Swire Properties Takes on More Hong Kong Projects Despite Challenging 2022 1H

Swire Properties saw revenue decrease by 26 percent in the first half of the year to HK$6.70 billion ($855 million) while its underlying net profit slid 8 percent to $4.14 billion as its retail and hotel businesses were hit by COVID-19 curbs.

Excluding non-recurring profit from sales of assets, Swire Properties’ net profit for the period from January through June was HK$3.64 billion, which represents a 2 percent decline from a year earlier, according to the company’s interim results released Thursday. Compared to its pre-pandemic, pre-social unrest results from the first half of 2019, when the company recorded recurring, underlying profit of just over HK$4 billion, the developer’s results are down more than 9 percent.

Despite the pandemic problems, Swire said that it is continuing to expand its property portfolio in Greater China and Southeast Asia.

“We continue to experience significant challenges to our business as COVID-19 develops, particularly in the retail and hospitality sectors,” Tim Blackburn, chief executive of the company, said in a statement. “However, we have gained ground in all areas of our business, and our financial strength has ensured that we can continue to develop our existing portfolios over the long term while investing in new opportunities.”

During the first half of this year Swire made acquisitions which helped set it up to develop nearly 1.1 million square feet (102,193 square metres) of commercial space in Quarry Bay and a 116,229 square foot residential project in Wan Chai.

Retail, Hotels Chilled by COVID

Swire’s decrease in net profit during the first half of the year was mainly attributable to lower rental income from retail properties in Hong Kong and higher operating costs, which were partially offset by higher retail rental income from mainland China, the company said.

Hong Kong’s retail market was severely affected by the fifth wave of COVID-19 in the first quarter, with Swire recording HK$1 billion in gross rental income from the retail portfolio from January through June, which represents a 10 percent decrease from the same period of 2021. In mainland China, retail sales were encouraging early in the year but were disrupted by COVID lockdowns in the second quarter, particularly in Shanghai and Beijing to total HK$2.3 billion.

Besides retail, Swire’s hotel business also suffered from COVID-19 and associated travel restrictions in Hong Kong and mainland China, with losses widening by HK$14 million compared to the first half of 2021.

Swire’s office and residential businesses were relatively more resilient in the first half of the year.

The developer’s gross income from its Hong Kong office portfolio fell by 1 percent to HK$2.8 billion while the mainland China contribution increased by 1 percent to HK$191 million. As of 30 June, the company’s office portfolio in Hong Kong was 96 percent let, and occupancy for Taikoo Hui in Guangzhou, Indigo in Beijing and HKRI Taikoo Hui in Shanghai was at 94 percent, 95 percent, and 100 percent, respectively.

More HK Assets on the Way

Despite its first half struggles, Guy Bradley, chairman of Swire Properties, said the company is moving to expand its portfolio in Asia.

“As we look to the future, we will continue to use our HK$100 billion investment fund to reinforce our core assets and pursue new investment opportunities. It remains our goal to deliver mid-single-digit annual dividend growth,” Bradley said in a statement.

Swire Properties introduced a HK$100 billion ($12.7 billion) investment plan earlier this year to beef up its pipeline of projects in Hong Kong, mainland China and Southeast Asia. Half of the funds have been allocated to the mainland market, with a focus on retail-led mixed-use developments in Tier 1 and emerging Tier 1 cities.

30 percent of the fund is earmarked for investments in Hong Kong, including expansion of the company’s Taikoo Place and Pacific Place hubs.

The company took a major step toward expanding its base in Quarry Bay with its acquisition of the Zung Fu Industrial Building at 1067 King’s Road in March. Swire said that, after having acquired the aging industrial property, should it succeed in acquiring the adjacent Wah Ha Factory Building through a compulsory sale, it will redevelop the two sites into a new commercial project with an aggregate gross floor area of approximately 779,000 square feet.

The developer is also closing in on a HK$5.9 billion ($751.9 million) acquisition of the Hoi Wan Building and the Sea View Building in the heart of Taikoo Place, after having applied for a compulsory sale of the aging buildings in June. Should it succeed in buying out the buildings next to its Lincoln House office project, the site could be redeveloped into an office tower spanning as much as 300,900 square feet (27,954 square metres) in that Quarry Bay complex.

In June the developer won a government tender for a site on Queen’s Road East in Wan Chai where it is now set to build a 116,229 square foot residential project.

Hopes for the Second Half

Swire said it is making good progress on its 46-56 Queen’s Road East office project opposite Three Pacific Place in Wan Chai, which will add approximately 218,000 square feet of additional office space to its wider Pacific Place portfolio.

Despite having reached a commitment rate close to 50 percent for its Two Taikoo Place office project just weeks ago, the company said it expects office demand to remain weak in Hong Kong in the second half of this year.

On the retail side, Swire expects overall traffic and retail sales to improve in both Hong Kong and mainland China in the second half of the year, while acknowledging that a full recovery of Hong Kong’s retail market depends on border reopenings.

Despite a challenging outlook for its hotel business, during recent weeks the company announced plans for two new, third-party owned hotels under its House Collective brand in Shenzhen and Tokyo.