Fall in rentals expected to hit Hongkong Land earnings
Hongkong Land will reveal a 14 per cent decline in annual profit tomorrow due to cuts in rentals amid the economic downturn, according to analysts' estimates.
Central's largest commercial landlord is expected to report a net profit of US$183.18 million in the year to December 31, compared with US$213 million in 2001, according to estimates compiled by Thomson First Call. It put earnings per share at eight US cents against 8.94 cents previously.
Merrill Lynch said an earnings recovery was unlikely for two years, due to continued weakness in the office market.
'Our earnings estimates have been cut by 5 per cent in 2003 and 9 per cent in 2004,' it said.
Hongkong Land generated US$300 million in net rental income, a 6 per cent year-on-year decline due to the downward revisions in rents, Merrill said.
The investment bank said it expected the vacancy rate for Hongkong Land's office leasing portfolio to jump to 7 per cent from 5 per cent a year earlier. It also expected only modest progress in leasing the remaining 173,000 square feet office space at Chater House.
New leases signed last year were mostly related to relocation of existing tenants, Merrill said.
Merrill said a recovery in the Central office market was still 12 to 18 months away, noting that no tenants were locked into agreements to lease the 1.1 million sq ft of office space at Two International Financial Centre.
It forecast Hongkong Land would pay a final dividend of 3.5 US cents.
ABN Amro analyst Anton Kwang expected net profit to drop 16 per cent year on year to US$179 million and the company to pay a final dividend of four US cents per share.
UBS Warburg analyst Eric Wong said earnings would fall 15 per cent year on year to US$182 million, with a full-year dividend of eight HK cents.
He predicted that grade-A office rentals could come down a further 20 per cent this year and rental income from retail shops would rise to 23 per cent of the entire leasing portfolio, compared with 20 per cent last year.
'Future changes of rental income for the company will also depend on the mixture of its leasing portfolio. Conversion of some office space into higher value retail shops or hotels could enable higher rental income as a whole,' Mr Wong said.
He also said he was awaiting an announcement on a value-added plan for the company's Central leasing portfolio.
It was reported last week that the company planned to convert 170,000 sq ft of office space in the lower floors of The Landmark's Edinburgh Tower into 100 boutique hotel rooms by 2006, and turn vacant office space in Landmark East over to retail use.