Hongkong Land Holdings says the city's surging rents may not give earnings a significant boost this year, as the leases it signed during the market slump in 2003 will still drag on rental income growth.
The statement from Central's biggest landlord followed yesterday's posting of a marginal growth in first-half earnings.
'With a falling supply, lowering vacancy in most of the good buildings in Central and firm demand, rents are likely to go up in the second half,' said chief executive Nicholas Sallnow-Smith. 'It does take time for positive reversion to work through our profit and loss account.'
About 20 per cent to 30 per cent of existing leases in Hongkong Land's property portfolio still suffer from 'negative rental reversion' - after the company renewed tenant leases at lower rates than three years ago.
Mr Sallnow-Smith said these leases, signed during the Sars outbreak two years ago, would be subject to renewal next year.
Hongkong Land saw rental income for commercial properties drop 6.81 per cent year on year to US$134.1 million in the first half, while residential properties remained flat at US$0.8 million.
But its net financing charges dropped 53.63 per cent year on year to US$11.5 million in the first half, helping boost overall earnings. Turnover fell 8.81 per cent year on year to US$180.2 million.