Company update: Fallout from COVID resurgence
- Committed occupancy in Central office portfolio remained largely stable despite the fifth wave of the pandemic
- Retail portfolio suffered from lower tenants’ sales and foot traffic with temporary rental relief granted to affected tenants
- COVID resurgence has impacted sales and completions in China
In Hong Kong, office leasing activity slowed upon the onset of the fifth wave of the pandemic but is showing signs of recovery after social distancing measures were gradually relaxed in Apr-22. Physical vacancy of its Central office portfolio was 5.6% in Mar-22. (Dec-21: 5.2%). On a committed basis, the vacancy was 5%, up slightly from Dec-21’s 4.9%. According to Jones Lang LaSalle, office rents in Central improved slightly by 0.7% in 1Q22. However, rental reversion remained negative in the same period.
The retail portfolio has suffered from lower tenants’ sales and foot traffic led by the COVID resurgence. Temporary rent relief was therefore granted to affected tenants in 1H22. This will drag retail rental income in the period.
Singapore office portfolio fared better amid improving leasing sentiment, partly due to the gradual easing of travel restrictions. Positive reversionary growth continued. Physical vacancy improved to 5.6% in Mar-22 from Dec-21’s 6.5%. The committed occupancy stood at 3.1%. (Dec-21: 2.9%)
On the property development front, Hongkong Land’s attributable interest in contracted sales from China almost halved to US$213m amid cautious market sentiment.
In Singapore, the launch of 407-unit Piccadilly Grand project was well received while pre-sales of the 638-unit Leedon Green project was in line with expectations. Overall, Hongkong Land achieved attributable contracted sales of US$45m in 1Q22. In Feb-22, Hongkong Land acquired a 49% stake in a residential site in Tanjong Katong area which will provide 640 units with a developable area of 0.59msf.
The recent COVID resurgence in China has partially impacted the sales and construction of some projects. This should in turn weigh on the company’s underlying profit for FY22 which is expected to be lower y-o-y.
Net debt rose to US$5.5bn in Mar-22 from Dec-22’s US$5.1bn, mainly due to scheduled payment of land premium for development projects acquired earlier. This translated into gearing of 16% which is comfortable.
YTD, Hongkong Land has repurchased c.36m shares, bringing the cumulative shares bought back to c.73m. We estimate the company has spent c.75% of what it earmarked for the share buyback program.
We have BUY rating on Hongkong Land with US$6.61 TP.