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Hong Kong company reporting season

Hysan profit rises 4.2 per cent on strong office demand

Commercial landlord reports underlying profit of HK$1.227 billion, or HK$1.17 a share, for first six months of 2017

PUBLISHED : Friday, 04 August, 2017, 2:26pm
UPDATED : Friday, 04 August, 2017, 10:44pm

Hysan Development, the largest commercial landlord in Hong Kong’s Causeway Bay, reported a 4.2 per cent increase in underlying profit in the first half of the year.

Underlying profit – which excludes revaluation gains on investment properties – came to HK$1.227 billion (US$160 million), or HK$1.17 per share, for the first six months of 2017.

That’s slightly better than the market consensus for underlying profit per share at HK$1.12, according to analysts polled by Bloomberg.

The developer, which owns 4.1 million square feet of retail, office and residential investment properties in Hong Kong, said turnover stood at HK$1.79 billion, up 1.8 per cent from HK$1.76 billion a year ago, according to a filing with the Hong Kong stock exchange on Friday.

Its retail portfolio turnover, including its flagship Hysan Place, Lee Gardens and Lee Theatre in the bustling Causeway Bay shopping district, was down slightly by 0.1 per cent to HK$985 million.

As the portfolio is going through a process of “tenant mix adjustment”,rental income from renewals and new lettings decreased overall, the filing said.

The portfolio saw a drop in total foot traffic by about 5 per cent. Still, Hysan said it is planning to spruce up its existing properties to provide a memorable shopping experience.

Hong Kong’s second-half growth will slow further as consumption slumps: Citibank

Hong Kong’s retail sales in the first half of this year saw an overall decline of 0.6 per cent when compared to the same period of last year.

Citibank predicted low single-digit growth in Hong Kong’s retail sales by value in the second half of the year, which would still be an improvement from last year’s 8.1 per cent decline, year-on-year.

The bank forecast that the city’s gross domestic product in the second-half of the year would pare back to 2.4 per cent, from the robust 3.7 per cent year-on-year growth in the first-half of the year as mainland tourists buy fewer big ticket items.

Hysan’s results should be no surprise. Its retail income is weak while its office sector is strong
Lung Siu-fung, research analyst, CIMB Securities

Hysan’s retail portfolio saw a drop in total foot traffic by about 5 per cent. Still, Hysan said it is planning to spruce up its existing properties to provide a memorable shopping experience.

The company also said demand for quality Grade A office space in core commercial district would support demand in its forthcoming Lee Garden Three.

“Our office portfolio benefits from companies’ movement away from Central and nearby areas to other core districts of Hong Kong Island,” said Irene Lee Yun-lien, chairman of Hysan Development. “Lee Garden Three’s office space, which takes up about 80 per cent of the tower’s gross floor area, has received rental commitments for more than half of its floor space.”

“Our office portfolio benefits from companies’ movement away from Central and nearby areas to other core districts of Hong Kong Island,” said Irene Lee Yun-lien, chairman of Hysan Development. “Lee Garden Three’s office space, which takes up about 80 per cent of the tower’s gross floor area, has received rental commitments for more than half of its floor space.”

The group’s office portfolio turnover increased by 5.8 per cent to HK$672 million. This performance reflected an overall rise in rental income from renewals and new lettings.

Hysan’s office space accounts for more than half of its overall portfolio’s gross floor area and contributed 38 per cent of its turnover.

It plans to pay an interim dividend of 26 HK cents per share, unchanged from last year.

Hysan’s results are roughly in line with analysts’ predictions.

“Hysan’s results should be no surprise. Its retail income is weak while its office sector is strong. Mall rental will have reversion of 20 per cent down or more. Office rental will see double digit growth. Pre-leasing of Lee Garden Three is strong,” said Lung Siu-fung, a research analyst at CIMB Securities before the results announcement.

The company’s reported profit stood at HK$746 million, down 17 per cent from last year’s HK$899 million due to fair value loss on investment properties of HK$775 million, compared with HK$280 million last year.

As of June 30, 2017, the independent professional valuation of the group’s investment property portfolio was HK$69,628 million, compared with HK$69,633 million at the end of 2016.

This reflects the net effect of several factors in play, including an uncertain retail outlook, a sustained positive office rental outlook, a number of asset enhancement projects completed, as well as the construction costs incurred for Lee Garden Three during this period.

The capitalisation rates of each portfolio remained unchanged from those used at the end of last year.

The group’s total gross debt level as at 30 June 2017 increased to HK$6.39 billion, up 1.38 per cent from HK$6.30 billion at the year end of last year.

Hysan’s share price dipped 0.9 per cent from HK$37.9 to HK$37.4 in the morning session on Friday before the results were announced.

Hysan’s shares have risen 5 per cent in the past six months.

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