[ET Net News Agency, 6 November 2017] Moody's Investors Service said that the
weighted-average EBITDA for Moody's-rated Hong Kong property companies will demonstrate
moderate growth over the next 12-18 months, owing largely to strong residential sales and
stable rental income.
"These companies' weighted-average EBITDA should grow 5%-10% over the next 12-18 months,
because of development earnings from resilient residential pre-sales evident since March
2017, and stable commercial rental income," said Stephanie Lau, a Moody's Vice President
and Senior Analyst.
"Overall, most of our rated companies should also maintain their stable rating outlooks
over the next 12-18 months, owing to their robust business profiles, diversified
operations and stable financial metrics," added Lau.
Moody's analysis is contained in its just-released report titled "Property - Hong Kong:
Stable commercial rents and residential sales will continue in next 12-18 months," and is
authored by Lau.
Of the nine property developers that Moody's rates, Moody's said that three - Sun Hung
Kai Properties Limited (00016)(Sun Hung Kai Properties (Capital Market) Ltd. A1 stable),
CK Asset Holdings Limited (A2 stable)(01113) and Link Real Estate Investment Trust (A2
stable)(00823) - will outperform their peers in terms of EBITDA growth.
With the office segment, Moody's said that the positive rental reversions for the sector
will continue but moderate to 0%-5% over the next 12-18 months for Grade-A office space,
driven by the marginal increase in vacancy rates over the last few quarters. Moody's said
that vacancy rates should stay at or slightly below 5% in the near term.
On the retail market, Moody's expects shopping mall rental rates to register a flat to
modest increase of 0%-5% over the next 12-18 months, supported by a gradual recovery in
retail sales. Moody's pointed out that retail sales recorded positive growth for the seven
consecutive months to September 2017, and reversed the declining trend that commenced in
March 2015.
As for the residential market, Moody's expects primary residential market pre-sales
values to stay robust over the next 12 months. Moody's expectation is based on its
assessment of modest upward pressure on the Hong Kong dollar interest rate, continual
ample interbank liquidity and stable economic conditions. In addition, Moody's does not
expect an immediate increase in housing supply, thereby containing any near-term downward
pressure on home prices.
Key credit metrics for Moody's-rated Hong Kong developers should remain stable.
Specifically, their leverage levels should fall gradually over the next 12-18 months, and
their interest coverage ratios will likely stay stable over the same period. Overall, most
of Moody's-rated developers demonstrate solid liquidity, manageable debt maturity profiles
and stable operating cash flow.
Key downside risk for the developers is represented by weaker market liquidity
conditions, which will raise risk aversion and affect pre-sales sentiments in the
residential market.
The nine property developers that Moody's rates are: Sun Hung Kai Properties Limited, CK
Asset Holdings Limited, Link Real Estate Investment Trust, Swire Properties Limited (A2
stable), IFC Development Limited (A2 stable), Hongkong Land Holdings Limited (A3 stable),
Hysan Development Co., Ltd. (A3 stable)(00004), Champion Real Estate Investment Trust
(Baa1 stable)(02778) and Nan Fung International Holdings Limited (Baa3 negative). (KL)