Hongkong Land recovers with China project completions: report

Unrecognised sales in China increased by 39% as of end-2020.

Hongkong Land’s performance is expected to continue improving in 2021 as project completions in China pick up amidst a more relaxed COVID-19-related restriction, according to S&P Global Ratings.

The report said the property group’s unrecognised sales in China increased by 39% to $20.2b (US$2.6b) as of end-2020. S&P estimates that the group’s ratio of funds from operations to debt will gradually rise 14% to 16% in 2021.

“In our opinion, Hongkong Land's investment property segment will remain resilient to economic challenges thanks to its diversified tenant base and long lease maturity profile. The company's office portfolio in Hong Kong's central business district (CBD) could see a mild decrease in rent upon lease renewal in 2021, from broadly neutral in 2020,” S&P said.

The ratings agency added that the impact on rental income will be moderate, given the portfolio’s long lease maturity profile of 4.6 years. The vacancy rate for its office segment in the CBD was 6.3% by the end of 2020.

Meanwhile, Hongkong Land’s retail portfolio in Hong Kong will likely remain weighed down by the pandemic because of weakened luxury and discretionary spending.

According to S&P, the company provided temporary rent relief to tenants in 2020 that lowered the average net rent by 23% in the year, which translated to another one-off hit to earnings last year.

“We think Hongkong Land can weather the overall impact of the pandemic, given that the retail portfolio accounts for less than 10% of total revenue. Moreover, the portfolio has shown modest improvement since the second half of 2020,” S&P said.