Annual Report 2011 - Hysan Development Company Limited

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Our Marketplace and Our Response In 2011, uncertain global economic environment set the backdrop for the property leasing market in Hong Kong. Our three leasing segments responded successfully to such market changes. Hong Kong Economy The Hong Kong economy recorded a moderate GDP growth of 5% in 2011. The growth moderation was mainly caused by a slowdown in exports since the second quarter of 2011 amid a worsening global economic environment. Domestic consumption nevertheless displayed remarkable resilience throughout the year, thereby rendering a strong cushion to overall economic performance. Total employment in Hong Kong rose to 3.7 million as of December 2011, while the unemployment rate fell to 3.3%. Inflation rate was 5.3% in 2011. The Hong Kong economy recorded a moderate GDP growth in 2011 Office The Grade “A” office market started strongly with buoyant demand in the first half of 2011. However, concerns over the growing global economic uncertainties led to slowing new demand and expansion activities since mid-year. New Grade “A” office supply* totalled 1.6 million square feet in 2011. The majority of space was located in decentralised areas. Such a new supply level was considerably lower than that in 2008 (3.7 million square feet), which then coincided with reduced demand amidst the global financial crisis. Overall net take-up* in Hong Kong amounted to 2.0 million square feet in the year. Decentralised Kowloon East recorded a significant netabsorption. Among the core districts (Central, Causeway Bay/ Wanchai and Tsim Sha Tsui), Causeway Bay/Wanchai was the largest contributor with a positive net take-up of around 160,000 square feet. Despite a slowdown in new demand and expansion activities, the market saw considerable demand from companies seeking cost-saving relocation opportunities – especially those from Central – to more affordable options in other submarkets as mentioned above. At the end of December 2011, the overall vacancy rate in Causeway Bay/Wanchai fell to 1.9%. The graph on the right shows the vacancy rate of Grade “A” office in Central, Causeway Bay/Wanchai, Tsim Sha Tsui and Kowloon East for both 2010 and 2011. All Grade “A” office sub-markets witnessed double-digit rental growth in 2011. Recording an annual rental growth of 20.2%, Causeway Bay/Wanchai outperformed the other two core districts, namely Central (10.2%) and Tsim Sha Tsui (19.2%). During the last quarter, Central rental levels fell by 4.5%. Rents in Causeway Bay/Wanchai fell by 1.1%, while those of Tsim Sha Tsui grew by 2.4%. It should be noted that the rental gap between Causeway Bay/Wanchai and Central remained wide during the year (see the graph on the right). Hysan’s office portfolio maintains a balanced tenant mix * The new supply and net take-up figures in 2011 exclude Hong Kong Government Headquarters in Admiralty. Source: Jones Lang LaSalle (data as of March 2012) 24 Hysan Annual Report 2011
6% 4% Real Gross Domestic Product* Year-on-Year % Change 8% 6.4% 1,629 1,667 7.0% 1,737 1,823 5.0% Year-on-Year % Change 1,623 8% 2% 2.3% 1,823 7.0% 6% 6.4% 0% 07 08 09 10 11 1,667 1,737 5.0% 4% 1,629 -2% -2.6% 1,623 2% -4% 0% 15% -2% 10% -4% 5% 15% 0% 10% 5% Grade “A” Office Vacancy Rate 3.0% 3.6% Central Grade “A” Office Rental Value 0% HK$ per Square Central Foot 120 110 100 90 80 HK$ 70 per Square Foot 120 60 110 50 100 40 90 30 Real Gross Domestic Product* 3.0% 2.3% 07 08 09 10 11 3.6% -2.6% Grade “A” Office Vacancy Rate 10.8% 9.0% 4.1% 3.0% 2.9% 1.9% Causeway Bay/ Wanchai 3.0% 1.9% Tsim Sha Tsui 4.1% 2.9% 10.8% Kowloon East 9.0% 2010 2011 Causeway Bay/ Wanchai Grade “A” Office Rental Value Tsim Sha Tsui 80 20 70Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 60 50 40 07 08 09 10 11 Central Causeway Bay/Wanchai 30 Source: Jones Lang LaSalle (data as of March 2012) Kowloon East 07 08 09 10 11 Central Causeway Bay/Wanchai Source: Jones Lang LaSalle (data as of March 2012) 2010 2011 HK$ billion 1,900 1,800 1,700 1,600 HK$ billion 1,900 1,500 20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1,800 1,400 1,700 1,300 1,600 1,200 1,500 1,400 1,300 1,200 Year-on-Year % Change Gross Domestic Product * In chained (2009) dollars Source: Census and Statistics Department (data as of March 2012) Year-on-Year % Change Gross Domestic Product * In chained (2009) dollars Source: Census and Statistics Department (data as of March 2012) Hysan’s Response We concluded negotiations of a vast majority of 2011 expiring leases during the first half of the year, capitalising on the buoyant market environment. We achieved positive rental reversion as a whole, also supported by our strengthened marketing activities. The rental level of The Lee Gardens climbed above the peak of 2008, setting the rental tone for the pre-leasing of Hysan Place. We maintained a balanced tenant mix with no undue dependence on any particular industry segment. With tight supply of quality office space in core locations, our office portfolio in Causeway Bay, offering good cost advantage versus other core areas, remains attractive to tenants. See Review of Operations on Office Sector on pages 32-33 for more details. Overview Strategy in Action Corporate Governance Financial Statements and Valuation Hysan Annual Report 2011 25
Page 1 and 2: A BETTER FUTURE TODAY Annual Report
Page 3 and 4: A BETTER FUTURE TODAY 2011 was a pr
