Hong Kong, March 10, 2016 — Moody’s Investors Service says Hongkong Land Holdings Limited’s (HKLH) results in 2015 reflected lower underlying profit but were in line with expectations and continue to support its A3 issuer rating.
The results also support the A2 issuer rating of Hongkong Land Company Limited, a wholly-owned subsidiary of HKLH.
The outlook for all ratings remains stable.
“HKLH’s overall financial profile remained strong, despite the company reporting lower profitability and weaker financial metrics in 2015 as a result of lower earnings in its property development business,” says Joe Morrison, a Moody’s Vice President and Senior Credit Officer.
HKLH’s revenues for 2015 grew by 3% year-on-year to $1.93 billion, as both rental income and property development revenue experienced moderate growth during the year.
However, its adjusted EBITDA fell by around 14% year-on-year to $1.08 billion in 2015 due to an 11% year-on-year drop in the underlying operating profit of its property development business to $354 million. The drop was caused by completion and delivery of lower margin projects along with lower provision write-backs for two residential projects in Singapore during the year.
Nevertheless, HKLH’s financial profile continues to support the A3 rating level. HKLH ‘s adjusted EBITDA interest coverage — which excludes fair value gains, but includes dividends from associates and joint ventures — was 7.9x for FY2015, down from 9.3x in 2014, while adjusted debt/EBITDA increased moderately to 3.6x from 3.4x.
“The company’s investment property business remained strong in 2015, and the limited office supply situation in Central will continue to support its rental and occupancy rates over the next two years,” says Morrison.
HKLH’s office vacancy rate declined to 3.4% at end-2015 from 5.4% at end-2014, while average office rents remained stable. Retail space remained fully let, with average net rent increasing around 3.3% year-on-year to HKD221 per square feet.
The vacancy rate of HKLH’s Singapore office portfolio remained low at 3% at end-2015 compared to 1.7% at end-2014. However, taking into account the committed area under new leases, the adjusted vacancy would have been 1% at end-2015.
The company’s rental income grew around 1% year-on-year to $851 million, benefitting from positive rental revisions for its Central office and retail portfolio during 2015.
Moody’s expects HKLH’s EBITDA interest coverage and adjusted debt/EBITDA to weaken moderately over the next 2 years, as the company raises debt for potential land acquisitions and development projects.
The impact should be mitigated by the contribution from property development. At end-2015, HKLH had unrecognized contracted sales of USD821 million for its projects in Mainland China, with around 70% scheduled for delivery in 2016.
HKLH’s liquidity profile remained robust. The company had cash of $1.6 billion and committed unutilized facilities of $2.5 billion at end-2015. These resources are more than sufficient to cover its short-term debt of $169 million over the next 12 months.
The principal methodology used in these ratings was Global Rating Methodology for REITs and Other Commercial Property Firms published in July 2010.
Hongkong Land Holdings Ltd is a Bermuda-incorporated holding company engaged in property investment, management, and development. HKLH is 50%-owned by Jardine Strategic Holdings Ltd. (A2 stable).
The Hongkong Land Company Ltd (A2 stable), incorporated in Hong Kong, is a wholly owned subsidiary of HKLH and holds the group’s portfolio of 5 million square feet of prime office and retail space in Hong Kong, the Central portfolio.