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SCMP Reporter

A FALL in profits from the sale of floor space in Citibank Plaza has been blamed for the 7.7 per cent decline to $491.3 million in net profit for Great Eagle Holdings.

   Yesterday, analysts described the interim result to March as 'unexciting'.

   In the short term, they said, the company's profit picture looked positive for the second half of the year when rent reversions would probably boost earnings.

  Deputy chairman and managing director K S Lo said yesterday the company recorded a turnover of $1.43 billion compared with $1.14 billion for the same period the year before.

  Great Eagle Holdings reported a profit before tax of $684.5 million compared with $585.4 million previously.

  The board of directors declared an interim dividend of 18.5 cents per ordinary share for the year to September 30, 1995.

  Earnings per share were $1.10 compared with $1.38 last year.

  Despite the drop in earnings, Mr Lo said the group's recurrent income base grew by 42 per cent from $269.3 million to $383.2 million.

  'This was driven firstly by the improvement in our rental income, and secondly from the increase in hotel income, with Hong Kong Renaissance Hotel becoming fully reflected in fiscal year 1994 and 1995 results,' said Mr Lo.

  He said the decline in profit attributable to shareholders was mainly because of the decrease in exceptional items booked during the interim period.

  Following Citibank exercising an option to buy 161,936 square feet of office space in Citibank Plaza, a wholly-owned subsidiary of Great Eagle bought about 50,000 sq ft. 'The group did not recognise its share of gain, which amounted to $107 million on the repurchased portion, thereby limiting the contribution of these exceptional transactions to the group's net profit,' said Mr Lo.

  Instead, the portion of the surplus attributable to the group was used to reduce the cost of the space, the company said.

  Despite a downturn in the property market, Mr Lo predicted good earnings for the company during the remainder of 1995.

   He said the effect of rental reversion still had not been felt in the first half of the year.

  'As more leases in Citibank Plaza and Great Eagle Centre become due for renewal or review during the second half of 1995 and 1996, higher rental rates are expected, because existing contracted rates are generally below market levels,' he said.

  But analysts were sceptical. They said while Great Eagle could expect to see rent reversions for about 20 per cent of their tenants during the second half of the year, the company should not expect to achieve current market rents.

  'There should be a lot of rent reversions at Citibank Plaza and the Great Eagle Centre,' said one analyst. 'But they will not get the rents which are now being achieved in the market.'   The analyst said Citibank Plaza was leased out at about $40 per sq ft.

   Comparable space would lease for more than $80 per sq ft.

   But only in exceptional cases could Great Eagle expect to achieve these rents, he said.

  One analyst said: 'It depends on the timing and when the rental reversion is going to occur.

   But even with a lower reversion it could still contribute to earnings.'   Analysts said rents in the commercial property market would most likely drop by one per cent a month for the remainder of the year.

   'There is a lot of supply in the market, and rents will come off another five to 10 per cent by the end of the year,' said one.

  Analysts said Great Eagle would be booking income from the sale of multi-million dollar properties for the next couple of years.

   The firm could also sell its stake in its serviced flats to boost income, they said. An analyst said the real crunch for the company would come after 1998 when large amounts of grade A office space would come on to the market.



Plunge at the Plaza hits Great Eagle net