HONG KONG PROPERTY AND OTHER BUSINESSES Property Property Development Rental Property Management Over 23,000 14 Managing Over Residential Units Shopping Malls 111,000 and 2 Shopping Malls in Our Portfolio Residential Units Under Development 50 MTR Corporation Annual Report 2020 51 AIM We aim to create shareholder value by maximising our assets • Remain keenly attuned to the business difficulties faced by through exploring property development, rental, management and our mall tenants, particularly those operating in food and acquisition opportunities, creating integrated, inclusive communities beverage and discretionary segments, by working together on along our world-class rail network. We also strive to provide excellent collaborations such as loyalty and redemption programmes service for these projects by applying our expertise in all aspects of • Widen the targeted trades in our malls to further diversify property development and management as well as engaging the our offerings community. Property Management • Continue implementing anti-pandemic measures at our CHALLENGES estates, buildings and malls to ensure health and safety Property Rental • Optimise costs by reviewing operational processes • COVID-19 caused steep declines in tourist traffic and domestic and expenditures spending, negatively impacting our mall rental business • Continue offering a world-class property management Overview • Work-from-home arrangements and the weak economic service that meets or exceeds customer requirements environment curbed business expansion and office demand and expectations • The rise of e-commerce continues to affect consumer • In line with the sustainability and environmental goals set out behaviour and retail space demand and drive business toward in the Corporate Strategy, develop and promote more green online shopping, particularly in response to the pandemic projects with greater energy efficiency for the health of our residents, tenants and communities Property Management • Statutory changes in licensing, procurement and maintenance Property Development are impacting the residential property management industry in • Continue leveraging our proven “Rail Plus Property” integrated Hong Kong development model as a competitive advantage for buyers seeking quality units with convenient transportation links Property Development • Expand by seeking the rezoning of feasible existing railway sites • COVID-19 continues to disrupt the global economy and create for potential new developments fluctuations in capital flow • Deliver property developments of a high standard, on time and Business Review and Analysis within budget STRATEGIES • Continuously improve our standards through innovation and by Property Rental capturing new development opportunities • Continue to support tenants, especially small to medium Property Safety enterprises, with rental concessions and flexible lease • Safety at our construction sites, investment and managed arrangements in order to further build long-term relationships properties, and adjoining railway facilities is our top priority and maintain occupancy OUTLOOK COVID-19 will continue to impact mall rentals as travel restrictions limit tourism to Hong Kong, especially from the Mainland of China, Corporate Governance and work-from-home and social distancing policies curtail in-store spending by domestic consumers. In line with our Corporate Strategy, which emphasises new growth engines such as digital retail as a core growth pillar, we will seek to leverage our enhanced MTR Mobile app and new “MTR Points” loyalty programme to inform users of offers from mall tenants and drive online-to-offline sales. We will also analyse our trade mix to determine where we can further diversify our offerings into lifestyle to attract more mall traffic. Our shopping mall business will continue to face challenges in rentals resulting from the aftermath of last year’s negative rental reversions as well as the spreading of last year’s rental rebates into 2021 and beyond in accordance with accounting standard requirement. We look forward to opening the remaining shops of The LOHAS and our shopping centres in Tai Wai and Wong Chuk Hang (now named “The Southside”) in 2023. The impact of COVID-19 on the asset valuation of our investment property portfolio may continue until market conditions are stabilised. Office rentals will remain under pressure as work-from-home arrangements and the weak economic environment dampen business expansion plans and office demand. Despite the pandemic and economic downturn, our property development business is performing relatively well. Profit from property development is dependent on the sale of the property developments and construction progress and will vary from year to year. Depending on construction progress, we target to book development profits from Packages 7, 8 and 9 of LOHAS Park in 2021. Subject Financials and Other Information to market conditions and necessary Government approvals, we aim to tender out The Southside (also known as “Wong Chuk Hang Station Property Development”) Package 6, Tung Chung Traction Substation site, Pak Shing Kok Ventilation Building site and Tung Chung East Station Package 1 (subject to our entering into a project agreement with Government) in the next 12 months or so. These packages are expected to provide about 4,800 residential units in total. Applications for pre-sale consent for The Southside Package 1 and Package 2 property development projects and The Pavilia Farm III are in progress. Revenue from property management is recurrent and dependent on the properties under management, which will increase as new projects are completed. The health and safety of our customers, staff, tenants and residents is our number one priority. As we anticipate that the societal impacts of COVID-19 will last well into 2021, we will continue to take all necessary precautions to ensure hygiene in our estates, malls and office buildings. 50 MTR Corporation Annual Report 2020 51 BUSINESS REVIEW HONG KONG PROPERTY AND OTHER BUSINESSES PROPERTY RENTAL Property rental revenue decreased by 0.3% year on year pop-up stores at our properties to help drive mall traffic. to HK$4,817 million in 2020. This was mainly due to relief We are also considering widening the trade mix in our measures provided to tenants during the pandemic, malls to further diversify our offerings. which were granted on a case-by-case basis with priority During the year, the Company held marketing activities to given to small to medium tenants; however, these were drive traffic to malls and help tenants offset the adverse partially offset by the incremental contribution from our effects of COVID-19. Many of these were promoted via newly opened and acquired shopping malls. In 2020, our the upgraded MTR Mobile app, an integrated platform shopping malls recorded a negative rental reversion rate covering information on MTR Malls and MTR Shops, of approximately 21% due to adverse retail sentiment. lifestyle content, and a new “MTR Points” loyalty scheme Our shopping malls (other than The LOHAS, which was that allows customers to earn MTR Points for their opened in August 2020) and the Company’s 18 floors in purchases at designated MTR outlets and redeem them Two International Finance Centre had average occupancy for special rewards. rates of 99% and 98%, respectively. In August and November 2020, we opened phases 1 As at 31 December 2020, the lease expiry profile of our and 2 of The LOHAS, a three-storey, 44,500-square-metre shopping malls by area occupied was such that shopping centre at LOHAS Park that connects seamlessly approximately 33% will expire in 2021, 30% in 2022, with the LOHAS Park Station and nearby residential 20% in 2023 and 17% in 2024 and beyond. buildings. The LOHAS will be home to over 140 tenants In terms of trade mix as at 31 December 2020, food and features Hong Kong’s largest indoor ice rink, Tseung and beverage accounted for approximately 29% of the Kwan O’s largest cinema and a family entertainment leased area of our shopping malls, followed by fashion, centre project that is the first of its kind in Hong Kong. beauty and accessories for 22%, services 22%, leisure In 2020, the Company acquired the remaining economic and entertainment 17%, and department stores and interests in Telford Plaza II in Kowloon Bay and PopCorn 2 supermarkets 10%. in Tseung Kwan O from New World Development As at 31 December 2020, the Company’s attributable Company Limited and Chow Tai Fook Enterprises Limited share of investment properties in Hong Kong was 257,692 for a total consideration of HK$3 billion. We now hold square metres of lettable floor area for retail properties, 100% interest in both shopping centres. Repartitioning 39,410 square metres of lettable floor area for offices and work for the fourth and fifth levels of Telford Plaza II has 18,905 square metres of property for other use. been completed, and all shops are now open. Steep declines in tourist traffic and domestic spending Pursuant to MTR’s environmental goals of reducing negatively impacted our mall rental business, while energy use in its investment property portfolio, the work-from-home arrangements and the weak economic Company worked to install energy-efficient lighting, environment adversely affected our office tenants’ water pumps, air conditioning systems and chillers in our business expansion plans and reduced their space managed properties. In 2013, we set a target to reduce requirements. We remained keenly attuned to the energy