EUR 850.00 For Business Accounts Only

Morningstar | Strong Performance for the Office Portfolio while Retail Subdued for Swire's 1Q

For first-quarter 2019, Swire Properties reported strong operating results for its office portfolio, while the retail portfolio in Hong Kong was weak. In Hong Kong, the office portfolio at Pacific Place continued to perform very well, with large renewal of nearly 400,000 square feet. Rental reversions were up 20%, compared with 21% and 15% seen during the same period in 2018 and 2017, owing to the continued spill-over effect of a tight Central office market. Rental reversion for other office assets were strong as well. Taikoo Place saw renewal of near 240,000 square feet at 13%, while One Island East saw renewal of 200,000 square feet at 9%, despite higher supplies in the area. The aggregate occupancy rate was 98%, largely unchanged from end of 2018. Despite some softening seen at the city’s central office district and the fallout from the ongoing trade dispute, we expect the company’s office portfolio to continue to benefit from the decentralization trend, supported by the large price differential and gradual market acceptance. We maintain our narrow moat rating and our fair value estimate of HKD 30.

On the Hong Kong retail side, retail sales were subdued during the quarter with negative sales growth at Pacific Place and City Plaza, and flat sales at Citygate. The performance is reflective of the retail environment for the city as a whole. Across the city, retail sales recovery plateaued during the first quarter. Retail sales volume growth continued to be negative in March, resulted in first quarter volume down 1.6% year on year, despite the fact tourist arrivals were up strongly at 17% for the quarter, including mainland tourists up near 20%. We expect tourist numbers to be a subdued driver of retail sales going forward due to changing traveler profile and spending habits.

Outside Hong Kong, retail assets in China saw continued good growth. Mature properties saw sales growth in the midteen range, similar to the pace seen a year ago, while newly opened HKRI Taikoo Hui and Brickell City Centre continued to ramp up. On the property trading side, the company has few projects in the pipeline at this point and has no significant exposure to the elevated Hong Kong residential property sector.