Auditors are expected to meet or exceed the Standards for the Professional Practice of Internal Auditing set by The Institute of Internal Auditors, and the Control Objectives for Information and Related Technology set by the IT Governance Institute. Internal Audit has developed a risk-based methodology. Internal audit plans are also aligned with the Company s risk management programme. The aim is to ensure that an effective and efficient control environment is in place to manage those risks exclusive to a particular business unit in addition to those that may be relevant on an enterprise-wide basis. A comprehensive progress report is presented by Internal Audit to the Committee at each scheduled meeting. The Committee ensures that the internal audit function has adequate resources and appropriate standing within the Company. The Committee, on an annual basis, assesses the effectiveness of the internal auditors by examining: (i) (ii) (iii) (iv) (v) The internal audit charter; The scope of the Internal Auditors work; The quality of their reports; Their relationship with the external auditors; and Their independence of the areas reviewed. 3.6 Review of Effectiveness of Internal Controls The Company s internal and external auditors conduct an annual review in accordance with their audit plans, of the effectiveness of the Company s material internal controls, including financial, operational and compliance controls, and risk management. Any material non-compliance or failures in internal controls and recommendations for improvements are reported to the Audit Committee. The Committee also reviews the effectiveness of the actions taken by the Management on the recommendations made by the internal and external auditors in this respect. The Committee is satisfied that the Company s internal controls are adequate, based on reports from the external and internal audit teams. Nevertheless, as part of its continuing drive to embed internal controls into its business processes, the Company has, as mentioned earlier, the support from the ERM Committee to review the management of risks in its business units and corporate functions. This system of risk management is integrated throughout the Company into the business planning and monitoring processes. 4 Communication With Shareholders Principle 14: Companies should engage in regular, effective and fair communication with shareholders. In line with the continuous disclosure obligations of the Company, pursuant to the Listing Rules of the Singapore Exchange Securities Trading Limited and the Singapore Companies Act, the Board s policy is that shareholders are informed of all major developments that impact on the Company. The Company had in operation during the year, a continuous disclosure process to ensure compliance with the Company s continuing disclosure and reporting obligations. The Company believes that it should engage in regular, effective and fair communication with shareholders. For its efforts at disclosure and investor relations, the Company was first runner-up at the Annual Report Award 2003 Competition in March The Company also ranked sixth among 285 companies in the Business Times Corporate Transparency Index which measures the quality of disclosure by companies during the results announcement. The Company was placed third out of 180 property firms in ten countries in the Asia Pacific for corporate transparency. This study was done by the National University of Singapore based on the three key factors of annual report transparency, corporate website clarity and analysts coverage. 45

47 Report to Shareholders 2003 In addition, the Company s top management takes an active role in investor relations, meeting local and foreign fund managers regularly as well as participating in roadshows and conferences overseas. Pertinent information is communicated to shareholders on a timely basis. Where there is inadvertent disclosure made to a selected group, the Company will make the same disclosure publicly to all others as soon as practicable. Communication is made through: (a) (b) (c) (d) (e) (f) The Company s summary financial reports and annual reports; Notices of and explanatory memoranda for annual general meetings and extraordinary general meetings; Press releases on major developments of the Company; Disclosures to the Singapore Exchange Securities Trading Limited; Other announcements, as appropriate; and The Company s web site at from which shareholders can access information on the Company. The website provides, inter alia, corporate announcements, press releases, annual reports, and profiles of the Group. The Company s ten-year financial profile is also provided. Where appropriate, queries over the website are also addressed. Principle 15: Companies should encourage greater shareholder participation at annual general meetings, and allow shareholders the opportunity to communicate their views on various matters affecting the company. The annual general meeting is the principal forum for dialogue with shareholders. At each annual general meeting, the Board encourages shareholders to participate in the question and answer session. The Chairman and, where appropriate, the Managing Director respond to shareholders questions. The chairmen of the Board Committees and the external auditors are also present in the meeting to assist in addressing any relevant queries from the shareholders. Each item of special business included in the notice of the meeting is accompanied by an explanation for the proposed resolution. Separate resolutions are proposed for substantially separate issues at the meeting, and the Chairman declares the number of proxy votes received for and against the resolutions. 5 SECURITY TRANSACTIONS The Company has issued a policy on dealings in the securities of the Company and its listed subsidiaries to its Directors and senior executives, setting out the implications of insider trading and guidance on such dealings. It has adopted the Best Practices Guide on Dealings in Securities issued by the Singapore Exchange Securities Trading Limited. 6 INTERESTED PERSON TRANSACTIONS Disclosure of interested person transactions is set out on page 26 in the annual report. When a potential conflict of interest arises, the Director concerned takes no part in discussions nor exercises any influence over other members of the Board. 46

48 Creating Value RISK MANAGEMENT Keppel Land recognises the importance of risk management in the pursuit of excellence and value creation. In today s uncertain and volatile business world, the need to manage risks more coherently, comprehensively and economically through effective enterprise risk management is more critical than ever. This is because the ability to manage risks successfully enables organisations to achieve their performance and profitability targets, prevent the loss of resources and ensure timely reporting and compliance. Ultimately, the objective of effective risk management is the enhancement of shareholder value and the strengthening of the organisation s competitive advantage. In view of the above, the Group has established an Enterprise Risk Management Committee to formulate strategies and processes to manage and/or mitigate exposure to identified risks. As a leading developer of quality housing in Singapore and the region, the Group is exposed to a variety of risks which can be broadly classified into market, operating and financial risks. Market risks: Investment evaluation risk Partnering risk Political risks/regulatory risks Business interruption risk/catastrophic risk Operating risks: Project management risk Human resource risk/leadership risk Shareholders risk/investors risk Product development risk Information risk/technology infrastructure risk Financial risks: Capital allocation risk Foreign currency risk Interest rate risk Liquidity risk Market Risks To mitigate investment risks, the Group s project teams in Singapore and overseas conduct feasibility studies on the identified investments before putting these forward to Management and the Board for consideration. Investment guidelines are also in place to help the project teams assess investment opportunities. In expanding to new markets in the region, regulatory risks and partnering risks are mitigated by leveraging on the expertise of the in-country managers and joint venture partners who have experience in the local markets. The Company s joint venture partners bring with them good local business knowledge and networks. Business interruption and catastrophic risks, though less probable in the past, have become increasingly probable with terrorism and outbreak of infectious diseases such as SARS. To reduce such risks locally and regionally, the Group has set in place a business continuity plan, back-up systems and disaster recovery plans. Operating Risks As the Group is in the real estate industry, it is vital to ensure that the projects are completed on schedule and that quality is not compromised. To ensure projects are well-managed, the project teams will identify and analyse the potential risks prior to commencement works to minimise the uncertainties. Cost control measurement is also carried out at various stages to ensure that the projects are kept within budget. Continuous monitoring and quality assurance are also performed to ensure project management risk is mitigated. The Group believes that its human resources are crucial in achieving its business and profitability objectives. Towards this end, the human resources department conducts regular training to update and equip staff with the relevant skills necessary to perform their work well. In order to ensure continuity and move the Group to a higher level, a proper succession planning system is also in place to identify, train and develop talent and high-potential employees to take up key responsibilities. 47

49 Report to Shareholders 2003 Being a publicly listed corporate entity, the Company values its shareholders and investors. To reduce the risk of any information asymmetry, the Group conducts regular meetings with analysts and fund managers, goes on roadshows to visit shareholders and investors overseas and organises site visits for investors. The Group also ensures timely disclosures of significant events and/or transactions as part of its efforts to maintain corporate transparency. A key criterion in becoming a leading brand in the residential development market both locally and in the region is to be able to meet consumer needs. To satisfy consumers and better understand their wants, the Group conducts feedback and surveys and incorporates suggestions in future projects. Keeping abreast of the market for new launches and constant studying of market demand by the marketing department is also undertaken to ensure that products continue to remain relevant to consumer needs. Given that the interest rate market has been volatile over the past few years, the Group monitors the interest rate market constantly to minimise the impact of adverse interest rate movements on its earnings. The Group has entered into interest rate hedging transactions to lock in a greater proportion of its debt on a fixed rate basis. The Group plans its funding requirements early and monitors its cash flow position to ensure it has sufficient liquidity to meet operational needs. It also stays close to the loan and bond markets to keep abreast of the liquidity in these markets. Access to information is required to facilitate smooth functioning of business units. The information technology department reviews new software and technology available in the market and procures them to improve efficiency and effectiveness. Information systems are also built for easy data retrieval and analysis to facilitate decision-making and management reporting. Financial Risks In line with its stated objective of deriving at least 50% of profits from overseas by 2005, the Group is likely to allocate more capital to overseas trading projects. To reduce the risk of being over-committed to such projects, the Group will regularly monitor their performances. As the Group aims to be a leading developer in the region, it will hold substantial assets outside Singapore. In order to reduce the impact of changes in foreign currency rates, the Group adopts a natural hedge policy by borrowing in the same currency in which the assets are denominated. 48

50 Creating Value INVESTOR RELATIONS Keppel Land s growing regional presence has drawn greater investor interest and spurred increased efforts at enhancing shareholder relations. Focused Communication with Shareholders and Investors 2003 was an active year for investor relations activities. Keppel Land s communication efforts centred mainly on the Company s strategy in the region, in particular its focus in China, Thailand and Vietnam, and the demand growth drivers for residential housing in the three countries. With more than 40% free float, it is estimated that 20-30% of Keppel Land s shares are held by institutional investors. Hence, management continued to invest time to meet up with fund managers regularly in Singapore and overseas. As part of the Keppel Group, senior management went on a sevencity European roadshow in early 2003 to articulate the growth prospects of the Group. Working with different broking houses, Keppel Land also participated in two other roadshows in Europe after the announcement of its full year and interim results. To broaden its shareholder base, the Company visited European and Scandinavian cities which were not on the usual roadshow circuit. In November 2003, the Company also participated in Morgan Stanley s Asia Pacific Summit in Singapore where it held one-on-one meetings with existing shareholders and potential investors from US, United Kingdom, Hong Kong and Singapore. Keppel Land s successful maiden residential project in China, One Park Avenue (OPA) in Shanghai received many visits at its 1,200-sm show gallery from fund managers and analysts from Europe, US and Asia. These visits helped to convince the international investor community of the successful execution of the Company s China strategy. In July 2003, Keppel Land hosted a familiarisation tour of its OPA show gallery for a group of 13 analysts and several fund managers from investment houses based in Singapore and Hong Kong. More recently in February 2004, Keppel Land hosted a similar visit to the 8 Park Avenue show gallery for interested investors from US, Europe and Asia who were attending a major China conference organised by Deutsche Bank. Locally-stationed staff provided the investment community with insights into the Company s China strategy, and the market environment for its upcoming residential projects in Shanghai, Beijing and Chengdu. Visits of this nature allowed analysts and fund managers to appreciate the Company s focus on developing quality residential projects in China s gateway cities and promising second-tier cities. In Singapore, management continued to meet up with local analysts and fund managers regularly through group and one-on-one meetings. Luncheons with local fund managers and conference calls with overseas fund managers were conducted post-results announcements. The Company also hosted a lunch for local analysts to help them understand the Company s key corporate developments. Strengthening Corporate Governance During the year, two new independent Directors were appointed to the Board. Seven of the 11 directors on the Board are independent. This allows for the Audit, Nominating and Remuneration Committees to be fully-constituted with independent Directors. The new Directors Mr Tan Yam Pin and Mr Niam Chiang Meng were given a thorough induction to bring them up to speed on the Company s developments. As part of professional development, two independent Directors were sent for courses at INSEAD. The Company has also embarked on Board and individual Director appraisals for its Directors. An off-site meeting for the Board has been planned for in the second half of This will allow for greater interaction among Board members and senior management, and provide an opportunity to discuss the Company s directions within the setting of a retreat, away from daily operations. The bio-data of the Board and the Company s key managers are detailed in the annual report. Apart from the Managing Director, the top five senior managers in terms of remuneration are also identified. 49

51 Report to Shareholders 2003 The Company s share option scheme has also undergone a revamp as part of the review of its total compensation policy. Henceforth, only senior management will be entitled to share options. This change is based on the rationale that share options do not serve their role of motivating staff whose performance do not directly co-relate to the Company s share price. Increasing Shareholder Return The Company will be paying a final gross dividend of 8% or 4 cents per share less tax for 2003 (2002: 7% or 3.5 cents; 2001: 6% or 3 cents). The dividend payout amounting to $22.7 million net of tax for 2003 is 17.6% higher than the $19.3 million for In 2003, Keppel Land was the best performing stock in the EPRA/NAREIT index. The EPRA/NAREIT index is compiled jointly by the European Public Real Estate Association (EPRA) and the National Association of Real Estate Investment Trust (NAREIT). The Company s stock was also one of the top-performing property stocks in Singapore, offering a total return to shareholders of 65%. Total return to shareholders is computed by adding dividend to the share price at the end of the year, and dividing the sum by the share price at the beginning of the year. Recognition for Efforts Keppel Land took the first runner-up prize for the Annual Report Award, after winning the best Annual Report award for five consecutive years. In the 30 years that the competition has been held, the Company has won the Grand Award (awarded after a company wins the annual report for three years consecutively) eight times. This study done by the National University of Singapore s Department of Real Estate is based on the three key factors of annual report transparency, corporate website clarity and analyst coverage. The countries covered included Singapore, Malaysia, Thailand, Japan, Indonesia, China and Hong Kong, Philippines, Australia and New Zealand. For its disclosure in the 2002 results announcements, Keppel Land was placed sixth out of 285 companies in the newly-reconstituted Business Times Corporate Transparency Index. To keep abreast of best practices in corporate governance, the Company is a member of the Investor Relations Association (Asia). Keppel Land is also a member of the EPRA which tracks the key developments of property sector primarily in Europe but increasingly in Asia as well. Revival of Interest from Institutional Funds Positive re-rating of the economies in the region and growing fund flows from international investors have lifted stock prices and total returns across Asia which enjoyed a resurgence in the latter half of the year. There has been a noticeable revival of interest from US and European institutions including pension, mutual and hedge funds. This reflects the shift in investor focus from US and Europe to Asia. During the year, Keppel Land saw many institutional funds, from as far as Canada, with a renewed interest in property companies in Asia. There has also been a pick-up in visits of investors from USA and Japan. Increasingly, fund managers and analysts from the fixed income side have begun visiting the Company as well. The Company was also runner-up for the Securities Investors Association (Singapore) s Most Transparent Company award for the fourth year. Keppel Land was ranked third out of 180 property firms in 10 countries in the Asia Pacific for corporate transparency. One reason is that the Company is a component stock on various key indices in Singapore and overseas: the Morgan Stanley Capital International Singapore Free Index, the Straits Times Index, the All-Singapore Equities Index, All-Singapore Equities Property Index, Singapore Equities Mainboard Index, the UOB Blue Chip Index and the EPRA/NAREIT indices. 50

52 Creating Value The Company s corporate website is a rich source of information for the investing public. The website, which is extensively used by the investment community, has been revamped for greater ease of navigation and includes useful features such as a share price ticker tape, more frequently asked questions covering the Company s strategic direction and financials, as well as the quarterly publication, Across Borders which details the major developments in the Company. As part of good corporate governance practice, all presentation slides used in investor communications are placed on the corporate website and simultaneously dispatched to the Singapore Exchange for public dissemination. 1 Last year, about 150 shareholders attended the Annual General Meeting, which was held at the InterContinental Singapore on 20 May With the tightening of regulations, the Annual General Meeting this year will be held earlier on 28 April These meetings continue to provide shareholders the opportunity to question and clarify issues with Directors and senior management. For the year ahead, more efforts will be put in to further communicate on the Company s activities overseas and to provide more insights into the Company s key markets in the region. The Company will also organise trips for analysts and fund managers to visit growth cities where it is making inroads into the real estate sector For the fourth consecutive year, Keppel Land was ranked one of the Most Transparent Company by the Securities Investors Association (Singapore). 2. Management met with many fund managers, analysts and media during the year. 51

53 Attention to detail, exceptional quality service and innovative design sharpen our competitiveness.

54 INCREASING ADVANTAGE

55 Report to Shareholders 2003 PRODUCT SHOWCASE GALLERY OF WORLD-CLASS PROPERTIES THE KEPPEL HALLMARK OF QUALITY Renowned for its quality and innovation, Keppel Land is a premier developer of world-class properties with an outstanding track record that extends beyond local shores. The Company s expertise and attention to details are brought to bear through its stable of quality residential properties, investment-grade offices, award-winning golf clubs and resorts both in Singapore as well as overseas. Advancing into the region, Keppel Land brings with it the distinctive Keppel hallmark of quality and continues to set new benchmarks in the industry. The Company s portfolio of internationally acclaimed developments is testimony to its commitment to delivering the best. 1 2 SINGAPORE 1: WEE NAM The pinnacle of luxury in the heart of Newton Wee Nam takes pride of place as one of the largest developments in the established Newton residential enclave. With a total of 480 units, this freehold full-facility condominium offers an extensive range of unique recreational facilities including Singapore s first aqua-gym, a huge open lawn, a jungle spa, a jacuzzi, a beach pool and an outdoor entertainment deck. Out-shining other residential developments in the vicinity, Wee Nam also features a central roof garden, a forest track, a cave trail, a volcano-themed children s pool, a timber boardwalk, a floating pavilion, an eco-pond as well as gushing waterfalls and flowing streams all adding to the allure of this thriving urban oasis. SINGAPORE 2: URBANA One of River Valley s most intimate living spaces With 36 storeys, Urbana is one of the tallest condominiums along River Valley Road. Its solitary tower rises above the hustle and bustle of the city to command a majestic view of the Orchard belt. Screen walls, water features and verdant greens encircling Urbana promises ultimate privacy within a self-contained urban retreat. To top it off, the 126-unit condominium also includes a comprehensive host of facilities such as a landscape themed garden, a herb and mist garden, a lily pond, a clubhouse, an infinity-edge swimming pool, a jacuzzi, a bubble bed pool, a gym and barbecue pits. SINGAPORE 3: THE TRESOR A new landmark of quality living in Bukit Timah The Tresor is an exclusive 62-unit freehold condominium located along Duchess Road. With its modern design and clean architectural lines, this unique development is set to be one of the most appealing developments in the Duchess Road estate. Complementing The Tresor s contemporary layout and spacious units is a host of modern facilities, which include a swimming pool, a clubhouse, a gymnasium, a jacuzzi, a children s play area, a fitness area and barbecue pits. 3 BEIJING 4: THE SEASONS A quality home for all seasons Located within the designated residential zone for the Olympic Games Village, the 1,859-unit The Seasons in Chao Yang District will be among the first condominiums to capture the seasonal beauty of Beijing. Meticulous landscaping coupled with thoughtful facilities complement the four seasons. The recreational plaza, which serves as a multi-purpose sports arena in Spring, is magically transformed into an ice-skating rink in Winter. Other evergreen features in this development include a huge central garden, an indoor clubhouse, an Olympic-length heated swimming pool, a tennis court, a basement carpark, and supporting amenities such as convenience stores and a childcare centre. 4 5 CHENGDU 5: THE WATERFRONT The finest residential landscape in Chengdu Located along Shun Jiang Road, in the south-eastern sector of Chengdu, The Waterfront commands a 150-metre wide frontage of the scenic Funan River. Set amidst a lush tropical garden, this 1,143-unit resort-style condominium is complemented by a host of world-class amenities including the first all-weather indoor pool in the vicinity, a beach pool, a lagoon, a pool bar, an island spa, tennis courts, a basketball court, jogging tracks and a tai chi corner with reflexology foot paths. This project is also slated to be one of the finest landscaped residential developments in Chengdu. 54

56 Increasing Advantage SINGAPORE 6: CARIBBEAN AT KEPPEL BAY 2003 Design Excellence Award, Civil and Structural category, ACES Awards Situated at the historic Keppel Harbour site, Caribbean at Keppel Bay is Singapore s first waterfront district, designed for ultimate waterfront living with its unparallelled sea views, a private marina, and spectacular water channels that bring the sea right up to the homes. For this seamless integration between home and sea, Keppel s flagship residential project was bestowed the Design Excellence Award in the Civil and Structural category by the Association of Consulting Engineers Singapore in BANGKOK 7: VILLA ARCADIA AT SRINAKARIN A new benchmark in resort-style living Keppel Thai Properties Villa Arcadia at Srinakarin is the first collection of quality landed homes under the Arcadia brand. Located in the eastern part of Bangkok, Villa Arcadia at Srinakarin comprises 367 resort-style detached houses built within a lush enclave fully equipped with swimming pools, a fitness centre, a sauna, a jacuzzi, a games room and a playground. Units in this quality development also feature tropical garden bathrooms that allow homeowners to enjoy the natural surroundings in complete privacy. HO CHI MINH CITY 8: VILLA RIVIERA Ho Chi Minh City s first luxury waterfront development Situated by the banks of the picturesque Saigon River, Villa Riviera has been hailed as the most luxurious residential development in Ho Chi Minh City. The site sits on a 5.9-ha prime residential site in An Phu Ward in District 2. This project comprises 113 quality villas, complete with resort-style facilities, nestled amid tropical gardens. This unique waterfront development also features 24-hour security services, a 30-metre infinity edge pool, a clubhouse, a gymnasium and a tennis court amenities highly sought after by discerning purchasers. SHANGHAI 9: 8 PARK AVENUE The epitome of luxurious living in Shanghai 8 Park Avenue, the second suite of luxury condominiums in the Park Avenue development in Jingan, Shanghai, comprises a total of 945 units. Sprawling grounds of this estate are dotted with spectacular architectural features like the glass dome, which allows sunlight to filter into the basement swimming pool during the day. By night, the dome resembles a bejewelled glass lantern that glitters over a rippling pool. Scaling new heights in terms of amenities, 8 Park Avenue boasts an all-season Olympic-length swimming pool, a jacuzzi, a sauna, a steambath, a spa, a gym, a bowling alley, squash and tennis courts and even an alfresco café. 55

57 Report to Shareholders 2003 AWARDS AND ACCOLADES For proactively contributing to the battle against SARS, Parco Bugis was conferred the internationally-acclaimed MAXI award, as well as the COOL Singapore award by SPRING Singapore. 2. In recognition for its transparency, adequacy of disclosure and presentation of information, Keppel Land bagged the 1st runner up award at the Best Annual Report Award, chalking up 16 winning years. 3. Keppel Land s collection of accolades this year has been significant, garnering both local and overseas recognition from prestigious organisations. Achievements in Corporate Transparency First Runner-up in Best Annual Report Award for FY2002, in the 30th Annual Report Award Competition The competition is sponsored by the Institute of Certified Public Accountants of Singapore, Investment Management Association of Singapore, Securities Investors Association (Singapore), Singapore Institute of Management, Singapore Institute of Directors, Singapore Exchange Securities Trading Limited (SGX-ST) and the Business Times. The Best Annual Report Award is based on criteria such as transparency, adequacy of disclosure and presentation of information. Keppel Land won the award for five consecutive years previously, and has to-date bagged many years of awards including winning the Grand Award eight times. Ranked Third of 180 Property Companies in an Asia Pacific Transparency Study Conducted by the National University of Singapore The study is based on three key factors of annual report transparency, corporate website clarity and analyst coverage. SGX-ST Main Board and Sesdaq, and revised its scorecard for the assessment of companies throughout the year. Keppel Land s Local Achievements ACES Design Excellence Award for Caribbean at Keppel Bay The Association of Consulting Engineers Singapore (ACES), a non-profit organisation representing local independent consulting engineers, first launched the Award for Innovative Design in November 1997 to recognise innovative engineering projects in Singapore. The award was bestowed upon Caribbean s consultants, T.Y.Lin South East Asia Pte Ltd, in recognition for involvement in the project. COOL Singapore Award by SPRING Singapore, and Merit Award from the Internationally-Acclaimed MAXI Awards for Parco Bugis Junction The shopping centre was lauded for its proactive efforts aimed at combating the spread of SARS and providing a SARS-free environment for shoppers during the outbreak. The MAXI Awards are conferred by the International Council of Shopping Centres. Runner-up under Property Category for Most Transparent Company Award at SIAS Investors Choice Award Presentation This is the fourth time running that the Company has won the award, organised by the Securities Investors Association (Singapore). Companies nominated are assessed based on criteria such as timeliness of corporate disclosures, frequency, clarity and substantiality of their announcements. Clinched Sixth Position among 285 Listed Companies in the Business Times Corporate Transparency Index for FY2002 Launched by the Business Times in July 2000 to measure the level of financial results disclosure released by Singapore-listed companies, a 60% weighting is placed on content, which assesses the completeness of financial, operating and other information released, and 40% on context, which assesses the means and timeliness of results. The Corporate Transparency Index has recently expanded its scope to include all companies listed on the 56 Parco Bugis Junction Voted by the Public as One Of Top Three Malls With Best Christmas Shopping Experience The 31 participating malls in Singapore were judged based on their Christmas decoration and ambience, range and price of merchandise, service, promotions, entertainment and other value-added services like gift-wrapping, complimentary gifts and lucky draws. Best Hotel Asia Pacific Award in the Priority Club Rewards Members Choice Awards for InterContinental Singapore InterContinental Singapore was bestowed the Best Hotel Asia Pacific Award by Priority Club Rewards, a global online hotel reservations system. COOL Singapore Award by SPRING Singapore for InterContinental Singapore The hotel received recognition for its efforts in the prevention, recovery and risk management of the hotel operations during the SARS outbreak.

