Retail Properties

Chinese Estates to report first loss in 6 years

PUBLISHED : Friday, 27 February, 2009, 12:00am
UPDATED : Friday, 27 February, 2009, 12:00am

Chinese Estates Holdings expects to report a loss for last year, its first red ink since 2002 amid a bruising downturn in the mainland and Hong Kong property markets.

Analysts said other landlords were also likely to post net losses for 2008 because of the deteriorating property market.

The mid-tier developer said the market downturn would result in unrealised valuation losses for its investment properties, which would be recognised in the income statement.

Although it did not specify the size of the loss, the news sent the stock down 7.85 per cent when it resumed trading yesterday afternoon. It closed at HK$8.14, down 4.57 per cent.

In 2007, the company achieved a HK$6.42 billion revaluation gain on investment properties and other non-recurring earnings, boosting its net profit to a record HK$8.2 billion. Excluding non-cash items, core profit jumped 27.6 per cent to HK$2.73 billion.

'As Chinese Estates' investment property portfolio is worth about HK$40 billion, it is not surprising to see a net loss in 2008,' said an analyst.

'A 10 per cent drop in housing prices will result in a HK$4 billion revaluation loss, which can easily erode core earnings.' Chinese Estates has four industrial properties for lease with total gross floor area of 235,635 square feet. It also holds three office buildings and eight retail properties of 102.5 million sqft and 885,257 sqft respectively, according to the company's website.

In light of the deteriorating market, analysts said it was not surprising to see landlords hit harder than other developers, which have property sales to boost earnings. They, however, emphasised it was more important to look at underlying earnings, which can truly reflects its core business.

Chinese Estates said the fall in the fair value of its properties would not affect the group's cash flows. 'The core businesses of the group comprising property investments and development and securities investments remain profitable for the year to December,' said the statement.

Before the announcement, Deutsche Bank on Wednesday raised Chinese Estates' share price target by 17 per cent to HK$8.40 due to its net cash status.

The bank expects its core earnings to rise 58 per cent to HK$4.3 billion, mainly driven by the recognition of HK$3.65 billion of net investment income from the disposal of all its listed available-for-sale investments.