Annual Report 1999



From left:
David Yip
Doreen Lee
Canis Lee
K C Leung
Karen Tam
Yvonne Wong
Dave Siu



After generating a 2.9 per cent year-on-year GDP growth for 1999, the economy of Hong Kong continues to recover gradually with unemployment declining to 5.7 per cent in January 2000. Despite acceptance of further increases in interest rates in the first half of 2000, positive market sentiment, boosted by cyber developments, the Disney investment by the Hong Kong Government and ample liquidity in the banking sector should continue to underpin the recovery of the economy.

Property Investment

The Wharf Group has more than 30 years of experience in property management and has one of the strongest management teams in the market. Its proactive marketing approach has been instrumental in maintaining consistently high occupancy levels in both the retail and office portfolios. As befits its reputation of being the pioneer in the development of the one-stop-shopping product in Hong Kong, the team focuses on the active management of an optimal trade mix and lease structure that serve not only to draw potential from cross marketing but also add synergistic value to other Group's assets. The immediate testimony of the team's marketing effectiveness has been the success in achieving substantial leasing in an extremely difficult market. The Group has a total of 11.8 million square feet of property investment, represented primarily by Harbour City, Gateway II and Times Square.


Harbour City

With the recovery of the Hong Kong economy, the rental market has been improving visibly. Overall vacancy rates in Hong Kong have dropped significantly as the large supply since 1998 has largely been absorbed. New supply of Grade A office space will be very limited in the next several years. A recovery of office rental levels is expected to take place during the second half of 2000, and the success of the Group's investment property portfolio is expected to be enhanced by this improving market.

Harbour City, including the Gateway, maintained an office occupancy of about 91 per cent at the end of 1999. During 1999, an occupation permit for an additional 1.57 million square feet of office space at Gateway II was obtained. Following the commitment of CMG Asia Life Assurance, another major anchor tenant, Prudential Assurance Co Ltd also agreed to lease about 140,000 square feet of office space at Gateway II. Both tenants were given naming rights to their respective office towers. A number of anchor tenants whose tenancies will expire in 2000 have renewed their leases. At present, the office space in the first two towers of Gateway II is over 80 per cent let.

The third tower of Gateway II will be put to the market later this year to capitalise on the cyclical turnaround. By adding 2.7 million square feet to Harbour City, Gateway II reflects a 36 per cent growth for Wharf's core investment property portfolio. When optimum occupancy is achieved, this should bring total rental billings of Wharf to about HK$4.25 billion per annum.

Demand for luxury flats and serviced apartments is strong, particularly from US corporations keen to enter Hong Kong amidst expectations of the mainland's imminent entry into the World Trade Organisation. Of the 190 serviced apartments at Gateway II launched in the 4th quarter of 1999, over 150 units have already been let.

With a GDP growth of 2.9 per cent for 1999, an improvement in retail sales, particularly during the cold weather last December, and an increase in tourist arrivals, the retail market appears to be on the path of recovery.

Harbour City maintained a retail occupancy rate of about 92 per cent at the end of 1999. At present, the 400,000 square foot retail space at Gateway II is virtually fully let and quickly established its popularity and strengthened the Harbour City retail mall.

Louis Vuitton is expanding its store in Kowloon and opened a 14,000 square foot flag ship store at Ocean Centre in March 2000.

Times Square

With an expected drop in the overall supply of new office space in the next few years and vacancies being filled up gradually, any increase in demand will very likely drive up office rents. Among the tenancies due for reversion in 2000, about half of them have already been renewed.

An average office occupancy rate of about 92 per cent was maintained during the first half of 1999. Following the moving out of some office tenants upon expiry of their leases, the occupancy rate dropped to about 73 per cent at the end of 1999. Subsequent to the year under review, Disney is committed to taking up about 80,000 square feet of office space in February 2000 at a reasonable market rental. This demonstrates that Times Square remains a favoured location for leading corporates.

The retail podium of Times Square enjoyed a 100 per cent occupancy at the end of 1999 following a major renewal for most of the retail tenancies in the year. Less than 10 per cent of the retail tenancies are due for expiry in 2000. Given the popularity of the Times Square retail mall, a satisfactory occupancy can be maintained for 2000.

Plaza Hollywood

Plaza Hollywood has successfully established its image as a regional mall in the East Kowloon area. As a 560,000 square foot mall specifically built to provide a range of mid-priced merchandise and conveniently located above the MTR Diamond Hill station, Plaza Hollywood maintained an occupancy of about 99 per cent at the end of 1999.

About 22 per cent of the tenancies are due for renewal in 2000 and the Group has taken steps to review the quality of the trade mix and negotiate with the existing tenants for lease renewals.

Property Development

The Group has meaningful interests in a developable residential landbank in Hong Kong, comprising Peak properties, Serenade Cove, the amalgamated Waterloo Road site, Kowloon Godown and Galaxia. The Group also holds interests in a Sham Tseng site and Kowloon Station Package II through its associates.

Galaxia, Diamond Hill

This development has a site area of 280,510 square feet. Completed in July 1998, it provides a gross area of 1,226,354 square feet of residential accommodation.

Since the sales launch in January 1998, 1,646 units out of the total 1,684 units, ranging from 650 to 760 square feet, were sold at an average price of approximately HK$5,500 per square foot.

Former San Miguel Site, Sham Tseng

This 494,700 square foot site was acquired by private sale in 1994. Foundation works commenced in April 1999. Approval has been secured to increase the total development area from 2.5 million square feet to 2.8 million square feet and the number of residential units was increased from 2,756 to 3,354. Land premium negotiation with the Government was finalised in April 1999. Foundation works for the whole development and pile caps works for Towers 2 to 8 have been completed. Superstructure works for Phase I (Towers 6 and 7) commenced on December 6, 1999 and is expected to be completed in first quarter of 2003. Amendment General Building Plan of Enlarged CDA site was approved on February 10, 2000. Superstructure works for Phase 2 (Towers 8 and 9) commenced on February 11, 2000 and is expected to be completed by the third quarter of 2003.

