MTR Corp plans to bolster its retail portfolio by 40 per cent over the next five years to help broaden its earnings base.
The railway company’s move will help soften the shock from a potential slowdown in the real-estate sector, says an MTR official.
It plans to grow its retail leasing portfolio to 3.6 million sqft (334,450.9 sqm) by 2020, including 1.29 million sqft of floor space that will come online with the completion of shopping malls in the Lohas Park and Tai Wai stations. The two malls still need an extra HK$2 billion (US$257 million) for interior fittings on top of a HK$12.5 billion buy-back deal with developers.
“It is very important for us to achieve long-term stable income to prevent volatile earnings as property-development profit is affected by the market’s swings,” says MTR property director David Tang Chi-fai.
Meanwhile, maintenance costs are rising for the city’s railway network. “It is similar to a human being whose medical expenses will increase as they grow old,” he says.
Lower returns
MTR’s underlying profit last year, excluding revaluation gain on investment properties, fell 13.3 per cent to HK$9.44 billion, mainly because of lower returns from property development.
Hong Kong property development profit plunged 89 per cent to HK$311 million. Its property income of HK$2.89 billion for 2015 mainly related to sales of the Hemera residential development in Tseung Kwan O.
Tang says MTR has structured its building tenders to enable it to buy back the retail portion of the developments at Lohas Park and Tai Wai, an option that was amenable to developers more focussed on the residential side of the projects.
In 2014, MTR agreed to pay New World Development HK$7.5 billion for the 650,000 sqft mall in Tai Wai station, and in 2015 to pay Wheelock & Co HK$4.98 billion for the 500,000 sqft retail property at Lohas Park.
Tang says MTR will spend an extra HK$1 billion on interior work for each mall. “We are responsible for the interior fitting, design and partitioning of shops, which incurs extra cost.”
Independently, MTR plans to develop a 130,244 sqft retail property by converting part of Tsing Yi Lorry Park into an extension of an existing mall. Adjoining Maritime Square atop Tsing Yi station, the project will be completed before Christmas, with more than 90 per cent of the spaces already leased.
Costing HK$2.4 billion, the Maritime Square extension has secured UA Cinema as its anchor tenant. Shops with areas ranging from 200 to 3000 sqft will be dedicated to F&B retailers – “fast-food chains to cater for fast shoppers,” as Tang describes it.
“Residents will be able to enjoy a green rooftop and access to Maritime Square directly along a covered walkway. The project reflects our strength in seamlessly integrating transportation and property.”
