Swire Properties Warns of 70% Profit Plunge on Investment Losses

Swire Properties on Tuesday warned of a 70 percent drop in full-year profit for 2023, laying the blame on a HK$4.5 billion ($580 million) valuation loss in the developer’s investment portfolio.

Hong Kong-based Swire Properties cited a lower fair-value gain on mainland China retail investment properties and a fair-value loss on office investment properties under development, according to a stock exchange filing.

By comparison, the company last year recorded a fair-value gain on investment properties of HK$1.6 billion and a 12-month profit of HK$8 billion.

“A change in the fair value of investment properties is non-cash in nature and will not have any impact on the group’s operating cash flow or underlying profit attributable to shareholders,” said Swire Properties, the real estate arm of centuries-old trading firm Swire Pacific.

Office Sale Boosts Books

The developer’s 2023 underlying profit, which ignores the fair-value change of investment properties, is expected to jump 30 percent from last year’s figure of HK$8.7 billion.

The rise in underlying profit reflects a gain of HK$3.3 billion from the recent sale of nine floors at One Island East, a Grade A office block in Quarry Bay, to the Securities and Futures Commission of Hong Kong. The transaction was completed on 21 December, Swire Properties said.

The disposal saw Swire turn over 296,000 square feet (27,499 square metres) of the 69-storey office tower to the financial regulator in Hong Kong’s largest office investment by an end user since 2019, according to JLL, which advised the SFC on the deal.

The transaction ranked as the largest office deal on Hong Kong Island this year, with January’s HK$5.6 billion purchase of the Goldin Financial Global Centre by a joint venture of Mapletree Investments and PAG still standing as the city’s biggest real estate deal of 2023.

Sticking With Strategy

Despite tapping its Hong Kong office portfolio to raise cash, Swire Properties said Tuesday that its balance sheet and financial position remain strong, with no change expected in the company’s investment strategy. The developer has shrugged off wobbly markets in Hong Kong and mainland China and expanded its presence in both through a series of deals.

In September, a Swire joint venture with rival Henderson Land completed its acquisition of a set of ageing buildings at 16 to 94 Pan Hoi Street and 983 to 987A King’s Road, just steps away from One Island East. The partners plan to redevelop the properties into a 487,213 square foot residential project.

Further up King’s Road East, Swire in March 2022 completed its acquisition of the Zung Fu Industrial Building and in June this year said it had acquired the last pieces of the adjoining Wah Ha Factory Building at 8 Shipyard Lane, with the company saying it intends to develop the consolidated site for office and other commercial uses.

In November, Swire broke ground on Taikoo Li Xi’an, a joint venture with local government company Xi’an Cheng Huan Cultural Investment and Development, which is expected to be a RMB 10 billion ($1.4 billion) project. Swire Properties said in commencing its fourth Taikoo Li project in the country that it expects to complete construction in Xi’an in phases from 2026.

In Shanghai, Swire said in October that it had purchased 40 percent stakes in both a commercial-dominated project near its existing shopping centre in Pudong’s Qiantan area and a residential-driven development in the district’s Yangjing neighbourhood from Lujiazui Group for a combined RMB 9.7 billion.