Kowloon Station Package II, Kowloon

In October 1997, a consortium of five equal partners won the tender to develop a key residential site in the new MTR Kowloon Station. This development, which will be built in phases, will comprise over 2.3 million square feet of high quality residential accommodation commanding panoramic harbour view. The revised land premium was accepted in March 1999 which reflects a significant reduction from the original offer. Foundation works commenced in April 1999. Submission of superstructure plans is on schedule. Superstructure contracts will be awarded soon. Completion of this development is scheduled for the second quarter of 2003.

Peak Properties, Serenade Cove and Waterloo Road Site

On the Peak, the Company is currently redeveloping 3 sites, which will in total offer 179,000 square feet of high quality residences. Superstructure works at Mountain Court, Chelsea Court and Hillview/ Hillcrest are in progress. Redevelopment of Gough Hill Path is under study. Acquired in 1995 at a cost below market, the sale of Mountain Court and Chelsea Court should generate substantial income as and when they are launched for sale in mid 2000.

Under the non-consent scheme of old site redevelopment, Serenade Cove, comprising 792 units in sizes ranging from 500 to 900 square feet, has received a good market response with over 90 per cent of the launched units sold during the pre-sales in April 1999. Superstructure work of this 598,600 square foot Tsuen Wan residential development is underway. Completion is scheduled for the end of 2000.

Approval for the development of the Waterloo site into a residential property comprising 86 units was received. Negotiation on the land premium for combining two lots was finalised with Government in March 1999. Foundation works was completed and superstructure works is in progress. Preparations are underway for pre-sales targeted in the third quarter of 2000.

Kowloon Godown, Yau Tong Godown and Cable TV Tower South

Currently let as warehouse space, the Kowloon Godown achieved over 70 per cent occupancy in 1999. It is the Group's intention to redevelop the site. A Rezoning Request for CDA residential development of 2.3 million square feet under a joint venture with Kerry and Nan Fung was submitted in November 1999.

Acquired in mid-1995, the Yau Tong Godown is being leased as warehouse space. This 31,000 square foot site has been rezoned for "Uesidential (Group E)"which allows residential property to be built.

Demolition of Cable TV Tower South, an old godown building, was completed. Plans for redevelopment of the property into serviced apartment are under town planning study in response to the proposed West Rail project.

Delta House and Cable TV Tower

Acquired at a Government land auction in March 1994, the Shatin Town Lot 422 site was developed into Delta House, a 24-storey industrial/office building of 349,000 square feet. It was completed in February 1999. Official marketing launch of the project for lease commenced in November 1999.

Comprising a total gross floor area of 523,000 square feet, Cable TV Tower, has been leased primarily by Hong Kong Cable Television Limited, a 79.45 per cent-owned subsidiary of the Group.


The Mainland

Since the inception of our programmes on the Mainland, capital expenditure has been controlled, with over HK$3.7 billion being invested so far. In 1999, the Group made steady progress according to its investment schedules.


87.5 per cent owned by the Group, Beijing Capital Times Square is a retail and office development of up to 1.1 million square feet at a prime location on West Chang An Street, in Xidan District of Beijing. It is being developed by a joint venture company led by a wholly-owned subsidiary of the Group. The project has been completed with occupancy by tenants scheduled in April 2000 and leasing is in progress. In terms of the leasing floor area, about 60 per cent and 50 per cent of retail and office space have been committed respectively.


Shanghai Times Square is a retail, office and apartment development of up to 1.1 million square feet at a prime location on Huai Hai Zhong Road in central Puxi District of Shanghai. It is being developed under a joint venture agreement signed in June 1993. The project has been completed for scheduled opening in April 2000 and leasing is in progress. In terms of the leasing floor area, about 60 per cent and 40 per cent of retail and office space have been committed respectively.


The Glencaird Residences

Wharf International Limited acquired Glencaird, previously the Australian Embassy in Singapore, in a tender in October 1994. The acquisition of this 195,000 square foot site in Singapore's exclusive District 10, tendered on behalf of the Australian Government, was completed in July 1996. The Group is developing the site into 11 large luxury houses and construction will be completed in the first quarter of 2000.

The project has been well received by the market and nine bungalows have been sold at an average price of S$13.75 million with 93 per cent of progress payments received. The remaining three houses are now being offered for sale.



The financial turmoil which started in late 1997 enforced the curtailment of certain initiatives to secure more management contracts in the Asian region. The management has however been watchful over opportunities throughout this period, and will be able to tap opportunities as these may arise in the wake of the economic revival.

In Hong Kong, the Group operates three hotels: The Hongkong Hotel, The Marco Polo, Hong Kong and The Prince, Hong Kong. Marco Polo Hotels continues to operate, on a management contract basis without equity participation, hotels in Saigon (Ho Chi Minh City), Davao and Xiamen.

The economic recovery in Asia has caused an increase in tourist arrivals in Hong Kong.

According to the statistics from the Hong Kong Tourist Association, tourist arrivals for the period from January to December 1999 were 10.68 million, an increase of 11.5 per cent from the same period in 1998. The increase mainly came from the Mainland, South East Asia and Taiwan.

The performance of Marco Polo Hotels was helped by the regional economic recovery. Consolidated occupancy for the three Hong Kong hotels in 1999 was higher than last year at 84 per cent. Although average room rates continued to decline, a slightly higher operating profit than in the previous year was achieved due to effective cost saving measures. Efforts will continue to be made to maximise revenues and minimise operating costs.