One-off gains lift Swire's first half
Property revaluation and write-back disguise lesser 11pc rise in net profit
Swire Pacific, one of the biggest landlords, expects the buoyant office and retail rental market to drive earnings growth in the second half but warns that surging oil prices may eat into contributions from its airline operations.
The blue-chip conglomerate unveiled a 143.8 per cent increase in interim net profit to $7.32 billion yesterday, helped mainly by a property revaluation gain of $4.58 billion that it booked to bottom-line earnings under new accounting standards.
The company's strong showing was also helped by a $692 million write-back on an earlier land premium charge it had provided for its Cityplaza development.
However, underlying profit, which excluded the property revaluation gain, grew by a more subdued 11.3 per cent.
'With only limited new supply and growing demand, office rentals and occupancies are likely to continue their upward trend,' chairman David Turnbull said. 'The second half will also see a pick-up in profits from strong sales of residential apartments in Miami.'
Swire, which derives most of its earnings from property, said it saw an improvement in occupancies and rental reversions in the first half.
A total of 975,000 square feet of additional office space, mainly from the One and Two Pacific Place and Taikoo Place developments, was let during the first half, taking occupancy to about 90 per cent from 82 per cent a year earlier. Gross rental income during the period grew 8.19 per cent year on year to $2.17 billion.
Underlying profits for the property division declined 4 per cent to $1.42 billion due to reduced residential sales.
'The upward cycle of Hong Kong's office and retail sectors should provide steady revenue growth for Swire in the second half,' said DBS Vickers analyst Winnie Chiu.
Hong Kong, which property consultant Cushman & Wakefield ranks as the second-most expensive place to rent an office in Asia after Tokyo, had seen grade A office rents rally between 21 per cent and 39 per cent in the first half.
DTZ Debenham Tie Leung expects rents to rise a further 10 per cent to 15 per cent by the end of the year.
Earnings from the group's 46.5 per cent stake in Cathay Pacific Airways amounted to $952 million, making aviation the second-largest contributor after property.
'Prospects for the aviation division are more mixed with the likelihood of continued high fuel prices restricting profit growth,' Mr Turnbull said.
Swire's shares yesterday rose 0.78 per cent to close at $76.60.