Swire Properties Profit Plunges 67% on Markdowns Despite Retail Rebound

Swire Properties reported an attributable net profit of HK$2.6 billion in 2023, marking a 67 percent decline from a year prior as a HK$4.4 billion fair value loss on investment properties dented the Hong Kong-listed developer’s bottom line, according to the company’s annual results released Thursday.

Underlying profit, which ignores the fair-value change of investment properties, increased 33 percent to HK$11.6 billion last year, reflecting a HK$3.3 billion gain recognised on the sale of nine floors at its One Island East office tower in Quarry Bay to the Hong Kong Securities and Futures Commission.

“As we look ahead to 2024, we anticipate new challenges, particularly given current macroeconomic uncertainties. However, we remain greatly encouraged by our strong performance in 2023, and we are optimistic about the opportunities and the growth potential in the future under our HK$100 billion investment plan,” said Guy Bradley, chairman of Swire Properties.

The builder grew its revenue 6 percent to HK$14.7 billion last year, while recurring underlying profit expanded 2 percent year-on-year.

Strong Retail Performance

Swire’s office portfolio was the sole segment within its property investment business that saw revenue dip last year, with office rental income, which accounted for 40 percent of the company’s total revenue, declining 2.8 percent to HK$5.8 billion.

The company’s Hong Kong office portfolio recorded an overall occupancy of 89 percent as of December compared to 91 percent a year ago, while occupancy at its three office assets in mainland China ranged from 85 percent to 98 percent, down from 94 percent to 99 percent in 2022.

“The office market in Hong Kong is expected to remain subdued in 2024, on the back of weak demand and increased availability. Increasing competition from Central and Kowloon East will continue to exert downward pressure on rents across the portfolio,” said Swire Properties’ chief executive Tim Blackburn, adding that Swire expects demand for grade A office space to recover on the back of financial market improvements, interest rate stabilisation, and an increase in economic activity.

Retail stood out as Swire’s best-performing segment last year with a 22.1 percent jump in gross rental income, after some malls in Hong Kong, mainland China and Miami achieved full occupancy and pre-pandemic levels for retail sales. The company notched HK$7.1 billion of retail rental income in 2023, eclipsing office as its largest segment with a 49 percent share of total revenue.

“Our Hong Kong retail portfolio has recovered remarkably well, with an improvement in consumer sentiment, thanks to the lifting of all travel restrictions and pandemic related control measures,” said Blackburn. “Our investment in marketing and loyalty initiatives, together with digitally-advanced campaigns to interact with customers, have all contributed to significant business recovery in our malls in Hong Kong during the year. Sales have improved and returned to pre-pandemic levels in some of our malls.”

Revenue from Swire’s hotel business climbed 73.3 percent to HK$979 million following the removal of pandemic travel restrictions in mainland China and Hong Kong, while revenue from the property trading unit, which develops properties for sale, fell 82 percent to HK$166 million. Both units posted negative recurring underlying profit.

HK$100B Investment Plan Continues

Swire disclosed that it has committed 60 percent of the capital for a HK$100 billion investment plan it announced in 2022, with the cash going into new and ongoing projects to “drive long-term growth” in the company’s key markets. The ten year plan has a target allocation of HK$30 billion to Hong Kong, HK$50 billion to mainland China and HK$20 billion to residential trading projects in Hong Kong and Southeast Asia.

“With our strong financial position and robust pipeline of new projects, we are confident in our outlook for 2024. This is an exciting period for our business, and we will continue to make strides with our investment strategy as we grow our presence in our core markets of Hong Kong, the Chinese Mainland and Southeast Asia,” said Blackburn.

In Hong Kong, Swire has continued to build out its Taikoo Place community in the Quarry Bay area after having acquired the Zung Fu Industrial Building and Wah Ha Factory Building in 2022 with plans to redevelop the two sites into a new commercial tower within the Taikoo Place complex. The company expects the latest phase of redevelopment to be completed in the first half of 2024.

In mainland China, which accounted for 40 percent of Swire’s gross rental income in 2023, the company is expanding its footprint with several projects, including Taikoo Li retail-led developments in Xi’an and Sanya, phase two of the Indigo office, retail and hotel project in Beijing, as well as two commercial and residential projects in Shanghai’s Pudong district.

Swire has also completed the acquisition of the remaining 35 percent interest in the Taikoo Li Chengdu mall and is developing a hotel in Shenzhen Bay.

Within its residential trading pipeline, Swire is now participating in a condo project in Bangkok after acquiring a 40 percent stake in the development from HKR International last year for HK$570 million in 2023. The company also has projects currently under development in Ho Chi Minh City, Vietnam and in Jakarta, Indonesia, and is exploring residential opportunities in Singapore.