58 Increasing Advantage Keppel Land s Overseas Achievements Awarded Most Distinguished Foreign Enterprise in 2003 by the Jingan District Government Keppel Land s subsidiary in Shanghai, Shanghai Merryfield Limited, was among nine foreign companies to be conferred the Most Distinguished Foreign Enterprise in 2003 award by the Jingan District Government. Shortlisted from a list of 50 companies, this annual award was based on factors such as the company s investment and profit contribution, tax compliance, general management of the company as well as management s relationship with the regulatory bodies. Gold Award in the Environment Category of Top 10 Properties in Shanghai for One Park Avenue by Hong Kong s Da Gong Bao newspaper Da Gong Bao s hit list of Top 10 properties in Shanghai charts residential properties most sought after by homebuyers in Hong Kong and Taiwan for the year. One Park Avenue topped the Environment category of this award for its lush surrounds designed by celebrated architects, the Palmer and Turner Group and landscaped by the award-winning Belt Collins International. A green oasis sprouting in the heart of Shanghai City, One Park Avenue showcases enchanting gardens bejewelled with pavilions, fountains, pools and other ornamental features. Designed also with Shanghai s four seasons in mind, all apartments are oriented towards the south so as to enjoy maximum warmth and sunlight during winter. Fully-fitted Award for One Park Avenue by Shanghai s Municipal Government at the Third Excellence in Residential Properties Competition Awarded for its unique attributes, the project gained recognition for its outstanding collection of fully-fitted apartments, which are ready for occupation upon completion. Each home is furnished with quality flooring, fully-fitted bathrooms, built-in wardrobes, kitchen cabinets and air-conditioning, and equipped with a security intercom system and broadband cabling. Best Luxury Serviced Apartment Award for Sedona Suites Hanoi at the Guide Awards 2003 This is the second consecutive year that Sedona Suites Hanoi has won the Award. Best Business Serviced Apartment Award for Sedona Suites Ho Chi Minh City at the Guide Awards 2003 Jointly organised by Vietnam Economic Times magazine and Vietnam National Administration of Tourism, the Guide Awards 2003 gives recognition to outstanding hospitality service providers in Vietnam who have contributed significantly towards developing and maintaining the country s reputation as one of the friendliest and safest destinations in South East Asia. Global Accolades for Spring City Golf and Lake Resort The Spring City Golf and Lake Resort garnered: The World s Most Influential Golf Award China and The World s Most Influential Golf Award in China cities Kunming. No.1 Golf Course in China by US Golf Digest. Best Maintenance Golf Course with Holes No. 5 and 7 of the Lake Course named as Signature Holes by Golf Digest Hong Kong. My Favourite Golf Club by the China Golf Magazine for the fifth consecutive year. Global Accolades for Ria Bintan Golf Club The resort won the following accolades: Runner-up for the Best Course in Indonesia in the Asian Golf Monthly Awards. Best Par-Five in Asia for the 7th hole of the Ocean Course in the Asian Golf Monthly Awards. Runner-up for the Best Par-Three in Asia for the 9th hole of the Ocean Course in the Asian Golf Monthly Awards. First runner-up for Best Golf Course in Indonesia by US Golf Digest. 57

59 Exchanging experiences and new ideas enables our most valuable assets to realise their full potential.

60 NURTURING PEOPLE

61 Report to Shareholders 2003 PEOPLE IN REVIEW The Group firmly believes that human capital is its key asset, and will focus on nurturing its employees across the region. The China Conference provided a platform for staff to gather and share new and innovative ways to improve operations in China. Implementation of the Balance Scorecard Recognising the need for an effective system that enables constant improvement in line with the Company s business directions and one that emphasises a more performancebased reward culture, Keppel Land implemented the Balanced Scorecard (BSC) in The BSC framework aims to improve strategic alignment of goals within the Company. It focuses on the four main areas of financial, processes, customers and people. The financial aspect identifies the Company s financial goals in the short to medium-term, while the processes portion seeks to improve internal business processes to ensure customer satisfaction, lower operating costs and increase efficiencies. To maximise customer satisfaction, product differentiation and the means to best deliver the products and services are identified. Finally, the people aspect focuses on training and developing employees skills and capabilities as the Company continuously re-invents itself in an ever-changing environment. The BSC translates the Company s vision and strategy into corporate goals, which are then communicated and linked to departments target-setting. Through this process of performance management and goal alignment, employees goals can be aligned with the Company s mission and strategic objectives. As part of the BSC system, the performance appraisal system was fine-tuned. The reward structure has been aligned with corporate and departmental goals via performance-based variable remuneration, linking rewards directly to employees contribution, responsibility and accountability. With greater differentiation in remuneration based on performance, the system aims to instill a performance-driven culture in staff. The performance-based variable pay also replaces the employee share options programme, which will now be extended only to senior management. This new compensation framework allows the Company the flexibility to respond better to market conditions. In line with the Group s continual process of employee retention and development, performance appraisal is carried out in three phases, namely target-setting, competence development and performance review and appraisal. It involves assigning staff targets, with performance appraisal conducted on a half-yearly basis. This provides staff with a sense of self-awareness and assists them to develop in areas where they have the greatest potential. To help staff better understand the BSC system, a series of training workshops and communication sessions were conducted. Information is also available on the intranet to inform and educate staff on the system. 60

62 Nurturing People Given the increasingly competitive environment that we operate in, the BSC system will provide greater focus for the realisation of the Company s goals, and offer incentives for individuals who excel well in this new operating environment. Emphasis on Training and Development Keppel Land firmly believes that human capital is its key asset. As such, a host of courses relevant to the Company s strategy, their work and skills enhancement were provided for staff to attend during the year. To help staff better understand the concept of Economic Value Added (EVA) and apply it in their work, a series of training sessions on EVA were conducted. As the Company grows its overseas assets, the financial returns from doing business are exposed to changes in economic and investment conditions in the overseas markets. As part of the review process, the projected returns from all new investments are benchmarked against a cost of capital that is adjusted for country risks. This is to compensate for the risks in the emerging markets, assist in decision-making and is a key element of ensuring that a new project delivers shareholder wealth. For non-financial managers, courses on business finance were conducted to equip staff with the practical financial skills to better read, interpret and use financial statements, in order to analyse in depth the industry, markets and competitors. China Forum With the Group s increasing focus and expansion into the China market, Keppel Land organised a China conference in January 2004 in Singapore, to provide a platform for staff working in China to gather and share their experience and expertise with each other as well as with their Singapore counterparts. The aim was to use the forum to spawn innovative ways to improve the Group s operations and profits in China. Besides gaining insights on doing business in China, the seminar also served as a platform for information exchange among the various strategic business units. The conference, which was spread over two days, was very well received by about 60 participants. Host to MOE Delegates In August 2003, Keppel Land together with parent company Keppel Corporation and Keppel FELS, played host to delegates from the Singapore Ministry of Education (MOE) who wanted to gain a better insight into the workings of major corporations in Singapore. The delegates comprised Vice Principals on a six-month orientation programme in preparation for their roles as Principals or Assistant Directors from the Ministry s Examination Division. During their visit to Keppel Land, they were given a clear understanding of the Company s strategic directions, as well as its core businesses of property development for sale and fund management. Annual Regional Conference Given Keppel Land s many offices across the region, strategic collaboration and communication of corporate objectives across the various offices are of key importance. To this end, a regional conference is held annually in Singapore for key executives from its overseas operations. In March 2003, the Annual Regional Conference, which serves as a platform for management to update the overseas postees on the corporate roadmap and performance of the Group, was attended by more than 40 participants. More importantly, the conference provided an opportunity for regional staff to share ideas and experiences with their Singapore counterparts. Building Esprit De Corp The Staff Welfare Committee, which is into its seventh year of fostering greater camaraderie and esprit de corp among staff, continued to receive enthusiastic response for the activities that it organised throughout the year. These ranged from baking classes to excursions to the Newater Centre, the Air Force Museum, and a tour of Singapore s attractions like the fish and vegetables farms. Subsidised day tours to Malacca in Malaysia for staff and their families to visit historical sites like the Dutch Square, the Fortress and the Heritage Museum were similarly very well-received. Employees look forward to these activities as good opportunities to unwind from work and catch up with fellow colleagues. 61

63 Report to Shareholders 2003 Nurturing a Healthy Workforce Recognising the importance of having a healthy and happy workforce, Keppel Land remained committed to the Health Charter, a workplace health promotion programme aimed at developing a robust workforce. To this end, staff are encouraged to lead a well-balanced and healthy lifestyle. A bag of fruits is given to every staff at the end of each month and details on the nutritional value of the fruits are posted on the intranet. The Staff Welfare Committee also took an active lead in organising fitness activities like badminton lessons. In addition, a series of Active Day exercises and professional health talks were held regularly in collaboration with the Health Promotion Board and Bugis City Holdings. In addition, Keppel Land renewed its corporate membership at the Clark Hatch Fitness Centre at InterContinental Singapore for the fifth year running, following heavy usage of its facilities by staff. Conveniently located within the same development as Keppel Land s headquarters, the fitness centre provides a venue for staff to unwind and work out at the gym, a swimming pool as well as the indoor and outdoor jacuzzis. Staff have the flexibility of using the gym facilities during lunch breaks, before or after work on weekdays as well as weekends. Anti-SARS Measures To manage the SARS outbreak effectively, Keppel Land concentrated its resources on education, health screening and hygiene control, cost reduction and productivity improvements as well as contingency plans to ensure business continuity. Preventive measures taken included giving every staff a thermometer to conduct compulsory daily temperature taking, facemasks and educational materials. The frequency of the temperature-monitoring exercise increased for staff who had returned from overseas trips or had gone to high-risk places like hospitals. Vitamin C supplements were also given to all employees to build up their body s immunity. To ensure business continuity, contingency measures such as splitting critical departments into different teams, and arranging for the various teams to work from different locations, were taken. Computer notebooks were also made available to enable staff to continue working from home in case they had to be quarantined. These measures were similarly enforced in Keppel Land s regional offices. From the very start, the Company had taken the initiative to produce SARS kits comprising health and medical supplies, which were distributed to all overseas offices. Employees in these offices also participated in daily temperature recording and reporting exceptional symptoms to the head office. As an office landlord in Singapore, Keppel Land played an important role in allaying public fear of the SARS outbreak. To build confidence among its tenants, customers and staff, visitors to its office buildings had to have their temperatures taken at the office lobby. Common areas were cleaned more regularly. A response plan was also put in place to handle possible cases of a tenant having SARS-like symptoms. To support this plan, isolation rooms were set up. Keppel Land also worked with the contractors at the construction sites of its buildings to monitor the health of site workers closely. Similar measures were undertaken at all hotels and resorts under its hospitality arm, Sedona Hotels International. As part of its business contingency plan, the head and the deputy-head of each hotel worked different shifts and minimised face-to-face interaction. Preparing for the Future As Keppel Land strives to be an employer of choice, efforts and initiatives in enhancing and strengthening its human capital will remain one of its key priorities. The Group will focus on strengthening its human capital through continuous training, development and upgrading the skills of its employees across the region to better equip them to manage and embrace best-in-class practices to meet corporate objectives. Pro-active measures will also be taken to ensure that practices and systems are in place in an increasingly competitive market for talent. 62

64 Nurturing People A bag of fruits is given to every staff at the end of each month to encourage them to have a well-balanced diet. 2. Corporate membership at Clark Hatch Fitness Centre at InterContinental Singapore provides staff the facilities to keep fit during their leisure hours. 3. Health screenings, hygiene control and business continuity plans were all part of comprehensive anti-sars measures put in place in all Keppel Land offices across the region. 4. The Active Day series provided staff with a wide spectrum of energising activities like boxercise. 63

65 Report to Shareholders 2003 COMMUNITY RELATIONS Living up to its corporate responsibilities, Keppel Land plays an active role in support of the community. Striving to be a Good Corporate Citizen Keppel Land strongly believes in being socially responsible and in giving back to the communities in which it operates and invests in. In striving to be a committed and responsible corporate citizen, the Company constantly plays an active role in support of the community, the arts and the education, both locally and overseas. Through its contributions in the areas of financial assistance, voluntary work and management support, Keppel Land is amongst the new generation of corporations which help to make a difference to society. Corporate Volunteerism Staff are strongly encouraged to involve themselves in voluntary community work through the Keppel Volunteers Programme. Started in 2000 as a Keppel Group-wide volunteer movement, the programme has to-date seen more than 60 Keppel Land staff volunteering their services. vegetable farms. Volunteers also spend on average one day in a week at the schools, holding activities ranging from reading, cooking and art and craft lessons to extra-curricular activities like bowling and kite-flying. During the year, Keppel volunteers sponsored a group of APSN students for training courses at the Singapore Hotel and Tourism Education Centre. Through these activities, the volunteers have helped impart skills and develop confidence and social skills in the children. Besides meeting once a week to brainstorm programmes and activities, volunteer workshops were held regularly. These serve to better equip volunteers with the necessary skills of volunteering. At the same time, they sought to review and improve the volunteer programmes and activities, troubleshoot potential issues in the administration of regular volunteer activities, improve the volunteer base and enhance team spirit amongst members in the volunteer committee. Management strongly supports the volunteer activities and gives every volunteer two days off from work each year to do voluntary work. This is in line with the Keppel philosophy that charity goes beyond just giving out cash to beneficiaries. Keppel volunteers have also tapped on technology to reach out to more people within the Group. In March 2003, it launched In-Touch-Net, a monthly system to keep all Keppel staff updated on volunteer activities. Staff participation is facilitated by presenting them with year-round volunteering opportunities at its adopted charity, the Association of Persons with Special Needs (APSN), which runs five special schools. These comprise three primary schools (Chao Yang Special School, Jervois Special School and Katong Special School), one intermediate school (Tanglin Special School) for those aged 13-16, one senior school (APSN Delta Senior School) for those aged 16-18, and the APSN Centre for adults. Activities included helping out at APSN s social outings and excursions to places of interest such as the Qian Hu fish farm, the Everbloom mushroom farm and the quail and hydroponics Contributing to the Community Despite the challenging economic environment, efforts to fulfil social responsibilities were kept up. During the year, Keppel Land continued to provide financial support to charitable organisations, including the Community Chest and the Handicaps Welfare Association. Sponsorships and donations were also made to the Securities Investors Association (Singapore), Singapore Institute of Surveyors and Valuers, the Real Estate Developers Association of Singapore, as well as a fund-raising event organised by the Tampines Rovers Football Club. 64

66 Nurturing People Living up to its corporate responsibilites, Keppel Land was a sponsor for Singapore s National Day Parade It was also a sponsor for the SAF-Day combined re-dedication ceremony In addition, Keppel Land contributed to the Singapore Arts Festival 2003 as part of the Keppel Group-wide efforts to support the arts. During the Christmas season, Keppel Land also contributed to the Boys Brigade Sharity Gift Box to help spread cheer to the poor and less fortunate. Charity at Keppel Land s Office Buildings To enhance its fund-raising efforts, Keppel Land capitalised on its large tenant base. As part of a long-running tradition, Christmas trees carrying wish tags from children with special needs are set up each year at the lobbies of Keppel Land s office buildings. 1 In 2003, wishes from 624 children from the Chao Yang, Jervois and Katong Special Schools donned the Christmas trees at Ocean Building, Ocean Towers, Prudential Tower and Keppel Towers. Tenants readily responded and helped grant the wishes of these children. Supporting the Arts and Charity at Parco Bugis Junction Despite the SARS outbreak which made the retail scene even more challenging, Parco Bugis Junction (Parco) remained mindful of its role in the community. It continued to play an active role in supporting the arts as well as various fund-raising and community events throughout the year. 2 Parco Bugis Junction was host to the Octobeer Fest in October. The festival featured talented Austrian and German performers dressed in traditional Bavarian costumes, performing a repertoire of European folk and contemporary songs on traditional Alpine instruments, cowbells and spoons, the guitar, clarinet and violin. Besides supporting the arts, Parco also lent its hand to charity when it was the venue for the National Kidney Foundation (NKF) Charity Show 2003 in April to raise money for needy patients. The mall was transformed into an acrobatic circus when artistes from the MediaCorp Studios performed a daring 1. Wishes came true for 624 children at the Chao Yang, Jervois and Katong Special Schools, thanks to generous tenants of Ocean Building, Ocean Towers, Prudential Tower and Keppel Towers. 2. Fungi and fish were on the menu for the day when Keppel Volunteers took their special charges from the APSN to the Everbloom Mushroom Farm, and the Qian Hu Fish Farm. 65

67 Report to Shareholders 2003 stunt of walking across a 24-metre tightrope suspended five storeys above the ground. The stunt, which was beamed live over satellite from Parco, raised about $1 million out of a total of $6.5 million that NKF raised for the entire charity show. In June, Parco jointly held the annual fish exhibition cum fund-raising event together with Qian Hu Corporation and De Dynasty Arts Centre. Since its inception six years ago, the event has raised a total of about $240,000 for various charity organisations. In 2003, the beneficiaries of the Act Parco event included the Metta Rehabilitation Centre for the Elderly, Viriya Community Services, Independent Society of the Blind (Singapore) and the Ong Teng Cheong Education Trust Fund. To increase public awareness of animal abuse, Parco hosted the World Animal Day in October. The two-day programme, which was organised by the Society for the Prevention of Cruelty to Animals (SPCA), included talks and an educational exhibition with display booths providing information about the SPCA, pet responsibilities and animal abuse. Pet care counsellors were also on hand to provide advice on pet care. Some 40% of the proceeds from a book sale held in conjunction with World Animal Day were donated to the SPCA. Capitalising on its reputation as a popular shopping destination and convenient location, Parco hosted the Affair of the Jewel, the opening event of the Singapore JewelFest 2003 at its airconditioned streets in October. The inaugural event, organised by the Singapore Tourism Board, was a month-long festival aimed at bringing back tourists and boosting the gem industry with the aim of promoting Singapore as a jewelry hub. Besides showcasing designs by five leading local jewellers, the event featured a collection of Barbie dolls dressed in diamonds, gold and precious gems. Some 10% of the proceeds from the sale of these dolls, which cost about $5,000 each, and other jewelry pieces, went to the Singapore Breast Cancer Foundation. In line with the government s efforts to promote entrepreneurship, Parco participated in the So You Want to be a Retailer forum organised by the Association of Shopping Centres (Singapore) in May Targeted at those who were keen to start a retail business, Parco s General Manager, Tong Kok Wing joined other mall managers and retail professionals in providing insights into starting and running a retail business. These ranged from store design, retail trends and concepts, and visual merchandising to relations with the landlord and creditors. Making a Difference at InterContinental Singapore InterContinental Singapore adopted the Children s Aid Society (Melrose) during the festive season in It also helped raise funds for the society by pledging $1 for every diner who dined at the hotel s Olive Tree, Man Fu Yuan or Suntory restaurants. In addition, proceeds from the sale of festive cakes were also donated to the society. Children from the Melrose Home were also invited to the hotel for afternoon tea, followed by a tour of the kitchens, restaurants and the front office. Keeping up Community Efforts Overseas Efforts to contribute and give back to the community were not limited to Singapore. Through Sedona Hotels International, Keppel Land was actively involved in several local community service projects in the region. Children First at Sedona Hotels In Vietnam, Sedona Suites Hanoi celebrated a very special Valentine s Day on 14 February 2003 with a charity concert to raise funds for the Nguyen Dinh Chieu School for Blind Children of Hanoi. The concert, put together by staff and residents of Sedona Suites Hanoi, showcased the talents of the children from the school, and drew a crowd of close to 100. In addition, Sedona Suites Hanoi also regularly collects toys, clothing and educational materials from staff and residents and donates them to the local orphanage. During the Christmas season, Parco helped to raise $50,000 towards the Straits Times School Pocket Money Fund through the sale of specially-designed party hats. This Fund makes available pocket money for an estimated 11,000 children from low-income families to help ease the financial burden of these households. During the Christmas season, Sedona Suites Ho Chi Minh City brought cheer to the children at the Orphanage of Dong Nai with gifts of books, clothing, toys and food which were collected and donated by residents, tenants and staff. 66

68 Nurturing People Valentine s Day in Vietnam was celebrated with a charity concert to raise funds for the Nguyen Dinh Chieu School for Blind Children of Hanoi, organised by Sedona Suites Hanoi. 2. Parco Bugis commissioned specially-designed party hats for sale and proceeds amounting to $50,000 went towards the Straits Times School Pocket Money Fund. 3. Sedona Suites Ho Chi Minh City brought cheer to the children of the Dong Nai Orphanage through gifts of books, clothes, toys and food. 67

69 Report to Shareholders 2003 Sedona Hotel Mandalay has been providing nutritional food items and other necessities on a regular basis to the orphanages and schools in Mandalay. The Nurul Yasmin Orphanage for Girls is one of the many orphanages that Melia Purosani Hotel in Yogyakarta supports. Similarly, a wishing Christmas tree carrying some 40 wishes from the children of the Christina Noble Children s Foundation was placed at Saigon Centre in Ho Chi Minh City. These wishes were all granted by the tenants at Saigon Centre. Singapore companies who donated two thermal imaging scanners and four ventilators to Vietnam under the auspices of Temasek Holdings, contributing towards regional efforts in the fight against SARS. In Myanmar, Sedona Hotel Yangon, in collaboration with the Ministry of Social Welfare, continued to organise lunch activities monthly for children from the local orphanage and School for the Blind. The hotel also contributed food items in support of the British Embassy s Annual Christmas Charity Fair in December Since 1999, Sedona Hotel Mandalay has been providing nutritional food items and other necessities like oil, peas and eggs on a regular basis to the orphanages, schools and the School of Fine Arts in Mandalay. Lending a Helping Hand In the same vein, Spring City Golf and Lake Resort in Kunming, China donated re-usable furniture, computers, television sets and household appliances, batteries and light bulbs to the local schools, orphanages and homes for the aged. The management and staff from Ria Bintan Golf Club in Bintan, Indonesia also organised a donation drive for the local villagers of Rekoh in Bintan in April 2003, where 10 boxes of gift packs and old clothings were distributed to the locals. During the SARS outbreak, Keppel Land and its parent company, Keppel Corporation were among six leading Melia Purosani Hotel, Champion of the Orphans and the Poor Melia Purosani Hotel in Yogyakarta, Indonesia has long been a champion of the orphans and the poor. Every month, management and staff from the hotel will visit a different orphanage in Yogyakarta, bearing donations of cash, clothes and other necessities. Orphanages which have benefitted from this programme during the year include the Wiloso Projo, Binawasi, Budi Bakti, House of Cacat Ganda, House of Sayap Ibu, Santa Maria, Sinar Melati Orphanage for Boys, Nurul Yasmin Orphanage for Girls and Tunas Harapan orphanages. To help improve the living conditions of the poor, Melia Purosani Hotel makes monthly donations to the Baitulmaal Muammalat Yogyakarta for the development of villages in the Nanggulan area. Since August 2003, the hotel has also been giving monthly donations to the Yogyakarta Lentera llmu School for poor children to ensure that they have a chance at education. Donations were also made to the Kharisma Purosani Pedicab Drivers Group. During Christmas, the hotel hosted a dinner for 20 children from the Melati Church Children s Choir and made a donation to the church. 68

70 Nurturing People Contributing to the Community Month Event In Support of SINGAPORE Year-round Keppel Volunteers activities The Association of Persons with Special Needs March Donation to the Community Chest Charity Gala 2003 Community Chest April National Kidney Foundation Charity Show 2003 at National Kidney Foundation Parco Bugis Junction May Fund Raising Golf Tournament 2003 Tampines Rovers Football Club June Singapore Arts Festival 2003* National Arts Council June Act Parco Bugis Junction Metta Rehabilitation Centre for the Elderly, Viriya Community Services, Independent Society of the Blind (Singapore) and the Ong Teng Cheong Education Trust Fund July Singapore Armed Forces (SAF) Day SAF Re-dedication Ceremony August National Day Parade 2003* National Day Parade September Donation to Handicaps Welfare Association s Wheel, Handicaps Welfare Association Walk or Jog 2003 October World Animal Day at Parco Bugis Junction Society for the Prevention of Cruelty to Animals October Affair of the Jewel at Parco Bugis Junction Singapore Breast Cancer Foundation December Christmas at Parco Bugis Junction The Straits Times School Pocket Money Fund December Wishing trees at Keppel Land s Office Buildings Chao Yang, Jervois and Katong Special Schools December Christmas with InterContinental Singapore Children's Aid Society (Melrose) December Donation to Boys Brigade Sharity Gift Box Various benefi ciaries under the Boys Brigade Sharity Box Programme OVERSEAS Monthly Melia Purosani Hotel in support of orphanages in Yogyakarta Various orphanages in Yogyakarta including the Wiloso Projo, Binawasi, Budi Bakti, House of Cacat Ganda, House of Sayap Ibu, Santa Maria, Sinar Melati Orphanage for Boys, Nurul Yasmin Orphanage for Girls and Tunas Harapan orphanages Monthly Monthly donations to Baitulmaal Muammalat Yogyakarta for development of villages in Nanggulan, Villages in Nanggulan, Yogyakarta through Baitulmaal Muammalat Yogyakarta Yogyakarta Monthly Donation to Yogyakarta Lentera llmu School for poor Yogyakarta Lentera llmu School children Monthly^ Lunch activities at Sedona Hotel Yangon School for the Blind and local orphanages under Myanmar s Ministry of Social Welfare February Valentine s Day Charity Concert at Sedona Suites Hanoi Nguyen Dinh Chieu School for Blind Children of Hanoi April Donation drive at Ria Bintan Golf Club Villagers of Rekoh in Bintan, Indonesia October Donation to the Singapore Sichuan Trade and Investment Committee Education Fund Singapore Sichuan Trade and Investment Committee Education Fund October Blood Donation at Melia Purosani Hotel Red Cross Society and the Yogyakarta City Government November Donation to the Kharisma Purosani Pedicab Drivers group and poor community in Yogyakarta Kharisma Purosani Pedicab Drivers group and poor community in Yogyakarta December Christmas with Sedona Suites Ho Chi Minh City Orphanage of Dong Nai, Ho Chi Minh City December Wishing Christmas trees at Saigon Centre Christina Noble Children s Foundation December Christmas dinner with Melia Purosani Hotel Melati Church Children s Choir December Christmas Charity Fair in Yangon British Embassy s Annual Christmas Charity Fair * As part of Keppel Group s contributions ^ Since August

71 Report to Shareholders 2003 ENVIRONMENTAL RESPONSIBILITY Infused with generous landscaping, Keppel Land s developments provide exclusive havens for city dwellers. As Keppel Land expands its regional footprint, its commitment to caring for the environment and the guiding philosophy of creating quality living and working spaces while integrating environmentally viable management have become second nature. eco-pond, a floating pavilion, a volcano-themed children s pool, a beach pool as well as gushing waterfalls and flowing streams. Discerning residents looking for a tranquil area to enjoy a massage can also retreat to the Jungle Spa, which comes complete with a jacuzzi. By striking a balance between economic objectives and environmental welfare, the Group aims to enrich lives and build value for generations to come. This tenet, which drives the design and development of all its projects, is part of the Keppel hallmark of quality. Creating Quality Living and Working Spaces Be it homes or offices, Keppel Land s developments are carefully crafted with detailed planning in structural design and landscape, carving out verdant sanctuaries and green retreats within each development. These concerted efforts are apparent in the inclusion of green initiatives in every project, both locally and overseas. In Singapore, about 40% of the 234,362 sf site at the 480-unit Wee Nam condominium development in the Newton area will be dedicated to lush landscaping and recreational facilities. Designed as an urban sanctuary, Wee Nam will feature Singapore s first aqua-gym, a huge open lawn, a forest track and a cave trail. Surrounding the clubhouse and a function room are water features like an Design Excellence Award for Caribbean at Keppel Bay At its flagship residential development in Singapore, Caribbean at Keppel Bay, historic docks were preserved and converted into private waterways which will course throughout the development. To achieve this design, engineers had to work with the terrain, overcome obstructions from existing shipyard ancillary structures and preserve the docks. This seamless integration between home and sea has garnered Caribbean at Keppel Bay the Design Excellence Award 2003 in the Civil and Structural category, conferred by the Association of Consulting Engineers Singapore. More than just a luxury residence, Caribbean at Keppel Bay also provides a convergence for marine life, flora and fauna. This seafront haven is also home to over 15 different botanical species, with some 2,200 shrubs and 800 trees. Carving Sanctuaries within Stone and Slate in Commercial Buildings Adjacent to Caribbean at Keppel Bay is the Keppel Bay Tower office building. Just minutes away from the Central Business District, Keppel Bay Tower is an urban oasis enveloped by 70

72 Nurturing People natural elements, including the rolling hills of Mount Faber, the calm waters of the sea surrounding scenic Sentosa Island and the rustic marina. To maximise the sea frontage, every floor at Keppel Bay Tower is fitted with full-length glass windows. Nestled between Keppel Bay Tower and HarbourFront Tower One is a central garden complemented by reflection pools. Cascading water features enhance these pools, whose gentle ripples produce soothing sounds akin to rippling brooks. Similarly, Keppel Land extends this generous use of landscaping, lush open spaces and unique water features to its other office buildings in the Central Business District to offer a refreshing change to the urban skyline. All of the Group s commercial developments are skilfully designed to integrate form and function, and conscious efforts have been made to create pockets of green relief to provide a conducive environment for both city dwellers and the working population. Commuters at Raffles Place seeking respite from the hustle and bustle of city life can unwind under shady palms at the green haven adjacent to Prudential Tower, while tenants of Ocean Building and Keppel Towers enjoy exclusive access to private roof gardens and terraces in their buildings. In the heart of the civic and cultural district, Singapore s first interactive fountain takes pride of place at Parco Bugis Junction. Designed to provide cool relief in our tropical climate, efforts were taken to minimise wastage by incorporating a built-in filtering system, which constantly purifies and recycles the water. Also within the award-winning mall is a glass-covered atrium that traverses Parco Bugis Junction. The first of its kind in the region, this unique feature harnesses natural light to enhance the shopping experience for both tenants and patrons alike. Cultivating Best Practices for the Environment Recycling, reusing and reducing wastage of office supplies are inherent practices adopted by staff. The Group believes in inculcating eco-friendly practices as part of the Group-wide corporate culture. Efforts to cut down unnecessary waste include the disposal of scrap paper, old newspapers and magazines at recycling bins. Used toner and ink cartridges are also collected and sold to a recycling agency every month. InterContinental Singapore, champion of eco-friendly practices since its opening, has put in place comprehensive water and energy conservation programmes. These include a linen programme that reduces daily changes, use of biodegradable cleaning agents and an active recycling programme involving the reuse of paper, plastic and glass. As part of its energysaving measures, timer switches are also installed so that lights are turned off when not needed and energy saving cards are provided in all guestrooms. The hotel has switched to energysaving fluorescent bulbs, where possible. In November 2003, the hotel participated in the National Clean and Green Week and extended its eco-efforts to Pulau Ubin. Hotel staff spent a day cleaning the beach and neighbouring areas on the island, in support of a nationwide effort to promote Pulau Ubin as a tourist destination. Go Green, Go Global Likewise in the region, the Group s projects benefit from the holistic approach used to create ideal living environments. Careful thought has been put into landscaping and waste minimisation for all its overseas projects. Green Living in China Park Avenue to help revitalise Jingan District Keppel Land s maiden residential project in Shanghai, the Park Avenue precinct in Jingan District, is a showcase of its contributions to overseas communities. Park Avenue, an upmarket residential district, comprises three condominium projects with a total of 2,771 units to be completed over three phases. The entire Park Avenue project has been recognised by the Jingan District office as contributing significantly to the rejuvenation of the district and has been credited as a catalyst to the urban renewal of the city. Previously an area encumbered by dilapidated shop houses, Jingan has since become one of the most sought after residential enclaves in Shanghai. As part of the project s master plan, Keppel Land will re-develop the central thoroughfare, Wu Ding Road into a tree-lined boulevard framed by fountains, public plazas and park benches. These green features will add vibrancy and a new lease of life to the area, thereby creating a lush residential sanctuary in the heart of busy Shanghai. One Park Avenue wins Environment and Fully-fitted Awards One Park Avenue, the first of three condominium developments in the Park Avenue precinct, was awarded the Gold Award in the Environment category of Top 10 properties in Shanghai by Hong Kong s Da Gong Bao newspaper. The hit list identifies the ten most sought-after properties for the year by homebuyers in Hong Kong and Taiwan. 71

