Swire Pacific bullish on rental growth
Conglomerate aims to adopt aggressive investment strategy on the mainland
Swire Pacific sees a substantial upside in rentals from property investment this year and aims to adopt a more aggressive expansion strategy on the mainland.
The positive statement from the conglomerate - whose operations cover property, aviation, trading, retail and marine - came in response to concerns that the company's revenue, particularly from rental income, had lagged behind the market average.
Swire yesterday reported net profit of $18.75 billion for the year to December, down 0.3 per cent from 2004.
The company announced a final dividend of $1.46 per A share and 29.2 cents per B share.
Swire has long been criticised for its conservative investment strategy and business expansion in the mainland.
It carries a strong balance sheet with net gearing of only 12 per cent even after the recent $6.18 billion acquisition of a 50 per cent stake in Festival Walk.
Capital expenditure earmarked for the property and marine businesses amounted to $3 billion this year after the firm booked a $2.27 billion gain from the August sale of its 17.6 per cent stake in Modern Terminals.
Swire chairman Christopher Pratt said the group was actively seeking additional investment opportunities in the mainland, instead of relying too much on organic growth of its existing operations.
'At face value, the 5 per cent investment coming from China is misleading. We have invested in the mainland through a lot of associates,' Mr Pratt said.
Swire Properties chairman Keith Kerr expects a strong upside in the contribution from his division in the next few years because of rising rentals, declining vacancy rates and several property developments coming up for rent or sale.
He was sceptical about the possibility of relaunching scheduled land auctions for commercial sites only, saying the move would be seen as government intervention in a selected segment of the property market.
Mr Kerr said the company would focus on raising occupancy rates and attracting new tenants this year for, although the average rate was 94 per cent, it was below 90 per cent for Pacific Plaza I, II and III in Admiralty.
Monthly rental in Island East was in the high $20 per square foot range, while in Central it was $55 per square foot, he said.
Net profit from property investment was $1.99 billion or 12.1 per cent of Swire's earnings last year, the largest portion after the sale of the port stake. Next came $1.93 billion from the aviation division, which was dragged down by Cathay Pacific Airways, whose results were announced on Wednesday.
Macquarie Securities (Hong Kong) research director Mark Simpson said he saw an overall increase of 40 per cent in rental over the next two years, with 25 per cent this year and 15 per cent next year.
Swire will launch a pre-marketing campaign in the first half of the year for One Island East, an office building of about 1.52 million sqft with a hotel, scheduled for completion in 2008.
It plans to sell seven and 10-year bonds in the next six weeks to raise funds for commitments, including the Festival Walk purchase.