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Swire Properties Underlying Net Almost Triples on Mall Sale

Swire Properties Ltd. (1972), the Hong Kong commercial landlord spun off from its parent in January, said 2011 underlying profit almost tripled on a one-time gain from the sale of a shopping mall in the city.

Swire Properties’ profit excluding real estate revaluations jumped 170 percent to HK$12.9 billion ($1.7 billion), from HK$4.8 billion a year earlier, the company said in a statement to Hong Kong’s stock exchange today. Earnings included a HK$8.6 billion profit from the sale of the Festival Walk shopping mall in Hong Kong’s Kowloon Tong area.

Earnings (1972) at the company, whose tenants include Societe Generale SA, may slow this year as firms cut jobs amid a global economic slowdown, weighing on rents. Hong Kong’s prime office rents may fall in 2012 after climbing 60 percent between July 2009 and the end of 2011, according to Jones Lang LaSalle Inc., the world’s second-biggest publicly traded commercial property broker.

“Banks are showing little signs of re-expanding so office rents will remain stagnant for a while,” said Francis Lun, managing director at Hong Kong-based Lyncean Holdings Ltd. “This could be a drag for Swire even though their retail portfolio will still be growing.”

Excluding the HK$8.6 billion profit from the sale of Festival Walk in Hong Kong’s north and other impairment losses, profit rose to HK$4.4 billion from HK$3.8 billion a year earlier, the company said. That compares with the HK$4.8 billion median estimate of five analysts surveyed by Bloomberg News.

Rental Income

The shares have gained 9.3 percent since Swire Properties started trading on Jan. 18 after parent Swire Pacific (19) Ltd. spun off the company. That compares with an 8 percent increase in the benchmark Hang Seng Index. The stock fell 3.1 percent to HK$18.76 at the close of trading in Hong Kong.

“Demand for our office space in Hong Kong is likely to be affected by uncertain market conditions,” Swire Properties’ Chairman Christopher Pratt said in the statement.

Swire Properties owns about 10.5 million square feet of prime office space and 2.4 million square feet of retail space in the city, including the Pacific Place and Island East commercial complexes. Hong Kong is the world’s costliest place to rent an office, according to Knight Frank LLP.

Gross rental income from the company’s office properties rose to HK$4.5 billion from HK$4.2 billion a year earlier, it said. Income from shopping malls rose to HK$3.7 billion from HK$3.4 billion.

The company expects a 10 percent increase in Pacific Place rents in the first two months of 2012, while growth is not as strong as in same period in 2011, said Chief Executive Officer Martin Cubbon at a press conference in Hong Kong today. The company plans HK$17 billion of capital spending over the next five years.

‘Stay Strong’

The city’s retail rents are expected to “stay strong” in 2012 as Hong Kong remains a key market for international brands, Jones Lang LaSalle said in December. Hong Kong’s prime rents for shopping malls climbed 12 percent in 2011 on influx of Chinese shoppers.

The company, the biggest office landlord in Hong Kong’s Island East and Admiralty districts, is planning to expand the two complexes by 15 percent to 21 percent in the next seven years, according to Cusson Leung, an analyst at Credit Suisse Group AG in Hong Kong.

“The Hong Kong office market is bottoming out and we’re looking for a gradual recovery in the second half,” Leung, who forecast office rents will drop as much as 15 percent this year, said before the earnings were announced. The expansion “makes it stand out from the other key landlords that rely on organic growth of existing portfolio.”

China Properties

The developer’s properties in other parts of China include the Sanlitun Village retail complex in Beijing, the 99-room luxury hotel Opposite House in the capital’s Chaoyang district and Taikoo Hui in the southern city of Guangzhou, which opened in September. It also has projects in Chengdu and Shanghai.

Swire Properties in February announced it is building a 2.9 million square-foot mix-used development in Miami.

In a separate statement, Swire Pacific, which also controls Cathay Pacific Airways Ltd. (293), the city’s biggest carrier, said net income for the group fell to HK$32.2 billion from HK$38.3 billion a year earlier. Sales rose to HK$36.3 billion from HK$29.2 billion.

Created as a trading company in London in 1816, Swire Pacific also bottles Coca-Cola in China and supplies offshore oil rigs.

To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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