HANG LUNG PROPERTIES LIMITED STOCK CODE: 00101 Annual Report 2020 We Do It Well HANG LUNG HANG LUNG GROUP LIMITED PROPERTIES LIMITED STOCK CODE: 00010 STOCK CODE: 00101 Annual Report 2020 Annual Report 2020 We Do It Well We Do It Well 60 YEARS OF HERITAGE INFINITE POSSIBILITIES 2020 marked the 60th anniversary of Hang Lung Group. Driven by our customer-centric approach to architectural design and service excellence over the past six decades, we have built a thriving portfolio of world-class properties and an exceptionally talented workforce who live up to our core values of sustainability, excellence, openness and integrity. Our rich history is the inspiration behind this year’s theme of “60 Years of Heritage, Infinite Possibilities” – one you will find illustrated throughout the 2020 annual reports for Hang Lung Group Limited and Hang Lung Properties Limited. The number “60” and “∞” symbol featured on this year’s cover pages represent our properties’ unique aesthetic design in Hong Kong and mainland China. The former denotes the milestone anniversary of the Hang Lung Group while the latter represents the infinite possibilities that lie ahead in the next 60 years – a sentiment also reflected in the close connection between the “6” and “0” on the Hang Lung Group report cover. Inside the covers, photos depicting our world-class properties and talented people – the backbone of our 60 years of growth and success – are masterly incorporated throughout the pages of both reports. Linking up different sections are dividers themed on our core values, which are designed as icons that are inspired by the meaning of the values and our properties’ signature design features. 60 YEARS OF HERITAGE INFINITE POSSIBILITIES CORPORATE PROFILE Hang Lung Properties Limited (stock code: 00101) is the property arm of Hang Lung Group Limited (stock code: 00010). We are a well-established, top-tier property developer with customer-centricity at the heart of our operations. Our diversified portfolio comprises numerous properties in Hong Kong and nine cities on the Mainland, including Shanghai, Shenyang, Jinan, Wuxi, Tianjin, Dalian, Kunming, Wuhan, and Hangzhou, with each of our Mainland projects bearing the “66” brand. To highlight our vibrant and dynamic brand identity, and the Hang Lung philosophy to put customer satisfaction first, the “66” brand recently unveiled a new image that reflects our aspiration to be the pulse of the city on the Mainland. We have also established an ambitious set of 2030 sustainability goals and targets to sharpen our focus in achieving sustainability leadership in the coming decade. As we embark on a new era of development and growth following the 60th anniversary of Hang Lung Group in 2020, we have taken the opportunity to communicate our vision, mission and values in a clearer way. These are guiding principles by which we do business and will guide us to the next 60 years fostering sustainable growth and enriching lives in the communities we serve. Supported by 60 years of Hang Lung heritage, we work together with our employees and stakeholders to create compelling spaces that enrich lives. Our Values We live up to our brand Our Mission motto of We Do It Well by focusing on: Our Vision We pursue sustainable Integrity We create compelling growth by connecting spaces that enrich lives our customers and Sustainability communities Excellence Openness Hang Lung Properties Limited 4 CONTENTS 6 Financial Highlights 137 Profile of Key Executives 8 2020 Highlights 140 Report of the Directors 14 Chair’s Letter to Shareholders 147 Independent Auditor’s Report 34 Vice Chair’s Notes 152 Financial Statements 40 Review of Operations 214 Ten-Year Financial Summary 79 Financial Review 216 Glossary 92 Sustainable Development 218 Corporate Information 102 Corporate Governance Report 219 Financial Calendar 131 Profile of the Directors 220 Listing Information 5 2020 Annual Report FINANCIAL HIGHLIGHTS Results Property Leasing Revenue Underlying Net Profit in HK$ Million (unless otherwise stated) Overall 2020 2019 +4% Property Property Property Property HK$ Million HK$,911Million HK$ Million -6 Leasing Sales Total Leasing Sales Total 9,000 8,000 Revenue 8,911 62 8,973 8,556 296 8,852 8,000 7,000 HK$,201Million – Mainland China 5,277 – 5,277 4,544 – 4,544 7,000 6,000 6,000 – Hong Kong 3,634 62 3,696 4,012 296 4,308 5,000 5,000 4,000 Operating profit 6,437 44 6,481 6,325 162 6,487 4,000 3,000 – Mainland China 3,468 (8) 3,460 2,938 (2) 2,936 3,000 Property 2,000 Leasing – Hong Kong 2,969 52 3,021 3,387 164 3,551 2,000 1,000 1,000 Property Underlying net profit attributable Sales 0 0 to shareholders 4,164 37 4,201 4,338 136 4,474 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Net (decrease)/increase in fair value of properties attributable