Annual Report Review | Office buildings face challenges; Kerry Properties' Investment Properties segment strives to maintain stability

Business Client

Despite the ongoing weak market environment, Kerry Properties’ management team has continued to work hard to maintain the occupancy rates of its various properties.

Amid market volatility, Kerry Properties released its full-year 2025 performance figures.

According to the information, during the period, Kerry Properties’ revenue recorded a significant increase, with the group’s consolidated revenue reaching HK$25.02B, up 17% year over year.

The growth mainly came from the property sales segment, particularly the delivery of the popular projects in Hong Kong—Tefour, Seaview Hill, and The Zenith—leading to a 28% increase in revenue recognized from property sales to HK$17.67B.

In particular, during the year, driven by the strong pre-sales of the Shanghai Jinling Villa project, this single project generated sales of HK$23.61B. Full-year contracted sales of Kerry Properties surged 175% year over year to HK$34.68B.

However, the strong performance of the property development segment was offset by weak rental income from investment properties. In 2025, the investment properties segment was the segment within Kerry Properties’ businesses most affected by the macro environment and also the most challenging in terms of performance.

During the period, revenue for this business recorded a 3% decline to HK$5.19B.

Facing persistent challenges, Kerry Properties recorded a non-cash fair value loss attributable to investment properties of HK$1.07 billion, putting pressure on the group’s earnings. However, as impairment provisions for development properties decreased, this ultimately led to a 22% decline in Kerry Properties’ underlying profit to HK$2.01B, while profit attributable to shareholders rose 16% year over year to HK$938 million.

In addition, the hotel operations segment performed steadily. Revenue was HK$2.15B, down slightly by 2% year over year, mainly dragged down by a decrease in catering revenue. With gross margin remaining stable, segment performance recorded HK$708 million.

Overall, 2025 was a year of structural divergence for Kerry Properties. The property development segment delivered strong growth in sales revenue by leveraging key projects in mainland China and Hong Kong, significantly improving the group’s cash flow. “The market response to Shanghai Jinling Villa has been very encouraging for us, and this project also brought the group a quite substantial amount of cash flow,” management said.

Kerry Properties also took this opportunity to focus much of its efforts on improving the group’s liability position. According to the information, during the year, its financing interest rate fell from 4.6% to 3.8%, and total financing costs decreased 17% year over year to HK$2.22 billion.

As of the end of the period, the company’s cash and bank deposits increased from HK$11.2 billion at the end of 2024 to HK$16.1 billion. Unutilized total bank loan facilities increased from HK$26.9 billion to HK$31.1 billion. Available financial resources can cover approximately 85% of the total borrowing amount.

By comparison, Kerry Properties’ total borrowings decreased from HK$59.6 billion to HK$55.8 billion, and net borrowings decreased from HK$48.4 billion to HK$39.7 billion.

With a stronger cash position, Kerry Properties’ gearing ratio decreased from 41.5% to 33.3%. Management’s target is to further reduce the gearing ratio to below 30% by the end of 2026.

However, as the investment properties segment—which serves as a long-term “stabilizer” for the group—especially the office building business, it remains the biggest source of uncertainty for current and future performance. This business is facing severe market challenges, with rental income declining.

In Kerry Properties’ heavy-exposure mainland market, as the Hangzhou Kerry Centre, Phase 2 of the Tianjin Kerry Centre, and Phase 3 of the Shenzhen Qianhai Kerry Centre were completed, the gross floor area of its investment property portfolio increased from 10.84M sq ft to 13.33M sq ft.

An increase in investment property area typically means higher recurring income, but it should be noted that the investment properties owned by Kerry Properties are “office buildings” led. Office buildings account for more than 50% of the total gross floor area of total investment properties. Under the current market conditions, this is instead a certain drag on growth in performance.

For the full year 2025, Kerry Properties’ mainland investment properties contributed consolidated rental income of HK$1.36B, down 1% year over year.

By segment, retail was the only segment with positive growth. Consolidated rental income rose 2% year over year to HK$2.19B; consolidated rental income for apartments was HK$351 million, down 3% year over year; and consolidated rental income for office buildings also declined 3%, to HK$7.57M.

Although the market remains weak, Kerry Properties’ management team has still worked hard to maintain the occupancy rates of its properties. On the other hand, the reason is that the locations of the properties under Kerry Properties are very good, all situated in the prime locations of their respective cities. For example, the Kerry Centre in Jing’an, Shanghai, is located over the North Nanjing Road business district and the Jing’an Temple subway station.

“Currently, in terms of office leasing, overall, only leasing conditions for landmark buildings in core areas have improved to some extent. Office buildings in other areas continue to face significant market challenges,” management said.

As of the end of the period, Kerry Properties’ overall occupancy rate for offices in mainland China was maintained at 90%. The retail and apartment segments recorded increases of varying degrees, with both ending the period at 92%.

Key properties such as the Kerry Centre in Jing’an, Shanghai (95%), Kerry City in Pudong, Shanghai (96%), Hangzhou Kerry Centre (92%), Beijing Kerry Centre (87%), Kerry Plaza in Shenzhen (92%), Phase 1 and Phase 2 of the Kerry Centre in Qianhai, Shenzhen (89%) and others all managed to maintain occupancy rates at high levels.

Looking ahead, given the relatively proactive investment strategy maintained in the past, Kerry Properties still has a large number of investment properties scheduled to be completed and put into use over the next few years.

According to disclosures, in the coming years, Kerry Properties will add approximately 4.43M sq ft of gross floor area to its investment property portfolio through mixed-use projects in Shanghai (Pudong and Huangpu), Wuhan, Shenyang, and other locations. Office buildings will remain the主導, with total gross floor area of 4.428 million sq ft, while retail area will be 2.91M sq ft.

Among them, both Shanghai and Wuhan are cities that have had substantial office building supply in recent years. The continued completion of these properties may bring some hidden concerns about leasing for Kerry Properties.

However, management is also correspondingly psychologically prepared. They have continued to renew leases with blue-chip and red-chip tenants to counter downside pressure from the market and to ensure long-term stable recurring income.

Accordingly, Kerry Properties has also, to a certain extent, slowed down the completion schedule of subsequent projects.

For example, the expected completion timeline of the Shanghai Huangpu Jinling Road mixed-use development project has been changed. It was originally expected to start from 2027 (phased starting from 2027 from 2024’s expectation of 2027), and the latest expected timeline is now phased starting from 2029. For the second phase of the Wuhan mixed-use development project (Wuhan Kerry Centre), its expected completion timeline was also changed from a phased start from 2030 (previously expected from 2024) to the latest phased start from 2031.

According to the information, both of these projects have a large amount of office building formats, involving total gross floor area of 3.52M sq ft.

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