Hong Kong, March 12, 2014 -- Moody's Investors Service says Hongkong Land Holdings Limited's
(HKLH) strong results for 2013 robustly support its A3 issuer rating and
the A2 issuer rating of The Hongkong Land Company Ltd, a wholly-owned
subsidiary.
The outlook for all ratings remains stable.
"HKLH's 2013 strong results and credit metrics were driven by higher recognition
of revenues from sales of properties and its stable rental income,
mainly from its Central portfolio in Hong Kong," says Kaven Tsang,
a Moody's Vice President and Senior Analyst.
HKLH's 2013 revenues soared 67% year-on-year
to USD1.857 billion as the company showed more development projects
for recognition in Singapore and China.
Meanwhile, its rental income grew 9% year-on-year,
benefitting from positive rental revisions for its Central office portfolio.
Its office vacancy rate further remained low at 5% as Hong Kong
continues to demonstrate a limited new supply of grade-A offices
in its central business district.
The company's retail portfolio remained fully let, similar
to 2012, with a healthy 18% increase in average net rent
year-on-year.
This limited supply situation, which is expected to persist,
will support the Central portfolio's rental and occupancy rates in the
near-to-medium term.
But Moody's expects positive rental revisions for its Central office
portfolio will slow in 2014.
HKLH's Singapore portfolio also showed a favorable performance,
with positive rental revisions and a low office vacancy rate of 1.7%
at end-2013 (versus 5.6% at end-2012).
As a result, HKLH 's adjusted EBITDA interest coverage —which
excludes fair value gains, but includes dividends from joint ventures—
was strong at 9.4x in 2013, while adjusted debt/EBITDA was
at 4.0x.
Moody's expects HKLH's adjusted debt/EBITDA & EBITDA interest
coverage will weaken moderately to 4.5-5.0x and 6.0-7.0x
respectively in the next 2-3 years, as it raises debt for
land acquisitions and development projects.
Nevertheless, the impact will be partly mitigated by the high contribution
from property development in the coming two years.
Four projects in Singapore -- including Terrasse,
which was 100% presold at end-2013, and around 6,000
units from six projects in China, including Bamboo Grove (50%-owned
by HKLH), and Yorkville South and Yorkville North --
are scheduled for completion in 2014.
Increasing contracted sales from China (USD632 million in 2013 versus
USD429 million in 2012) will also support HKLH's reported contributions
from property sales in the next 2 years. The company had USD534
million of unrecognized contracted sales at end-2013.
HKLH's solid liquidity profile, with cash of USD1.4 billion
at end-2013 and committed unutilized facilities of USD2.7
billion, also support its A3 rating. These resources are
more than sufficient to cover short-term debt of USD712 million.
The stable outlook reflects our view that the group will maintain its
prudent financial management and expansion strategy.
Upward rating pressure will be limited in the near term, but could
emerge if earnings from HKLH's investment property business continue to
grow, reducing the volatility arising from its property development
activities.
As such, these activities will not account for a material portion
of its EBITDA, and, on average, contribute to not more
than 15% of EBITDA over the years. And its credit profile
will remain strong and stable, with recurring EBITDA interest coverage
at 6x or higher.
Downward pressure could emerge if HKLH increases its property development
activities, or engages in material debt-funded investments,
which would impair its financial profile, such that debt/EBITDA
deteriorates to 6.5x and EBITDA/interest falls below 3.5x.
The principal methodology used in these ratings was the Global Rating
Methodology for REITs and Other Commercial Property Firms published in
July 2010. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
The Hongkong Land Company Ltd, incorporated in Hong Kong,
is a wholly owned subsidiary of Hongkong Land Holdings Ltd, which
is a Bermuda-incorporated holding company, engaged in property
investment, management, and development.
The Hongkong Land Company Ltd holds the group's portfolio of 5 million
sq. ft. in prime office and retail space in Hong Kong,
the Central portfolio. HKLH is 50%-owned by Jardine
Strategic Holdings Ltd.
Kaven Tsang
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
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Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077
Moody's: Hongkong Land's strong 2013 results support its ratings