RESULTS ANNOUNCEMENT

1998, the first full year since the onset of the Asian Financial Crisis, was a challenging year. Amidst a weakened Hong Kong economy, the property leasing market faced unprecedented pressure.

The Group's audited consolidated profit attributable to shareholders was HK$900.4 million for the year 1998, a decrease of HK$277.9 million from 1997. In 1998, a provision of HK$242.6 million was taken mainly against the value of the Group's property development interests in Singapore and Shanghai. This provision was made after considering the prevailing property prices in those markets. Earnings per share after provisions were HK$0.88 (1997: HK$1.14).

The 1998 results reflect an increase in rental income due to full year contributions of The Lee Gardens and Entertainment Building and gains recorded from the sale of residential properties. Offsetting these positive contributions were higher interest expenses due to a higher average level of borrowing and interest rates and losses recorded in the disposal of securities investments. At the end of 1998, securities holdings, were reduced by over a half.

In view of the deteriorating economic prospects, the Group has decided to reduce debt levels substantially and progress has been made to sell down residential properties and marketable securities.

Notes:

1. Comparative figure has been reclassified to conform to current year's presentation.

3. Earnings Per Share

The calculation of the earnings per share is based on the consolidated net profit after taxation for the year ended 31st December 1998 of HK$900,388,354 (1997:HK$1,178,290,600) and weighted average number of 1,028,509,445 (1997:1,029,408,218) shares in issue during the year. The exercise of the subscription rights attached to the outstanding warrants, convertible bonds and executive share options would not have any dilutive effect on the earnings per share.

The calculation of the basic and diluted earnings per share is based on the following :

DIVIDENDS

Your Directors propose to recommend a final dividend of 27 cents per share (1997: 53.5 cents per share) at the Annual General Meeting to be held on 30 April 1999. The dividend will be payable in cash with a scrip dividend alternative. Shareholders who elect for the scrip dividend will be allotted with new ordinary shares of HK$5 each credited as fully paid subject to the Listing Committee of The Stock Exchange of Hong Kong Limited agreeing to grant the listing of and permission to deal in the new shares to be issued by way of scrip dividend. A circular containing details of the scrip dividend and the form of election will be mailed to shareholders on or about 30th April 1999 and elections will be required to be made on or before 18th May 1999. Together with the interim dividend of 10 cents per share already paid (with a scrip alternative) on 11 November 1998, the Group's total distribution will be 37 cents for the entire year (1997: 97.5 cents per share). The reduced dividend payout allows the Group to achieve greater progress in debt reduction, thus lowering interest expense.

The Register of Members will be closed from 28 April 1999 to 30 April 1999, both dates inclusive, during which no transfer of shares can be registered. Definitive share certificates in respect of the scrip dividend and cheques (for those shareholders who do not elect for scrip dividend) will be despatched to shareholders on or about 24 May 1999.

INVESTMENT PROPERTIES

1. Office Properties

Increased supply of office space coupled with weak demand have placed pressure on the office leasing market. The occupancy rate of the Group's office portfolio is about 88%.

2. Retail Properties

While the retail market in Hong Kong has continued to be difficult, the occupancy level of the Group's retail portfolio, which is largely well-located in Causeway Bay, the main retail district on Hong Kong Island, remains firm. The occupancy rate of this portfolio is about 98%.

3. Residential Properties

The residential leasing market was slow throughout 1998 mainly due to reduced housing budgets of tenants and an overall softened economy. The occupancy rate of the Group's residential portfolio is about 88%.

DEVELOPMENT PROJECTS

1. Singapore

Stratford Court, a 35,976 sq.m. (387,100 sq.ft.) residential development in which the Group has a 10% interest, was completed in December 1998. About 95% of a total 268 units have been pre-sold.

The Group's other residential development projects in Singapore have been put on hold pending improved market conditions. Our commitments include a 10% interest in a Tanjong Rhu site (Sanctuary Green), 10% interest in a Sin Ming Avenue site (Garden Palace) and 25% interest in a Newton Grove site.

