Henderson Land expects trying times to persist, replenishes land bank as pandemic erodes property valuation

Interim earnings slump 62 per cent on revaluation setback, but revenue climbs 81 per cent on resilient residential project sales
Revaluation of Henderson’s investment properties leads to a fair-value loss of HK$2.3 billion

Henderson Land

Yujing Liu

Published: 8:30pm, 20 Aug 2020

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Henderson Land Development, Hong Kong’s third-largest developer by market value, expects trying times to continue after reporting a slump in interim earnings as the Covid-19 pandemic and economic recession eroded the value of its assets.

“The lingering Covid-19 pandemic, strained Sino-US relations and heightened geopolitical tensions have adversely affected the Hong Kong economy,” it said in an exchange filing late Thursday. “The operating environment for the Group’s various businesses is expected to remain challenging.”

Cracks in the real estate market this year prompted the Hong Kong Monetary Authority to ease financing rules for commercial and industrial properties from this week, rolling back its market-cooling measures for the first time since 2009. The HKMA cited a 10 to 15 per cent slide in prices of such properties between the recent peak in May 2019 and June this year.

Billionaire Lee Shau-kee, an executive director, seen here during its annual general meeting in 2016. Photo: Bruce Yan

Henderson, controlled by Hong Kong’s richest tycoon Lee Shau-kee, said net profit declined by 62 per cent to HK$2.8 billion in the six months through June 30, from a year earlier. This was primarily a result of a HK$2.3 billion erosion in the fair value of its investment properties amid the economic slump.

Revenue climbed 81 per cent to HK$5.4 billion over the period, driven by resilient residential property sales at projects including The Richmond in Mid-Levels and the Aquila Square Mile in Mong Kok. Still, they fell short of the consensus forecast of HK$7.1 billion tracked by Bloomberg.

Earnings per share stood at HK$0.59, below the market expectation of HK$0.97, according to analysts tracked by S&P Capital IQ. Excluding the effect of the revaluation of its investment projects, however, the earnings per share would be HK$1.07, according to the filing. It proposed an interim dividend of HK$0.50 per share.

Hong Kong has been facing a third wave of coronavirus pandemic since late July, depressing the economy further after a 9 per cent contraction last quarter. Commercial and retail space has been hit the hardest, with office rents slumping by 13 per cent in the first half of the year.

The residential market, however, has generally held up well, with prices for existing homes edging up 2 per cent since the beginning of this year, according to the Centa-City Leading Index compiled by Centaline Property Agency. Interest rate cuts by the city’s monetary authority has provided significant support to the market, Henderson said in the filing.

Henderson took advantage of the pandemic to amass more land for future development. It acquired land lots of 0.4 million sq ft in the New Territories, boosting its land bank in the region to 45.3 million sq ft, the largest among Hong Kong developers.

Henderson Investment, a subsidiary of Henderson Land Development that runs department stores in Hong Kong, reported a 129 per cent jump in net profit to HK$48 million in the first half of 2020. This was mainly due to a major one-off expenditure in the same period last year, the company said.

Shares of Henderson Land Development dropped 1.5 per cent to close at HK$29.80 ahead of the earnings release. Henderson Investment added 1.2 per cent to HK$0.41.

This article appeared in the South China Morning Post print edition as: Henderson Land sees slump in earnings

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