MTR to enlarge its retail portfolio by 40 pc over the next five years to bolster rental income
MTR Corp plans to enlarge its retail portfolio by 40 per cent over the next five years to help broaden its earnings base and soften the shock from a potential slowdown in the real estate sector, according to a company official.
The railway operator, which also has a successful property business, plans to increase its retail leasing portfolio to 3.6 million square feet by 2020.
This includes increased floor space that will come online following the completion of shopping malls in Tai Wai Station and Lohas Park Station, comprising 1.29 million sq ft.
The two new malls still require 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. It will prevent volatile earnings as property development profit is affected by the market’s swings,” David Tang Chi-fai, propery director at MTR told the South China Morning Post.
Meanwhile, maintenance costs for the city’s railway network are on the rise.
“It is similar to a human being whose medical expenses will increase when getting old,” he said.
The MTR reported 2016 underlying profit, excluding revaluation gain on investment properties, fell 13.3 per cent to HK$9.44 billion mainly due to lower returns from property development.
Profit from Hong Kong property development plunged 89 per cent on year to HK$311 million. In 2015, property income totalled HK$2.89 billion mainly related to sales of the Hemera residential development in Tseung Kwan O.
Tang said the MTR structured its building tenders to enable it to buy back the retail portion of the developments at Tai Wai and Lohas Park, an option that was amenable to developers more focused on the residential portion of the projects.
The MTR agreed in 2014 to pay New World Development HK$7.5 billion for the 650,000 sq ft shopping mall in Tai Wai Station and in 2015 to pay Wheelock & Co HK$4.98 billion for the 500,000 sq ft retail property phase seven of Lohas Park Station..
Tang said the MTR would spend an additional HK$1 billion on interior work for each of the two malls.
“While developers are responsible to build the exterior structure, we are responsible for the interior fitting, design, and petitioning of shops which will incur additional cost,” he said.
The MTR will develop on its own a 130,244 sq ft retail property by converting a portion of Tsing Yi Lorry Park into an extension of an existing mall. The project, which adjoins Maritime Square, atop Tsing Yi Station, will be completed before Christmas.
“More than 90 per cent of the spaces have been leased,” Tang said.
The Maritime Square mall extension, costing HK$2.4 billion, will also provide more convenience to local residents.
The Maritime Square extension has secured UA Cinema as its anchor tenant. Some shops with areas ranging from 200 sq ft to 800 sq ft, and 10,000 to 3,000 sq ft will be dedicated for food and beverage retailers.
The extension of Maritime Square will have fast food chains to cater for fast shoppers,Tang said.
“After the conversion, residents can enjoy a green rooftop and access to the main Maritime Square directly along a covered walkway. The project reflects our strength in seamlessly integrating transportation and property,” he said.
In C Suite, Tang speaks about tells the company’s future plans to increase land supply and the challenges it faces