73 Report to Shareholders 2003 Designed by renowned architects, the Palmer and Turner Group and landscaped by the award-winning Belt Collins International, One Park Avenue was credited for its verdant surroundings, thoughtful design and the layout of its units. Like a green oasis sprouting in the heart of the bustling Shanghai metropolis, the development showcases enchanting gardens that harmoniously integrate both the Chinese and Western styles. Pavilions, fountains, pools and other ornamental features dot the gardens, creating a tranquil lush paradise. In addition, the clubhouse boasts of a lowered courtyard with a sunroof that lets in natural light to create a bright and cheerful atmosphere. Besides its lush environment, One Park Avenue s overall design also helped it clinch the top award. Thoughtfully designed to take into account Shanghai s four seasons, all apartment units at One Park Avenue are oriented towards the favoured southfacing, and fitted with ample glass windows to capture the warmth and sunlight during winter. For its unique attributes, One Park Avenue was also conferred the Fully-fitted Award by Shanghai s Municipal Government at the Third Excellence in Residential Properties Competition. This award recognises the project s outstanding collection of fully-fitted apartments, which are ready for occupancy upon completion. Units are furnished with quality flooring, fully-fitted bathrooms, built-in wardrobes, kitchen cabinets and air-conditioning. Each home is also equipped with a security intercom system and broadband cabling. These awards affirm the exceptional quality and design of the Group s developments, and will help establish Keppel s brand name as a developer of choice in China. Environmental Plans for Upcoming Projects Such landscaping works will be carried through in the Group s two other projects within the entire Park Avenue residential precinct 8 Park Avenue and Park Avenue Central. Capitalising on the auspicious and prime address, 8 Park Avenue s master plan draws inspiration from the number 8, which signifies prosperity. Apartment blocks in this 945-unit development are configured to create pockets of green open space within the site for lush landscaping, pools and water features. The design incorporates environmentally-friendly and energy saving concepts such as double-glazed windows and concrete wall treated with external insulation material to keep occupants warm during winter and cool during summer. A recycled water system will be used for watering the garden and for washing. Units are oriented to achieve maximum view, facing south and blocks are spaciously set back from each other for privacy. Each apartment at 8 Park Avenue will also have its own planter boxes where residents can create their very own high-rise sky gardens to bring nature into their homes. In Beijing, The Seasons residential project in Wang Jing estate in Chao Yang district will be one of the first condominiums in the city to showcase the unique beauty of all the four seasons. Meticulous landscape planning ensures a mix of all-season evergreens as well as deciduous trees and flora to allow residents to enjoy different facets of nature all year round. Another outstanding feature is the recreational plaza, which transforms from a multi-purpose sports arena in Spring, into an ice-skating rink in winter. Resort Living in Thailand and Vietnam Attention to landscaping is not confined to its condominium projects. For Villa Arcadia at Srinakarin landed housing project in Bangkok, Keppel Land has specially designed resort-style garden bathrooms for each house. These are outdoor open-roof shower areas allowing for the enjoyment of natural surroundings in complete privacy. The design also encourages users to decorate the home with plants and other earthy materials. By so doing, Villa Arcadia at Srinakarin goes one step further by transferring the beauty of the outdoors into the home. Similarly in Vietnam, Keppel Land s penchant for creating homes close to nature is brought to bear at Villa Riviera. Situated on the banks of the scenic Saigon River, this unique waterfront development with resort-style facilities is set against a backdrop of luxuriant tropical gardens. Pockets of lush green parks are embedded throughout the 6-ha landscape, along with tree-lined boulevards and water features. Fringed by coconut palms, the 30-metre infinity edge pool allows for a panoramic view of the rustic and scenic natural surroundings. Homeowners can also enjoy the riverside ambience from the privacy of their luxurious rooftop jacuzzis in the units. A Haven in Sydney In Sydney, the Botanic Cove residential development is home to over 130 species of native flora and fauna. A haven hidden from the Central Business District, this hillside property located in the suburb of Tarban overlooks the scenic beauty of Hunters Hill. 72

74 Nurturing People Residents enjoy the legacy of heritage-listed vegetation, in part due to Keppel Land s dedicated planting programmes. This allows for the variety of species to thrive in this showcase of biodiversity. In keeping with the surroundings, apartment blocks at Botanic Cove are named after the names of trees and plants native to the locality such as Rosewood, Sandalwood, Tulipwood, Grevillea and Magnolia. Keppel Land also collaborates with Hunters Hill Council to protect the nature reserves at Tarban Creek and Angophora Gully. The collaborative efforts have manifested in the construction of a sedimentation basin to address soil erosion from the drainage of storm water into the creek. 1 As a result of these environmental efforts, the lush reserve has attracted migrating wild ducks to roost at Botanic Cove every summer, contributing to its reputation as one of the best kept wildlife enclaves in the area. Keeping up Eco-Friendly Efforts Keppel Land s commitment to environmental conservation is clearly exemplified in the award-winning Spring City Golf and Lake Resort in Kunming. Although initially an arid and mountainous region afflicted by poor surface drainage and severe soil erosion, Spring City is now home to two world-class golf courses. With natural contours of undulating landscape framed by pristine lakes, the land s biodiversity is treated with exceptional care. Fertilisers used are biodegradable with slow-release properties that are compatible with plant absorption rate, thus reducing excessive chemical pollution. This is a vital practice as Spring City is adjacent to Lake Yang Zhonghai, the main reservoir of potable water for neighbouring municipalities. 2 By means of a computerised irrigation system, the resort s sewage treatment facility treats the wastewater from the clubhouse, housing estate and maintenance yard, and channels treated water back to the golf courses. Similarly, meticulous planning for the environment will be applied to the proposed residential development adjacent to Spring City. The natural landscape will be conserved with utmost care, and focus will be on preserving the region s culture and heritage. Vegetation will be revived as part of re-greening efforts, which also include maintenance and integration of existing farmlands. 1. The unique garden bathroom concept in Villa Arcadia at Srinakarin, Bangkok allows homeowners to enjoy the natural surroundings in complete privacy. 2. Apartment blocks in 8 Park Avenue are configured to create pockets of green open space for lush landscaping, pools and water features. 73

75 Report to Shareholders 2003 Even within the internal operations of the resort, conscious efforts to minimise waste have also been implemented clubwide. Cloth napkins and placemats are used in place of paper ones. Re-usable old furniture, computers, television sets and household appliances, batteries and light bulbs are donated to the local schools, orphanages and homes for the aged to minimise wastage. In keeping with efforts to reduce ecological impact, Sedona Suites Hanoi and Sedona Suites Ho Chi Minh City serviced apartments in Vietnam use water-soluble, biodegradable cleaning agents and deodorisers to reduce chemical overruns. Sedona Suites Hanoi also takes proper care to treat sewage water before discharge and so prevents pollution of the famed West Lake. determined to run business as usual while managing the fear of the pandemic. Using the slogan I Feel Good, Parco put in place various anti-sars measures to ensure shoppers that it was a safe place to shop. These included daily temperature checks for all who worked in the premises, especially the frontline staff. Food vendors were issued with disposable gloves, face masks and aprons and had to complete health declarations daily. Other precautionary measures include cleaning restrooms and high contact areas such as the lift buttons, door handles and railings more frequently. Anti-bacterial soaps replaced liquid hand-soap in the common toilets. The premises were inspected more regularly to ensure that the levels of cleanliness and sanitation were maintained. At Ria Bintan in Indonesia, environmental health is of top priority. Fertilisers are chosen carefully so as to minimise water contamination through quick evaporation. The use of pesticide is controlled, instead of blanket spraying on the premises. At the resort s sewage treatment plants, effluents are also treated to prevent possible environment pollution. In addition, eight handwash booths, costing $4,000 each, were set up for both vendors and visitors, when Parco hosted the Singapore Food Festival s Gourmet Paradise in April. Complete with posters displaying the correct way to wash hands, this move aimed to promote personal hygiene and wipe out any chances of viral transmission. Anti-SARS Measures Keppel Land s Offices In the wake of the SARS outbreak, Keppel Land put in place a series of preventive and contingency measures at its offices to guard against the virus. Preventive actions taken included compulsory daily monitoring of body temperature by all staff, having in place procedures to handle probable SARS cases and giving staff vitamin C supplements to boost their immunity system. Contingency measures such as splitting critical departments into different teams working from different locations were also undertaken to ensure business continuity. These measures were similarly implemented at all of Keppel Land s regional offices, investment buildings, construction sites, as well as hotels and resorts under its hospitality arm, Sedona Hotels International. Contributing to Regional Efforts at Combating SARS Partaking in regional efforts in the fight against SARS, Keppel Land and Keppel Corporation were among six leading Singapore companies which donated two thermal imaging scanners and four ventillators to Vietnam under auspices of Temasek Holdings. COOL Singapore Certificate and MAXI Award for Parco Bugis Junction During the outbreak of SARS, Parco Bugis Junction was What started as a simple practice to help allay fear of the SARS virus among Parco s stakeholders and the general public soon became a mall-wide exercise involving all staff and tenants. Through this exercise, Parco was able to sustain traffic to the mall and contain a decline in sales during the SARS outbreak. Parco was presented a SARS-free certificate in May 2003 by the Minster of State for Trade and Industry, Mr Raymond Lim for being one of the most proactive shopping malls in enforcing a series of measures to boost the confidence of shoppers, retailers and staff. Officially known as the COOL Singapore Certificate, it is a national stamp of approval by SPRING Singapore, given to shopping centres which implement the best practices in the prevention, recovery and risk management of SARS. The programme was a public-private sector collaboration aimed at promoting the best practices to ensure rigorous precautionary measures against SARS as well as boosting the confidence of shoppers, staff and other stakeholders. In just a matter of months after bagging the COOL Singapore Certificate, Parco s I Feel Good anti-sars campaign was lauded again at the internationally-acclaimed MAXI Awards held in Las Vegas in October Parco s campaign garnered the merit award under the category of Community Service for Shopping Centres. The competition, which drew some 413 global entries, was organised by the 74

76 Nurturing People International Council of Shopping Centres (ICSC). Since 1972, ICSC has been awarding the MAXI Awards each year to shopping centres that have designed and implemented the most successful marketing programmes. An international panel made up of 40 leading industry experts judged the campaigns based on their marketing objectives and strategies, implementation, creativity, cost effectiveness as well as results and impact. Parco s anti-sars campaign was conceptualised and executed using only in-house resources and under very challenging circumstances. The mall has certainly benefited from this exercise and this MAXI award has proven that its campaign stands among the best in the world. InterContinental Singapore Conferred COOL Singapore Certificate Like Parco, InterContinental Singapore was also conferred the COOL Singapore Certificate for its anti-sars efforts. To ensure the safety and well-being of its guests and employees during the SARS outbreak, InterContinental Singapore monitored the situation closely and put in place precautions in line with the Ministry of Health s recommendations to minimise the possibility of infection among guests and employees. Besides maintaining high standards of hygiene in both public areas of the hotel and private guestrooms and bathrooms, higher doses of disinfectant were also added to its laundry wash and for cleaning all contact surfaces. In addition, daily temperature checks of all employees, contractors and suppliers were conducted. Gloves and masks were also made available to guests. In essence, Keppel Land remains focused in its eco-efforts and is committed to the philosophy that properties should be developed to harmonise with and improve the environment as well as enhance the quality of life of the people who use them in Singapore and overseas. Be it in the city or tropical resorts, Keppel Land will continue its unceasing efforts to ensure that its developments are in harmony with the living environment Environmental Awards SINGAPORE Caribbean at Keppel Bay Parco Bugis Junction Parco Bugis Junction InterContinental Singapore Design Excellence Award by Association of Consulting Engineers Singapore COOL Singapore Certifi cate by SPRING Singapore Merit Award under the Community Service for Shopping Centres category of the MAXI Awards by the International Council of Shopping Centres COOL Singapore Certifi cate by SPRING Singapore OVERSEAS One Park Avenue One Park Avenue Gold Award in the Environment category of Top 10 Properties in Shanghai by Hong Kong s Da Gong Bao newspaper Fully-fi tted Award by Shanghai s Municipal Government at the Third Excellence in Residential Properties Competition 75

77 Leveraging group experience, relationships, brand equity and resources sustains our growth.

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79 Asia s Urban Leap As the pace of urbanisation accelerates in Asia, Keppel Land will step up its search for potential development opportunities to meet the growing aspirations of the middle-income group for quality homes. A new wave of urbanisation is taking place in Asia with increasing globalisation. The pursuit of technology and brainpower is essential in economic progress and meeting aspirations for a better quality of life. The 21st century would showcase Asia s renewed growth, a new phase which exerts a defining influence in moulding the urbanisation and global trends of the future. Aware of this imminent wave, Keppel Land has positioned itself to capture the immense housing opportunities presented in this significant Asian urbanisation cycle. Future Urbanisation Growth to Come from Asia According to a United Nations (UN) report in 2001, the world population is expected to grow at an annual rate of 1.04% to reach 8.3 billion in The global urban population will increase from the current 47% to 60% by that year with ruralurban migration and the transformation of rural settlements into cities playing a significant role. Asia is expected to experience the fastest growth rate of urbanisation. Its urban population is likely to rise from 37.5% to 54.1% by 2030, and account for 12 of the world s 21 mega cities by Table 1: Population and Urbanisation Growth POPULATION (Million) % growth p.a. Total Population 6,057 8, Northern America Latin America & Caribbean Oceania Europe Asia 3,672 4, Africa 794 1, Urban Population 2,862 4, Northern America Latin America & Caribbean Oceania Europe Asia 1,376 2, Africa % Urban Northern America Latin America & Caribbean Oceania Europe Asia Africa Source: United Nations Population Division World Urbanisation Prospects - The 2001 Revision 78

80 Table 2: Population of Cities with More than 10 Million Inhabitants by 2015 City Million City Million Tokyo 27.2 Los Angeles 14.5 Dhaka 22.8 Shanghai 13.6 Mumbai 22.6 Buenos Aires 13.2 Sao Paulo 21.2 Metro Manila 12.6 Delhi 20.9 Beijing 11.7 Mexico City 20.4 Rio de Janeiro 11.5 New York 17.9 Cairo 11.5 Jakarta 17.3 Istanbul 11.4 Kolkata (Calcutta) 16.7 Osaka 11.0 Karachi 16.2 Tianjin 10.3 Lagos 16.0 Source: United Nations Population Division World Urbanisation Prospects - The 2001 Revision Urbanisation has taken place in Asia at each country s own pace of development, and has contributed towards economic growth. In particular, China and India stand out as countries with outstanding GDP growth rates in the region, yet with a high percentage of their people still living under rural conditions. Table 3: A Comparison between China and India Attributes China India Total population (billion) GDP growth (%) Private consumption growth (%) GDP per capita (US$ at PPP) 5,180 2,820 Average lending rate (%) Middle class population (million) Middle class population (% of total) PPP: Purchasing Power Parity Source: Mostly EIU As they seek to replicate the economic successes from their existing cities throughout the country, the stage is set for a mass urbanisation to take place. This in turn heralds a huge potential demand for housing development, particularly in the middle-income mass market segment. China s urban population is expected to further increase from 36% to 60% by 2030, driving demand for housing. The Rise of Second-tier Cities in China China embarked on a series of major reforms since 1979, which spearheaded the rise of the coastal cities of Guangdong, Shanghai and Beijing. The country as a whole is thereafter earmarked for success, as the populous country develops its low-cost manufacturing capabilities and offers considerable opportunities for foreign investment. As the highest in Asia, China s GDP growth for the year stands at 9.1%, led by strong exports and investment. The government has placed its official GDP growth target at 7% for 2004, boosted by industrial production and positive expectations placed on market reform. With economic affluence, the middle-income group has risen to 23% of the total population. Coupled with property market reforms, it brought about the phenomenal growth of the property market in the coastal cities. Yet with the continual influx of migrants seeking employment, a huge fundamental demand for housing is still present in China. There are currently 130 million migrant residents including 50 million registered as temporary residents in urban areas, and another 300 million rural folks waiting to be employed. 79

81 Asia s Urban Leap Table 4: Economic Forecast for China Forecast Summary Real GDP growth (%) Private consumption growth (%) CPI average (%) Urban unemployment rate (%) Export of goods and svcs growth (%) Import of goods and svcs growth (%) Industrial production growth (%) FDI (US$bn) Commercial banks prime rate (%) Growth of real disposable income (%) National savings ratio (%) China India USA United Kingdom Japan Bangladesh Degree of Urbanisation (%) Source: United Nations Population Division World Urbanisation Prospects The 2001 Revision Population growth (%) Source: EIU Country Forecast, March 2004 To spur greater economic growth and employment, efforts are channelled to further modernise the coastal cities and develop the inland provinces. Higher investments will be made in infrastructure, real estate and social services, leading to housing opportunities for developers. In addition, a massive growth in population is expected to drive housing demand. China s headcount is expected to increase from the current 1.3 billion to 1.5 billion or 18% of the world s population in The urban population is likely to further increase from the current 36% to 60% by then. Thus, together with China s accession into the World Trade Organisation, an estimated 5.7 billion sm of residential space is expected to be built between 2001 and 2005, of which 2.7 billion sm will be urban housing. To maintain its growth momentum in Asia, China seeks to further stimulate its demand engine while attaining higher cost savings. Enhanced international exposure from its membership with the World Trade Organisation and hosting of the 2008 Olympics would garner substantially new investments in achieving a more broad-based economic growth. Hence, as China moves northeast and westwards to reap fresh successes in new frontiers akin to its coastal cities, the resulting rise of the second-tier cities would propel the country in its next great leap forward, and provide the impetus for greater demand in urban housing. India Asia s New Hub India, a huge developing country like China, has however taken a different route in economic advancement and urbanisation since In contrast with China s manufacturing capabilities, India has instead amassed a wealth of human capital that has launched the country as a knowledge-based economy. India s economic growth has averaged a respectable 5.5% over the past five years, unscathed by the Asian economic crisis. Driven by a strong domestic economy and exports in the IT services sector, a broad-based growth is expected over the next few years. Its population is estimated to increase from 1.05 billion currently to 1.41 billion in 2030, and the urban population is expected to rise from 28% currently to 41%, with Mumbai and Delhi among the world s five largest cities. While the workingage population of other developed countries are expected to shrink by 2020, an estimated 47% of all Indians aged between 15 and 59 would be in the workforce, compared with 35% presently. 80

82 Efficiency dictates the flow of resources into more cost-effective markets, and India is gaining dominance with its inexpensive yet educated workforce. Costs are reduced by 40-60% and the growing pool of graduates is expected to double from the current 3.1 million a year by Optimism is also luring the more cosmopolitan generation back to India. India s proven abilities lie in Bangalore, now hailed as the next Silicon Valley, with a strong base in software applications, IT consulting and chip design. Such performance is slated to spillover into upcoming cities of Chennai, Mumbai and Hyderabad, all of which are showing immense growth potential in financial analysis, research and development, and auto and industrial engineering. It is predicted that as much as 500,000 financial services jobs will be outsourced to cost-efficient countries like India, with IT services and back-office work swelling five-fold by India is set to be Asia s new hub, with a wealth of human capital that has established the country as a knowledge-based economy. 70 Table 5: Economic Forecast for India 65 Delhi Mumbai Hyderabad Bangalore Chennai Level of Literacy in various Indian Cities (%) Forecast Summary Private consumption growth (%) CPI average (%) Urban unemployment rate (%) Export of goods and svcs growth (%) Import of goods and svcs growth (%) Industrial production growth (%) FDI (US$bn) Average lending rate (%) Growth of real disposable income (%) National savings ratio (%) Population growth (%) Source: EIU Country Forecast, February 2004 Population Delhi Mumbai Hyderabad Bangalore Chennai Comparison between various Indian Cities Urban Population (million) Rural Population (million) Population Density per sq km Source: 2001 India Census data Per sq km

83 Report to Shareholders 2003 Asia s Urban Leap These bright economic and demographic prospects underpin the immense opportunities for housing in India. Partially open to foreign investment, as much as US$380 billion worth is sought for the construction of key infrastructure and real estate. Full foreign direct investment is permitted for integrated residential township development. Coupled with a growing middle-class, there is market demand for quality housing for a growing urban population with increasing disposable income. Approximately million Indians are estimated to belong to the middle-class. Their earnings form part of an average household income of US$1,200 2,000 per annum. Robust consumption has seen auto sales growing by 85% since 1999, and the mobile phone subscriber base growing to account for a fifth of global demand. Favourable demographics and higher disposable incomes are expected to fuel consumption further in the next few years Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Rising Auto Sales in India (no. of units 000) India Auto Sales Source: Bloomberg The banking sector reform has also led to the growth of the mortgage loan market in India. Mortgage loan growth has reached approximately 30% p.a., and is slated to increase further, underpinned by declining interest rates. With higher affordability for many potential homeowners, the housing demand-supply gap is expected to widen. At the macro level, greater emphasis has been placed on reforms to rid of bureaucratic red-tape in areas such as foreign Mar-91 Mar-94 Mar-97 Mar-00 Mar-03 Declining Bank Rates Increase Affordability (%) Bank Rates Source: Reserve Bank of India policies, labour laws and tariff barriers. Meanwhile, Free Trade Agreements and the setting up of special economic zones are routes taken by the government towards greater economic liberalisation. With export-led manufacturing of textiles, autos and other capital goods as the next pillar of growth, deregulation will encourage greater investment inflow. Funds channelled into productive sectors in creating jobs and resolving problems of urban planning would thus pave the way for more development projects to take root in India. India is slowly but surely catching up with the rest of the global economy. Asia s upcoming hub teems with immense potential, and its increasing economic prosperity heralds bright prospects for its people and for the property sector. Keppel Land s Push for Townships Along with the global urbanisation trends, Keppel Land has since branched out into residential township developments in addition to the higher-end market segment in key emerging markets. Keppel Land s existing township portfolio includes townships in China, Vietnam and Malaysia. Consistently keeping abreast of developments in the region, the Group is looking to expand this market segment as part of its strategy to diversify its earnings from its development portfolio.

84 Section Header Here Keppel Land s Township Projects In May 2003, Keppel Land entered into a joint venture with HDB Corporation Pte Ltd to capitalise on the increasing demand for well-planned good-class residential townships in China. Saigon Sports City In June 2003, Keppel Land and Hong Kong-based Chiap Hua Group announced plans to develop Saigon Sports City, a good-class residential estate on a 68.7-ha site in Ho Chi Minh City, Vietnam. CityOne Township Development Pte Ltd (CityOne), a joint venture company, was formed to identify opportunities and focus on developing residential township projects in cities characterised by rapid economic and population growth, with the view of eventually extending its reach throughout the country according to market demand. Chengdu Township CityOne has announced plans during September 2003 to develop a 42-ha residential township in Chengdu, the capital city of Sichuan province. Located in the south-eastern sector of Chengdu, at the junction of 3rd Ring Road and Cheng Long Road, the site has easy access to major roads, with a short drive to the city centre. The entire township, which is to be developed over three phases according to market demand, will yield about 8,000 residential units. The township will comprise a mix of low- and high-rise apartment blocks, commercial buildings and supporting amenities including a primary school, kindergartens, a community centre/clubhouse, parks, a market and car park facilities. Parcel One of the first phase, consisting of approximately 980 residential units, is expected to be launched in the first half of Located just 25 minutes from the city centre, in the popular An Phu Ward in District 2, it is easily accessible via the Hanoi Highway and enjoys scenic river frontage. Saigon Sports City will comprise mainly quality housing, supporting commercial complexes, and a 15-ha area designated for public sports facilities. In exchange for land-use rights, the joint venture will develop the public sports facilities over 10 years. Phase One, comprising about 250 units of high-rise apartments, will be launched in the first half of Catering to the upper-income market and with proximity to many sports and recreational facilities, the project is positioned to meet the growing demand for well-planned residential estates in the city and is poised to be the first to embark on a healthy lifestyle development concept in Vietnam. A Timely Move Into India Keppel Land marks its recent foray into India with the stationing of a representative in Bangalore. Rich in economic potential and a rapidly increasing population, India offers fresh development opportunities in urban housing and residential townships for the middle-income segment. Other major growth cities under consideration include New Delhi, Mumbai, Hyderabad and Chennai. 83

85 Tapping new growth opportunities and identifying niche segments within each market are key elements of our business strategy.

86 EXPANDING REACH

87 Report to Shareholders 2003 Asia is fast recovering. While risks still exist, opportunities abound will be a better year for the regional property markets.

