Swire Properties, Hongkong Land Look to Turn Page After 2020 Profit Hits 

A pair of blue chip Hong Kong developers on Thursday reported financial results that documented the impact of the COVID-19 pandemic on the city’s biggest landlords, with both Swire Properties and Hongkong Land Holdings reporting plunging profits.

Despite Hongkong Land holding some of Central’s priciest office towers, and Swire having Pacific Place and other commercial landmarks in its portfolio, the Hong Kong heavyweights laboured to put the best spin possible on what both termed a “challenging” year spent wrestling with the fallout of COVID-19.

The drop in profits follows extended restrictions on public gatherings and social activity in Hong Kong, which have hurt retail rent revenue for both firms. Hongkong Land, which owns the Exchange Square complex, Jardine House and other Central landmarks, was also pressured by a flight of tenants from the traditional business hub, which saw vacancy rise to 7 percent by year-end — the highest level since 2004.

Hotels and Malls Suffer

Swire Properties posted full-year revenue of HK$13.3 billion ($1.7 billion at current rates), down more than 6 percent from 2019, led by a 51 percent drop in hotel revenue.

The subsidiary of the centuries-old conglomerate said that underlying profit attributable to shareholders, a figure adjusting for changes in the fair value of investment properties, totalled HK$12.7 billion, down 47 percent from the year before. Reported profit, meanwhile, amounted to HK$4.1 billion, down 69 percent.

In a statement to shareholders, chairman Merlin Swire said that while pandemic-related travel bans and social distancing dealt a blow to hotel and retail income in 2020, the firm’s office portfolio delivered a solid performance.

“The rental income drop at our Hong Kong malls was more than offset by the recovery in the Chinese mainland,” he said. “Our five malls in the Chinese mainland continue to strengthen our retail portfolio, being well established as top lifestyle destinations in their cities, and proving the merits of our long-term placemaking strategy.”

Capital Recycling

With parent firm Swire Pacific seeing its Cathay Pacific unit suffer a record $2.79 billion loss, Swire Properties continued to dispose of non-core assets in 2020. Those asset sales included unloading Swire’s entire interest in the Cityplaza One office tower for close to HK$10 billion and a pair of Miami office towers for $163 million.

The firm also sold off parking spaces at Taikoo Shing, a residential development near Cityplaza, aiming to raise at least HK$690 million.

The cash generated by the asset sales is to go towards reinforcing core investments such as the flagship Pacific Place complex.

“With our balanced portfolio and strong balance sheet, we are well placed to withstand the effects of this difficult time and to benefit from improved conditions in the future,” said chief executive Guy Bradley.

Valuations Bite

Hongkong Land chairman Ben Keswick said the group’s investment portfolio and development business were “expected to remain resilient in 2021,” despite uncertainty about the duration of the pandemic.

The London-listed developer reported 2020 revenue of $2.1 billion, down 9.7 percent from a year earlier, while underlying profit attributable to shareholders fell 11 percent to $963 million.

Factoring in net losses due to lower property valuations, however, yielded a loss attributable to shareholders of more than $2.6 billion. Hongkong Land had scraped out a profit of $198 million in 2019.

Keswick said the value of the group’s Hong Kong investment properties portfolio fell by 10 percent compared with the prior-year level, owing to lower open-market rents.

Chief executive Robert Wong highlighted Hongkong Land’s “strong and profitable” development properties business, primarily focused on the premium residential market in mainland China and Southeast Asia.

In Shanghai, the group’s mixed-use development on the West Bund broke ground in October and is proceeding on schedule, with completion expected in multiple phases until 2027.