Page 6: Asset enhancements: Lee Theatre are
Page 10: Hysan Place at the northern gateway
Page 14: An energetic and unique district in
Page 17 and 18: Overview 16 18 20 Who We Are 16 16
Page 19 and 20: OUR VALUES We foster the highest bu
Page 21 and 22: NON-FINANCIAL PERFORMANCE 789 700 4
Page 23 and 24: Further Transformation of Hysan’s
Page 25: 24 28 30 45 48 Our Marketplace and
Page 29 and 30: Index 140 130 120 110 100 90 80 Q1
Page 31 and 32: THE LEE GARDENS 33 Hysan Avenue, Ca
Page 33 and 34: Recurring Underlying Profit, arrive
Page 35 and 36: Overview Our office has a balanced
Page 37 and 38: Overview Residential Sector Our res
Page 39 and 40: Financial Review A review of the Gr
Page 41 and 42: Cash Flows Cash flow of the Group d
Page 43 and 44: How are they measured Interest expe
Page 45 and 46: The following graph shows the perce
Page 47 and 48: Internal Controls and Risk Manageme
Page 49 and 50: Our Approach to Risk Management We
Page 51 and 52: Talent Management Our people manage
Page 53 and 54: 52 56 73 81 89 Board of Directors a
Page 55 and 56: Non-executive Deputy Chairman (S) S
Page 57 and 58: Overview Senior management team (fr
Page 59 and 60: Exceeded Code Provisions ✓ ✓
Page 61 and 62: Governance Framework The Group oper
Page 63 and 64: Board and Management At the core of
Page 65 and 66: Board Effectiveness Skills and Bala
Page 67 and 68: Independent Advice The Board recogn
Page 69 and 70: Audit Committee Composition and Mee
Page 71 and 72: Shareholders The Board and manageme
Page 73 and 74: Shareholder Rights Self-funded Prog
Page 75 and 76: Directors’ Report The Directors s
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THE BOARD continued According to Ar
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CONTINUING CONNECTED TRANSACTIONS c
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CONTINUING CONNECTED TRANSACTIONS c
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Directors’ Remuneration and Inter
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DIRECTOR COMPENSATION continued Lon
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DIRECTOR COMPENSATION continued Lon
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DIRECTORS’ INTERESTS IN SHARES As
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Audit Committee Report The Audit Co
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Overview 4 Financial Statements and
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Independent Auditor’s Report Over
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Consolidated Statement of Comprehen
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Statement of Financial Position At
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Attributable to owners of the Compa
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2011 2010 Note HK$ million HK$ mill
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4. Investment Properties Investment
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7. FINANCIAL INSTRUMENTS continued
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13. TAXATION continued Deferred tax
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2. APPLICATION OF NEW AND REVISED H
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5. SEGMENT INFORMATION continued Se
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6. INVESTMENT INCOME Investment inc
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9. TAXATION continued The taxation
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12. DIRECTORS’ EMOLUMENTS continu
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12. DIRECTORS’ EMOLUMENTS continu
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15. EARNINGS PER SHARE (a) Basic an
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17. PROPERTY, PLANT AND EQUIPMENT L
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18. Investments in Subsidiaries Inv
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19. Investments in Associates conti
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22. Equity Investments/Available-fo
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23. Other Financial Assets/Liabilit
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27. TIME DEPOSITS/CASH AND BANK BAL
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30. BORROWINGS continued (c) Fixed
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32. SHARE CAPITAL Number of shares
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36. CONTINGENT LIABILITIES At the e
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39. RELATED PARTY TRANSACTIONS AND
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40. SHARE-BASED PAYMENT TRANSACTION
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1. Financial Risk Management Object
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3. FAIR VALUE continued The followi
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4. CAPITAL RISK MANAGEMENT The Grou
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At 31 December As restated As resta
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Schedule of Principal Properties At
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Shareholding Analysis Share Capital
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It is not just our quality assets t
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Annual Report 2011 - Hysan Development Company Limited

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