[ET Net News Agency, 21 November 2018] Moody's Investors Service says that the earnings
of its rated Hong Kong property companies will continue to grow in the next 12-18 months
despite volatility in the operating environment, while US-China trade tensions will also
exert an impact -- although limited -- on the sector.
"We expect the weighted average EBITDA of our 10 rated Hong Kong property companies to
grow by the high single-digits in fiscal 2018 and 2019, underpinned by robust residential
presales over the past two years and steady office rental income growth," said Stephanie
Lau, a Moody's Vice President and Senior Analyst.
"However, macro-economic and capital market volatility -- partly because of trade
tensions and renminbi weakness -- could reduce retail sales growth and residential
contracted sales in the fourth quarter of 2018 and onward, which will subsequently reduce
EBITDA in fiscal 2020," said Lau.
Moody's conclusions are contained in its just-released report, "Property - Hong Kong:
Rated companies' earnings will remain solid despite macro and capital market volatility".
The report looks at the office, retail and residential sectors.
The performance of the office sector will remain solid and Moody's expects positive
rental reversions for Grade-A offices to register mid to high single-digit growth in the
next 12-18 months.
Low vacancy rates and limited new supply will support rental growth in business
districts located in Central, Hong Kong Island East and Causeway Bay, where Moody's rated
companies have a material presence.
A potential risk factor is a significant slowdown in Chinese companies' demand for
expansion amid global economic and capital market uncertainty.
For the retail sector, flat rental income growth is likely for Moody's rated mall
operators, largely reflecting neutral shopping mall rental reversions.
This outlook reflects, in turn, Moody's concerns that US-China trade tensions and
capital market volatility could dampen local consumption sentiment. The depreciation of
the renminbi will also likely negatively affect retail demand, particularly for luxury
goods, from tourists from the mainland.
As such, Moody's expects the year-on-year growth in total retail sales in Hong Kong and
total visitor arrivals from mainland China to slow toward low to mid-single digits in the
next 12-18 months from 11.1% during the first nine months of 2018.
Given the macro and capital market volatility, Moody's expects Hong Kong's total primary
transaction value will decrease by 10%-15% in the next 12-18 months, which will lead to a
modest decrease in residential revenue in rated developers' 2020 fiscal year.
However, Moody's expects its rated developers to withstand the potential earnings
pressure in the primary residential sales market because of their diversified income
streams.
The ten property companies that Moody's rates are: Sun Hung Kai Properties Limited
(00016)(A1 stable), CK Asset Holdings Limited (A2 stable)(01113), Link Real Estate
Investment Trust (A2 stable)(00823), Swire Properties Limited (A2 stable)(01972), Wharf
Real Estate Investment Company limited (A2 stable)(01997), IFC Development Limited (A2
Stable), Hongkong Land Holdings Limited (A3 stable), Hysan Development Co., Ltd. (A3
stable)(00014), Champion Real Estate Investment Trust (Baa1 stable)(02778) and Nan Fung
International Holdings Limited (Baa3 stable). (KL)