www.hanglung.com 25 YEARS IN RETROSPECT HANG LUNG PROPERTIES PROPERTIES HANG LUNG 2 5 YEARS IN RETROSPECT K Foils T16 K Foils 1266 Blind Deboss HL25 Cover Design B Size: 223mm x 305mm 21.5mm CONTENTS Preface 2004-2005 2 83 Expansion Strategies: Sights Set on 4 Milestone Exponential Growth Opportunities 1990-1991 2005-2006 9 Stability in Diversity: A Strong and 93 Growth Blueprint: Scaling New Horizons Strengthening Portfolio 102 2006-2007 1991-1992 Shaping History: Monumental Decisions 13 Foresighted Policies: Bearing the for Landmark Projects Fruit of Expansion 112 2007-2008 1992-1993 Prudence Wins: Tenacious Policies 17 Discerning Decisions: Qualitative Approaches Demonstrate the Value of Patience to Portfolio Management 125 2008-2009 1993-1994 Outlive Outlast: Holding Steady during 23 Taming Zeal: Restraint as the Peak Emerges a Precipitous Fall 1994-1995 2009-2010 28 Market Correction: Stability in the Storm of 137 Jubilation: A Jubilee Year with Real Upheaval Reasons to Rejoice 1995-1996 2010-2011 33 Resilience: Emerging Stronger from the Storm 155 Stable Progress: Positive Trends Amidst Mixed Bag of Results 1996-1997 37 Robust Recovery: Getting in the Stride for 2011 Success 169 Position Strengthens: Competition Eases Favoring the Prudent 1997-1998 41 After the Calm: The Full Storm of Recession 2012 179 From the Trough: Sustaining Positive 1998-1999 Growth in Disquieting Times 45 Positives Amid Negatives: Persevering Through Painful Times 2013 187 Still Waters: Generating opportunities 1999-2000 for growth in a stagnant market 51 Constructing Opportunities: Extending Our Reach Expanding Our Horizons 2014 197 The Luster of Luxury: Hong Kong 2000-2001 Residential Units Peak 55 Gloom Lingers: Multi-pronged Pressures Depress Market 2015 208 From the Depths: Keeping Confidence 59 2001-2002 in Deepening Crisis New Depths: Market Sinks Further as Bear (Chairman’s letter from 2015 Hang Lung Group Refuses to Loosen Grip Limited Annual Report) 2002-2003 215 2015 69 SARS Strikes Final Blow to Bottom-out Market Diagnoses Abound: Yet Only One Correct Prognosis 2003-2004 77 Breaking Dawn: Positioned to Prosper Preface History is what makes us who encapsulate a vision for growth 25 Years in Retrospect is a we are today, its defining power that has propelled the Company to testament to the aspiration to build gives it an immeasurable value new heights. sustainably: not only the individual which, with retrospection, reveals landmark structures that make up the road traveled and points The letters in collection resonate the Hang Lung portfolio in Hong to the path ahead. This volume, with the Hang Lung business Kong and mainland China; but to 25 Years in Retrospect, presents philosophy – We Do It Right – and build a strong and sustainable the history of Hang Lung from the demonstrate with clarity and detail future for the Company and all succession of Ronnie C. Chan to the how our present success and future its stakeholders from our chairmanship, not through rose growth is contingent not on shareholders and employees, tinted glasses, but as it happened; external forces but on the correct to our customers and the with a collection of the Chairman’s interior disposition, and community at large. Letters to Shareholders that span discernment of how to understand, the period from 1990 to 2015. anticipate, and respond to the changing environment with a Each letter, penned personally by single-minded focus on delivering Ronnie, gives insight into the the best possible results to our workings of the mind that has shareholders. Shenyang helmed and steered the Company through storms and clear waters to where we are today. From Tianjin Dalian penetrative assessments of the state of the market and its future, to policy decisions, directions, and Jinan aspirations, these letters Wuxi Wuhan Shanghai Kunming Hong Kong Shenyang Tianjin Dalian Jinan Wuxi Wuhan Shanghai Kunming Hong Kong Milestone 1991 1992 1993 1999 • Ronnie C. Chan • Amoy Properties Limited • Opening of • Opening of took over the made its maiden investment The Peak Galleria The Grand Gateway chairmanship of in mainland China in Hong Kong in Shanghai Amoy Properties Limited and Hang • Acquired Standard Chartered Lung Development Bank Building, the current Company Limited headquarters of Hang Lung Properties Limited, in Hong Kong 1994 • Opening of Grand Centre in Hong Kong • Became a Hang Seng Index constituent stock 2005 2009 2010 2011 • Completion of • Land acquisition • Opening of Palace 66 • Opening of The Long Beach in Wuxi (to be in Shenyang Parc 66 in Hong Kong developed as in Jinan Center 66 – Phase 2) • Land acquisition in Kunming (to be developed as Spring City 66) • 50th Anniversary of Hang Lung Group Limited • The Grand Gateway renamed as Grand Gateway 66 4 2001 2002 2003 2004 • Opening of Plaza 66 in Shanghai • Completion of • Completion of • Completion of The Summit The HarbourSide Carmel-on-the-Hill in Hong Kong in Hong Kong in Hong Kong • Amoy Properties Limited renamed as Hang Lung Properties Limited • Completion of AquaMarine in Hong Kong • Hang Lung Development Company Limited renamed as Hang Lung Group Limited 2012 2013 2014 2015 • Opening of Forum 66 • Opening of • Opening of Riverside 66 • Opening of Olympia 66 in Shenyang Center 66 – in Tianjin in Dalian Phase 1 in Wuxi • Land acquisition in • New look of Wuhan (to be developed Fashion Walk unveiled as Heartland 66) 5 Our discerning approach to expansion is founded on a position of stability and healthy 1990 growth in our existing markets to pave the way for long-term returns. It is based on a fundamental belief in our astute management policies that view each property in our portfolio 1993 as an opportunity to add long-term value to our bottom line. Whilst improving yields in our existing portfolio with the remodeling of Food Street in Causeway Bay, this period also sees construction on Grand Centre and The Peak Galleria, and the foresighted acquisition of the Standard Chartered Bank Building in Central. But the most significant step forward for the Group was the landmark acquisition in the Xujiahui development in Shanghai, which market our providential entry into the Mainland market. 90 91 Stability in Diversity: A Strong and Strengthening Portfolio EXECUTIVE SUMMARY Long-term strategic planning has built a portfolio capable of driving growth in variable economic conditions, and diverse enough to make the most out of short-term shifts in market sentiment. Existing retail properties have leveraged on broad appeal and the ability to manage tenant mix with flexibility to maintain yields on an upward trajectory. Likewise, office leasing has seen growth based on the consistent choice of strategic locations. Work in progress, including landmark site, The Peak Galleria, advances our principles for tactical and well-planned construction with a finger on the pulse of the market. And for the future, continued foresight in strategic development will enable us to extend growth through an acquisitions program propelled by favorable economic fundamentals. 9 Chairman Ronnie C. Chan 25 YEARS IN RETROSPECT The various sectors of the investment property market fluctuations of other countries. Recession in the West performed differently in the period under review. Retail combined with an abundance of new supply of class-A space and offices, for example, were at very different offices has caused a lowering of rents. points in their respective market cycles. While the former sector to some extent slowed down due to On the other hand, as Hong Kong’s economic growth in moderating growth in consumption, it remained healthy the foreseeable future will be domestically led and as for the most part. The same, however, cannot be said of trade with China continues to improve, class-B space the office market, at least not for class-A properties. in convenient locations – the bulk of our office Supply/demand imbalance caused rental rates to fall as portfolio – has been spared from high vacancy rates. did capital value. This, however, means that our average unit size per tenancy is much smaller than those in, say, Central. Consequently, our properties are more management Versatile Retail Appeal Taps Shift in intensive. However, our staff are well trained and are Demographics committed to achieving optimal results. Furthermore, even within the same sector, differences The fact that our properties are all well located – exist due to location and target clients. For example, almost all of them are within minutes’ walk from subway while vacancy rates for offices on Hong Kong Island stations – also contributes to a higher yield and renders have been high compared to a few years ago, occupancy us more resilient to potential downturns in the market. levels in buildings in certain areas such as Mongkok have remained rather buoyant. The fact that they attract different kinds of tenants with different size Driving Growth from Firm Foundations requirements also contributed to the divergence. Looking ahead, we shall strive to maintain in our future purchases those advantages already outlined. The reason why your Company’s portfolio has one of the With a strong and steady cash flow and a low gearing, highest yields of all the major property investment the expansion of our portfolio will be constrained only by companies in Hong Kong is because: not only are we the availability of good acquisition targets. Given the heavily concentrated on retail space (about 66 per cent fact that one can generally buy good income-producing of rents received), but our shopping centers also cater properties with a yield of 8% to 9% and with the mainly to local customers. As a result, not only were we borrowing rate standing at around or below these levels, less affected by the fall in tourist arrivals, but we also we can afford to be more aggressive in our acquisition benefited from the rise in income of the local populace.