Hongkong Land tempers expectations
Central giant looks to growth in office rentals but says lack of residential completions may be a setback
Hongkong Land Holdings said a lack of residential completions might hold back its results this year, although an era of falling office income was over as leases signed during the downturn in 2003 expired and higher rentals kicked in.
Central district's biggest landlord posted a 5 per cent decline in its core earnings for the year to December.
'2006 won't be terribly different from 2005 in the sense that residential completions will be very low for us, and that would tend to offset improvement in the commercial side of the business,' chief executive Nicholas Sallnow-Smith said yesterday.
In Hong Kong, its residential projects Lai Sing Court and Victoria Road will be started this year, while profits will not be booked until they are completed in 2008.
In Beijing, phase three of Central Park will be completed next year, followed by phase four in 2008.
However, Mr Sallnow-Smith pointed to a rosier picture beyond this year in light of developments in the pipeline he described as the strongest in decades.
These included the luxury residential and hotel joint-venture project in Macau, which it hopes to start selling within the next 12 months.
Its recently acquired Singapore-listed developer MCL Land would help the company tap into the Southeast Asia market and start to contribute meaningful earnings by next year, Mr Sallnow-Smith said.
Hongkong Land has declared a final dividend of eight US cents per share, up 14 per cent from seven US cents in 2004.
Analysts were not worried about the company's lack of residential completions this year, saying the city's upward rental cycle would buoy its bottom line this year.
'Residential completion is just a timing issue. The more important thing is the company has gone past the trough in the reversion cycle,' said CLSA head of regional property research John Saunders, who expects its overall growth this year would be bigger than last year.
Negative rental reversion - where rents fall short of earlier tenancy agreements - has not dragged on Hongkong Land since the second half of last year.
The vacancy rate in its Central portfolio fell to 4.6 per cent as at the end of last year from 6 per cent in 2004.
It expects grade A office rents will continue to climb this year due to tight supply, despite surging more than 70 per cent last year.
Its 110,000 square feet Landmark East office tower will be the only new supply in Central this year and marketing will begin next month. The project will generate revenue next year, Mr Sallnow-Smith said.
The company's positive rental reversion was yet to be fully reflected in its results for last year, with underlying net profit - stripping out a US$2.37 billion revaluation gain on its investment properties - dropping to US$188 million, or 8.42 US cents per share.
This was 5 per cent below the market consensus estimate of US$198.09 million, according to Thomson Financial's poll of 11 brokerages. Including the non-cash revaluation gain, its earnings rose 22 per cent to US$2.06 billion.