Results

Dividends

Sales

New Sites

Review

The Group's current land bank in Hong Kong amounts to a gross floor area of 44.6 million square feet, comprising 15.0 million square feet of completed investment properties and 29.6 million square feet of properties under development. This excludes the Group's holding of Letter B land exchange entitlements and 17 million square feet of agricultural land in the New Territories. Certain agricultural sites are in the process of land use conversion. It is expected that the Group's land bank in Hong Kong will continue to grow in the coming years to cater for the Group's development needs.

In May 1996, a consortium in which the Group has a 47.5 per cent interest signed an agreement with the Mass Transit Railway Corporation to participate in the Airport Railway Hong Kong Station property development. The project, comprising offices, a shopping centre, hotels and service apartments, has a total floor area of 4.5 million square feet. It will be developed in phases, with the land premium to be assessed at market value and payable in 5 instalments over a period of 5 years. The whole development will be completed in 8 years.

The Group continues to expand its investment property portfolio. Rental properties under development amount to 3 million square feet, including East Point City Shopping Centre in Tseung Kwan O, KTIL 726 in Kwun Tong and several luxury residential projects in the southern part of Hong Kong Island.

The major renovation of the World Trade Centre Shopping Centre in Causeway Bay and The Sun Arcade in Tsim Sha Tsui was completed during the year. These two shopping centres are now fully let, contributing rental income of $240 million per year.

The Group's gross rental income for the year under review amounted to $4,400 million, representing an increase of 9 per cent over the previous year. The Group's investment properties are virtually fully let and it is expected that the Group's rental income will continue to grow in the future.

The majority of the Group's sites under development are large scale residential projects in major new towns in the New Territories. These developments feature superior quality materials and design and are equipped with a full range of recreational facilities including luxurious club houses. The completion of major road and railway projects over the next few years will improve traffic conditions in the New Territories, significantly reducing commuting time to the urban areas. Residential properties in these areas will be in greater demand. To satisfy the increasingly sophisticated demands of buyers, the Group will continue to raise the standards of all aspects of its developments, including building materials, construction quality, recreational facilities and property management as well as providing convenient transport links to rail networks.

The Group is in the process of modifying its industrial sites into commercial/office, industrial/office or comprehensive development use so as to enhance the development potential of these sites. Two sites at 81 How Ming Street and KTIL 726 in Kwun Tong have been successfully converted into commercial/office use, providing a total of 2.1 million square feet of offices and 210,000 square feet of shopping space.

The Group's two hotels, the Royal Garden in Tsim Sha Tsui and the Royal Park in Shatin, recorded excellent results during the year. Average room rates showed significant increases and the hotels' average occupancy rates were 93 per cent and 92 per cent respectively. The new hotel in the Mongkok Railway Station development is scheduled for completion in the second half of 1997.

In recent years, the Group has been actively participating in infrastructure projects in Hong Kong. In March 1996, a consortium in which the Group has a 33 per cent interest was awarded the right to develop and operate the River Trade Terminal in Tuen Mun. The terminal will be developed in 2 phases and construction will commence soon. The entire project will be completed towards the end of 1999.

Agreement has recently been reached between various parties on Container Terminal 9 which involves the rationalisation of berths at the Kwai Chung port. Asia Container Terminals Limited, in which the Group has a 28.5 per cent interest, will exchange its 2 berths in the Container Terminal 9 development for 2 existing berths in Container Terminal 8.

The construction of the Airport Freight Forwarding Centre at the new airport is progressing smoothly and the project is expected to be completed in early 1998 as scheduled. Leasing response has been good, with over 50 per cent of the space already leased out.

Construction of the Route 3 (Country Park Section) is also on schedule and the route is expected to be completed and operational in August 1998.

The mobile phone business of SmarTone Mobile Communications Limited, in which the Group has a 40 per cent interest, showed an excellent performance, with subscribers already exceeding 250,000. SmarTone is seeking a listing on the Stock Exchange of Hong Kong by means of an initial public offering. The recent issue of new Personal Communication System licences is unlikely to have any significant impact on SmarTone's business as it continues to provide high quality service and territory-wide coverage at reasonable prices, and SmarTone's subscriber capacity can be substantially increased to 700,000. In addition, its international automatic roaming service has been extended to 35 countries including over 400 cities and counties in China, which represents an enormous potential source of roaming and IDD revenue. With the continuing significant growth in mobile phone penetration in Hong Kong, the future prospects for SmarTone are promising.

