They were boosted by higher rental income and development profits from China.
Hongkong Land’s 2017 profits rose 14% YoY to $1.28b (US$970m), thanks to significantly higher development profits from China and increased rental earnings. Its final dividend rose 8% to 18 cents (14 US cents), taking the full-year amount to 26 cents (20 US cents).
DBS Equity Research analyst Jeff Yau noted that gross rental receipts rose modestly by 6% to $1.2b (US$912m). “This reflects the mainly positive rental reversion for its Central office portfolio which resulted in average office rents rising 5% to $18.16 (HK$108) psf in 2017. Vacancy for Central office portfolio improved further to 1.4% on December 17 from June 2017’s 1.5%.”
Moreover, its retail portfolio remained effectively fully let with base rental reversions largely neutral. However, average retail rents were 3% YoY higher at $37.66 (HK$224) psf in 2017 due to the full year effect of positive reversions in 2016.
Yau noted that office rents in Central grew 6% in 2017 after rising 10% in 2016. “Demand from Chinese enterprises shows no sign of abating. Coupled with tight vacancy and limited new supply, office reversionary growth should remain favourable when 31% of the leases will be up for renewal or rent review in 2018,” he added.
CIMB analyst Siu Fung Lung noted that Central office portfolio will continue to benefit from strong mainland demand and limited supply in the medium term. “The retail recovery in Hong Kong, especially in the luxury segment, is expected to continue in 2018.”
Meanwhile, the vacancy of Hongkong Land’s Singapore portfolio remained low at 0.3% in December 2017 but negative reversionary growth dragged average rents in 2017. However, the latest deals suggest that the rental reversion is turning positive.
Development profits in China, primarily from Chongqing and Shanghai, were substantially higher in FY17 due to higher project completion, offsetting lower contributions from Singapore.
DBS Equity Research said that due to few launches in H2 2017, Hongkong Land’s contracted sales was only marginally higher at $1.47b (US$1.11b) in 2017, which came mainly from projects in Chongqing. Net order book stood at $1.14b (US$1.03b), of which 85% is expected to be recognized in 2018.
Meanwhile, in Singapore, near-term development earnings visibility is high as Sol Acres and Lake Grande, scheduled for completion in 2018 and 2019 respectively, were 96% and 98% pre-sold at the end of 2017.
Yau added that Hongkong Land is in acquisition mode. “In 2017, Hongkong Land made forays into three second-tier cities in China, including Wuhan, Nanjing and Hangzhou and acquired two new sites in Chongqing. In January 2018, the company secured an additional site in Nanjing. Elsewhere, Hongkong Land acquired one residential site in each of Indonesia, Singapore and Bangkok, and conditionally entered into a joint venture to develop two residential projects in Ho Chi Minh City. Total investment for these projects reached (US$4.2b) of which around 52% is in China.”
Lung added that the five sites in Nanjing, Wuhan, Hangzhou, and Chongqing, have a total gross floor area of 0.9m sqm. “We estimate that total development cost could exceed $6.24b (RMB30b).”
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