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Announcement:

Moody's: Hongkong Land's 1H 2019 results support its ratings

06 Aug 2019

Hong Kong, August 06, 2019 -- Moody's Investors Service says that Hongkong Land Holdings Limited's (HKLH) 2019 interim results are in line with Moody's expectations and continue to support the company's A3 issuer rating.

The results also support the A2 issuer rating of HKLH's wholly owned subsidiary, The Hongkong Land Company, Limited.

The rating outlooks remain stable.

"HKLH's overall earnings in 1H 2019 remained largely stable, driven mainly by steady growth in its investment properties business," says Stephanie Lau, a Moody's Vice President and Senior Analyst.

HKLH recorded a 47% year-on-year decline in revenue in 1H 2019 because of lower contributions from its wholly-owned development properties. However, its adjusted EBITDA declined by only 2% to $569 million from $581 million in 1H 2018, supported by increased rental income.

Overall rental income increased by 5% to $510 million in 1H 2019 from $484 million in 1H 2018, mainly driven by positive rental reversions in its Hong Kong Central portfolio.

The strength of its rental income was underpinned by a 5% increase in average net rent for HKLH's Central office portfolio to HKD116 per square foot (sq ft) per month in 1H 2019, from HKD111/sq ft in 1H 2018, while vacancy rates remained low at 1.6% as of 1H 2019, on a committed basis.

HKLH's Central District retail portfolio also recorded positive base rental reversion in 1H 2019, with average rent improving by 3% to HKD239 per square foot in 1H 2019 from HKD231 per square foot in 1H 2018. Vacancy rates at the end of June 2019 remained low at 0.7%, compared with 0.4% at the end of June 2018.

HKLH's leverage, as measured by adjusted net debt/EBITDA, moderately rose to 3.1x for the 12 months ended June 2019 from 2.9x in 2018 because of a moderate decline in EBITDA and higher net debt. The increase in reported net debt to $3.9 billion at the end of June 2019 from $3.6 billion at the end of 2018 was primarily due to new land acquisitions.

"We expect the company's debt leverage to remain stable at a healthy level over the next 12-18 months," adds Lau.

Moody's expects that HKLH's adjusted net debt/EBITDA will remain stable at around 3.0x-3.2x in the next 12-18 months, compared with 3.1x for the 12 months ended June 2019. This view is based on Moody's assumption that the company will not undertake material new land acquisitions and that EBITDA will decline slightly after accounting for lower development earnings. Such a level of leverage is still in line with the company's A3 rating category.

Despite the prospects of slower economic growth and decentralization, Moody's expects HKLH's Central portfolio to remain resilient, as the company's proactive lease management has resulted in lengthened average lease expiries and low vacancy rates. The company has indicated that around half of the 10% of Hong Kong office that are subject to expiration and rent revisions in 2H 2019 have been committed.

HKLH's liquidity profile remains underpinned by its cash of around $1.2 billion and committed unutilized facilities of $2.5 billion at the end of June 2019. These resources, in addition to its stable operating cash flow, are more than sufficient to cover its short-term debt of $705 million and outstanding land premium obligations over the next 12 months.

The principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms published in September 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Hongkong Land Holdings Limited (HKLH), established in 1889 and listed in London, Singapore and Bermuda, is a leading Asian property investment, management and development group.

HKLH's portfolio is focused on Hong Kong, where the group owns and manages around 4.9 million square feet of commercial property through its subsidiary, The Hongkong Land Company, Limited (HKLC). HKLH is 50% owned by the major conglomerate Jardine Strategic Holdings Limited (A1 stable).

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Stephanie Lau
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Chris Park
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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