EUR 850.00 For Business Accounts Only

Morningstar | Swire Properties' Hong Kong Portfolio Steady; Slower Booking of Trading Property Revenue

Swire Properties reported in line operating results for fourth-quarter 2018. In Hong Kong, the office portfolio at Pacific Place is largely unchanged from prior quarters as the bulk of the renewal occurred during earlier in the year. Reversions for other office assets remained tepid at 6% to 7%. The aggregate occupancy rate was steady at 99% at end of the quarter. Office demand in the central business district has cooled off a bit with Chinese corporates retreating. We expect the company’s Pacific Place to see slower growth as it is close to central. We pushed back some booking of trading properties, resulting in 2018 earnings being lower by 6% but with limited impact on the fair value estimate. We maintain our narrow moat rating and our fair value estimate of HKD 30.

On the Hong Kong retail side, retail sales were up 12% and 4%, respectively, at the tourist-driven Pacific Place and Citygate Outlets. Growth has slowed during the second half of the year, due to a higher comparison basis from a year ago. For the non-discretionary-focused Cityplaza, retail sales for the quarter were up 6% year on year, owing to the reopening of the movie theater and revamped food and beverage outlets. The company's Hong Kong retail portfolio’s performance seem subdued. For the full year, we expect the portfolio to see a positive but very small rental reversion, relative to the peak rental rates achieved in 2015.

For the city as a whole, retail sales were up 9% year on year, but growth weakened considerably during the last quarter. This is likely due to negative sentiment over the property market and slowing Chinese economy. Tourist arrivals were very strong due to the completion of major infrastructure projects but consisting mostly of day trippers with limited spending.

Retail assets in China saw continued growth. Mature properties Taikoo Li Sanlitun and Taikoo Hui Guangzhou both logged retail sales gains of 11%, while the newer Taikoo Li Chengdu saw retail sales up 22% year on year, but sales growth flattened at Indigo. On the property trading side, the company has few projects in the pipeline at this point as the company intends to minimize its exposure to the elevated Hong Kong residential property sector.