88 OPERATING AND FINANCIAL REVIEW Expanding Reach ASIAN ECONOMIC AND PROPERTY ROUND-UP The US continues to lead the world recovery. Although uncertainties remain, robust recovery in some parts of Asia is a welcome indicator that the three-year global downturn is finally over. Global and Asian Economies 2003 Global Economy on the Mend Signs are that a global economic recovery is now underway. Although uncertainties remain, the robust recovery in some parts of Asia is a welcome indicator that a three-year global economic downturn has finally drawn to a close. The Economist Intelligence Unit (EIU) has projected world GDP growth (on a purchasing power parity basis) to accelerate from 2.9% in 2002 to 3.7% in 2003 and 4.4% in The US continued to lead in the world recovery. Economic growth accelerated markedly to a 19-year record high of 8.2% in the third quarter of 2003 as the US$1.7 trillion tax cuts last summer boosted consumer spending, which accounted for 70% of the US economy. Consumer purchasing power had also been bolstered by the historically low interest rates the US federal funds rate had been slashed to a 45-year low of 1% which sparked off a flurry of home mortgage refinancing. For US corporations, the strengthening of consumer demand, coupled with restructuring, have raised corporate profits. While US economic growth eased to 4% in the last quarter of 2003, growth momentum is expected to continue into The US government has predicted growth of 4.4% for the current year after the country s economy grew by 3.1% in Monetary policy is expected to remain highly stimulatory and US interest rates are widely anticipated to stay low until the second half of With the upcoming presidential election in November 2004, pump-priming of the economy and job creation are expected. This will have a positive spillover effect for many Asian countries for which the US is a huge export market. Risks to a Sustained Recovery Nonetheless, the global recovery carries risks due to geopolitical tensions, international terrorism, fragility in the international financial system and other structural problems. The sustainability of the twin deficits of the US and the continued weakening of the US dollar are major downside risks. The US current account deficit reached US$541.8 billion in 2003, up 12.7% from US$480.9 billion in The US federal budget deficit is forecast to swell to a record high of US$521 billion or about 5% of GDP in 2004 from US$374 billion in Pressured by the huge deficits, the US dollar has been on a downward trend. In 2003, the euro rose 22% against the US dollar while the greenback fell by 10% against the Japanese yen. While the US economy is recovering, the euro zone is still weak. Although sentiment has improved across the region, economic expansion is not expected to take off at break-neck pace until sustainable increases in capital investment and consumer demand are seen. 87

89 Report to Shareholders 2003 To address global growth imbalances, there is greater pressure for Asia which has a total GDP of US$8.2 trillion as of 2002 compared with Europe s US$8.1 trillion and US$9.4 trillion in the US to take a bigger share of supporting world growth. Given Asia s rising reserves and increasing trade surplus with the US, Asian currencies, in particular the Japanese yen and Chinese renminbi, will continue to strengthen to absorb a larger share of a weak US dollar. Asia to Lead Global Growth Hopes are running high that Japan, the world s second largest economy, is emerging from a long deflationary cycle on the back of an export-led recovery. Japan s exports to the US and other parts of Asia have been strong. Investment and employment have improved, driven mainly by increased profitability. Such favourable macro-economic factors pushed the Japanese economy to grow at a surprising 2.7% in Based on EIU estimates, Japan s real GDP growth is projected to average 2.8% in As for Asia (ex-japan), renewed slowdown in the developed world economies, threats of terrorism, and the adverse impacts of the Iraq war and the SARS epidemic delayed economic recovery in the first half of Shrugging off these adversities and riding on China and India s booming economies and rising intra-regional trade, the region is poised to chalk up higher growth over the next two years. The Rise of Two Asian Giants Although it is still early in the recovery cycle, there is rising optimism that a sustained recovery for Asia is in sight. One key factor behind Asia s upbeat prospects is China, which is undoubtedly the engine behind the region s growth in The SARS outbreak has had little damage to the Chinese economy, which posted GDP growth of 9.1% in Both export demand and domestic consumption have helped to spur its robust economic performance. For 2004, China will remain a powerful engine of growth as imports are expected to rise with domestic consumption. Standard & Poor s (S&P) has recently upgraded China s foreign currency ratings by one notch to BBB+/A-2, reflecting its optimism on the Chinese economy and the success of the government s economic reform. However, China s sterling growth has raised concerns of an economic overheating and the risk of an asset bubble. The government may take steps to tame overheating but is unlikely to put a sudden brake on growth. The fear of a property bubble bursting may be overplayed as robust housing demand is supported by sound economic fundamentals and the Chinese government has been pro-active in curbing speculative interest. Sceptics also warn of a possible slump in foreign direct investments (FDI) and a potential appreciation in the value of the Chinese renminbi, which will derail economic growth. To date, FDI remains strong with the value of contracted foreign 88

90 OPERATING AND FINANCIAL REVIEW Expanding Reach China is currently the region s main growth driver, with both export demand and domestic consumption contributing to its robust economic performance. investment soaring by 39% to reach US$115 billion in As for the renminbi, the Chinese government has reiterated its commitment to maintain a stable currency although it has signalled its willingness to move towards a more flexible exchange rate regime. Meanwhile, India with a teeming population of more than one billion has caught up in the race for economic development. All three segments of the economy agriculture, industry and services have done well in the past year. This has helped to put the economy on track to achieve about 8% growth for the fiscal year ending March Going forward, India s economic prospects remain bullish, with GDP targeted to grow at 7% 8% a year over the next few years, fuelled by the services sector which accounts for about half of the country s GDP. Such level of growth is sustainable if economic reforms, including privatisation of state-owned companies and revamp of the banking and insurance sectors, are accelerated. Political Tension May Dampen Economic Optimism in Taiwan and Korea Hong Kong s economy had also made a swift upturn in the second half of 2003 and is set to grow at 6.5% in 2004 against a 3.3% growth in 2003 when the city state was badly shaken by the SARS outbreak. Exports and tourism will be the main driving forces behind growth, supported by closer economic ties with China. Despite escalating tension with China and uncertainty over the outcome of the presidential election in March, Taiwan s economy is expected to post better growth in GDP growth is projected at 5.4% after registering a India s economic prospects remain bullish, fuelled by the services sector which account for almost half of the country s GDP. 3.2% growth in 2003, supported by rising exports and domestic demand, increased private investment and higher government spending. South Korea, which slid into recession in the first half of 2003 due to a government-induced household credit crunch that led to a sharp decline in consumer spending, has since turned around in the second half of the year to register a 2.4% GDP growth for the whole of For 2004, growth is expected to hit 5.2% in anticipation of strong exports and increased private investment. However, labour unrest and potential nuclear threats from North Korea will undermine business confidence and disrupt growth. 89

91 Report to Shareholders 2003 Southeast Asia Going from Strength to Strength Thailand is the star performer among the Southeast Asian economies in 2003 and is poised to continue its good growth in the year ahead. Prime Minister Thaksin Shinawatra is targeting economic growth of % for 2004 after the country posted GDP growth of 6.7% in The outstanding growth is fuelled by booming exports, growing domestic demand and increasing private investment. The positive mood is also reflected in a surging stock market, which has risen more than 100% during the year, and a strong resurgent property sector. The danger of a property bubble building up has caused the Thai government to impose measures such as the removal of tax incentives on property purchases in a bid to cool off the market. Further government intervention may step in to prevent home prices from rising beyond reach. Vietnam is also experiencing tremendous growth on the strength of robust exports, especially in industries such as garment and textiles. Crude oil, the biggest export earner for Vietnam, has benefited from high prices in the international market. Coffee has also replaced garments as the fastest growing export item. Exports to the US have soared due to the US-Vietnam bilateral trade agreement and further investments by US corporations in Vietnam are expected. Growth prospects for Vietnam remain good with continued implementation of government reforms, which has helped to boost private sector development and create about 1.75 million new jobs over the last three years. GDP is targeted to grow at 7.5% in 2004, up from an estimated 7.3% in Despite the setback to tourism due to the SARS outbreak, Indonesia posted relatively good economic growth in GDP growth hit 4.1% in 2003 and is expected to accelerate to 4.5% in 2004, as Indonesia s commodity exports will benefit from strong demand from China and high commodity prices. Spending associated with the country s first direct presidential election will also have stimulatory effects on the economy, in particular consumer demand. Philippines has lagged behind most Asian economies, which have benefited significantly from the strong import demand from China, due to its dependence on the US export market. On the other hand, the agricultural sector performed well in 2003 as a result of good weather conditions. Economic growth is expected to hold steady at around 4.5% in 2004, on the expectation of improved demand from the US during its election year. Malaysia s growth prospects are rosier for 2004, with official GDP growth forecast at 5.5-6% compared with 5.2% in Growth for the year ahead will be underpinned by renewed demand for exports, especially for electrical and electronics products, strong domestic spending and the multiplier effect from a RM7.3 billion stimulus package announced in May During the year, S&P upgraded the sovereign credit ratings of Thailand, Indonesia and Malaysia on the back of the countries improved external and/or fiscal positions, reduced non-performing loans in the banking sector and relatively favourable macroeconomic conditions in recent years. Limited Economic Impact if Bird Flu Remains under Control While Asia was hard hit by the SARS epidemic in 2002, the recent outbreak of bird flu in ten Asian countries Cambodia, Vietnam, Laos, Indonesia, Thailand, China, Japan, South Korea, Taiwan and Philippines is not expected to cause serious damage to these economies. The Economist Corporate Network has predicted that countries hit by the avian flu will suffer a loss of % from their GDP this year. So far, the fallout from the outbreak is limited to certain sectors like the poultry and feed mill industries, and there is no evidence of human-tohuman transmission of the disease yet. However, should an outbreak among humans erupt, the economic impact will be substantial. Travel and travel-related industries such as hotels, airlines and retail trade will also be affected as travel to and within Asia will be curtailed as was the case during the SARS crisis. The negative impact on economic progress will then be far greater. Asia is now more prepared to deal with the bird flu after its experience with SARS. With better control measures and more pro-active co-operation between government and health authorities, the risk of a widespread epidemic is being managed. 90

92 OPERATING AND FINANCIAL REVIEW Expanding Reach Thailand is currently the star performer among the Southeast Asian economies, and its prospects remain rosy for the year ahead. Growth prospects for Vietnam remain good, with continued implementation of government reforms, which has helped boost private sector development. Upcoming Elections in Asia Country Expected Date Type of Election Taiwan 20 Mar 2004 Dec 2004 Presidential Parliamentary Malaysia 21 Mar 2004 General Election Sri Lanka 2 Apr 2004 General Election Indonesia 5 Apr Jul Sep 2004 Parliamentary Presidential (1st round) Presidential (2nd round) South Korea 15 Apr 2004 Parliamentary India 20 & 26 Apr, 5 & 10 May 2004 Parliamentary Philippines 10 May 2004 Presidential / Legislative Japan 1 Jul 2004 Parliamentary (Upper House) Hong Kong 2004 Legislative Thailand By Jan 2005 Parliamentary 91

93 Report to Shareholders 2003 Singapore s economy has rebounded strongly in the second half, led by the manufacturing sector. Strong economic growth in China, Thailand and Vietnam has fuelled demand for quality housing, supported by higher disposable income and positive government measures to encourage homeownership. Singapore Economy Brighter Prospects Beckoning A global economic slowdown, compounded by the SARS outbreak and the US-Iraq war caused Singapore s economy to contract by a sharp 3.9% in the second quarter of However, the economy rebounded strongly in the second half with 1.7% growth in the third quarter and 4.9% in the last quarter of the year as a result of strong external demand for pharmaceuticals and electronics products, and a surge in private consumption. Full-year, Singapore achieved GDP growth of 1.1% compared with a 2.2% growth in The economic rebound was led by the manufacturing sector, which made a swift turnaround to grow at 3.3% in the third quarter and 8.9% in the last quarter of 2003 after contracting by 6.3% in the second quarter. As demand from the US increases, Singapore s electronics exports are expected to accelerate further. The services-producing sector continued to strengthen with a 4.3% gain in the fourth quarter after registering a 1.7% growth in the third quarter. On the other hand, the construction sector remained weak, contracting by 10.7% during the year as private and public investment in housing declined. During the year, the Central Provident Fund (CPF) scheme was fine-tuned as part of economic restructuring to ensure Singapore s cost competitiveness vis-à-vis the region. Among the key changes are the reduction in employers contribution rates by 3% to 13% with effect from 1 October 2003 and the lowering of the salary ceiling for CPF contribution from $6,000 to $5,500 on 1 January The salary ceiling will be reduced further to $5,000 with effect from 1 January 2005 and to $4,500 by 1 January The recovery in economic momentum is poised to continue into The government forecast for 2004 GDP growth has recently been raised to %. Private sector economists will likely follow suit in upgrading their projections to beyond the 5.5% mark in the light of higher external demand and an upturn in consumer spending as brighter economic outlook will boost trade and investments, and greater visitor inflows are expected. Asian Property Markets 2003 Subdued Office Markets across Key Asian Cities Office demand in major Asian countries was mostly subdued in 2003 as a result of weak economic environment. Rentals declined in most developed markets such as Singapore, Hong Kong, Taipei and Tokyo as competitive pressure forced landlords to offer lower rates in a bid to attract or retain tenants. In Singapore, the weak economy coupled with the Iraq war and the fallout from SARS resulted in negative office demand and declining rentals as corporations and financial institutions downsized as part of their restructuring and cost-cutting strategy. 92

94 OPERATING AND FINANCIAL REVIEW Expanding Reach A recent survey on global occupation costs by CB Richard Ellis (CBRE) showed that Singapore was ranked 61st as at end-2003, down from 52nd a year ago, as prime office rentals slipped from $5.00 psf per month to $4.00 psf as at the end of the year. Bucking the trend are prime office rentals in Shanghai and Bangkok. The unabated growth in the Shanghai economy continues to support strong demand for prime office space and bolster rentals. Similarly, office rents in Bangkok Central Business District continues to strengthen on the back of the country s economic prosperity. Going forward, the Asian office property market is expected to experience growth in the year ahead as economic fundamentals improve across the region. Leasing activity in major markets such as Singapore and Hong Kong is poised to pick up as corporations increasingly engage in an expansion mode again. Rising demand for office space will in turn provide support to rentals and capital values. Residential Demand Driven by Strong Economic Growth Within Asia, the residential markets of developing economies generally performed better than the more matured markets in Strong economic growth in China, Thailand and Vietnam has fuelled demand for quality housing, supported by higher disposable income, the availability of mortgage financing, low interest rates and positive government measures (e.g. tax incentives) to encourage homeownership. On the other hand, demand for private residential properties and home prices in more advanced economies like Singapore and Hong Kong have dwindled over the year as a result of weak economic conditions. In Singapore, economic uncertainties, fears of unemployment and changes to the CPF rules undermined homebuyers confidence. However, there are signs that prices may have bottomed and demand is picking up. As economic recovery becomes entrenched and the job market improves, the residential property market is expected to see a better year ahead. Property analysts and consultants expect residential sales volume to improve to 6,000 7,000 units in 2004 from 5,156 units in 2003 on the back of pent-up demand. A 5 10% increase in residential property prices is also expected for the current year. Rising Popularity of Asian Real Estate Investment Trusts While the Asian real estate investment trust (REIT) market is still new, investors are attracted to their higher dividend yields. Following the footsteps of Japan, South Korea and Singapore in launching REITs, Hong Kong recently put in place a legal framework for the establishment of REITs. 93

95 Report to Shareholders 2003 Being the first Asian country to launch REITs, Japan currently has 12 J-REITs trading on the Tokyo Stock Exchange and more are in the pipeline. While J-REITs have been aggressively competing to buy quality properties, prime real estate in Tokyo is rarely available in the market as such properties are mainly owned by property and insurance companies. Hong Kong s property tycoon Li Ka-shing. This is the third REIT listed on the Singapore stock exchange, after CapitaMall Trust and Ascendas REIT. Meanwhile, a commercial REIT by CapitaLand via distribution in specie to its shareholders is expected to commence trading in May, subject to approvals by shareholders and the relevant authorities. In South Korea, so far eight Corporate Restructuring REITs have been listed on the Korean Stock Exchange. As the Korean property market is currently healthy with long leases, low vacancy rates and strong yields, K-REITs are expected to be strong performers. In 2003, Singapore saw the listing of another REIT Fortune REIT an offshore property trust that is affiliated with With an established legislature and legal framework, Singapore is poised to attract more REIT listings from property owners/ investors around the region in the foreseeable future. The continued expansion of the Singapore REIT market will add depth and breadth to the overall development of the domestic property and capital markets. Performance of REITs in Japan, South Korea and Singapore Opening Closing Price Dividends Dividend Total Return Listing Country REIT End-2003 for 2003 Yield # for 2003 ^ Date Japan Japan Real Estate Invt Co 607, ,000 29, % 16.6% 10-Sep-01 Nippon Building Fund Inc 626, ,000 29, % 14.7% 10-Sep-01 Japan Retail Fund Invt Co 575, ,000 29, % 25.0% 12-Mar-02 Orix JREIT Inc 519, ,000 30, % 6.5% 12-Jun-02 Japan Prime Realty Invt 235, ,000 12, % 18.1% 14-Jun-02 Premier Investment Co 489, ,000 34, % 12.8% 10-Sep-02 Tokyu REIT Inc 522, , % 10-Sep-03 Global One REIT 501, , % 25-Sep-03 Nomura Real Estate Offi ce Fund 510, , % 04-Dec-03 United Urban Invt Corp 483, , % 22-Dec-03 Mori Trust Sogo REIT Inc 753,000 * * * * 13-Feb-04 Nippon Residential Investment 516,000 * * * * 02-Mar-04 South Korea Korea Real Estate Invt Trust Krw590 Krw620 Krw33 5.3% 10.7% 21-May-01 Kyobo-Meritz First CR-REIT Krw5,050 Krw5,000 Krw % 5.5% 30-Jan-02 Kocref CR-REIT 1 Krw5,140 Krw5,170 Krw % 9.9% 30-May-02 Kocref CR-REIT 2 Krw5,160 Krw4,970 Krw % -0.7% 11-Nov-02 Realty Korea CR REIT Co Krw5,000 Krw5,000 Krw % 3.8% 13-May-03 Kocref CR-REIT 3 Krw5,080 Krw5, % 29-Aug-03 Ures-Meritz First CR-REIT Krw5,030 Krw5, % 29-Aug-03 Macquarie Central Offi ce CR-REIT Krw5,050 * * * * 08-Jan-04 Singapore CapitaMall Trust S$1.03 S$1.43 S$ % 45.6% 16-Jul-02 Ascendas REIT S$0.85 S$1.15 S$ % 43.4% 18-Nov-02 Fortune REIT HK4.75 HK$ % 11-Aug-03 ** Opening price refers to closing price on the fi rst trading day of 2003 or on the day of listing. # Dividend yield is computed using closing price as at the last trading day of ^ Total return is derived using the sum of last trading price for 2003 plus dividends for the year, divided by the closing price on the fi rst trading day of 2003 or the day of listing. * Public listings post 31 Dec Source : Bloomberg and in-house estimates 94

96 OPERATING AND FINANCIAL REVIEW Expanding Reach OPERATIONS AND MARKET REVIEW SINGAPORE Waterfront living at its best is offered at Caribbean at Keppel Bay no other development offers such unparalleled sea views and lush surroundings. RESIDENTIAL NEW LAUNCHES The Linc Nestled within a prime district, The Linc at Lincoln Road offers 51 exclusive apartment units of 1- to 3-bedrooms, with sizes ranging from 646 to 1,851 sf. Its design is simple contemporary, with bright airy living rooms fronted by floor-toceiling windows. Lifestyle facilities include a main pool, a children s pool, a gymnasium, a barbecue area, a children s play area and a basement carpark. The Linc enjoys easy access to the Newton MRT station and is just minutes away from the shopping and entertainment belts along Novena Road and Orchard Road. Many good schools are nearby such as Raffles Girls Secondary, Anglo-Chinese (Barker) and St Michael s Primary. Prestigious clubs like Tanglin Club, American Club, Raffles Town Club and The Pines are also within close proximity. As at the end of the year, 45% of the units have been sold, of which the 1- and 2-bedroom units are fully taken up. UPCOMING LAUNCHES Subject to market conditions, Keppel Land intends to launch a few residential projects, which include The Tresor in Bukit Timah, Wee Nam in Newton, Urbana in River Valley and the remaining units at Caribbean at Keppel Bay in The Tresor The Tresor is an exclusive 62-unit condominium development along Duchess Road. Sitting in a quiet residential enclave off Bukit Timah Road, the development offers 2- to 4-bedroom apartment units, ranging from 980 to 2,896 sf in floor areas. Main facilities include a swimming pool, a clubhouse, a gymnasium, a jacuzzi, a function room, a children s play area, a fitness area and barbecue pits. It is also surrounded by many good schools like Raffles Girl s Primary, Nanyang Primary, Nanyang Girl s High, The Chinese High, Hwa Chong and National Junior Colleges. Wee Nam Located at the junction of Wee Nam Road and Keng Lee Road, Wee Nam is within close proximity to the Newton MRT station and the Orchard Road shopping belt. With its towering heights of 30 and 36 storeys, it will become an icon in the Newton area. With the recent acquisition of the adjoining freehold site, Wee Nam will be one of the largest condominium developments in the Newton area. With a sprawling land area of around 234,000 sf, it will comprise about 480 apartments with full condominium facilities that will include a swimming pool, tennis courts and a gymnasium. The apartments will comprise 1- to 4-bedroom units and exclusive penthouses with floor areas ranging from 520 to 3,300 sf. 95

97 Report to Shareholders Urbana Rising 36 storeys high, Urbana will be the tallest condominium in the River Valley district. Commanding a breathtaking view of the city, and within close proximity to the Somerset MRT station and the Orchard Road shopping belt, Urbana is also a short drive away from the Central Business District (CBD). The 126-unit development offers 2- to 4-bedroom apartment units and penthouses with sizes ranging from 990 to 3,200 sf. Full condominium facilities will include a swimming pool, tennis court and a clubhouse. Comprising 969 luxurious apartments, it consists of 2- to 4-bedroom units and penthouses, with floor areas ranging from 840 to 6,135 sf. Besides full condominium facilities, the development is also equipped with private lift lobbies, quality finishes, full height glass windows and smart home features such as broadband Internet access, local area network, home automation and a condominium portal. More than 70% of the 430 units launched during the first phase have been sold. Caribbean at Keppel Bay Caribbean at Keppel Bay presents homes by the sea of lasting value. Redefining waterfront living in Singapore, Caribbean at Keppel Bay charms homebuyers with its breathtaking sea views, a marina and spectacular water channels right up to the homes. With the sea and Sentosa Island as its frontage and the lush greenery of Mount Faber as its backdrop, the premium development is encircled by the Keppel Golf Club, Labrador Park and The HarbourFront office, retail and entertainment hub on the boundary. With only a five minutes drive from the CBD, Caribbean at Keppel Bay is easily accessible via major expressways and is also within walking distance from the bus interchange and the new HarbourFront MRT station. Possible Launches/Re-launches in First Half of 2004 Project Location No. of Units Available * The Callista 22 Mar Thoma Road 36 The Elysia 6 Mar Thoma Road 34 The Linc Lincoln Road 28 Freesia Woods Sunset Way 54 Cluny Hill Bungalow Plots Cluny Hill 7 Caribbean at Keppel Bay Keppel Bay Drive 664 Urbana River Valley Road 126 Wee Nam Wee Nam Road 480 The Tresor Duchess Park 62 * As at 31 December

98 OPERATING AND FINANCIAL REVIEW Expanding Reach 1. Amost half of the units at The Linc at Lincoln Road have already been snapped up. 2. Wee Nam will be one of the largest condominium developments in the Newton area. 3. Freesia Woods is a private sanctuary nestled in the Sunset Way residential enclave, is close to Holland Village and a wide range of amenties. 3 EXISITING RESIDENTIAL PROPERTIES Nassim Woods Nestled amidst a distinguished neighbourhood of foreign embassies, country clubs, and the Botanical Gardens, Nassim Woods offers 35 luxurious units of 3- and 4-bedroom apartments and penthouses. Located at the fringe of Orchard Road, the development is only a short drive away from the financial district at Raffles Place and the new arts centre at Esplanade Theatres on the Bay. With floor sizes ranging from 1,989 to 6,400 sf, Nassim Woods is currently held for lease. Popular with expatriates from Europe and the US, it continues to enjoy good occupancy exceeding 70%. Freesia Woods Freesia Woods is a 129-unit freehold condominium development set within the quiet and tranquil Sunset Way residential enclave. The private sanctuary is within close proximity to Holland Village, the city, schools and a wide range of amenities. include four pools main pool, bubble pool, children s pool and wading pool a club house, a tennis court, exercise stations, a reflexology path and a jogging track. Re-launched in June 2003, the development is 58% sold as at end The Edgewater Located along Jalan Loyang Besar, The Edgewater is a 53-unit condominium development comprising 2- and 3-bedroom units, with floor areas ranging from 926 to 2,357 sf. It obtained its TOP in December The development is within walking distance to the Pasir Ris Beach Park and the NTUC Lifestyle World Downtown East. It is also close to the White Sands Shopping Centre, schools and other amenities. A major feature of the development is the four swimming pools that span over the length of the development, with the majority of ground floor units perched above the pool surface. There is also a gymnasium, a children s playground and barbecue pits. All units have since been sold. Freesia Woods obtained its Temporary Occupation Permit (TOP) in June The development comes with quality finishes, efficient layouts and floor-to-ceiling windows. It offers 1- to 4-bedroom apartment units, with floor sizes ranging from 1,023 to 2,680 sf. A wide range of facilities is provided which 97

99 Report to Shareholders Unique architectural features have distinguished Bugis Junction as an innovative and modern interpretation of urban development. 2. One Raffles Quay is a landmark development that serves as the gateway to Singapore s new financial district. 1 2 MIXED DEVELOPMENT Bugis Junction Bugis Junction is an integrated development comprising office, retail and hotel elements. Its unique architectural features have earned Bugis Junction several awards for portraying an innovative and modern interpretation of urban development. Some of these awards are the Singapore Institute of Architects Award for Urban Design Category in 1998, Certificate of Merit from the International Council of Shopping Centres for Innovative Design and Construction of a New Project 1996 and Honourable Mention Award for Mixed Developments Category at Singapore Institute of Architects Architectural Design Awards It was also one of the finalists for the prestigious FIABCI Prix d Excellence 2001 competition. Bugis Junction continued to perform well in 2003 despite the tough economic conditions. Occupancy rates for the retail and office space remained firm, averaging 99.5% and 95.3% respectively for the year. The five-star hotel, InterContinental Singapore, achieved a lower average occupancy of 42% in 2003 due to the negative impacts of the SARS outbreak and the Iraq war. However, occupancy is now almost back to pre-sars level at close to 70% in December. OFFICE One Raffles Quay One Raffles Quay is a large-scale office complex that is currently being developed on a 1.14-ha waterfront site at Marina Boulevard. The development is equally held by Keppel Land and two Hong Kong developers, Cheung Kong (Holdings) and Hongkong Land. The landmark development will have an underground air-conditioned retail link leading to the Raffles Place MRT station. Comprising two office towers linked by a podium, the development will yield a total of about 1.3 million sf of lettable space. The 50-storey North Tower will offer 756,520 sf of office space and has a typical column-free floor plate of about 18,000 sf. Linked to the North Tower by a landscaped, spacious doublevolume plaza is South Tower, a 29-storey building offering 563,076 sf of column-free space with large regular floor plates of about 30,000 sf, which is popular among financial institutions. There will be three designated trading floors to accommodate the special needs of major financial institutions. The project is poised to make a major impact on both the city s skyline and pedestrian experience when it is completed in

100 OPERATING AND FINANCIAL REVIEW Expanding Reach market review RESIDENTIAL Improved optimism as market bottoms out The Singapore economy grew at a slower rate of 1.1% in 2003 after a 2.2% growth in Economic growth was affected mainly by the SARS outbreak, the Iraq war and a weak global economy. However, the outlook is more positive going forward. The economic recovery in the US and Japan look promising and China continues to see robust growth. The increase in demand from these economies will enhance trade and benefit the regional economies. The global electronics industry, which has recovered last year, is also expected to do better in On the back of these positive developments, official growth forecast for 2004 has been raised to %. Amid economic uncertainties, compounded by the Iraq war, developers managed to sell only 427 units in the first quarter of 2003, compared to the quarterly average of about 1,900 units during the period from 1993 to The resurgence of home buying activity in the second quarter of 2003 was short-lived when changes to the Central Provident Fund (CPF) system were announced. The key changes included cutting down on the employer s CPF contribution rates and the CPF salary ceiling, raising the CPF minimum sum and tightening the CPF withdrawal rules. For the whole of 2003, developers sold a total of 5,156 units which was lower than the 9,485 units sold in Private home prices also fell by 2% as compared to the 1.8% drop for For 2004, property consultants expect sales to improve to 6,000 7,000 units and prices to rise by about 5 10%. Although Singapore s economic prospects have improved towards the end of 2003, the government recognises that it will take time for the property market to recover. It has decided to extend the suspension of the land sales programme to the first half of Another key change during the year was a revision to the development baseline definition. Previously, privately-held sites with a historical baseline plot ratio higher than that allowed under the 2003 Master Plan (MP 03) need not pay development charge (DC) for any redevelopment up to the historical baseline plot ratio. However, with the change in policy, for any historical baseline plot ratio higher than that allowed under MP 03, the latter plot ratio will apply as the baseline. Hence, DC will be payable for any plot ratio increase beyond MP 03. To allow affected land owners to adjust to the new ruling before it kicks in, the revised definition will only take effect from 1 January RESIDENTIAL % y-o-y change Demand (No. of New Units Sold) 9,485 5, % Supply (No. of New Units Available) 9,507 5, % Ave. Price (S$ psf): Condominiums - Suburban 99-year Leasehold % - Suburban Freehold % - Prime % - Luxury 1,380 1, % Source : URA, CBRE 99

