Annual Report 2011 - Hysan Development Company Limited

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Management’s Discussion and Analysis Hysan Place The next milestone for Hysan will be the redevelopment project of Hysan Place at 500 Hennessy Road, comprising 15 levels of office space and 17 floors of retail outlets, totaling 710,000 square feet. Hysan Place will bring long-term strategic significance to the overall Hysan portfolio: • Hysan Place’s retail portion will significantly strengthen Hysan’s overall retail portfolio, in terms of both its size, which represents an increase of 50% by gross floor area, and its tenant mix, bringing many tenants which are new to Hong Kong. • Hysan Place will also be an important part of Hysan’s office cluster evolution, providing top quality space to strengthen our Grade “A” office positioning as the most natural extension of Central. Hysan Place will be the only triple A grade building to open on Hong Kong Island in 2012. Its sustainability design features are based on world-class building specifications and the building offers full harbour views from all office floors. • Hysan Place demonstrates Hysan’s commitment to find greener solutions for all our buildings and for Causeway Bay as a whole. The project is built to the highest international environmental and sustainability standards, having achieved pre-certification at the Platinum level for the United States Green Building Council’s Leadership in Energy and Environmental Design (USGBC LEED), as well as the Hong Kong Building Environmental Assessment Method (HK BEAM) standard. With its specially designed “Urban Windows” and roof gardens, Hysan Place is set to become a green landmark in the heart of thriving Causeway Bay. Construction of the building is making good progress. Leasing for the overall building proceeded well during the year, with over 90% of retail space leased by the end of February 2012. The shopping mall is expected to open in August 2012, to allow for better co-ordinated launch of retail outlets from August onwards. The arrangement should better ensure the long-term success of the mall. Our retail tenants will include international brands new to Hong Kong, catering to the needs of trendy shoppers. The entire project promises to bring additional shopping dynamics and an exciting new variety to the district of Causeway Bay. In terms of office leasing, following the commitment to one-third of the entire office space by an international accounting firm, the rest of the office space is under negotiation with prospective tenants. Leasing strategy will balance occupancy and strategic contribution towards further enhancing the tenant profile and hence attraction of our office portfolio. Hysan Place: express escalators in the building facilitate shopper circulation in the vertical mall 36 Hysan Annual Report 2011
Financial Review A review of the Group’s results and operations is covered in the preceding sections. This section deals with other financial matters. Overview Operating Costs The Group’s operating costs were generally classified as property expenses and administrative expenses. Property expenses were the costs directly associated with the day-to-day operations of our investment properties, being primarily related to front-line staff wages and benefits, utilities costs, repairs and maintenance, marketing expenses and agency fees, as well as cleaning expenses. In 2011, higher marketing expenses were incurred for capturing local and tourist spending, as well as for Hysan Place’s pre-leasing promotion activities. These were partly offset by a reduction in agency fees as occupancy and direct marketing further improved. As a result, property expenses rose 4.8% to HK$262 million (2010: HK$250 million). Coupled with the increase in turnover, the property expenses to turnover ratio improved slightly from 14.2% to 13.6% as compared to 2010. Administrative expenses were the costs indirectly associated with the day-to-day operations of our investment properties, largely representing the payroll costs and related expenses of management and head-office staff. In addition to costs for continuing human resources upskilling for Hysan’s existing property portfolio, additional payroll costs were incurred in 2011 for hiring new staff in relation to the upcoming Hysan Place. These factors resulted in administrative expenses increasing by 23.6% to HK$173 million (2010: HK$140 million). Finance Costs Finance costs, after capitalisation of HK$44 million (2010: HK$12 million) interest expenses and related borrowing costs as part of the construction costs of Hysan Place, were HK$122 million in 2011, up 4.3% from HK$117 million in 2010. If the capitalised interest expenses and related borrowing costs were included, the Group’s finance costs in 2011 would have been HK$166 million, an increase of HK$37 million or 28.7% as compared to last year (2010: HK$129 million). It was predominantly due to the increase in the Group’s gross borrowings. During the year, the Group issued notes of HK$554 million from the Medium Term Notes Programme and drew down bank loans of HK$2,350 million, mainly for preparing for the repayment of debts maturing in early 2012. The Group’s average finance costs in 2011 (defined as interest expenses divided by average gross debt for the year) were 2.7%, at a level similar to 2010. Further discussion of the Group’s treasury policy, including debt and interest rate management, is set out in the “Treasury Policy” section on pages 40 to 44. Strategy in Action Corporate Governance Financial Statements and Valuation Hysan Annual Report 2011 37
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 and 26: 24 28 30 45 48 Our Marketplace and
Page 27 and 28: 6% 4% Real Gross Domestic Product*
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: Overview Residential Sector Our res
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
Page 77 and 78: THE BOARD continued According to Ar
Page 79 and 80: CONTINUING CONNECTED TRANSACTIONS c
Page 81 and 82: CONTINUING CONNECTED TRANSACTIONS c
Page 83 and 84: Directors’ Remuneration and Inter
Page 85 and 86: 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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