to shareholders (6,772) – (6,772) 1,698 – 1,698 Net (loss)/profit attributable to ainland China Net Assets Attributable to shareholders (2,608) 37 (2,571) 6,036 136 6,172 Shareholders per Share At December 31, At December 31, 2020 2019 HK$ Million 16 HK$ Same Shareholders’ equity 138,295 138,669 6,000 HK$,2 Million 35 HK$30. Net assets attributable to shareholders per share (HK$) $30.7 $30.8 5,000 30 25 4,000 20 Earnings and Dividend (HK$) 3,000 15 2020 2019 2,000 10 (Loss)/earnings per share 1,000 5 – based on underlying net profit attributable to shareholders $0.93 $0.99 0 0 – based on net (loss)/profit attributable to shareholders ($0.57) $1.37 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Dividend per share $0.76 $0.76 – Interim $0.17 $0.17 – Final $0.59 $0.59 Hong Kong Dividends per Share Financial ratio Same 2020 2019 HK$ Million HK$ -9 HK$0.6 Payout ratio (based on net profit attributable to shareholders) 5,000 0.8 4,500 HK$3,63 Million – Total N/A 55% 0.7 4,000 0.6 – Property leasing N/A 57% 3,500 0.5 – Property leasing (after deducting amount of interest capitalized) N/A 73% 3,000 2,500 0.4 Payout ratio (based on underlying net profit attributable to shareholders) 2,000 0.3 1,500 – Total 81% 76% 0.2 1,000 – Property leasing 82% 79% Final 500 0.1 – Property leasing (after deducting amount of interest capitalized) 114% 115% 0 0 Interim 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 At December 31, At December 31, 2020 2019 Net debt to equity ratio 21.3% 17.8% Debt to equity ratio 25.6% 20.1% Hang Lung Properties Limited 6 FINANCIAL HIGHLIGHTS Property Leasing Revenue Underlying Net Profit Overall +4% HK$ Million HK$,911Million HK$ Million -6 9,000 8,000 8,000 7,000 HK$,201Million 7,000 6,000 6,000 5,000 5,000 4,000 4,000 3,000 3,000 Property 2,000 2,000 Leasing 1,000 1,000 Property Sales 0 0 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 ainland China Net Assets Attributable to Shareholders per Share HK$ Million 16 HK$ Same 6,000 HK$,2 Million 35 HK$30. 5,000 30 25 4,000 20 3,000 15 2,000 10 1,000 5 0 0 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Hong Kong Dividends per Share Same HK$ Million HK$ -9 HK$0.6 5,000 0.8 HK$ Million 4,500 3,63 0.7 4,000 0.6 3,500 3,000 0.5 2,500 0.4 2,000 0.3 1,500 0.2 1,000 Final 500 0.1 0 0 Interim 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 7 2020 Annual Report 2020 HIGHLIGHTS Major Corporate Developments Spring City 66, Kunming Hang Lung inked partnership with Hyatt Grand Gateway 66, Shanghai Hotels Corporation to open the new luxury After its three-year large-scale transformation, Grand Hyatt Kunming hotel at the the mall has become the “Gateway to commercial complex in mid-2023 Inspiration”, and a vibrant launch party was held on November 19 to celebrate its grand opening Heartland 66, Wuhan Opened for occupancy in November, the office tower at Heartland 66 is designed to be the preferred choice of office space among professional companies Hang Lung Properties Limited 8 2020 HIGHLIGHTS Customer Experiences and Events HOUSE 66 HOUSE 66, our nationwide Customer Relationship Management program, has been fully rolled out HANGOUT across all existing properties on the Mainland to Launched in September, our first deepen tenant engagement and customer loyalty multi-functional office and business space, named HANGOUT, serves as a platform that links all stakeholders at Center 66 in Wuxi Spring City 66, Kunming The mall cooperated with over 100 brand partners to hold a two-day celebration in Plaza 66, Shanghai September that gave HOUSE 66 members and customers access to special luxury Collaborated with about 90 world-renowned goods, events and performances high-end brands, Plaza 66 created a night of sophistication, fun and luxury for its guests and fashion enthusiasts at its annual signature event, “Home to Luxury” Party, in November 9 2020 Annual Report 2020 HIGHLIGHTS Our Fight against COVID-19 Large-scale Community Hang Lung Novel Safeguard the Services Event Coronavirus Relief Fund Health and Safety of To mark the 60th anniversary of We donated RMB10 million to set our Stakeholders Hang Lung Group, around 1,000 volunteers up the Fund, supporting measures from Hong Kong and nine Mainland cities Extensive precautionary to stem the spread of COVID-19 in joined forces to provide support for 4,500 measures were implemented Hong Kong and mainland China underprivileged people in our first ever in our properties across large-scale community services event Hong Kong and mainland China to safeguard the health of our customers and tenants Recognizing Our Employees CEO Award Emerald Award The Award aims to recognize outstanding In its 6th year, the Award continued to promote projects that demonstrate the four attributes of customer-centricity and the “Go the