101 Report to Shareholders 2003 market review OFFICE Riding on economic recovery The Singapore office market went through another challenging year in Poor business sentiment and uncertain economic conditions contracted demand by 1.1 million sf despite limited new supply of about 0.5 million sf. The island-wide office occupancy rate dropped to 82.1% as at end-2003 compared with 84.3% as at end Prime office rents fell to $4.00 psf per month at end-2003 from $5.00 psf per month in the previous year. For 2004, the downward pressure on prime rents and capital values will be moderated by better economic outlook. New supply will be limited at an estimated 1.1 million sf while pent-up demand is poised to fuel take-up of office space as in the case during 1999 when the Singapore economy made a dramatic upturn. Although the government has decided to release the Business and Financial Centre (BFC) site in the first half of 2004, it will be through the reserve list. With a potential gross floor area of 4.4 million sf, the 3.5-ha white site will have a longer project completion period of up to 18 years. Developers can build office, homes, hotels, retail or entertainment space on a white site. As the supply of office space from the BFC site is expected to be sufficient to meet market demand in the New Downtown area over the next few years, the government has decided not to release any other office sites through its land sales programme in the New Downtown area in 2004 and Office Demand and Supply Year Annual Supply (mln sf) Annual Demand (mln sf) Real GDP Growth (%) OFFICE % y-o-y change Demand (Mln sf) % Supply (Mln sf) % Ave. Occupancy Rate (%) % Ave. Prime Rental Rate (S$ psf/mth) % Ave. Capital Value (S$ psf) 1, % Source : URA, CBRE Source : URA and Ministry of Trade and Industry 100

102 OPERATING AND FINANCIAL REVIEW Expanding Reach The HarbourFront Office Park The HarbourFront Office Park is located next to the new HarbourFront MRT station. The development comprises 18- storey twin office towers Keppel Bay Tower and HarbourFront Tower One and a retrofitted cable car tower which is now known as HarbourFront Tower Two. Jointly developed by Keppel Land, Keppel Corporation and The HarbourFront Pte Ltd, Keppel Bay Tower and HarbourFront Tower One received TOP in November 2002 while HarbourFront Tower Two obtained TOP in May With a total lettable area of about 927,000 sf, the three office towers have attracted international companies such as ExxonMobil, Du Pont, UBS AG, Kodak, Canon and Renesas among its major tenants. PROPERTY FUND MANAGEMENT Initiatives Undertaken and Plans for 2004 Keppel Land has identified property fund management as a core business to grow recurring fee-based income. The Group targets to build a successful property fund management operation, leveraging on its reputation as a developer, owner and manager of institutional-grade commercial properties, good corporate disclosure and investor relations efforts as well as in-depth market knowledge in the region. Over the past year, the Group had made progress in building its platform for the property fund management business. Alpha Investment Partners Ltd (AIP), the Group s property fund management arm, has established its investment processes, deal flow management, investment underwriting, portfolio and asset management as well as financial reporting and control. Within a short span of time, AIP has positioned itself as one of the key Asian players in the industry, and is highly regarded by global investors seeking real estate investment opportunities in Asia was a difficult year. The war in Iraq, risk of terrorist attacks and the SARS outbreak had affected investment capital flows into Asia. Despite such a challenging environment, the Group achieved its first closing of about $180 million for the Asia No.1 Property Fund in May. The HarbourFront Office Park has transformed the area into Singapore s newest business hub. Managed by Asia Real Estate Fund Management Ltd, a 50:50 joint venture company between Keppel Land and Henderson Global Investors, the fund will invest mainly in income-generating commercial and office real estate assets in Asia. Potential investments have been identified in Hong Kong, Singapore and Japan, and the fund is expected to start investing soon. The fund is expected to achieve its final closing in AIP is also setting up a China housing fund. Investors are generally attracted by the sheer market size and growth potential of China. But at the same time, they are uncomfortable with the risks of investing in China. During the process of raising a fund to capitalise on housing opportunities in China, AIP has gained valuable insights into the issues and concerns of prospective investors. Efforts are made to help investors to better understand the market, address and structure investments to minimise risks. AIP is working with a lead investor from the US on this fund, which is targeting to invest up to US$200 million equity in China. Apart from the Asia No. 1 Property Fund and the China fund, AIP will continue to develop and promote other investment products and services to institutional investors globally. 101

103 Report to Shareholders 2003 market review REAL ESTATE FUNDS 2003 turned out to be an extremely difficult year for the Asian property fund market. In addition to the Iraq war and terrorism threats, Asia was also hit by SARS. In such an uncertain environment, investors were hesitant about investing in Asia. Investors adopted a wait and see attitude and investment plans were held back until there are clear signs of a recovery. Barring unforeseen circumstances, 2004 is expected to be a better year, with Asia leading the rest of the world in economic growth. Most real estate markets in Asia are now in a recovery phase. Rents and capital values are picking up from their historical low levels. Investors will increasingly find Asia an attractive place to invest in for good returns. Riding on the economic recovery, Asia is expected to attract its share of investment capital. The Asian real estate fund industry is still at its infancy stage and growth potential is enormous. Being a key regional financial centre, Singapore has the infrastructure to become a hub for Asian property fund management. Development of a critical mass of property fund management activities will have multiplier effects on the broad economy. REAL ESTATE INVESTMENT TRUSTS Although real estate investment trusts (REITs) date back to the 1960s in the United States and the 1970s in Australia, they are relatively new to Asia. Nevertheless, REITs are fast gaining ground in Asia, thanks to their higher dividend yields. Japan had its first REIT in 2001, followed by South Korea and Singapore a year later. Hong Kong recently finalised its legal framework for the development of its REIT market, followed closely by Taiwan. Since the public listing of Singapore s first REIT CapitaMall Trust in July 2002, two more REITs have made their debut on the Singapore stock exchange. While CapitaMall Trust comprises mainly suburban retail malls, Ascendas REIT is an industrial property trust with a mixture of industrial and high-tech buildings, and business parks. Fortune REIT, comprising five suburban shopping malls in Hong Kong, is the first overseas REIT to list in Singapore. Singapore developer CapitaLand has recently proposed a commercial REIT via distribution in specie. It comprises seven buildings including office buildings, mixed office and retail complexes, and two car parks. The developer plans to list the commercial REIT in May. As REITs increasingly gain popularity as an established property investment vehicle for the sophisticated investors, more REITs are expected to make their way into Asia. Singapore is gradually building up its position as a regional hub for the listing of REITs. A more mature REIT market with diversity and depth will have positive impact on the future development of the local property and capital markets. 102

104 OPERATING AND FINANCIAL REVIEW Expanding Reach KEPLANDEHUB Data Centres Capitalising on Keppel Land s experience in real estate development and facility management, Keppel Digihub, a wholly-owned subsidiary of Keppel Land s e-business unit KeplandeHub, operates a 25,000 sf data centre and disaster recovery facility at Serangoon North. In addition, it also provides office space in the same building, especially for businesses that require their personnel to be located close to their data centre operations. The data centre, which is equipped with state-of-the-art facilities including back-up infrastructure for power, airconditioning and connectivity, provides a fail-safe environment for the housing of computing infrastructure for businesses. It caters to the co-location needs of enterprises, ranging from businesses that require racks and private suites to financial institutions that need space for disaster recovery operations. The disaster recovery facility at Keppel Digihub comes complete with workstations, office appliances, communication devices and Internet access. During the year, Keppel Digihub secured several new tenants for its data centre, including BNP Paribas and CPG Facilities Management. Recognising the importance of information systems for business continuity, Keppel Land conducted its first disaster recovery drill at Keppel Digihub s data centre in September The exercise sought to test mission-critical systems and applications as well as ensure that staff from the various departments are familiar with their roles and responsibilities when emergencies such as natural disasters, a major utilities breakdown, serious hardware faults or system sabotage cause critical servers at the head office to become inoperable. The drill will henceforth be conducted annually, so as to constantly update and improve the Company s disaster recovery procedures. Digihub s state-of-the-art facilities have helped the data centre secure several bluechip tenants like BNP Paribas and CPG Facilities Management. market review DATA CENTRES In 2003, demand for data centre space came mainly from the financial sector. Companies with in-house computer rooms that need upgrading are also increasingly considering outsourcing their requirements instead of building their own facilities. This is not only due to the availability of better infrastructure, facilities and security at data centres, but also because of the significant decline in pricing for data centre space over the past two years. However, with no major increase in the supply of data centre space, the pricing for data centre space is likely to consolidate in Demand for data centre space is expected to increase as Singapore moves towards becoming an international IT hub and more companies implement business continuity or outsourcing plans. 103

105 Report to Shareholders 2003 OPERATIONS AND MARKET REVIEW AUSTRALIA SYDNEY Botanic Cove Overlooking the famed Hunters Hill in Sydney, Botanic Cove is located in a district renowned for its magnificent river and creek views, and heritage-listed trees and flora. Comprising 235 apartments and townhouses, the tranquil and natural retreat is accessible to 11-ha of recreational area by the waterfront. It is also close to the city centre, just 15 minutes drive from Sydney s CBD. market review ECONOMY Positive economic growth As global demand picks up and the impact of drought recedes, the Australian government has raised its economic growth forecast for 2003/2004 to 3.75% from earlier estimate of 3.25%. Strong domestic demand continues to be a key driver of growth. Inflation which ended at 2.4% in 2003, is expected to edge down in the first half of 2004 before moving upwards in the medium term. The unemployment rate has also improved to 5.6% for 2003 and is forecast to edge down to around 5.5% in After 16 months of keeping interest rates unchanged at 4.75%, the Reserve Bank of Australia has raised interest rates by 50 basis points to 5.25% in late This is in response to strong domestic spending and a rapid build-up in household debt. Interest rates are expected to rise further to % in AUSTRALIA F 2005F Real GDP growth (%) Prime lending rate (av, %) Inward FDI (US$Bn) Exchange rate (AUD/USD) Source : EIU Homeowners in Phase One of Botanic Cove have happily settled into their new homes overlooking the famed Hunters Hill in Sydney. Owners of the 117 units under Phase One of the development have settled into their homes. Phase Two, comprising 118 apartments and townhouses, has also been completed and handed over to the respective buyers. Presently, all but two units have been sold. RESIDENTIAL Residential market boom on sound economic fundamentals House prices across Australia have grown by about 18.9% in Historically low interest rates, relatively low unemployment rate, a strong economy, competitive home financing and strong migration levels have helped to fuel the Australian residential property boom. Price increases in Melbourne and Sydney had fallen behind other capital cities. Melbourne s home prices rose 12.5% for the year while house prices in Sydney rose 15.5%. In comparison, Brisbane achieved a 35.1% increase in house prices, followed by Canberra (+25.3%) and Adelaide (+24.2%). The residential property market is presently in reasonable balance, though analysts expect it to move into oversupply over the next few years. Higher interest rates will have a strong influence on the housing market in 2004, and lower estimates of net overseas migration imply a considerably weaker level of underlying demand is expected. In Sydney, generic apartments face the risks of oversupply and declining rental yields, while quality apartments in selected locations are still drawing eager buyers. Gross rental yields on Sydney CBD apartments have fallen to around 4% from 4.5% a year earlier. 104

106 OPERATING AND FINANCIAL REVIEW Expanding Reach OPERATIONS AND MARKET REVIEW CHINA Quality finishes and vibrant landscaping are among the winning touches that have enabled One Park Avenue to garner accolades like the Gold Award in the Environment category of Top 10 properties in Shanghai and the Fully-fitted Award. SHANGHAI Keppel Land s subsidiary in Shanghai, Shanghai Merryfield, was among nine foreign companies to be conferred the Most Distinguished Foreign Enterprise in 2003 award by the Jingan District Government. Shortlisted from a list of 50 companies, this annual award was based on factors such as the company s investment and profit contribution, tax compliance, general management of the company as well as management s relationship with the regulatory bodies. and Concord World in the vicinity will further enhance the cosmopolitan appeal of the area. Park Avenue is also close to the Jingan Shi Mass Rapid Transit (MRT) subway station as well as the Yan An and Chengdu Expressways, which further facilitate accessibility. A new MRT subway line along the western boundary of the site is also in the pipeline. Park Avenue Park Avenue is a 2,771-unit residential development which spans over 95,906 sm of land in downtown Shanghai. It comprises One Park Avenue, 8 Park Avenue and Park Avenue Central. When completed, the entire Park Avenue precinct will form an integral part of the Jingan District master plan to revitalise Jingan into a prime residential area in the city centre of Shanghai. One Park Avenue All 1,118 units at the luxurious One Park Avenue condominium in Shanghai were sold out by October 2003, within 11 months of the initial launch. The first of three projects within the Park Avenue residential precinct, One Park Avenue received overwhelming response from both locals and foreigners. Local Chinese buyers were not just from Shanghai but also included those from Jiangsu and Zhejiang. Strategically located in Central Puxi, Park Avenue offers a combination of vibrant city living and exceptional convenience. It is within walking distance to Shanghai s major shopping and entertainment belt in Nanjing West Road where international hotels like Portman Ritz Carlton, JC Mandarin, and retail malls such as Plaza 66, Kerry Centre and Westgate Mall are located. Over the next few years, the completion of Shangri-La Hotel Puxi, Wheelock Plaza, Plaza 66 (Phase Two) Targeted at the growing middle- and upper-income groups in Shanghai, as well as expatriates, One Park Avenue comprises 1- to 4-bedroom apartments, duplexes and penthouses. Full facilities, including an Olympic-length swimming pool, will be housed in a sprawling underground clubhouse. It will also feature a large 12,000 sm landscaped garden. The project is scheduled for completion by end

107 Report to Shareholders 2003 A full suite of facilities will complement 8 Park Avenue, including a beautifully-designed indoor pool. Ocean Towers in Shanghai, with its strategic location and large, column-free floor plates, has attracted International tenants, and now enjoys 100% occupancy. In October 2003, One Park Avenue was bestowed two prestigious awards, namely, the Gold Award in the Environment category of Top 10 properties in Shanghai by Hong Kong s Da Gong Bao newspaper and the Fully-fitted Award by Shanghai s Municipal Government. Landscaped by the award-winning Belt Collins International, One Park Avenue s lush surroundings are filled with enchanting gardens, pavilions, fountains and pools. Its overall design also takes into account Shanghai s four seasons, so all apartments are oriented such that they enjoy maximum warmth and sunlight during Winter. The Fully-fitted Award, conferred by Shanghai s Municipal Government at the Third Excellence in Residential Properties Competition, recognises the project s outstanding collection of fully-fitted apartments, which will be ready for occupation upon completion. systems. Full recreational facilities including an indoor pool, will be provided in the clubhouse. Targeted at the middle- to upper-middle income buyers, all 85 one-bedroom units in one block launched in January 2004 have been sold. The remaining blocks will be launched progressively. Park Avenue Central Park Avenue Central, the final project in the Park Avenue precinct in Jingan, is scheduled to be launched in the second half of It comprises a total of 708 condominium units. Carrying on Keppel Land s track record in developing quality homes with innovative features, Park Avenue will continue to meet the growing demand of China s discerning home-buyers. 8 Park Avenue Building on the success of its maiden residential development in Shanghai, Keppel Land soft-launched units at 8 Park Avenue, the second project in the Park Avenue district, in January Ocean Towers Ocean Towers, a 25-storey Grade A intelligent office building in Shanghai, enjoys 100% occupancy. Keppel Land has a 29% stake in this development which has a net floor area of about 34,000 sm. With a site area of 33,432 sm and a gross floor area of 133,393 sm, 8 Park Avenue will comprise a total of 945 units spread over 10 blocks. Unit types include 1- to 4-bedroom apartments, duplexes and penthouses, with sizes ranging from 70 sm to 300 sm. All units will feature quality fittings including fullyducted air-conditioning systems for the living and dining areas and cabinets with state-of-the-art hinge and drawer sliding Completed in December 2001, its grand façade and spacious interior with large, column-free floor plates have attracted multinational corporations among its tenants. It is strategically located at Yan An East Road in the prime commercial district of Huangpu, near the tunnel entrance at the Huangpu CBD leading to the Pudong Financial District. 106

108 OPERATING AND FINANCIAL REVIEW Expanding Reach Located in the largest planned residential township in the capital city, The Seasons will set new benchmarks in Beijing, in tandem with preparation for the 2008 Olympic Games. BEIJING The Seasons Keppel Land is developing The Seasons, comprising 1,859 apartment units on a 72,285 sm site in Wang Jing Estate in Beijing. Located in the largest planned residential township in the city with an expected population of 300,000, this project is within the government-designated residential zone for the Olympics Games Village. The entire district will become a key area of focus for urban development in the run-up to the 2008 Olympics as well as the largest and most comprehensive township in the north-eastern part of the city. Strategically located in a well-established residential satellite town of Wang Jing, The Seasons is 15 minutes drive to the Beijing International Airport and 30 minutes to the Central Business District. Within walking distance is the new Wang Jing West MRT station along the No. 13 MRT Line. It is also easily accessible from the Northern 4th Ring Road, Airport Expressway and the Asian Games Village via a new link road that will be ready by Plans to develop the new No. 10 MRT line to the China World area and the relocation of the China Central Television headquarters to the Central Business District will enhance the attractiveness of projects in the eastern part of the city. Wang Jing Estate s accessibility via the expressway and MRT will definitely benefit from these developments. Targeted at the middle- to upper-income homebuyers, this wholly-owned residential project will comprise a mix of 2- to 4-bedroom units, with a total gross floor area of about 255,000 sm. A key feature in this development is a huge 20,000 sm central garden and a 2,000 sm indoor clubhouse. Other facilities include an Olympic-length heated swimming pool, a tennis court, a basement carpark, and supporting amenities such as convenience stores and a childcare centre to cater to the needs of the residents. Shopping centres, supermarkets, a post office and schools are also close-by. The project is currently under development and is slated for sales launch in the second half of CHENGDU The Waterfront The Group is developing The Waterfront, a 1,143-unit condominium project in Chengdu, the capital of Sichuan province. Located along Shun Jiang Lu, the development is less than 10 minutes drive away from the city centre. It provides a good frontage of the Funan River, with the Sichuan University campus and the historic Wang Jiang Lou Garden on the opposite bank of the river. The project will cater to Chengdu s growing middle- to upper-income homebuyers comprising businessmen, senior management in major corporations, and academics working in the universities and other educational institutions nearby. When completed, it will have a gross floor area of about 166,000 sm and feature full facilities such as a heated swimming pool, tennis courts, a mini-mart and a childcare centre. The project is slated for sales launch in the second half of

109 Report to Shareholders 2003 KUNMING Residential Project Keppel Land plans to develop a residential development on a 380-ha site in Kunming, Yunnan. The Group has built good business networks and relationship with the authorities over more than ten years. It has also earned a reputable name for itself through the internationally acclaimed Spring City Golf and Lake Resort which has generated a lot of positive goodwill which it is now able to capitalise on. A Memorandum of Understanding for a joint venture has been signed with Yiliang Yang Zong Hai Tourist Resort Development Holding Company, with Keppel Land taking an 80% stake while the Chinese partner will inject the land as its 20% equity. The site for the residential development is located next to the Spring City Golf and Lake Resort, which is also developed by Keppel Land and Yiliang Yang Zong Hai together with other foreign partners, and is part of a larger district that has been earmarked by the government for residential and resort development. Keppel Land s residential development in Kunming will be modelled after the modern residential estates of the West. The Group aims to rejuvenate the area into a vibrant waterfront town with world-class facilities, top-notch residential estates and respectable educational institutions. Spring City Golf and Lake Resort Spring City Golf and Lake Resort, a premier integrated golf resort in Kunming, comprises luxury villas and two championship golf courses the Mountain Course designed by Jack Nicklaus and the Lake Course by Robert Trent Jones Jr. Both courses have received numerous international accolades since they were completed in major golf tournaments during the year, and also a popular venue for corporate meetings. These included the Board of Governors Cup and the Spring City Cup. The resort homes in the Spring City Golf and Lake Resort have also been very well-received. The first two collections of resort homes, The Primrose and The Magnolia, comprising 50 resort homes and 82 luxurious villas respectively, have been fully sold and completed. Sales of the third phase, Azalea I, comprising 42 one- to two-bedroom apartments and 29 three-bedroom villas have seen a take-up rate of 80%. RESIDENTIAL TOWNSHIPS Strong economic growth coupled with affordable housing mortgages has fuelled a healthy appetite for housing in China. Demand for good quality residential housing estates among the swelling ranks of the middle-income group will grow rapidly as rising affluence raises the standard of living. Capitalising on the demand for well-planned, good-class residential housing estates in China, Keppel Land formed a 50:50 joint venture with HDB Corporation Pte Ltd (HDBCorp) in May 2003 to develop residential township projects in cities with rapid economic and population growth. Known as CityOne Township Development (CityOne), the joint venture will initially target a number of promising Chinese cities and eventually expand throughout China according to demand. The partnership leverages each other s strengths: HDBCorp s extensive experience and expertise in planning, design, development and management of large-scale residential estates in Singapore; and Keppel Land s established reputation for quality, track record in large-scale development and network in the region. In 2003, Spring City added another two awards to its list of accolades The World s Most Influential Golf Award China and The World s Most Influential Golf Award in China Cities Kunming. In addition, the US Golf Digest ranked it the No.1 Golf Course in China while Golf Digest Hong Kong listed it among the Top 10 Golf Courses in China and Hong Kong. The latter also voted Spring City as the Best Maintenance Golf Course and named Holes No. 5 and 7 of the Lake Course as Signature Holes. For the fifth consecutive year, the resort was named My Favourite Golf Club by the China Golf Magazine. With its cool, temperate spring-like climate all year round, stunning views of Yang Zong Hai Lake and a mountainous backdrop, Spring City Golf and Lake Resort was host to several To-date, CityOne has embarked on a residential township project in Chengdu. It is also part of a consortium led by Keppel Land, which has signed a Memorandum of Agreement with the Shenyang Hunnan District Government to develop a residential township in Shenyang, Liaoning. Upcoming Residential Launches in China Project Total No. of Units Expected Launch Date 8 Park Avenue, Shanghai 945 condominium units 1H2004 The Seasons, Beijing 1,859 condominium units 2H2004 The Waterfront, Chengdu 1,143 condominium units 2H2004 Chengdu Township (Parcel 1) 980 apartments 1H2005 Park Avenue Central, Shanghai 708 condominium units 2H

110 OPERATING AND FINANCIAL REVIEW Expanding Reach & 3. The 42-ha township development in Chengdu will mark CityOne s debut in the capital city of Sichuan province. 2. The Waterfront, a 1,143-unit condominium project in Chengdu will cater to the city s growing middleto upper-income market. Residential Township, Chengdu The 42-ha residential township development in Chengdu, the capital city of Sichuan province, marks CityOne s first foray into China. Located in the south-eastern sector of Chengdu, at the junction of 3rd Ring Road and Cheng Long Road, the site has easy access to major roads, the township is about 15 minutes drive from the city centre and close to the Sichuan Normal University. The entire township, which will be developed over three phases according to market demand, will yield about 8,000 residential units. The township will comprise a mix of low- and highrise apartment blocks, commercial buildings and supporting amenities including a primary school, kindergartens, a community centre or clubhouse, parks, a market and car park facilities. The site has been cleared, and masterplanning and design works are in progress. The first parcel within Phase One, comprising approximately 980 residential units, is expected to be launched in the first half of The residences will cater to Chengdu s middleincome group, comprising mid-level civil servants, managers, young couples, retirees, faculty and staff of the nearby Sichuan Normal University as well as small business proprietors. 109

111 Report to Shareholders 2003 DRAGON LAND Keppel Land has a 24.9% stake in Dragon Land, a Singaporelisted company whose real estate development interest in China covers the cities of Qingdao, Changzhou, Anxi, Jiangyin and Tianjin. During the year, Dragon Land acquired a 1.33 million sm land in Hangu, Tianjin. The project will be developed into a mixed villa and apartment development and an 18-hole golf course with full clubhouse and amenities. Keppel Land s strategic stake in Dragon Land will serve as an additional platform for it to expand beyond the major gateway cities to other growing secondary cities. market review ECONOMY Strong 9.1% economic growth in 2003 China s booming economy grew by a sterling 9.1% to US$1.41 trillion in 2003, exceeding market expectations. The growth was the highest in six years and came despite the ravages of the SARS outbreak in the earlier part of the year, which affected consumer spending, foreign investment and factory output. This signals a quick recovery from the economic fallout of the SARS outbreak and provides a strong foundation for economic progress in Fixed asset investment which makes up about a third of China s economy, grew by about 27% in 2003 as compared to 16% in the previous year. Industrial production rose 17%, while retail sales grew by 9.1% during the year. Strong exports and continuing inflow of foreign investments also helped power China s economy. Exports surged nearly 35% in 2003 to more than US$438 billion. Foreign Direct Investments (FDI) grew by 1.44% from a year ago to US$53.5 billion. The slower growth was due to the outbreak of SARS and the high base in 2002 when FDI surged by 12.5%. Meanwhile, China s foreign exchange reserves reached US$403.3 billion by end-2003, up 40.8% or US$116.9 billion from the beginning of the year. GDP per capita was US$1,090 in 2003, an increase of US$129 from a year ago. Shanghai to maintain double-digit growth in 2004 Shanghai s economy grew by 11.8% to reach US$75.4 billion in 2003, its 12th consecutive year of double-digit growth. During the year, 4,321 foreign investment projects were approved, leading to a 23.5% year-on-year rise in contracted overseas investment to US$11.1 billion. Total industrial output increased by 22% to US$120.8 billion, while fixed asset investment rose 12.1% to US$29.6 billion. The disposable incomes for urban and rural residents in Shanghai in 2003 were US$1,796 and US$804 respectively, up 12.2% and 7.2% from the previous year. Although the outbreak of SARS caused temporary loss in some sectors, including tourism and transportation, the impact was less severe than expected and did not change the overall rising economic trend. The healthy growth was attributed to the good performance of industrial firms, increased government spending and growing investment from overseas investors. Shanghai's economy is expected to continue to experience double-digit growth in The city government s key initiatives for 2004 include optimising the city s structure of foreign exports, better utilisation of foreign direct investment, accelerating infrastructure construction and furthering the reform of state-run enterprises. In 2004, industrial value is expected to grow by 12% while reducing unemployment to around 4.6% from 2003's 4.9%. Beijing aims to raise residents per capita disposable income by more than 6% in 2004 Beijing registered a 10.5% growth in GDP to US$43.6 billion in 2003, due to strong growth in the manufacturing and information technology sectors. This is the fifth consecutive year that the city s economic growth has hit more than 10%. With the negative effects of the SARS outbreak on the economy being less acute as anticipated, total investment in fixed assets in Beijing reached US$26.1 billion, an increase of 18.9% over the previous year. The average disposable income of Beijing residents also increased 11.4% year-on-year to about US$1,

112 OPERATING AND FINANCIAL REVIEW Expanding Reach Beijing s impressive economic growth rate has exceeded 10% for five consecutive years. Beijing aims to achieve 9% GDP growth and increase the per capita disposable income for residents by more than 6% in The city government is expected to introduce a series of preferential policies in its bid to compete with Shanghai to attract foreign investments, which will help maintain Beijing s strong economic growth. Major contributors to GDP growth include increasing foreign direct investments, continued government expenditure on infrastructure works, urban renewal and the high-tech industry. Chengdu woos investments to boost growth Chengdu has witnessed strong economic growth over the last few years. Its GDP grew by 13% in 2003 and growth is likely to sustain at the same pace in Chengdu targets to grow its per capita GDP by 26% to reach US$2,500 (RMB 20,500) by To sustain growth, it plans to step up infrastructure development and encourage more domestic investments from the coastal cities and foreign investments. CHINA F 2005F Prime lending rate (av, %) Inward FDI (US$Bn) Exchange rate (RMB/USD) Source : National Bureau of Statistics, EIU 111

