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Morningstar | Hongkong Land Holdings' First-Quarter Results in Line, Hong Kong's Central Office Market Slowing

Hongkong Land Holdings reported first-quarter operating data mostly in line with our expectation. In Hong Kong, the office portfolio saw continued positive rental reversions, but the company acknowledged a slowdown in leasing enquires, reflecting the broader market sentiment. The office portfolio’s vacancy rate increased to 2.1%, compared with 1.4% at year-end 2018. The company stated the higher vacancy rate was transitory as most of the space has been committed. We maintain our fair value estimate of USD 8.40 per share, along with the company's narrow moat and stable moat trend ratings.

The Singapore office saw positive rental reversions during the quarter, continuing the  upward trend that started in second-half 2018. However, the vacancy rate moved up to 2.8%, from 2.5% at year-end 2018. This was a bit surprising as the company had expected the vacancy rate to normalize as committed space was taken up during 2019. In China, the company indicated WF Central in Beijing is performing as expected, while the hotel component opened on schedule in March.

For development properties in China, contract sales for the quarter were lower compared with a year ago due to timing of project launches. During the first quarter, contract sales totaled USD 193 million, about two thirds of the amount seen a year ago. Net gearing was expected to be slightly higher, rising above 10%, driven by committed land payments for new projects.