China's macro-economic adjustment policy has achieved its targets, with inflation declining and interest rates adjusting downwards. The economic reform and open-door policy will continue to underpin China's economic development. The Group continues to adopt a prudent and selective investment policy in China. Total investments in China will not exceed 10 per cent of the Group's assets. Committed projects, amounting to approximately 3 per cent of the Group's assets, are mainly located in major cities such as Beijing, Shanghai and Guangzhou. Current projects are focused on the development of shopping centres and offices mostly for rental purposes. Selected residential projects will be for sale. Sun Dong An Plaza in Wangfujing, Beijing, will be completed in mid-1997. Leasing will commence shortly and the response of prospective tenants has been encouraging.

Prospects

Significant improvement in buyers' affordability and lower mortgage interest rates have led to a recovery of the Hong Kong residential market since early this year. Supported by a buoyant market, residential property prices have risen by 15 per cent since early 1996. Supply of private residential units for the next 2 years is expected to be lower than average. Due to continuing strong demand for housing in Hong Kong, the prospects of the residential market are positive.

The Group will continue its policy of focusing on the property development business in Hong Kong, reducing risk through diversification in the types of properties and geographical location. On the other hand, the Group will make further efforts to increase contributions from rental and other recurrent income, so as to meet its target of achieving an equal balance between profit from the sale of properties and recurrent income.

The Group owns a large land bank which will be sufficient for its development needs in the next 5 years. Land costs are substantially below current market prices, offering solid protection to the Group's future profits. Properties expected to be completed in the coming financial year amount to 4.9 million square feet, of which 4.3 million square feet will be for sale.

The Group's investment property portfolio in Hong Kong amounts to 15 million square feet, of which 65 per cent is shopping centres and offices situated in prime locations. In addition, the Group owns 21,000 car parking spaces. Three million square feet of new investment properties will be completed in the next 3 years, increasing the portfolio to 18 million square feet It is expected that rental income will continue to grow satisfactorily in the coming years.

To provide additional steadily growing recurrent income, the Group will continue to seek appropriate opportunities to invest in infrastructure and related projects in Hong Kong. Investments in these projects are not expected to exceed 10 per cent of the Group's assets.

In line with its commitment to provide quality customer service, the Group established the SHKP Club in early 1996 to promote 2-way communication with and enhance services for our customers. The Group's two property management subsidiaries - Kai Shing Management Services Limited and Hong Yip Service Company Limited - received Best Property Management Agency Awards from the Hong Kong Housing Authority once again this year, demonstrating the outstanding quality of the Group's after-sales services. Excellent service and customer satisfaction will remain top priorities for the Group.

The Group always adopts a prudent financial policy and, in particular, maintains a low gearing ratio. The equity base of the Group has been strengthened through a share placement of 65 million new shares in January 1996 with net proceeds of $3.95 billion. In August 1996, the Group successfully arranged a HK$8 billion 5-year transferable term loan. The facility has been used to refinance short-term borrowings and is in line with the Group's policy of lengthening the maturity profile of its debts to match its long-term investment needs. During the year the Group's Hong Kong dollar debt rating was upgraded from A to A+ by Standard & Poor's. In addition, the local currency debt was assigned an A2 rating by Moody's. These ratings further enhance the Group's ability to raise financing at lower costs. The Group's liquidity will be further strengthened as large scale projects such as Villa Tiara in Tuen Mun, King's Park Villa in Kowloon and East Point City in Tseung Kwan O are launched for sale in the next several months.

The Group places great emphasis on human resources. Not only does the Group provide executives with opportunities to develop their own potential, it also encourages all levels of staff to improve their performance through training. In addition, it believes in promoting capable people.

Almost all marketed residential units which are scheduled to be completed in the coming financial year have been sold. The continuing buoyant property market in Hong Kong should pave the way for successful sales of properties for the year. Barring unforeseen circumstances, the Group's results for the coming year will show a satisfactory improvement.

In January 1996, the Group's leadership was further strengthened by the appointment of Mr. Michael Y.K. Wong and Mr. Mike C.W. Wong as executive directors. Both bring over 15 years of valuable experience within the Group to their new positions.

I take this opportunity to express my gratitude to my fellow directors for their guidance and to all staff for their dedication and hard work.


Kwok Ping-sheung, Walter
Chairman & Chief Executive

Hong Kong, 2nd October, 1996