113 Report to Shareholders 2003 market review (cont d) OFFICE Strong demand for office space in Shanghai Demand for quality Grade A office space remained strong in Vacancy rates for Grade A office space dropped 1.7% to 9.6% by the end of Take-up is estimated at approximately 330,000 sm in 2003, a 23% growth from the previous year. Grade A office rentals in Puxi increased 1.3% to US$0.64 psm per day in the fourth quarter of However, Grade A office rentals in Pudong declined slightly by 1.7% to US$0.70 psm per day. Rentals were dragged down by the cheaper, lower floor space which accounted for the bulk of the office space rented. Supply of Grade A office space in Shanghai currently stands at 3.3 million sm and is forecast to grow to 5.3 million sm by RESIDENTIAL Continued rise in residential property sales and prices China s property market remained vibrant in Total investment in real estate development hit RMB1.01 trillion (US$122.1 billion), up 29.7% year-on-year. Of this, about 67% or RMB678 billion (US$81.9 billion) was invested in residential projects, an increase of 28.6% year-on-year. Property sales rose 34.1% to RMB767.1 billion (US$92.4 billion). Sales to individuals accounted for 92.5% of total sales, an increase of 35.8% from the previous year. According to the National Bureau of Statistics, average housing prices rose by 3.8% year-on-year in The rise in demand and housing prices is in line with a rapidly growing economy, as well as income and rental growth. The Chinese government s attempts to address concerns of an overheating of the property market are prudent as they will help to prevent rampant escalation of land price, which is undesirable and unhealthy for the long-term development of the housing market. These include the People s Bank of China s (PBOC) regulations on loans to the real estate market, suspension of land supply for the development of villas nationwide, prohibition of land-hoarding by developers as well as increasing the initial deposit for luxury properties from 20% to 50% for second purchases. Banks are also screening borrowers financial credibility more closely before approving home mortgage loans. Increasingly, local governments are also under pressure to increase transparency via land tender or public listings in most cities. Shanghai targets 90 million sm of housing space by 2007 The real estate sector contributed a significant 7.4% to Shanghai s economic growth in 2003, compared with 6.9% in 2002 and 6.4% in Investment in Shanghai s real estate sector reached RMB90.1 billion (US$10.9 billion) in 2003, up 20.3% from a year ago. Preliminary statistics released by the municipal statistical bureau showed that construction and sales of new properties both recorded historical highs in 2003, increasing by 25.6% and 20.5% respectively. A total of 24.9 million sm of new floor area was built while 23.8 million sm were sold. Sales of secondary property also increased by 28.5% to 23 million sm. Total floor area under construction in Shanghai as at end stood at 82.7 million sm, up 20.5% from a year ago. Residential area that has commenced construction accounted for about 26.1 million sm. In a new housing plan unveiled by the Shanghai Urban Planning Department, Shanghai residents will have one apartment unit per household and one room per capita by To achieve these targets, the city plans to build 90 million sm of housing space by 2007 or an average of 22.5 million sm per annum over the next four years. The city will develop residential properties in both urban and suburban areas, constructing several large-sized residential quarters in downtown areas and rebuilding old residential areas near the Huangpu River and Suzhou Creek. Shanghai 112

114 OPERATING AND FINANCIAL REVIEW Expanding Reach currently has a total housing space of million sm or 20 sm per capita. According to the new plan, residential floor space is expected to reach sm per capita by Demand in Beijing to remain healthy in lead-up to 2008 Olympics In 2003, realised real estate investment in Beijing rose 21.5% year-on-year to RMB120.3 billion (US$14.5 billion). Of this, RMB63.3 billion (US$7.7 billion) was invested in commodity housing, 7.9% more than the previous year. During the same period, 20.8 million sm of commodity housing was completed, an 8% increase over Demand was strong, with the cumulative area sold for the year rising by 10.4% to 17.7 million sm. In December 2003, the average price for commodity housing in the eight main districts of Beijing was RMB 5,912 psm, 4.5% higher from end Demand is expected to remain healthy, underpinned by continued strong economic growth resulting in increased disposable income, rising homeownership aspirations, growing investment interests and the positive effects in the lead-up to the 2008 Olympics. Government efforts to regulate the market land supply mechanism will also lead to a better alignment of future land supply to market demand, thus minimising land speculative actions. Supply and demand in Chengdu in equilibrium Demand for residential property was strong, with healthy take-up of about 8.9 million sm in 2003, representing a 20% increase over the previous year. Residential prices rose by 5.1% in Vacancy rate is also under control. Out of the total of 2 million sm of vacant space, about 64% has been vacant for less than one year and pending to be sold. The outlook for Chengdu s residential market remains positive, as the supply and demand situation is in equilibrium. Demand continues to be well-supported by both local and non-resident buyers. Government regulations including the recent easing of regulations for people to become Chengdu residents as well as the government subsidy of between 0.5% and 1.0% of the purchase price, will also have a positive impact on demand. Positive outlook for residential market Going forward, the outlook for the residential sector remains positive, as the fundamental need for housing remains. Underlying trends such as rising affluence and a growing middle-class, urban migration, strong homeownership aspirations, new household formations, and an expanding expatriate community will continue to underpin demand for quality housing. With China s entry into the World Trade Organisation, and the hosting of the 2008 Olympics in Beijing and the 2010 World Expo to be held in Shanghai, the outlook for the real estate industry continues to be positive. The Chinese government has also taken initiatives to encourage homeownership, such as housing reforms, easy access to mortgage financing and tax incentives to homebuyers. RESIDENTIAL % y-o-y change Shanghai Demand (mil sm) % Supply (mil sm) % Price (RMB psm) 4,120 5, % Beijing Demand (mil sm) % Supply (mil sm) % Price (RMB psm) 5,650 5, % Chengdu Demand (mil sm) % Supply (mil sm) % Price (RMB psm) 2,116 2, % Source : National Bureau of Statistics 113

115 Report to Shareholders 2003 OPERATIONS AND MARKET REVIEW HONG KONG The Waterfront, which comprises 1,288 luxury units, has already had a 97% take-up rate of the 1,122 units launched for sale. KOWLOON The Waterfront The Waterfront comprises 1,288 units, spread over six residential towers. As at end-2003, about 97% of the 1,122 units in five blocks launched for sale has been sold. The remaining tower, namely the 164-unit Tower 5, is currently held for investment and operates as a serviced apartment. It will be released for sale when market conditions are favourable. Keppel Land is part of a consortium which developed The Waterfront, a large-scale condominium project above the Kowloon Station along the Airport MTRC Line. Other members in the Wing Tai-led consortium include Temasek Holdings, Singapore Land, Lai Sun Development, Worldwide Investment and USI Holdings. market review ECONOMY Business sentiments improved following CEPA Business sentiments reached an all-time high following the signing of the Closer Economic Partnership Arrangement with Beijing in June 2003, which eased restrictions on mainland Chinese visiting Hong Kong (HK) and gave service industries such as banks, insurance, retailers and telecom companies preferential access to the mainland. As a result, retail sales and hotel occupancy rates rose, and the economy grew 3.3%. China s surging external trade also helped the HK economy by boosting its exports as 90% of HK s exports are re-exports of goods moving in or from China. Deflation, which has plagued the territory since November 1998, is also slowing. Despite the positive signs, the economy still faces some downside risks such as political tension over democratic reforms and high unemployment rate. HONG KONG F 2005F Real GDP growth (%) Prime lending rate (av, %) Inward FDI (US$Bn) Exchange rate (HKD/USD) RESIDENTIAL Demand picked up in second half of 2003 The improved business sentiment has filtered through to the property sector. Demand for some newly launched, entry-level mass residential projects in well-located areas remained strong even after developers raised prices. This was attributed to both pent-up demand and a recovery in buyers confidence following improved economic prospects. Sales in the high-end residential segment were also buoyant, with several luxury residential apartments in prime locations reported to have transacted at record-high prices since the property market crashed in Improved outlook for 2004 In view of the improving economic outlook, analysts are forecasting further increases in residential prices in 2004, ranging from 5% to 10% for mass residential units, and up to 15% for luxury units. Home sales are also expected to rebound in 2004, with the Kowloon area being the focus for both the mass and luxury residential segments. The government is also expected to continue to rein in oversupply, which will further help the market recover. Source : EIU 114

116 OPERATING AND FINANCIAL REVIEW Expanding Reach OPERATIONS AND MARKET REVIEW INDONESIA Wisma BCA, situated in the heart of Jakarta s financial district, is fully tenanted. JAKARTA Wisma BCA As of December 2003, Wisma BCA was fully tenanted. Comprising two office towers, it is situated right in the heart of Jakarta s financial and business district. It is within easy access to five-star hotels, embassies and other prime office buildings. The 10,444-sm site has development potential for a third tower as the plot ratio has not been fully utilised. Pasadenia Garden Pasadenia Garden is Keppel Land s first residential project in Indonesia. It is a low-density development spreading over an 8-ha site and is located within the upper-middle class Pulomas residential estate in Jakarta. The first phase, which comprised two blocks of 8-storey strata-titled condominium units, two blocks of 4-storey rental apartments and a clubhouse, was completed in late Of the 147 condominium units for sale, 82 units or 56% had been sold. Of the 65 unsold condominiums, 46 units or 71% are currently being leased out. As for the 50 apartments for lease, 32 units or 64% have also been rented out. Phase Two, which consist of landed houses, is currently under planning. At present, the land is leased to an investor who has constructed a temporary 40-bay golf driving range, which serves as an added attraction for the development. YOGYAKARTA Melia Purosani Hotel Melia Purosani Hotel is a 296-room hotel located in the centre of Yogyakarta. The hotel continued to improve its performance during 2003 on the back of increased domestic travellers participating in meetings and conventions. Average occupancy for the year was 51%, an improvement from 48.7% in Average room rate for the same period was also higher at US$30.20, an increase from the average of US$27.48 recorded for In general, the hotel industry has improved as a result of a more stable political and social environment as well as recovery from the effects of the Bali bombings that took place in BINTAN Ria Bintan Ria Bintan is a 447-ha premier integrated resort, comprising Club Med Ria Bintan, hotels, resort homes and golf courses, and will be developed over four phases. Ria Bintan Golf Club is a 36-hole championship golf course designed by Gary Player. The first 27 holes comprising the 18-hole Ocean Course and the first nine holes of the 18-hole Forest Course were completed and opened for play in October 1998 and December 2000 respectively. 115

117 Report to Shareholders 2003 Ria Bintan s world-class championship courses have been conferred numerous international awards, including three awards by the 2003 Asian Golf Monthly. US Golf Digest ranked Ria Bintan Golf Club as the first runnerup for the Best Golf Course in Indonesia in In the same year, Ria Bintan Golf Club was also conferred three awards by Asian Golf Monthly. It was the runner-up for the Best Course in Indonesia. The 7th hole of the Ocean Course was named the winner for Best Par-Five in Asia and the 9th hole of the Ocean Course was runner-up for Best Par-Three in Asia. Club Med Ria Bintan, a beachfront resort with 302 rooms, continues to attract visitors from Singapore and international tourists. However, the hotel s performance in 2003 was affected by the SARS epidemic and the Marriott Hotel bombing. Average occupancy for the year was 37.1% compared with 53.6% for However, occupancy rate has improved since May 2003 when it hit a low of 11.7%. SURABAYA Galleria Tunjungan Galleria Tunjungan is a proposed upmarket retail-cumcommercial complex on a prime 23,768-sm site in the heart of Surabaya s CBD. This project is currently put on hold until market conditions improve. Bubutan Golden Junction Keppel Land owns an 80% stake in a proposed strata-titled retail complex which is being planned on a 25,840-sm site in an established commercial area within Surabaya s CBD. A preliminary concept design with gross floor area of approximately 87,000 sm has been prepared. The concept design is being refined and updated based on discussions with potential anchor tenants and mini anchors for each trade cluster intended for the centre. The development of the complex will be timed according to market demand. MANADO Hotel Sedona Manado Hotel Sedona Manado is an international-class resort hotel located at Tateli, 12 km from Manado, the capital of North Sulawesi. When completed, it will have 247 rooms and suites with recreational facilities like a private swimming lagoon, a swimming pool, a tennis court, a fitness club and other sea sports facilities. It will also offer easy access to the diving sites in the area. The final completion of the hotel was put on hold following the Asian financial crisis in 1997/98, which had an adverse effect on the hotel sector in Indonesia. The opening of the hotel will be timed according to market conditions. BALI Tanah Lot Resort In view of the fact that Bali s tourism is still recovering from the bombing incident of October 2002, the proposed development comprising exclusive gated beachfront resort bungalows with a luxurious resort hotel has been held back. 116

118 OPERATING AND FINANCIAL REVIEW Expanding Reach market review ECONOMY Future directions depend on outcome of general and presidential elections Driven by stronger consumer spending and export performance, Indonesia s economy grew by 4.1% in 2003, compared to 3.8% in GDP growth for 2004 is projected at 4.5% and will be driven largely by rising exports and private consumption, which is in turn fuelled by steadily declining interest rates and ample access to credit. A major risk to growth will be the political and economic uncertainties due to the forthcoming general and presidential elections. Soft demand for rental apartments but strong sales of condominiums are expected Demand for rental apartments is likely to remain soft due to the limited overall number of expatriates in the market. Rentals are expected to increase for preferred projects but this will be balanced out by other projects that continue to offer discounted rentals to attract occupier interest. As of end-2003, the occupancy level reached 66.5%, an increase of 3% from end Cumulative demand over the year stood at 9,953 units, leaving 4,998 units vacant. Average monthly rental rate for serviced apartments was Rp 159,000 psm in 2003, a decline of 5.7% from INDONESIA F 2005F Real GDP growth (%) Lending rate (av, %) Inward FDI (US$Bn) Exchange rate (Rupiah/USD) 8,577 8,357 8,088 Source : EIU JAKARTA Office market to face downward pressure Total cumulative supply of office space for Jakarta increased marginally to 5.01 million sm as at end Given the tight supply situation, the average occupancy rate edged up slightly to reach 78.8% as at end-2003 against 78% as at end Average rental rate for prime offices within the CBD was 4.4% higher over the year, averaging Rp 107,800 psm per month in 2003 compared with Rp 103,300 psm as at end Asking prices remained stable at between Rp 11 million psm and Rp 13.5 million psm for good grade strata-titled office space in the CBD area and between Rp 8 million psm and Rp 10 million psm for lower office grade. For the year ahead, steady demand for office space in the CBD area is expected. Although no major new supply will come forth until 2005, rental rates may face downward pressure due to the subdued business sentiment ahead of the 2004 general and presidential elections. On the other hand, residential sales were more buoyant with a total of 1,470 units sold during the year, almost double that of 737 units in Take-up was particularly strong in the fourth quarter, with 671 strata-titled apartments and ten strata-titled townhouses being sold. Average condominium prices stood at Rp 13.7 million psm in the CBD and Rp 9 million psm for those located in the prime residential area. More projects, including the re-launch of some previously mooted developments, are expected to enter the market on pre-sales basis in the near term. Demand for these newly offered projects will likely remain strong, especially for projects that are well-located. Average prices are expected to remain stable. SURABAYA Retail market to remain stable While no additional supply entered the Surabaya market during the first half of 2003, several new retail malls were completed in the second half of the year. This brought the total cumulative supply to 372,600 sm, up 41% from Further new supply is expected in Average occupancy rate, which stood at a high of 96.1% as of June 2003, fell slightly in the second half of the year due to the significant increase in new supply. Rentals remained firm with average gross rental for prime ground floor space at Rp 300,000 psm per month as at end In comparison, the average occupancy rate was 93.7% and the average rental rate for prime space was Rp 246,000 psm per month as at end

119 Report to Shareholders 2003 OPERATIONS AND MARKET REVIEW MALAYSIA Taman Sutera is a 500-ha township project in Johor. The development is spread over two main zones, with residential, commercial and recreational components. JOHOR Taman Sutera Keppel Land, together with joint venture partners, is developing Taman Sutera, a 500-ha township project in Johor. Strategically located close to the city centre of Johor Baru, the development enjoys easy access to the Senai International Airport, the North- South Highway and the second link between Malaysia and Singapore. Spread over two main development zones, Taman Sutera will have residential and commercial space as well as recreational facilities. The development continues to command good take-up rate. Of the 2,133 units of landed houses, apartments and shop-offices launched, 1,811 units or 85% have been sold as at end PENANG Taman Jernih Keppel Land, in a joint venture with the Malaysian Boustead Group, is currently developing Taman Jernih on a 14.4-ha freehold site in Bukit Mertajam, Penang for residential and commercial use. The entire project will be developed over four phases, comprising 365 terraced houses, 28 semi-detached houses, 120 cluster houses and two bungalow plots. Well-received by buyers, the first three phases of the development, comprising a total of 449 units, have been completed with only two units unsold as at 31 December

120 OPERATING AND FINANCIAL REVIEW Expanding Reach market review ECONOMY Broad-based recovery The improving domestic economy and a global economic recovery have led to a stronger-than-expected GDP growth of 5.2% for Going forward, the Malaysian economy is expected to grow at a quicker pace of 5.5 6% for 2004, driven by increased activities in all three sectors services, manufacturing and agriculture. In addition, the pro-growth measures contained in Budget 2004, coupled with the stimulus package announced earlier in May 2003, will enhance Malaysia s competitiveness and economic resilience against potential external shocks. MALAYSIA F 2005F Real GDP growth (%) Prime lending rate (%) Inward FDI (US$Bn) Exchange rate (Ringgit/USD) Source : EIU RESIDENTIAL Improved market outlook in tandem with economic rebound The Malaysian residential property market was relatively subdued in Despite the government s move to relax foreign ownership of property in May 2003, increased interest from foreign buyers has been slow. Foreigners are now allowed to acquire properties priced from RM150,000 and above as against the previous guideline of RM250,000 and above. For the year ahead, the outlook for residential sales is expected to be good as economic rebound, competitive prices, readily available credit and low interest rates are poised to stimulate housing demand. With the improved economic climate, recent upgrade in country ratings and the liberalisation of property rulings, it is hoped that more foreigners will be enticed to invest in Malaysian properties. The problem of supply overhang, while still lingering, has eased as unsold inventory is being pared down. JOHOR BARU Favourable outlook for residential market Residential property market in Johor Baru is looking increasingly attractive. Strong economic recovery, combined with improvement in consumer confidence, has resulted in higher take-up rates for new launches. The outlook for this segment is expected to be favorable, supported by low interest rates, favourable fiscal policies and higher disposable incomes. Demand for property in Johor Baru has shifted focus to suburban areas such as Kempas, Ulu Tiram and Skudai, which are located within 10 to 30 km from Johor Baru city centre. The shift is due mainly to newer and bigger township developments in these areas where the environment and design are better. PENANG Housing market to remain stable The Penang residential property market recorded modest gain in 2003 on the back of a recovering stock market and some impetus from the economic stimulus package to boost housing demand. Positive market sentiment had led to slight appreciation in prices of landed properties. According to property consultants, landed properties in Penang appreciated by 2 5% in Barring any external economic shocks, the Penang housing market is expected to remain stable in

121 Report to Shareholders 2003 OPERATIONS AND MARKET REVIEW MYANMAR Sedona Hotel Mandalay has been lauded as the best hotel in this historic city. Sedona Hotel Yangon Overlooking the Inya Lake, Sedona Hotel Yangon continues to maintain its market dominance as one of the best hotels in the country. With its premier location along Yangon s famous Kabe Aye Pagoda Road and its close proximity to the airport, city centre and cultural attractions such as the Shwedagon Pagoda and Inya Lake, Sedona Hotel Yangon is still the preferred hotel among business travellers. Notwithstanding the SARS outbreak, the Iraq war and a weak global economy, Sedona Hotel Yangon managed to achieve a slight increase in gross operating profit over the previous year despite a drop in average occupancy rate from 73% in 2002 to 64% in 2003 for the 175 rooms in operation. This was mainly due to its effective cost containment strategies that include better control over labour cost and energy consumption, and aggressive marketing efforts to generate more domestic and regional business to mitigate the decline in visitor arrivals from the long-haul market segment. Sedona Hotel Mandalay With the superb quality of service associated with the Sedona brand, Sedona Hotel Mandalay is considered the best hotel in this ancient city. Situated opposite the Mandalay Palace, it is the hotel of choice for many business and leisure travellers. Coupled with an active sales and marketing programme that targets primarily on the leisure market segment, Sedona Hotel Mandalay continues to attain higher than full occupancy for the 56 rooms in operation. Leveraging the Sedona brand name in Myanmar, the strategic alliances with airlines and travel agents, aggressive cross-selling between the two hotels and constant promotion through the Internet and travel publications, both Sedona Hotel Yangon and Sedona Hotel Mandalay are expected to improve on their performance in market review ECONOMY Recovery expected despite uncertainties in the short-term Tourist arrivals for 2003 were down compared to the previous year, largely due to the SARS outbreak, the Iraq war and the US-led sanctions against the country. Tourism outlook for 2004 will continue to be affected by political and economic issues surrounding the country. In the short-term, the US-led sanctions will continue to impact on tourism growth. Over the longer term, Myanmar can look forward to a gradual pick-up in tourist arrivals as the global economy improves. The spread of the bird flu virus in Asia has yet to hit sales of leisure and business travel to Myanmar. So far, there has been no sign of drastic reaction that devastated travel to the region like during the height of the SARS epidemic in The tourism sector is not expected to be significantly affected as long as the situation remains under control. MYANMAR F 2005F Real GDP growth (%) Lending rate (av, %) Exchange rate (Kt/USD) 960 1,020 1,300 Source : EIU 120

122 OPERATING AND FINANCIAL REVIEW Expanding Reach OPERATIONS AND MARKET REVIEW PHILIPPINES Palmdale Heights is Keppel Land s first residential development under the Buena Homes brandname. The site is strategically located between the Makati and Ortigas central business districts. Keppel Philippines Properties (KPP) has completed its restructuring programme to focus on its core real estate business. Its 22.1% stake in KMP Engineering, valued at 5.7 million pesos, has been sold to Japanese investors, Ohmori Kogyo and T-Net Japan, in February During the year, KPP increased its authorised capital with the issue of million non-dividend earning redeemable preferred shares with par value of one peso per share. will consist of 29 residential blocks with a total of 4,000 units, two commercial centres, and parking facilities when fully completed. It will also include amenities such as a twostorey clubhouse, swimming pools, parks and playgrounds. Palmdale Heights is strategically located between the Makati and Ortigas central business districts (CBDs), and is targeted at professionals working in the CBDs and overseas Filipino workers, who purchase residential units mainly for family and investment purposes. As an indication of Keppel Land s continued confidence and long-term commitment in the Philippines, the Group s 730 million pesos worth of advances to KPP was converted into 73 million redeemable preferred shares. Keppel Land will subscribe to the remaining 62.7 million shares over the next two years. The funds raised will be used to finance KPP s operations and property development. KPP will continue to focus on the development of middleincome housing and retail properties, which are the potential growth drivers for the property market. Phase One, comprising three residential blocks with a total of 414 units, has recently been completed and over 83% have been sold as at end-january The handing over of units to buyers has started since October 2003, two months ahead of schedule. Phase Two, also comprising three residential blocks with 414 units, will be completed in The first block in Phase Two is about 80% sold as at end-january Market interest in Palmdale Heights is expected to increase when unit owners complete their renovation works and start to move in by early Plans to start the successive phases are currently being reviewed with the good market response. Palmdale Heights Palmdale Heights, which sits on a 7.6-ha site, is KPP s first residential development under its subsidiary Buena Homes (Sandoval). The site will be developed in eight phases and SM-KL Towers Envisioned to be a landmark development of quality and elegance in the Ortigas CBD, the SM-KL Towers is being jointly developed by Keppel Land and the SM Group of the 121

123 Report to Shareholders 2003 The Podium is the retail component of the SM-KL Towers development. The upmarket mall houses 120 specialty stores, and is now fully tenanted. Philippines. The development will comprise of two 55-storey office towers and a 70-storey residential tower linked by a fivestorey retail podium with basement car park. Phase One of the retail complex, dubbed The Podium, was completed in December 2001 and officially opened in August With its unique design and spacious ambience, The Podium has fast become the preferred mall of young professionals and residents of upmarket homes in the vicinity. The Podium has also become the venue of choice for holding grand events such as festivals hosted by different embassies in the Philippines. The Podium houses over 120 specialty stores and restaurants and features two state-of-the-art cinemas. To-date, the mall is 100% leased. 55-storey office tower and expanding the retail podium are being reviewed. Benguet Centre, an existing six-storey office building on the development site, continues to enjoy full occupancy with above market average rental rates. Metro North Township Metro North Township is a master-planned township development that incorporates residential, commercial, institutional and mixed land uses on a 600-ha land parcel located north of Quezon City. It is envisioned to be a major urban site that will accommodate the overspill of development activity in the metropolis. Owing to the success of The Podium, a portion of the first basement car park has been converted into retail space. The additional space of about 1,200 sm will house service shops to complement the existing tenant mix of the mall. With the completion of its master plan, KPP is positioning itself to activate the option agreement with Araneta Properties for the development of the township at the appropriate market conditions. In view of the resilient retail sector and the expected recovery of the office sector, the prospects of developing the first 122

124 OPERATING AND FINANCIAL REVIEW Expanding Reach market review ECONOMY Further resilience in 2004 Despite the SARS outbreak and war in Iraq, the domestic economy remained resilient. GDP grew by 4.5% in 2003 on the back of strong consumer spending, prudent and better-than-expected performance of the agriculture and services sectors. The Philippine economy is expected to exhibit further resilience as GDP is projected to expand by % in PHILIPPINES F 2005F Real GDP growth (%) Lending rate (av.,%) Inward FDI (US$Bn) Exchange rate (Peso/USD) Source : EIU RESIDENTIAL Trend for quality and affordable middle-income residential properties Backed by strong end-user demand, the middle-income residential property sector remains resilient despite generally weak market sentiments. Consumers preference is still strongly influenced by factors such as affordability, availability of flexible in-house financing schemes and developer s track record. Rental rates and capital values of luxury residential units in the Makati CBD have declined by an average of 11% and 2% respectively from a year ago. As at end-2003, average luxury residential rental rates hovered around 310 pesos psm per month while average capital values was about 64,000 pesos psm. Prices are expected to remain at current levels in OFFICE Signs of market bottoming out The supply overhang in the office market has started to ease as call centres and shared service units continue to drive demand for office space. This has helped to drive the vacancy rate down. As at end-2003, the average vacancy rate in the Makati CBD was around 12% while it was about 20% in Ortigas CBD. Average Grade A rents in Makati CBD declined by 14% to 485 pesos psm per month in 2003 from 564 pesos psm in Capital values also posted a slight decline of around 1% to average 62,500 pesos psm in 2003 from 63,000 pesos psm in Given that no new projects will be completed until 2005, the vacancy rate is expected to decline further. A 3 5% upward adjustment in rents and capital values is expected in RETAIL Resilience on strong consumer spending Largely supported by strong consumer spending, mall developers continued their expansion activities in Metro Manila and provincial areas. In Metro Manila alone, the supply of leasable retail space is estimated to reach about 3.5 million sm by end Established and well-located malls continue to enjoy full or near-full occupancies. As at end-2003, effective retail rents in both Makati and Ortigas CBDs stood at an average of 1,030 pesos psm per month and 820 pesos psm per month respectively, compared with an average of 1,030 pesos psm per month and 805 pesos psm per month in For 2004, retail rents are projected to strengthen by 5 10% as the country s political situation is expected to stabilise after the presidential election in May. 123

