Remarks by Mr Keith Kerr, Managing Director of Swire Properties, at Cambridge House Topping Out Ceremony on 16 September 2002

Comments on the HOS

• I think it's true to say that all the developers have felt for some while that the market has changed to the point where really there's not a particular purpose to the HOS anymore, when private sector production is still at the high level and being the prices that the people originally intended for Home Ownership flats can afford from the private market. So we certainly encourage the government's steps to introduce a new subsidised loan programme, we think that helps clear the picture a bit. And quite frankly, we would prefer to see Home Ownership gradually phase out or even stop earlier because there's just no purpose for it anymore.
• Speaking for myself, I would prefer to see the surplus inventory put in the rental pool, either for the tenants that can afford a higher rent or basically just to shorten the waiting time, we think that's the most practical answer.

On recent price war in residential market

• Obviously we all know there's quite a large supply of private sector residential units and public sector ones, and that has led to some competition on private area. I have to say that the fundamental problem is deflation in the economy. At the end of the day property prices will be supported by what the economy can afford and we haven't yet quite found equilibrium between what the economy is prepared to pay and where the market is. But we are coming closer to that with the fall that we have seen. For our part, we are not looking to cut prices, we are basically maintaining price level of our developments.

On office market outlook

• The market is characterised by flatness at the moment. Lack of activities. We have seen equilibrium for the last two or three years but there's no doubt being some weakness in the market this year, really absences of new demand and we are dealing with deflation of course in the economy. So I think the outlook going forward one has to be rather cautious, we have said that to many people, public, investors and so forth.
• Having said that, we are still, for example, Island East, it's about 91% occupied, so we are quite happy with the situation. Anyway we would like to see pick up in activity and that's needed to help the buildings that are now under construction going forward. I think we view the market going ahead with a bit of caution in summary.
• It's hard to give a figure on the downside. There has been downward movement in rent, there's a weakness in the rental market. We do feel with this building with the smaller floor plate, it's a rather unusual building in this location, so we hope it would attract new tenants. But I think we can't get away from the fact that overall the market is a little weak and would remain so until the economy itself starts to pick up.

Is it true that there's more downward pressure on office rents in the Central district?

• I think it's true there's more pressure in Central because that market is more dependent on financial services, whereas in this district we have a broader range of tenants. Obviously some are in financial services but some are in professional fields, consultancies, advertising and so forth. And we have a lower rent base here to begin with so the pressure to cut cost is a little bit less if you start with a lower rent but there's no doubt there's some pressure in Central, obvious caused by contraction in financial services, and new buildings that are coming along so it's true that there has been so far this year greater pressure in Central district.
• As a result, the relationship between the rent in Pacific Place and here which normally is a two to one ratio is actually a little bit less that, as a proportion the rent here is a little bit higher than 50% of that of Pacific Place.

On retail occupancy

• All our retail centres are 100% full

On office occupancy

• The offices are approximately 90%. It's slightly higher here (in Island East) at slightly above 90%, and slightly below (90%) in Pacific Place.

Pre-letting and Marketing for Cambridge House

• We are starting the formal marketing today. We do that for a reason. We tend to be very active normally in pre-letting space but then most of our buildings have very large floor plates, so we are very much proactive in talking to the larger space users early on. This building, as I said, has a floor plate of a bit under 7,000 sq ft. And the sort of occupants to take this space aren't usually planning so far ahead especially, I have to say, in this environment.
• We will be looking at rent of approximately $20 psf per month. That level applies to most of our grade A office buildings. Obviously when you are on an upper floor like this (33rd floor) with the sort of view you can see today, we would expect a better rent, and the lower floor is probably slightly lower, but it's within that general range. That would be the asking rent and there might be some incentives with that, but hopefully not too many, given the floor plate we are talking about.
• This building has a fairly small floor plate, as you can see, and generally the sort of tenants we would hope to attract to this building are smaller, medium size businesses and so the need for incentives, we believe, is not as great, because it's sort of tailored to fit their requirements. But I am afraid I won't be disclosing any commercial details.
• We have not signed up any tenants yet. We are just starting the marketing officially today. We will be starting talking to a number of prospective tenants from now on, but there's no pre-commitment at the moment.

Is SPL moving more resources to development in Mainland China?

• I don't want to say we want to move more resources, but we have committed to a substantial project in Guangzhou. As you may know we have been very cautious about investing in real estate in China.
• We have a modest interest in a project with Citic in Shanghai. But we have recently, as of the end of April, signed a joint venture contract for a substantial project called Taikoo Hui in the Tianhe district of Guangzhou. That project is over 4 million sq ft in total. The commercial elements (retail, office and hotel components) are approximately 3 million sq ft, which is about two-third of Pacific Place. In addition to that, there is a large library, a performing arts centre and the headquarters of our partner, the Guangzhou Daily News. When you put all that together, it's over 4 million sq ft.
• It will take some while for us to get that project underway, so that we can learn a little bit more about developments in Guangzhou in particular and China in general. I think we will stay very much focus on Guangzhou and in particular that project for the time being.
• We hope to break ground but it will be more toward the end of the year and really during the first half of next year. That's our plan at the moment.

Redevelopment of the Mariner's Club

• That at the moment is tied up with a planning objection so until that's resolved we won't be moving forward with it, but of course we do hope that would be resolved soon and we would be able to move ahead with it. It would probably be a residential building.

Is SPL interested in the site at 633 King's Road?

• It's next to a property we already owned. I am sure we will look at the sale particulars but I don't think I can say much about the level of our interest at the moment.