One of city’s largest retail landlords says Hong Kong sector still recovering
Higher office rental levels boost bottom line of Hysan Development, whose properties include the new Lee Garden Three building
Officials at Hysan Development, one of the largest landlords in Hong’s Kong’s famous shopping district of Causeway Bay, say the city’s retail sector has still not fully recovered.
“We see good direction, but we still need to wait. We still have some concerns that retail sales have not recovered full-scale,” said Ricky Lui, its chief operating officer.
Roger Hao, its chief financial officer added that estimated tenant sales for 2017 saw a single-digit percentage increase, compared with 2016, during the company’s annual results briefing on Wednesday, which is on par with 2014 levels.
Hong Kong’s retail sales have declined on an annual basis since that year, but they rose 2.2 per cent in 2017 to HK$446.1 billion, ending the three-year decline, mainly driven by an uptick in mainland Chinese tourist arrivals.
Sales of jewellery, watches and clocks, and valuable gifts jumped 5.2 per cent in 2017 compared with the previous year.
Hang Seng Bank estimates a 4 per cent rise in the city’s retail sales this year and the Hong Kong Retail Management Association has forecast 3-4 per cent growth.
“There was not a very big jump in the company's results in 2017 as the city’s retail sales only started to be robust in the second half year,” said Nomura's property analyst Joyce Kwock. “The company will see a better performance in 2018.”
Hysan Development’s underlying profit, which excludes revaluation gains on investment properties, came in at HK$2.49 billion (US$318 million) for the year ended 31 December 2017, up 5.1 per cent, according to the company’s filing to the stock exchange.
That was mainly due to a one-off compensation payment of HK$142 million from Ralph Lauren, after the men’s fashion house closed its flagship shop at the Lee Gardens Mall in December 2016.
“Hysan continued to launch new initiatives to address challenges in our retail and office portfolios,” said chairman Irene Lee Yun-lien.
“A new addition to our already well-balanced Causeway Bay commercial portfolio is Lee Garden Three. The building is positioned as our area’s lifestyle extension.”
The newly completed building has a gross floor area of 467,000 square feet. Lui, chief operating officer, said around 55 per cent of the office space has been committed for rental and expected its occupancy rate to reach 95 per cent next year, and contribute HK$300 to 350 million rent by then.
Currently, Hysan Development’s portfolio of retail, office and residential investment properties under review covers a total gross floor area of 4.1 million square feet, which does not include Lee Garden Three.
The reported profit for 2017 was HK$3.64 billion, including a fair value gain of HK$853 million on its investment properties, which beat the market expectations of HK$2.41 billion of 13 analysts polled by Bloomberg. In 2016, its reported profit was HK$1.22 billion.
The company reported a slight revenue increase of 0.4 per cent to HK$3.55 billion from a year earlier.
Hysan's shares rose 1.8 per cent by the close in Hong Kong to HK$45.35, amid a 1.4 per cent decline of Hang Seng Index. It closed at 30,833.27 on Wednesday.
A second interim dividend of 111 HK cents per share was declared, bringing the annual payout to shareholders to 137 HK cents per share, 1.5 per cent higher than in 2016.