125 Report to Shareholders 2003 OPERATIONS AND MARKET REVIEW THAILAND Keppel Thai Properties Public Company (KTP) is a Thai listed company which is 45.45% owned by Keppel Land. KTP has todate two development projects in Bangkok under the Arcadia brand, which evokes tranquillity and serenity while delivering its innovative and lush landscaping to enhance the quality of life for its homeowners. Going forward, KTP will continue with its strategy to acquire more land parcels within the greater Bangkok area for the development of quality detached housing, targeted at the middle- and upper-income segments. Villa Arcadia at Srinakarin KTP s first development is located in the Srinakarin area, about 17 km southeast of Central Bangkok. Expected to be launched in mid-2004, the development comprises 367 units of 2-storey detached houses sold on a fully-fitted basis, with access to full facilities such as a clubhouse with a swimming pool, and 24-hour security within a gated community. The development incorporates modern-tropical design and high quality standards, and is aimed at middle- to upper-middle income buyers with preference for modern-design homes. 1 Villa Arcadia at Watcharapol During the year, KTP acquired a 12.5-ha site at Watcharapol area, about 30 minutes drive to the north from Bangkok City, and about 4 km from the Don Muang International Airport. Watcharapol is a fast establishing upper-middle class residential neighbourhood with good and easy access to major amenities and highways. KTP plans to develop 270 two-storey detached housing units for Villa Arcadia at Watcharapol, and it is expected to launch for sale by mid & 2. Villa Arcadia at Srinakarin is a quality development of 367 detached homes sold on a fully-fitted basis. 124

126 OPERATING AND FINANCIAL REVIEW Expanding Reach market review ECONOMY Stellar performance in 2003 bodes well for 2004 The Thai economy was among the best performing in the region in 2003, with GDP growth reaching a high of 6.7%, driven by exports and consumer spending amidst a low interest rate environment. The final IMF debt payment made in July, two years ahead of schedule, and subsequent credit ratings upgrades officially marked the end of Thailand s economic crisis. Optimism abounds as the country progresses well into 2004, with GDP expanding further, boosted by exports, strong domestic demand and government expenditure in infrastructure projects. Interest rates will remain competitive, hence increases in private investment spending are expected, in line with the strengthening of the banking sector. THAILAND F 2005F Real GDP growth (%) Commercial banks prime rate (%) Inward FDI (US$Bn) Exchange rate (THB/USD) Source : EIU RESIDENTIAL Property sector will continue to be robust despite bubble concerns 2003 has been a very active year for the property sector. Detached homes have been the main focus of building activity, taking up 70% of total housing supply. Newly registered total housing supply increased to 50,594 units in 2003, still far below the 10-year average of 130,000 units recorded in the pre-crisis years. Growth in the broad property market will continue to be sustainable going forward due to improved job security, income growth and affordability. Increasing the spread of new housing availability by acquiring new land bank, property developers are confident that fundamental demand remains the key driver, particularly for detached homes where the majority of buyers are end-users. Infrastructure projects undertaken by the government aimed at improving public transportation, water and electricity supply would also contribute positively to the potential demand for housing in new locations. Concerns of a property bubble have surfaced in the last months of 2003, calling for a greater monitoring of property price increases in Thailand and maintaining of economic stability amid its robust economic growth performance. Although property prices have increased by an average 25% from 2002, they are driven up by the increasing total development cost of land and construction materials. Moreover, demand and supply levels of housing have been largely moving in tandem since 2000, at levels far below that of the crisis years. Nevertheless, as part of a more cautious stance taken by the government to keep the property market in check, tax incentives previously awarded to kick-start growth have been removed with effect from January Policies to stem easy credit and curb excessive demand are being put in place to regulate unwelcome speculative activity. RESIDENTIAL % y-o-y change Demand* (no. of units) 30,564 45, % Supply (no. of units) 34,032 50, % Source : Bank of Thailand, Government Housing Bank, Investment bank reports *Estimated 125

127 Report to Shareholders 2003 OPERATIONS AND MARKET REVIEW VIETNAM Currently under development, Villa Riviera will feature 4- and 5-bedroom villas in eight different layouts catering to the upper-income market in HCMC. HO CHI MINH CITY Saigon Sports City In June 2003, Keppel Land and Hong Kong s Chiap Hua Group entered into an agreement to develop a good class residential estate on a 68.7-ha site in Ho Chi Minh City (HCMC). The development, known as Saigon Sports City, is positioned to meet the growing demand for well-planned residential estates in the city. Catering to the upper-income market and with proximity to many sports and recreational facilities, the development is poised to be the first to embark on a healthy lifestyle development concept in Vietnam. The site enjoys good scenic river frontage and is easily accessible via the Hanoi Highway. Located just 25 minutes from the city centre, in the popular An Phu Ward in District 2, the development will comprise mainly quality housing but will include some supporting commercial complexes, and a 15-ha area designated for public sports facilities. The surrounding area is popular with the expatriate community and the upper-income locals, and enjoys close proximity to the International Grammar School, British International School, foreign-developed serviced apartments and Metro Hypermart. The first phase of the development comprises 250 units of highrise apartments, and will be launched in the first half of Keppel Land will hold a 90% stake in the joint venture company, and the Chiap Hua Group will hold the remaining %. The joint venture is one of the first 100% foreign-owned enterprises allowed to develop and sell residential properties in the country. Villa Riviera Villa Riviera, comprising 113 quality villas with plot sizes ranging between 300 and 550 sm, is currently under development. Located in the well-established residential area of An Phu Ward in District 2 in HCMC, the project enjoys an excellent scenic frontage along the Saigon River. It is also a mere 15 minutes drive from the central business district and is highly-accessible and well-served by major roads. The surrounding area is popular among the top echelon of the expatriate community and the upper-income locals, and enjoys close proximity to the International Grammar School, the British International School and two foreign-developed serviced apartments. Keppel Land holds a 90% interest in this project, while joint venture partner Hiep Hoa Phat Company holds the remaining 10%. Catering to the upper-income market, Villa Riviera will feature 4- and 5-bedroom villas in eight different layouts. Each home will have a spacious driveway and a private car porch that can accommodate two cars. Set within a gated area with 24-hour security services, the villas come complete with recreational facilities like a 30-metre infinity edge pool, a clubhouse, a gymnasium and a tennis court. The development will be launched in the first half of 2004.

128 OPERATING AND FINANCIAL REVIEW Expanding Reach Upcoming Residential Launches in Vietnam Project Total No. of Units Expected Launch Date Villa Riviera, Ho Chi Minh City 113 villas 1H2004 Saigon Sports City (Phase 1) 250 apartments 1H2005 Saigon Centre Saigon Centre, in which Keppel Land holds a 68% stake, is strategically located in the Central Business District of HCMC, and is a landmark development fronting Le Loi Boulevard, the city s main thoroughfare. To be developed in phases in accordance with market demand, this 2-ha site will comprise international-standard office buildings, serviced apartments and a hotel inter-linked by a retail podium when fully completed. 1 Phase One, a 25-storey mixed-commercial building comprising a three-storey retail podium, 11 levels of office space, a business centre and town club, 89 units of serviced apartments and three levels of basement carpark, was completed in The preferred address of multinational companies (MNCs), banking and financial institutions, Saigon Centre offers a high standard of service and management and is a market leader in terms of occupancy and rental rates in HCMC. The office and retail components are fully leased and the Sedona Suites HCMC serviced apartments, managed by Sedona Hotels International, enjoy high occupancy rates of around 95%. Sedona Suites HCMC was awarded the Best Business Serviced Apartment in HCMC at the Guide Awards Jointly organised by Vietnam Economic Times magazine and Vietnam National Administration of Tourism, the Guide Awards give recognition to outstanding hospitality service providers in Vietnam who have contributed significantly towards developing and maintaining the country s reputation as one of the friendliest destinations in South East Asia. The Guide Awards poll was conducted via both the Vietnam Economic Times magazine and its website, where readers voted for their favourite hospitality service providers. 2 At the Tet Nguyen Dan festive competition to commemorate the start of the Lunar New Year in Vietnam in January 2004, Saigon Centre came in second runner-up for the Best Decorated Building in HCMC. Saigon Centre was short-listed by a panel of judges comprising members of the Architect s Association of HCMC, the press and prominent artistes. 1. Saigon Centre is the preferred address of MNCs and a market leader in terms of occupancy and rental rates in HCMC. 2. Sedona Suites HCMC enjoys high occupancy rates of around 95%. 127

129 Report to Shareholders 2003 International Centre, the first modern office building in Hanoi, enjoys high occupancy of above 90%. Tamarind Park Tamarind Park is a proposed 20-storey apartment tower located at Thai Van Lung Street in HCMC s prime District 1. It is nestled in a quiet and exclusive neighbourhood and yet has the convenience of a city centre location with the city s commercial and shopping belt only a stone s throw away. For two consecutive years in 2003 and 2004, Sedona Suites Hanoi won the Best Luxury Serviced Apartment in Hanoi Award at the Guide Awards 2002 and 2003 respectively. The latest award won in March 2004 was especially significant as its counterpart in HCMC, Sedona Suites HCMC also bagged the Best Business Serviced Apartment in HCMC Award. This development, in which Keppel Land holds a 60% stake, will feature a total of 173 residential units, complete with recreational facilities. HANOI International Centre International Centre is the first modern office building in the capital of Vietnam. Located in Hanoi s Central Business and Financial District at Ngo Quyen Street, the eight-storey Grade A office building offers more than 7,585 sm of prime office space. With its key location and quality services, International Centre in which Keppel Land holds a 43% stake, enjoys high occupancy of above 90% with MNCs, financial institutions, international airlines and blue-chip consultancy firms among its tenants. Royal Park Sedona Suites Hanoi Located on the north-eastern bank of the tranquil Ho Tay Lake, Hanoi s largest lake, Royal Park Sedona Suites Hanoi comprises 175 serviced apartments and villas, and a clubhouse complete with a comprehensive range of recreational facilities and amenities. Managed by Sedona Hotels International, Sedona Suites Hanoi enjoys high occupancy rate of above 90% and has maintained its position as a market leader in service quality. It is a popular choice among the diplomatic corp, businessmen and the expatriate community. Vietcombank Towers Vietcombank Towers, a 22-storey office building, offers 19,263 sm of prime office space with panoramic city view. It is the tallest office building in Hanoi and is a prominent landmark in Hanoi s city skyline. Vietcombank Towers enjoys a high occupancy rate of more than 95% and is a preferred business address of MNCs, as well as financial and insurance institutions in Hanoi. Keppel Land holds a 6% stake in this Grade A office building. VUNG TAU Petro Vietnam Towers Petro Vietnam Towers, which is 12.9% owned by Keppel Land, is the only international standard office building in the prime commercial district of Vung Tau. Completed in mid-1997, the 10-storey Grade-A office building offers 12,465 sm of prime office space and has attracted tenants from the oil and gas, petrochemical and financial industries. Quality Awards for Properties in Vietnam Project Sedona Suites Hanoi Sedona Suites Hanoi Sedona Suites HCMC Saigon Centre Award Best Luxury Serviced Apartment, Hanoi at Guide Awards 2003 Best Luxury Serviced Apartment, Hanoi at Guide Awards 2002 Best Business Serviced Apartment, Ho Chi Minh City at Guide Awards 2003 Second runner-up for Best Decorated Building in Ho Chi Minh City at the Tet Nguyen Dan Festive Competition 128

130 OPERATING AND FINANCIAL REVIEW Expanding Reach market review ECONOMY Strong economic performance in 2003 expected to continue into 2004 Ranked as the second fastest growing economy in Asia after China, Vietnam has remained on course with its economic reforms. The economy grew at 7.3% in 2003, as it reaped the benefits arising from the Bilateral Trade Agreement with the US and the implementation of the Enterprise Law. Exports to the US rose significantly from US$1.8 billion in 2001 to US$4.5 billion in 2003, and is expected to increase further over the next few years, possibly reaching US$6-7 billion by At the same time, the implementation of the Enterprise Law, which was introduced in 2000, saw the creation of 1.75 million jobs. Vietnam attracted US$3.1 billion of foreign direct investments (FDI) in 2003 and the Ministry of Planning and Investment (MPI) is targeting new FDI worth US$3.3 billion for To boost FDI, MPI will continue to make further recommendations to the government for more favourable tax incentives, liberalisation of the land laws, reduction in telecommunication charges and abolishment of dual pricing. The government remains committed to ensuring stability and continuation of reforms, particularly in the areas of trade policies, private sector development, banking and state-owned enterprises. GDP growth for 2004 is anticipated to be around 7%, underpinned by buoyant domestic consumption driven by the government s expansionary fiscal policy, higher foreign investments and recovery in the US and regional economies. Vietnam is also working towards entry into the World Trade Organisation in 2005, and full realisation of the Asean Free Trade Agreement in These initiatives are expected to further boost Vietnam s export growth and competitiveness and spur Vietnam for further economic growth. OFFICE Office market continues to strengthen The office market in HCMC continued to strengthen in 2003 with rising rents and falling vacancy rates. Occupancy rates for Grade A offices in the city centre are around 95%, while average rental rates are between US$18 psm and US$25 psm per month. Rental rates for Grade A offices are expected to rise further, driven by the city s high GDP growth, lack of new supply of Grade A office space and growing demand arising from company expansion, new business setups as well as relocation to better quality buildings. In Hanoi, the office sector is improving. Average occupancy rates for Grade A offices in the city centre are around 90% with average rental rates between US$15 and US$25 psm per month. Better economic outlook and growing private sector demand, coupled with a lack of new office space, will continue to drive up rentals in the near term. SERVICED APARTMENTS Serviced apartments enjoy higher rentals and occupancy rates as business travellers and expatriates return The serviced apartment sector in HCMC recorded a high occupancy rate of about 95% as MNCs expanded their presence in the city, business travellers returned to seek opportunities, and the number of expatriates, particularly the younger expatriates engaged on project and consultancy work, increased. Serviced apartments with recreational facilities and located in the city centre command an average room rate of between US$61 and US$85 per night. VIETNAM F 2005F Real GDP growth (%) Prime lending rate (av., %) Inward FDI (US$Bn) Exchange rate (Dong/USD) 15,509 15,936 16,597 Source : EIU 129

131 Report to Shareholders 2003 market review SERVICED APARTMENTS (CONT D) With limited new serviced apartments opening in the near term and a shortage of good quality apartments in the city, rental rates for serviced apartments are expected to rise further. In Hanoi, the serviced apartment market continued to improve, underpinned by the return of business travellers seeking short-term leases. With an average occupancy rate of 85%, professionally managed serviced apartments command an average room rate of between US$56 and US$66 per night. Although hotels were badly affected by the SARS outbreak in the second quarter of 2003, the serviced apartment sector was not as significantly affected as the leases were primarily long-term. Towards the fourth quarter of 2003, most hotels reported a significant improvement in occupancies due mainly to returning business travellers and tourists, as well as the 22nd Southeast Asian Games held in Vietnam in December. RESIDENTIAL Strong economic growth and rising affluence to fuel demand for local housing The country s robust economic performance and rising affluence will help fuel housing demand, as more locals aspire for a better lifestyle and to live in well-planned residential areas with higher-quality finishes and amenities. The residential real estate market in Vietnam is still in a nascent stage. The liberalisation of the land laws promoting home ownership and the eventual opening up of the residential market to foreign investors, will boost demand for good quality housing in prime locations. Going forward, scarcity of land in prime locations, lack of new supply and strong demand for well-planned residential estates will further boost residential property prices for prime addresses in HCMC, most notably within the CBD of District 1 and the An Phu area of District

132 OPERATING AND FINANCIAL REVIEW Expanding Reach OPERATIONS AND MARKET REVIEW SEDONA HOTELS INTERNATIONAL Sedona Hotels International, the hotel management arm of Keppel Land, continues to build on its motto Experience Sedona, where welcome is not just a word, it s our philosophy, delivering the best in hospitality and comfort that Asia is well known for. It prides itself for its high standard of services and facilities, and strives constantly to achieve an optimum level of comfort and value for each guest. Sedona Suites Hanoi, a 175-room serviced apartment located on the edge of West Lake, was presented the Best Luxury Serviced Apartment, Hanoi at the Guide Awards for two consecutive years in 2002 and The Guide Awards was jointly organised by Vietnam Economic Times magazine and the Vietnam National Administration of Tourism to give due recognition to outstanding hospitality service providers in Vietnam. Despite the SARS outbreak in the first half of the year and a weak global economy, Sedona Suites Ho Chi Minh City and Sedona Suites Hanoi continued to achieve high occupancies of 94% and 87% respectively in 2003, levels of which were similar to the previous year s. The two serviced apartments continue to be market leaders in Ho Chi Minh City and Hanoi despite stiff competition. In Myanmar, tourist arrivals were dampened by the SARS epidemic, the ongoing trade sanctions and weak economic conditions. However, the hotels performance were not significantly affected. Although revenue was lower, Sedona Hotel Yangon registered an increase in its gross operating profit for 2003 against the previous year through effective cost containment strategies. Sedona Hotel Yangon achieved a 65% occupancy for the 175 rooms in operation while Sedona Hotel Mandalay continued to attain higher than full occupancy for the 56 rooms in operation. The good performance for both hotels could be attributed mainly to the aggressive sales and marketing strategies that generated more demand from the regional leisure market as compared to weaker-than-expected leisure arrivals from the long-haul market segment. The philosophy of delivering only the best in Asian hospitality comes to life in each of Sedona s hotels and serviced apartments across Asia. 131

133 Report to Shareholders 2003 MARKETING INITIATIVES Sales and Marketing Promotions Joint promotions and tie-ups with strategic partners continue to draw positive response as well as higher booking volume for all our properties. This is especially so for the Group s two properties in Myanmar. The two-pronged approach of engaging the strength of the various media channels as well as close cooperation with trade partners have helped to propel a higher awareness of these destinations, thereby translating into better business yields for the Group s hotels. 1 Online Business Besides capturing potential business over the corporate website, through attractively priced room packages, third-party vendor travel sites are also beginning to produce progressively good numbers for the Group s properties. This is in part due to travel intermediaries reaching out to direct consumers through very aggressive advertising campaigns and by employing effective tactical pricing strategies. Building Market Presence Sedona continues to maximize its advertising dollar by cost-sharing with airline partners and travel agents in local newspaper advertisements as well as promoting room deals through tactical banner advertisements in key Internet websites. 2 In addition, participation in major trade events like Asean Tourism Forum and International Tourism Bourse with sales visits to key markets continue to be some of the initiatives to enhance Sedona s niche market presence. Hotels and Resorts Managed by Sedona Hotels International Country Name of Hotel Location No. of Rooms Indonesia Hotel Sedona Manado *** Manado 247 Myanmar Sedona Hotel Yangon Yangon 366 Sedona Hotel Mandalay Mandalay 247 Vietnam Sedona Suites Ho Chi Minh City ** Ho Chi Minh City 89 Sedona Suites Hanoi ** Hanoi 175 Total 1,124 ** Serviced apartments / villas *** Not open yet 1. & 2. Effective marketing initiatives like strategic alliances, leveraging third party vendor travel sites and participation in trade events have reaped good results. 132

134 OPERATING AND FINANCIAL REVIEW Expanding Reach market review GENERAL OUTLOOK The SARS outbreak, coupled with the war in Iraq, compounded an already weak global economic environment and led to unprecedented low occupancy levels for most destinations in the region during the first half of In the second half of 2003, the situation has improved with the majority of destinations reporting occupancy levels that are close to pre-sars levels. Reservations worldwide are also picking up and renewed growth is expected for 2004, barring unforeseen circumstances. The current outbreak of the bird flu disease in a number of Asian countries is not expected to affect the tourism sector significantly as long as the situation remains under control. So far, there has been no concrete evidence of human-tohuman transmission of the disease. Lessons learnt from the SARS epidemic, better transparency and closer cooperation among government and health authorities have helped to contain the spread of the avian flu. MYANMAR Myanmar s already moribund economy was hit by a banking crisis in early 2003 that led to strict limits on bank withdrawals, a suspension of cheque and credit card services, a halt on bank lending and a huge shortage of currency in circulation. its detention of opposition leader Aung San Suu Kyi and a sweeping crackdown on her party in May. Uncertainties over political and economic issues as well as the SARS outbreak in the first half of 2003 impacted negatively on tourism growth for the year. Tourism growth in the short-term will continue to be plagued by political uncertainties although an improvement in tourist arrivals in the longer term can be expected as the global economy recovers. VIETNAM Investors are starting to return, judging from the large number of investment licence applications for hotel and resort projects all over the country. If not for the SARS epidemic, the number of foreign visitors to Vietnam will have exceeded an earlier forecast of 2.2 million for Looking ahead, the tourism industry is set to flourish in anticipation of more foreign visitors and local travellers as Vietnam continues to invest in improving its infrastructure, which will in turn facilitate more efficient transportation and better access to tourist spots. Foreign arrivals to Vietnam are expected to rise at more than 10% per annum in the next few years. One main pull factor for the tourism industry is the recognition of five world natural heritage sites within Vietnam by United Nations Educational, Scientific and Cultural Organisation (UNESCO). These are Phong Nha Ke Bang National Park (2003), My Son Sanctuary (1999), Hoi An Ancient Town (1999), Ha-Long Bay (1994) and The Complex of Hué Monuments (1993). It was further dampened by a rash of punitive sanctions slapped on the junta by the US and European Union after 133

135 Report to Shareholders

136 OPERATING AND FINANCIAL REVIEW Expanding Reach STRUCTURE OF KEPPEL LAND GROUP

137 Report to Shareholders 2003 SIGNIFICANT EVENTS JANUARY Keppel Land garnered its fifth consecutive Best Annual Report Award at the Annual Report Awards 2003 Competition. The Company was ranked sixth out of 285 listed companies in the Business Times Corporate Transparency Index ranking for 2002 results. It was the only property company among the top 10 companies. A freehold site at Norfolk Road was sold for $26 million. The sale will enable the Company to better utilise resources on the larger sites, where there is greater value-add. The Company recorded a profit after exceptional items of $26 million for MARCH Sedona Suites Hanoi was the first hotel in Vietnam to be conferred the Best Luxury Serviced Apartment, Hanoi title at the Guide Awards 2002, jointly organised by Vietnam Economic Times magazine and the Vietnam National Administration of Tourism. Keppel Thai Properties Public Company (KTP), the Company s Thai listed property arm, acquired an adjoining 7.8-ha freehold site at Srinakarin Road, Bangkok which will allow for the development of a total of 367 detached houses. APRIL A net profit of $21.5 million was recorded for the first quarter of This was driven by higher earnings contribution from overseas projects, eg One Park Avenue in Shanghai which enjoyed strong sales. Keppel Digihub, the wholly-owned subsidiary of Keppel Land s e-business arm, KeplandeHub, secured a contract to lease data centre space to BNP Paribas Bank. MAY The Asia No. 1 Property Fund made its first closing with about $180 million. CityOne Township Development, a joint venture company between Keppel Land and HDB Corporation was formed to develop residential townships in China. PARCO Bugis Junction was awarded the COOL Singapore Certificate for its proactive efforts in fighting SARS. InterContinental Singapore received the COOL Singapore Certificate for its anti-sars measures. JUNE Mr Tan Yam Pin and Mr Niam Chiang Meng were appointed as independent Directors of the Company. The Linc, a 51-unit freehold luxury condominium in the prime residential enclave of Newton, was officially launched. Keppel Land teams up with Hong Kong-based Chiap Hua Group to develop Saigon Sports City, a good class residential estate on a 68.7-ha site in Ho Chi Minh City. Keppel Digihub secured a contract to lease a data centre suite and 6,000 sf of office space to CPG Facilities Management to house its IT support systems and customer contact centre. JULY Keppel Land, together with Keppel Group s other business units, hosted a visit from the Xiamen Municipal Government led by Mayor Zhang Chang Ping. (5) The final phase of 98 units of Freesia Woods in Sunset Way was re-launched shortly after the condominium received its Temporary Occupation Permit ahead of schedule. A consortium of Singapore companies led by Keppel Land, signed a Memorandum of Agreement with the Shenyang Hunnan District Government to develop a residential township in Shenyang, Liaoning. Turnover of $298.1 million was reported for the half-year results. This was due to good sales from One Park Avenue and higher progressive recognition of sales for the Group s trading projects. Mr Kevin Wong Kingcheung, Managing Director of Keppel Land was appointed to the Board of HDB Corporation. Keppel Land hosted a familiarisation tour of its One Park Avenue show gallery in Shanghai for 136

138 OPERATING AND FINANCIAL REVIEW Expanding Reach analysts and fund managers from Singapore and Hong Kong. AUGUST Keppel Land and Keppel Corporation were among six leading Singapore companies which contributed two thermal scanners and four ventilators to Vietnam under the auspices of Temasek Holdings. Keppel Land, together with Keppel Corporation and Keppel FELS, hosted a group of delegates from the Singapore Ministry of Education. SEPTEMBER Keppel Bay Tower welcomed its newest tenant, Canon Singapore. This 89,000 sf office will be Canon s regional headquarters. (3) Keppel Land was runner-up in the properties category of the Most Transparent Company Awards 2003 organised by the Securities Investors Association (Singapore) for the fourth consecutive year. Keppel Land and KTP acquired a 12.5-ha site in the good class residential enclave of Watcharapol in Bangkok. CityOne Township Development made its second foray into China with the acquisition of a 42-ha site in Chengdu, capital city of Sichuan province. To be developed over three phases, the township will yield about 8,000 residential units. Caribbean at Keppel Bay was honoured at the Association of Consulting Engineers Singapore awards ceremony for winning the Design Excellence Award in the Civil and Structural category. (1) The 2003 Golf Digest (HK) ranked the Spring City Golf and Lake Resort among the Top 10 Golf Courses in China and Hong Kong. It also voted the resort as the Best Maintenance Golf Course. In addition, Holes No. 5 and 7 of the Lake Course were named signature holes. InterContinental Singapore was awarded the Best Hotel Asia Pacific award in the Priority Club Rewards Members Choice Awards. OCTOBER A high turnover of $487.6 million was recorded for first nine months of This was due to higher progressive recognition of sales from the Group s trading projects. KTP launched the Arcadia brand for its quality homes in Thailand. (2) PARCO Bugis Junction garnered the merit award under the category of Community Service for Shopping Centres at the internationally acclaimed MAXI Awards for the mall s I Feel Good anti-sars campaign. Spring City Golf and Lake Resort was awarded The World s Most Influential Golf Award China and The World s Most Influential Award in China Cities Kunming. NOVEMBER Keppel Land signed a conditional agreement to purchase an adjoining 7,056 sm freehold site at Keng Lee Road which will yield a total of 480 homes for Wee Nam. One Park Avenue in Shanghai clinched the Gold Award in the Environmental category of Top 10 properties in Shanghai by Hong Kong s Da Gong Bao newspaper and the Fully-fitted Award by Shanghai s Municipal Government. (4) Spring City Golf and Lake Resort was ranked the No. 1 Golf Course in China by the US Golf Digest. It was also named My Favourite Golf Club by the China Golf Magazine for the fifth consecutive year. DECEMBER Sedona Hotel Yangon was appointed as the official venue for Myanmar s Second Ministerial Meeting on Economic Cooperation Strategy. PARCO Bugis Junction was voted one of the top three shopping malls providing the Best Christmas Shopping Experience 2003 by the Association of Shopping Centres. 137

139 Report to Shareholders 2003 STRATEGIC DIRECTIONS AND OUTLOOK Sound business strategies, good execution skills and commitment to quality and innovation will enable Keppel Land to constantly stay ahead of competitors in this fast-paced and challenging environment. Creating Shareholder Value and Building Sustainable Growth Since the Asian financial crisis in 1997/98, exacerbated by global upheavals such as the September 2001 incident and the SARS epidemic in 2002, the region s mature property markets such as Singapore and Hong Kong have been in a prolonged period of asset deflation. The global economic downturn further slowed the pace of market recovery. The consequential far-reaching changes in market dynamics prompted the Company to rethink its strategies and reposition itself in the quest for value creation and sustainable growth for the future years. The Group recognised, for instance, the need for the Group to achieve a healthier balance sheet and more optimal capital structure, and build a strong external wing to generate higher returns and diversify risks. Given the Company s objective of creating value and increasing shareholder returns, the strategic review of its business and operations led to the current focus on property development in Asia and property fund management. With greater emphasis on yields and returns, low-yielding investment properties will be divested and resources will be re-invested in the higheryielding businesses and assets. The growing Asian economies, particularly China, Thailand and Vietnam, have created many regional residential development opportunities for the Group as rising affluence and growth of the middle-income populations in these countries underpin healthy and sustainable demand for quality housing. Geographic diversity helps to mitigate business risks as property cycles generally differ across countries and cities. Leveraging the Group s brand name, network and intellectual know-how, Keppel Land has also embarked on property fund management to tap on the growing interest of global institutional funds to invest in Asian real estate and Singapore s move to grow the domestic fund management industry. Outlook The Group will continue to face many challenges in the year ahead. At the macro level, uncertainties abound in the region as 2004 is election year for many Asian countries and the election outcome will have great bearing on the future direction of government policies. In addition, the current outbreak of bird flu may result in economic damage if the situation grows out of hand and develops into an epidemic. There are also currency risks such as the continued weakening of the US dollar. Notwithstanding the risks and uncertainties, our growth strategies remain sound and appropriate. With good execution skills, we are optimistic that the Group will continue to scale new heights in the coming years. The Group is 138

