Home sales lift Hongkong Land profit
Rare gains from residential projects offset low rents to help deliver first-half rise
A rare residential development profit helped Hongkong Land Holdings turn in a 24 per cent rise in underlying earnings to US$104 million for the first half of this year.
The group's first residential profit in 20 years saw it make US$14 million from sales of the Central Park 570-unit phase one project in Beijing and eight Stanley Court houses in Hong Kong.
Chief executive Nicholas Sallnow-Smith said the residential development contribution outweighed the 6 per cent fall in property rental income, which totalled US$144.6 million.
The result was also helped by an US$8.3 million decrease in net finance charges to $24.8 million due lower interest rates. An interim dividend of two US cents a share will be paid.
The underlying profit, excluding property revaluations, beat analysts' expectations. Taking into account revaluations, Hongkong Land posted a first-half profit of US$783 million, compared with a $773 million loss for the first half of last year. The value of the group's investment properties increased by $810.1 million to $6.32 billion during the six months, compared with a $951.8 million decrease previously.
Group chairman Simon Keswick said positive global economic prospects meant rents in Hong Kong should continue to firm, lifting values of its investment property portfolio.
'The rental reversion pattern in the office sector, however, is expected to remain negative for some time to come, delaying the impact of the market recovery on earnings,' he said.
Mr Sallnow-Smith said despite a recovery in office rentals since last year, rents were still below those of three years ago and downward pressure was continuing as leases came up for renewal.
He expected office rentals to continue to improve as supply in Central was limited, saying vacancy in the group's Central portfolio fell to 6.2 per cent.
In the first half, Hongkong Land signed up 33 office tenants and leases struck with its buildings represented 46 per cent of all deals done in Central, he said. Its retail property portfolio continued to perform well.
Residential development sales are expected to remain a contributor to the group's profit in coming years.
Mr Sallnow-Smith said the group would book profits from its Ivy on Belcher's in Western in its second half result while it had five more Stanley Court houses to sell.
The profit from Central Park's 370-unit phase two development, which was sold out except for a penthouse, would be included in next year's result, he said.
The group would negotiate with the Lands Department about the land premium payable for a small residential redevelopment in Western and its proposed Lai Sing Court luxury project in Tai Hang was going through the Lands Tribunal.
Mr Sallnow-Smith said Hongkong Land would remain a niche player in residential development.