Result first take: modest profit growth on higher rentals from China
- Underlying profit grew 4% to HK$4.37bn, 3% below our estimate.
- Higher rental income from China led the earnings growth
- Plans to launch Heartland Residences in Wuhan for pre-sale in 1H22
Hang Lung Properties’ underlying profit for FY21 rose 4% to HK$4.37bn, 3% below our estimate, because of higher-than-estimated administrative expenses and tax charges
This was fueled by higher rental earnings, partly offset by increased interest expenses.
Final DPS rose 1.7% to HK$0.60. This brought the full-year DPS to HK$0.78, representing 2.6% y-o-y growth.
Gross rental income grew 16% to HK$10.3bn on higher contributions from its China rental portfolio.
China rental income rose 31% (or 23% in Rmb terms) Excluding income from Wuhan Heartland 66, China rental income would have risen 19%, mainly due to increased retail turnover rents and higher office occupancy.
Due to higher comparison base, the overall tenants’ sales growth of luxury malls moderated to 21% in 2H21 from 1H21’s >100%.
With the opening of more luxury brands, occupancy rate of Dalian Olympia 66 improved to 87% in Dec-21 from Jun-21’s 82% with tenants’ sales growth accelerated to 89% from 1H21’s 80%.
Backed by higher turnover rents and positive reversionary growth, income from luxury mall rose 30% in Rmb terms. Spring City 66 and Center 66 are two best performing luxury malls with respective revenue growth of 47% and 40%. Of particular note, after transforming into a luxury-led mall, Olympia 66 mall recorded 45% h-o-h income growth in 2H21
On the other hand, sub-luxury malls posted 2% income growth with tenants’ sales rising 11-28%. The company has commenced the three-year asset enhancement program at Jinan Parc 66 to lift its positioning and enrich its luxury content.
Office income from China grew 16% in Rmb terms aided by the first full-year contributions from Wuhan Heartland 66 where occupancy reached 57% in Dec-21. (Jun-21: 34%) Improved occupancy at Wuxi Center 66 and Kunming Spring City 66 also contributed to higher office revenue from China.
Its Hong Kong rental portfolio, however, recorded 7% income decline to HK$3.38bn. Negative rental reversion continues to take its toll on retail income. The anchor tenant at Standard Chartered Building downsized in Oct-21, leading to the office income shortfall.
Hang Lung Properties offered The Aperture for pre-sale in Dec-21, with 123 units being sold for HK$1.08bn up to end-2021. This represented 42% of total.
Hang Lung Properties plans to launch the Heartland 66 Residences for pre-sale in 1H22, followed by Center Residences in late 22 and Grand Hyatt Residences Kunming in 1H23.
Net debt rose to HK$37.2bn in Dec-21 up slightly from Jun-21’s HK$36.9bn. This represented 26% of the company’s shareholders’ fund