140 OPERATING AND FINANCIAL REVIEW Expanding Reach The Group is committed to further expand and deepen its presence in Asian growth markets and grow its property fund management business for more value-add. committed to further expand and deepen its presence in Asian growth markets and to grow its property fund management business for more value-add. The Group will leverage on its scale and core strengths to build sustainable diversified sources of earnings for shareholders by enhancing competitiveness, improving operating efficiency and maintaining flexibility for fast response to market changes. In Asia, the Group s country focus is as follows : Execution of Strategies Yields Successful Results So far, the Group has been fairly successful in executing these strategies to achieve its corporate objectives, and was able to accomplish several key financial and corporate milestones during the past year, which include : (a) Growing overseas earnings to 32% of attributable profit before exceptional items in 2003 from 3% in Regional Country Focus Focus Active China, Thailand and Vietnam Acquire land for immediate development for sale Hong Kong, India, Indonesia, Japan, Malaysia, Philippines and S. Korea Source for opportunities selectively (b) (c) (d) Lowering debt/equity ratio to a more manageable level of 0.95 as at end-2003 compared with the peak of 1.30 as at end Increasing return on equity before exceptional items to 8.5% in Continuing to raise dividend per share to 4 cents in 2003 from 3.5 cents in 2002 and 3 cents in Monitor Australia and Myanmar Keep watching brief of the markets (e) Achieving 100% sales of One Park Avenue, the Group s maiden residential development in Shanghai, China, in less than a year. (f) Venturing into promising niche market of large-scale residential township development in China and Vietnam. (g) Achieving the first closing of about $180m for the Asia No. 1 Property Fund. 139

141 Report to Shareholders 2003 FINANCIAL REVIEW Overview Group attributable profit for 2003 was $100.6 million, an improvement of 281.3% over $26.4 million in 2002, on the back of higher sales from overseas projects, sale of three Cluny Hill land plots and higher contributions from associated companies. Profit after tax and minority interests, but before exceptional items ( PATMI before EI ) was $126.4 million compared with $94.3 million in 2002, an increase of 34% Excluding exceptional items, earnings per share were 17.8 cents and return on shareholders equity was 8.5%. The corresponding figures for 2002 are 13.3 cents and 6.4% Group Sales ($ million) Sales In 2003, sales increased to $678.8 million, up 127% over $299 million in Sales of trading properties accounted for $563.6 million, representing 83% of total sales, attributed mainly to the sales of its residential development, One Park Avenue in Shanghai, sale of three plots of land at Cluny Hill and Norfolk Road site. In 2002, trading property sales were $122.7 million Rental income from the Group s investment buildings was $79.3 million, a reduction of 40% from $131.9 million in 2002 due to the divestment of Capital Square in November 2002 and the soft office market in Singapore. The hospitality business was affected by the SARS outbreak in second quarter of Although there was some recovery in the second half, sales recorded for this sector, together with services (which remained substantially unchanged) decreased to $35.9 million from $44.4 million in Group Profit ($ million) Profit before Tax but after Exceptional Items (371.5) (368.4) 2001 Attributable Profit

142 OPERATING AND FINANCIAL REVIEW Expanding Reach Earnings In addition to the higher sales achieved and higher contributions from associates in 2003, cost adjustments of completed projects like Freesia Woods and The Edgewater contributed to the higher profit before tax and exceptional items of $135.3 million, an improvement of 4.7% over $129.2 million the previous year Owing to the continued uncertainty in Myanmar, the Group made a provision of $25.8 million for impairment against its two hotels as an exceptional item for the year. The previous year s exceptional loss arose mainly from the divestment of its investment building in Singapore, Capital Square. For the year, a tax benefit of $13.4 million under group tax relief system in Singapore was recognised. The Group s tax charge was $11.4 million, representing an effective tax rate of 8.5%, which was lower than the prevailing tax rate of 22% largely as a result of this benefit (54.3) (52.0) Earnings and Dividend Per Share (cents) Earnings before Tax Gross Dividend but after Exceptional Items Earnings after Tax and Exceptional Items Cash Flows During the year, the Group generated a net cash inflow of $316.1 million from operations, mainly from proceeds on sale of One Park Avenue and Singapore residential properties, net of development costs of $251.7 million. A total of $56.8 million was drawdown from external bank loans to fund various development costs At year-end, the cash position has improved from $225.4 million to $500.9 million Return on Shareholders Equity (%) Return before Tax but after Exceptional Items (19.2) (20.1) Return after Tax and Exceptional Items 141

143 Report to Shareholders 2003 FINANCIAL REVIEW (CONT D) Dividend A final dividend of 8% (4 cents) per share, less 20% tax amounting to $22.7 million has been proposed by the Directors. This represents a gross dividend yield of 2.5% per share based on the share price of $1.58 as at 31 December For 2002, the final dividend paid was $19.3 million, representing 7% (3.5 cents) per share, less tax. 6 2 Based on estimated tax-exempt shipping profits and tax credits available in Singapore and Malaysia, and the prevailing tax rates applicable to dividends, reserves of the Company amounting to $297.8 million are available for distribution as dividends without incurring additional tax liability. Dividend Payout Gross Dividend Per Share (cents) Total Dividend Paid/Payable ($million) Financial Condition as at End-2003 Capital values of Singapore investment properties weakened during the year due to the soft office market. As a result, the Group wrote down $143.1 million in the value of its investment buildings in Singapore, and the revaluation deficit was charged , , ,498.3 against previous years surplus of $535 million held in capital reserves. This revaluation deficit represents 8.4% of the value , ,794.2 of the Group s investment buildings in Singapore During the year, the Company issued 1.3 million shares for cash upon the exercise of options by employees Share capital and reserves as at end-2003 amounted to 1000 $1.49 billion, and net tangible assets remained unchanged at $2.09 per share Sources of Finance ($ million) Shareholders' Equity Minority Interests Long-term Borrowings Short-term Borrowings 142

144 OPERATING AND FINANCIAL REVIEW Expanding Reach Five-Year Profit Record Group attributable profit in 1999 was $152.3 million, due mainly to initial recognition of profit from Villa Verde and , , ,498.3 further profit contribution from Pebble Bay. An exceptional gain of $73.6 million was made from the divestment of , ,794.2 shares in related companies, Keppel Telecommunications & Transportation Limited, Keppel Integrated Engineering Limited 3000 and Kepital Holdings Ltd In 2000, attributable profit was $122.1 million.this was contributed mainly by further profit recognition from Villa Verde and Pebble Bay and maiden profit contributions from Carribean at Keppel Bay and Freesia Woods, cost adjustments on completed projects and the release of certain provisions no longer required. The Group incurred an attributable loss of $368.4 million in 2001 after accounting for provisions of $455.1 million (net of minority interests) for the Group s trading properties and landbank in Singapore as an exceptional item Assets Employed ($ million) Fixed Assets and Investment Properties Development Properties Investments Net Current Assets/(Liabilities) In 2002, the Group made an attributable profit of $26.4 million, 3.18 after incurring an exceptional loss of $70.4 million on disposal of Capital Square. PATMI before EI was $94.3 million. Initial profit was recognised for One Park Avenue and a write-back of provisions for Amaranda Gardens, Butterworth 8 and The Edgewater was made in the year. 2.5 Strong sales of One Park Avenue, and three plots of land at Cluny Hill and higher contributions from associated companies underpinned the improved performance in PATMI before EI was $126.4 million. After taking into account provision for impairment loss amounting to $25.8 million on the two hotels in Myanmar, Group attributable profit was $100.6 million Net Tangible Assets Per Share ($) 143

145 Report to Shareholders 2003 FINANCIAL REVIEW (CONT D) SEGMENTAL REPORTING Property Investment Rental income from investment properties in 2003 was $79.3 million, representing 11.7% of total sales. In 2002, rental income was $131.9 million, or 44.1% of total sales. The decrease was due mainly to the softer Singapore office market in 2003 and the divestment of Capital Square in November As a result, earnings before interest, tax, depreciation and amortisation ( EBITDA ) for the year was $50.8 million compared with $91.8 million. Profit before tax decreased to $40.5 million from $79.8 million in Attributable profit was $32.1 million in 2003, a decrease of $20.9 million from Sales Mix ($ million) Property Investment Hospitality and Services Property Trading In the Raffles Place area, average rental and occupancy rates for Prudential Tower were relatively unchanged from 2002 levels, while Ocean Building and Ocean Tower recorded lower rentals and occupancies Keppel Towers was also affected by lower rentals and occupancy in 2003, whilst GE Tower remained fully occupied In the region, Wisma BCA in Jakarta was similarly affected, whilst Saigon Centre in Vietnam registered lower profit due to lower rental rates, despite a higher occupancy rate The Group wrote down $143.1 million in the value of its investment buildings in Singapore, reflecting the soft office market. The revaluation deficit, representing 8.4% of the value of Group s Singapore investment buildings, was charged against previous years revaluation surplus of $535 million held in capital reserves. Property Investment Property Trading Sales by Segment ($ million) Hospitality and Services Capital employed in investment properties as at end-2003 were $2.36 billion, compared with $2.4 billion at year ago, constituting about 62.3% of Group capital employed. Property Trading Sales of trading properties contributed $563.6 million, or 83% of total sales. In 2002, contribution from this segment was $122.7 million or 41.1% of sales in

146 OPERATING AND FINANCIAL REVIEW Expanding Reach EBITDA more than doubled from $50 million the previous year to $109.4 million. Profit before tax was $124.2 million, accounting for 92% of Group pre-tax profit, whereas in 2002, it contributed $56.4 million, or 43.6%. Attributable profit from trading properties was $103.3 million, an increase of 107% from , The main contributor is One Park Avenue, which was fully sold by October Based on 66% completion at end-2003, the after-tax profit recognised during the year was about $40 million. The sale of three plots of land at Cluny Hill during the year reaped $16.5 million of tax-free profit. In 2002, there were no such sales Property Investment EBITDA and Capital Employed by Segment ($ million) EBITDA Property Trading Capital Employed (18.6) Hospitality and Services Based on 30% sales and 72% completion at end-2003, Caribbean at Keppel Bay contributed $14.6 million to the 150 Group s pre-tax profit, and $11.6 million to profit after tax. In 2002, contributions by this project to Group profit before and after tax were $4.1 million and 3.2 million respectively As at end-2003, capital employed for trading properties was $998.8 million, constituting 26.3% of Group capital employed Hospitality and Services The hospitality segment was affected by the SARS outbreak in second quarter of Sales were $35.9 million, a decrease of 19% from Property Investment Property Trading (29.4) Hospitality and Services Exceptional Items (25.8) At EBITDA level, a loss of $18.6 million was incurred, higher than the loss of $7.3 million registered in In addition, losses from associated companies were higher at $3.4 million, an increase of 179% over Overall, the loss before tax was $29.4 million compared with $7 million in Attributable loss for this business segment was $9 million compared with $8.6 million in Pre-tax Profit ($ million) Capital employed as at end-2003 in hospitality and services was $432.4 million, or 11.4% of the Group total. 145

147 Report to Shareholders 2003 FINANCIAL REVIEW (CONT D) Exceptional Items The exceptional item during the year was the impairment charge of $25.8 million against the Group s two hotels in Myanmar due to the continued uncertainty in the country. In 2002, the exceptional loss of $70.4 million arising from the sale of Capital Square was partly offset by profit of $2.5 million from the sale of Bayswater Village Capital Employed At end-2003, capital employed was $3.79 billion. Net tangible assets per share remained unchanged at $2.09 per share (9.0) (25.8) Property Investment Property Trading Hospitality and Services Exceptional Items Attributable Profit ($ million) 146

148 OPERATING AND FINANCIAL REVIEW Expanding Reach SALES, PROFITS AND CAPITAL EMPLOYED BY SEGMENT Sales Ebitda Pre-tax Profit Attributable Profit Capital Employed Property investment 79, ,876 50,844 91,830 40,467 79,753 32,066 52,919 2,362,975 2,401,716 Property trading 563, , ,448 50, ,214 56, ,311 49, , ,848 Hospitality and services 35,855 44,352 (18,675) (7,270) (29,419) (6,965) (9,026) (8,583) 432, ,965 Before exceptional items 678, , , , , , ,351 94,259 3,794,151 3,721,529 Exceptional items (25,800) (67,886) (25,800) (67,886) After exceptional items 678, , , , ,462 61, ,551 26,373 3,794,151 3,721,529 Group 678, ,968 87,052 46,125 84,274 17,015 Associates 22,410 15,178 16,277 9, , , ,462 61, ,551 26,

149 Report to Shareholders 2003 BUSINESS ANALYSES SENSITIVITY ANALYSIS Investment Properties The Group s principal investment properties are Ocean Building, Ocean Towers, Keppel Towers, GE Tower and Prudential Tower in Singapore, Saigon Centre, International Centre and Royal Park in Vietnam and Wisma BCA in Indonesia. The rental income from these properties is sensitive to changes in their occupancies and the rental rates for lease renewals. Assuming that average rental rates are maintained, a full year s impact on rental income for every 1% change in the occupancies of the above mentioned properties is approximately $0.5 million. In respect of committed leases and lease renewals, a full year s impact on rental income for every 10% change in average rental rates resulting from the new rates negotiated is about $6.4 million. Trading Properties The Group s profit from property trading is sensitive to actual sales achieved and the percentage of physical completion recognised during the year. Change in Rental Income Resulting from: $ million 1% change in occupancies (a) % change in average rental rates (b) 6.4 (a) Assuming current average rentals are maintained. (b) Based on committed leases and leases for renewal in Incremental Impact on Group Pre-tax Profit Resulting from: $ million For every 5% of physical completion (c) 5.2 For every 1% of additional sales (d) 2.6 (c) Based on actual sales contracts at 31 December (d) Based on physical completion projected and sales projected for the year, and completed properties available for sale at end Based on the actual sales contracts signed as at 31 December 2003, the incremental impact on Group pre-tax profit for every 5% of physical completion is about $5.2 million. For every additional 1% of sales achieved for projects which have been launched, the additional contribution to Group pre-tax profit is an estimated $2.6 million. This is based on physical completion projected and sales projected for the year, and the completed properties available for sale which the Group had at end

150 OPERATING AND FINANCIAL REVIEW Expanding Reach PROPERTY PORTFOLIO ANALYSIS The Group s diversified property portfolio, comprising office buildings, residential properties, hotels and resorts, serviced apartments, shophouses and retail outlets, and industrial buildings are owned through subsidiaries and associated companies. Details of the Group s property portfolio are given on pages 218 to 232. The following analysis as at 31 December 2003 includes only the Company s effective interests. Singapore Properties (a) Analysis by Tenure Freehold properties constituted 38.2% of the Group s properties, while 999-year leases and 99-year leased made up the balance of 19% and 42.8% respectively. (b) Analysis by Development Stage About 52.6% of the Group s portfolio was made up of completed properties. Another 31.1% was under development, and this included Amaranda Gardens, Butterworth 8, The Callista, The Elysia and Caribbean at Keppel Bay. The remaining 16.3% of the Group s properties was landbank awaiting development. (c) Analysis by Sector Office buildings formed 48.4% of the Group s property portfolio. These included Ocean Building, Ocean Towers, Equity Plaza, Prudential Tower, Keppel Towers, GE Tower, Bugis Junction Towers and Keppel Bay Towers. The proportion of residential properties was 44%. Hotel, retail and industrial properties made up the remaining 1.3%, 4.8% and 1.5% respectively. Analysis by Tenure $ million % Freehold 1, year Lease year Lease and Others 1, , Analysis by Development Stage $ million % Completed 1, Under Development 1, Awaiting Development , Analysis by Sector $ million % Office 1, Residential 1, Hotel Retail Industrial ,

151 Report to Shareholders 2003 BUSINESS ANALYSES (CONT D) (d) Analysis by Estimated Building Floor Area The total building floor area of the Group s property portfolio was 637,000 sm. Office buildings and residential properties formed 34.8% and 56.3% respectively of the total building area. The balance comprised 1.9% for hotel, 2.4% for retail and 4.6% for industrial buildings Overseas Properties 80% of the Group s completed properties was in Singapore. The remaining 20% was located overseas. Taking into account projects currently under development, Singapore and overseas properties constituted 78% and 22% respectively of the Group s portfolio. The Group s property portfolio amounted to $4.2 billion. Analysis by Estimated Building Area 56.3 sq m 000 % Office Residential Hotel Retail Industrial Analysis by Location Completed Projects $ million % Local 1, Overseas , Analysis by Location All Projects $ million % Local 3, Overseas ,

152 OPERATING AND FINANCIAL REVIEW Expanding Reach VALUE ADDED STATEMENT By Segment Total value added Property Investment $ million Property Trading $ million Hospitality and Services $ million Group $ million (6.0) Distributed as follows: Employees in salaries and staff benefi ts Government in taxes (11.0) Providers of capital in dividends and interest Retained for reinvestment and asset replacements (53.2) (12.2) 48.7 (13.5) 23.0 Total distribution (6.0) (12.2) (13.5) -50 (64.2) Group Property Investment Property Trading Property Services Total Value Added by Segment ($ million) Retained / Reinvested in Group's Business Providers of Capital Governments Employees 151

153 Report to Shareholders 2003 BUSINESS ANALYSES (CONT D) Value Added Statement $ million $ million $ million $ million $ million Our sales of goods and services to non-group customers totalled Whereas our purchase of raw materials, supplies and services from non-group sources amounted to (797.5) (303.4) (608.3) (197.1) (525.0) So that the value added from operations was (307.8) In addition: our share of profi ts earned by associated companies was income from our investments was (270.7) Excluding investment income, total value added for the Group was distributed as follows: to employees in wages, salaries, and benefi ts to governments in taxation to providers of capital in: interest paid on borrowings dividends to minority shareholders in subsidiary companies dividends to shareholders of the Company The balance was reinvested in or ploughed back from business in: depreciation minorities share of subsidiary previous years profi ts ploughed back by subsidiaries (1.6) (43.9) (58.4) (8.4) (9.1) profi t for the year retained or previous years profi ts ploughed back by the Company (417.0) (5.3) (456.9) And non-operating income was: (299.4) investment income (270.7)

154 OPERATING AND FINANCIAL REVIEW Expanding Reach PRODUCTIVITY ANALYSIS In 2003, the value added by the Group was $191.2 million. In terms of segmental contribution, this figure can be analysed as follows: (299.3) $ million 0 Property investment Property trading Hospitality and services (6.0) The value added by the Group for the previous year was $138.4 million. Income from the Group s investments was $15 million. Excluding this investment income, the Group s value added from operations was absorbed by employees in salaries and staff benefits of $38 million, governments in taxation of $11.4 million, and providers of capital in interest and dividends totalling $56 million. The balance was reinvested in or ploughed back from business Value Added ($ million) Depreciation and Retained Profit Taxation Interest Expense and Dividends Wages, Salaries and Benefits 153

155 Report to Shareholders 2003 BUSINESS ANALYSES (CONT D) Productivity Data (Excluding Associated Companies) Sales per employee: excluding associated companies () Value added per employee: gross value added basis () (167.3) net value added basis () (177.3) Value added per dollar employment cost: gross value added basis ($) (9.13) net value added basis ($) (9.68) Value added per dollar investment in fi xed assets and investment properties (before depreciation): gross value added basis ($) (0.12) net value added basis ($) (0.12) (167.3) (177.3) (9.13) (9.68) Value Added Per Employee () Gross Value Added Basis Net Value Added Basis Value Added Per Dollar Employment Cost ($) Gross Value Added Basis Net Value Added Basis 154

156 OPERATING AND FINANCIAL REVIEW Expanding Reach ECONOMIC VALUE ADDED EVA is an estimate of a company s true economic profit after subtracting the cost of all capital employed and is, therefore, a measure of wealth creation. Generally, companies with substantial capital employed in investment properties in Singapore will have negative EVA figures as the earnings from rental income are below the weighted average cost of capital (WACC). Capital employed in the Group s investment properties amounting to $2.36 billion generated EBITDA of $50.8 million in 2003, a return of about 2.5%. This is below the Company s WACC of 8.8%. However, this low return is mitigated by contributions from trading properties, which generated EBITDA of $109.4 million on $998.8 million of capital employed. The Group s strategy is to divest investment properties at the opportune time and focus on property fund management and sale of trading properties. As a result, the Group registered an EVA loss of $135.8 million, albeit an improvement over the loss of $299.4 million in The losses for both years were mainly due to the high level of investment properties, which amounted to $2.36 billion in 2003 and $2.4 billion in With the Group s decision to move out of low-yield investment property holdings and the strategy of focusing on higher valued added businesses like property development for sale and property fund management, Group EVA is expected to improve in future years. 155

157 Report to Shareholders 2003 CORPORATE LIQUIDITY AND CAPITAL RESOURCES At end-2003, the Group had total funding facilities of $2.2 billion, of which $2.1 billion were utilised. In all, the Group has $649.9 million to fund projects in the coming year, comprising unutilised facilities of $149 million, and cash in hand and on deposit of $500.9 million The Group s credit facilities were substantially unsecured except for $214.9 million (10.7%) loans obtained by certain subsidiary companies which pledged their assets to financial institutions. The net book value of properties and other assets pledged/mortgaged amounted to $449.1 million. In 2002, loans of $220.8 million were secured by assets valued at $498 million. The maturity profile of loans is as follows: Due in 2004 $247.8 million Due in 2005 and 2006 $623.1 million Due in 2007 to 2009 $392.8 million Due after 2009 $837.2 million On an unhedged basis, the fixed/floating proportion of the Group s debt as at year-end was 18% and 82% respectively. In order to hedge against significant increases in interest rates, interest rate caps were purchased for $1 billion of loans, and interest rate swaps were entered into for $150 million. After taking into account the use of the interest rate hedging instruments, the fixed/floating proportion was about 69% and 31% respectively Available 2003 Credit Facilities ($ billion) Floating Rate Borrowings Utilised Available 2002 Fixed Rate Borrowings Utilised As the Group continues its thrust into the region, borrowings will be obtained in the same currencies as the assets, wherever possible, as a natural hedge against foreign currency fluctuation risks. During the year, $30.1 million of interest was charged to pre-tax profit, and $21.3 million was capitalised under development properties. Net cost of funds for 2003 was 3%, compared with 2.6% in 2002, and average borrowings during the year were $1.7 billion, $380 million lower than Interest Cover Net Interest Profit Cover ,600 1, ,826 1, Interest cover for 2003 was 2.9 times, an improvement over 2.4 times in As a result of the strong cash inflows from property sales, borrowings net of cash decreased from to $1.6 billion from $1.8 billion at end Debt/equity ratio of the Group including minority interests at end-2003 improved to 95% compared with 109% at end-2002, and 130% at end Debt/equity Ratio Debt ($million) Debt/equity Ratio (No. of Times) 2002 Equity ($million) 0 156

158 OPERATING AND FINANCIAL REVIEW Expanding Reach Fixed Rate Floating Rate Total Borrowings Borrowings % % % Facilities available for drawdown 382, ,867, ,249, Amount utilised 382, ,718, ,100, Balance unutilised 148, ,976 7 Cash in hand and on deposit 500, , Interest cover Profi t before interest and tax 151, ,628 Net interest cost expensed and capitalised () 51,399 56,107 Interest cover Effective cost of borrowings Net interest cost expensed and capitalised () 51,399 56,107 Average net borrowings () 1,713,143 2,121,347 Effective cost of borrowings (%) Secured borrowings ratio Total secured borrowings () 214, ,774 Percentage of total borrowings (%) Debt equity ratio Total borrowings: Gross () 2,100,945 2,062,944 Net of cash () 1,600,019 1,826,267 Total equity (excluding minority interests) () 1,486,904 1,480,288 Debt/equity ratio (excluding minority interests): Gross (%) Net of cash (%) Total equity (including minority interests) () 1,693,206 1,669,892 Net debt/equity ratio (including minority interests) (%)

159 Report to Shareholders 2003 BUSINESS DYNAMICS AND RISK FACTORS The Group s strategy for enhancement of shareholder value is to focus on developing properties for sale and on property fund management. Besides the matured Singapore property market, the Group is currently also concentrating in the growing property markets of China, Vietnam, Thailand and India. These are countries with economies recording strong growth rates. However, they do not have sufficient good quality housing to satisfy the needs of their growing middle class. The economic outlook in Singapore is projected to improve in This is expected to translate into increased demand for office space. New supply of office space in the near term is also limited, and will help to reverse the recent downward trend in office rentals and capital values. Similarly, there are signs of improved demand for private housing in Singapore, and some good quality condominiums have already commanded higher prices. Regionally, the success of the Group s overseas efforts will depend on the following factors: availability of prime residential sites at competitive prices for upper middle income housing; availability of good sites at competitive prices in populous cities for township developments so that economies of scale can be achieved to provide good quality and affordable urban housing; non-restrictive lending laws and favourable interest rates for property developers and for end-purchaser financing, and also more transparent and enforceable laws for land mortgages to facilitate bank financing; favourable tax laws and double tax treaties with Singapore to minimize taxes on profits made and repatriated to Singapore; proper management of interest and currency rates exposures. Capitalising on Keppel Land s extensive Asian networks and brand name, the Group s fledging property fund management business will develop further for recurring income. Efforts are continually being made to identify and invest in projects that will give the expected rates of return required by investors. 158

160 OPERATING AND FINANCIAL REVIEW Expanding Reach CRITICAL ACCOUNTING POLICIES As required by the Companies Act, the Company s consolidated financial statements have been prepared in accordance with Singapore Financial Reporting Standards (SFRs). The following are the critical accounting policies which are in line with SFRs except where otherwise indicated: Revenue and Profit Recognition For Singapore trading properties, profit recognition upon signing of sales contracts is 20% of the total estimated profit attributable to the actual contracts signed. Subsequent profit recognition is based on the stage of physical completion. For overseas trading properties, profit recognition during development is the direct proportion of total expected project profit attributable to the actual sales contracts signed, but only to the extent that is related to the stage of completion. Investment properties and trading properties are valued based on the advice of external professional valuers or inhouse valuers. In assessing value in use for fixed assets (eg hotels), the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the assets. Reversal of impairment loss recognised previously is made to the extent that there is an indication that the impairment loss no longer exists or has decreased. In implementing the above accounting policy for asset impairment, the Company is mindful that the assessment of asset values calls for very careful judgement. The more conservative percentage of completion basis for overseas trading properties is appropriate as the markets there are less matured and risks are greater. Asset Impairment At each balance sheet date, a review is made of the following assets to assess whether or not their carrying values will be recoverable: freehold and long leasehold investment properties trading properties fixed assets Leasehold Properties The applicable accounting standard requires all leases to be depreciated over their lives. However, the Group does not depreciate leasehold properties with unexpired tenures of over 20 years. These leasehold properties are instead valued by professional valuers or in-house valuers at each balance sheet date, and are assessed as to whether there is an impairment in their carrying values. The impairment, if any, is treated in manner explained above. This accounting policy is considered more appropriate in reflecting their values and any declines in the Group s accounts. If any indication exists to suggest that their carrying values exceed the estimated recoverable amounts, the assets are written down appropriately. 159

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