With property values in Singapore having decreased substantially, the Group has taken provisions against the value of each of these investments.

2. Shanghai

In January 1999, the Group resumed active marketing of Peace Garden's Phase One development. To date, about 77% of a total 712 residential units have been sold. A provision has been taken in light of the weak property market in Shanghai. A deferment for the Phase Two construction has been granted.

Phase One of The Grand Gateway, in which the Group has a 15% interest, consists of a tower with furnished apartments which was completed in December 1998 and a retail podium scheduled for completion at the end of 1999.

STRATA-SALE OF RESIDENTIAL PROPERTIES

In 1998, the Group completed the sale of the remaining 55 units of Broadwood Park. In the second half of 1998, the sale of No. 3 Garden Terrace units was launched. All 74 units of this property have been sold with sales of 38 units completed in 1998 and the remaining units scheduled for completion in the first half of 1999. The sale of these properties generated HK$1,526.9 million in net cash proceeds during 1998.

NET ASSET VALUE

An independent valuation of the Group's investment properties has been carried out by Knight Frank. Taking into account the revaluation of all the Group's investment properties, properties under development and other investments, the net asset value of the Group as at 31 December 1998 was HK$18.19 per share (1997: HK$33.71 per share) based on 1,031,627,199 shares outstanding as at 31 December 1998 (1997: 1,029,325,779 shares).

REPURCHASE OF COMPANY'S SECURITIES

During the year, 2,405,000 ordinary shares of the Company were repurchased at an average price of HK$7.42 per share and the repurchased shares were cancelled thereafter. US$22.5 million convertible bonds of a subsidiary of the Group were also repurchased at 96.28% of the issue cost.

YEAR 2000 COMPLIANCE

The Group's objective in the Year 2000 Programme is to ensure that all business processes and computer systems continue to perform error-free and without interruption prior to, during and after the millennium. The DISC PD2000-1 definition of Year 2000 conformity prepared by British Standards Institution Committee has been set as the standard to be achieved.

A committee comprising of representatives from various functions of the Group has been established to assess the risks and possible impact on the business operations. All date-dependent systems, including the mainframe, personal computers and other systems, such as office machineries, building automation system, fire services system, and lifts have been included in the review. Affected systems are expected to be rectified to standard and tested to confirm compliance. Regular progress reports are made at the executive meetings of the Group.

Preparation work started since 1997 and by the end of 1998, rectifications of affected systems have mostly been completed. Testings, in the presence of the suppliers/contractors have been carried out and full Year 2000 compliance is expected by mid-1999.

Total estimated cost for rectifications and testings under the Year 2000 Programme is about HK$1 million.

DIRECTORS AND STAFF

I would like to take this opportunity to express my sincere thanks to my fellow Directors for their guidance and to all members of the staff for their loyalty, dedication and hard work throughout the year.

Mr. Peter T.C. Lee, Director of the Group since 1988, has been appointed Managing Director with effect from 1 January 1999. Mr. Michael Y.M. Chan resigned as Director, Finance on 11 January 1999 after many years of loyal service and contribution to the Group. The management team and I look forward to strengthened operations and continued progress as we move ahead.

PROSPECTS

1999 is expected to remain difficult. Demand in the commercial and residential leasing markets is not anticipated to turn around in light of the weak economic environment in Hong Kong and the region. The supply of new office space will also continue to create imbalances on the commercial property market. As landlords focus on retaining tenants, pressure on rental rates will persist.

Facing such acute challenges, the Group has further strengthened its property leasing operations through greater emphasis on leasing strategy and building management. As the credit environment remains tight, the Group, as stated in its interim report, has taken priority measures to reduce debt levels. I am pleased to report that total debt at the end of 1998 decreased significantly and further reduction is expected in 1999 due largely to proceeds from asset sales already achieved. With the focus on its core business and improvement in its financial profile, the Group is well placed to weather the uncertainties ahead.

H.C. LEE
Chairman
Hong Kong, 16th March 1999

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