Swire Properties Underlying Profit Rises on Rental Income

Swire Properties Ltd. (1972), the Hong Kong commercial landlord whose tenants include Time Warner Inc., said first-half underlying profit rose 3.8 percent on rental income growth from its office and shopping malls in the city and mainland China.

Swire Properties’ profit excluding real estate revaluation rose to HK$2.44 billion ($315 million), from HK$2.35 billion a year earlier, the company said in a statement to Hong Kong’s stock exchange today. That is in line with the HK$2.44 billion median estimate of three analysts surveyed by Bloomberg News.

Hong Kong’s retail rents may gain 12 percent over the next 12 months after increasing 18 percent in the first half from a year earlier, as international brands continue expanding in the city, a major shopping destination for wealthy mainland Chinese, according to Colliers International. Swire Properties, which owns the most shopping spaces in the Admiralty and Quarry Bay areas, is also growing in Chinese cities including Guangzhou, Beijing and Chengdu.

“Aside from some small differences on the booking of apartments sold in Hong Kong, the result is more or less in line with expectation,” said Lee Wee Liat, a Hong Kong-based analyst at BNP Paribas Securities Asia. “They’re also quite upbeat about retail, despite concerns in the market about a slowing down in the second half.”

Share Rally

Shares of Swire Properties, spun off from its parent Swire Pacific Ltd. in January, have gained 37 percent since they first traded, compared with the 2.3 percent gain of the benchmark Hang Seng Index over the same period. The stock rose 1.3 percent to HK$23.60 at the close in Hong Kong.

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. The company is expecting to complete two new office buildings on Hong Kong Island in the fourth quarter.

Turnover from office rental at Swire Properties, whose tenants also include property broker Jones Lang LaSalle Inc. (JLL), rose to HK$2.46 billion in the first half from HK$2.22 billion a year earlier, Swire said.

Prime office rents in Hong Kong, the world’s most expensive place to lease commercial space, fell for a third consecutive quarter in the three months ended March and may decline another 4 percent over the next 12 months, according to Colliers.

‘Uncertain Market’

“Demand for the group’s office space in Hong Kong is likely to be affected by uncertain market conditions,” Chairman Christopher Pratt said in today’s statement. Swire’s office portfolio “is expected to be relatively resilient due to high occupancy levels and limited new supply,” he said.

Turnover from the company’s shopping malls fell to HK$1.76 billion from HK$1.81 billion after it lost contribution from the Festival Walk shopping mall sold last year.

“Retail sales and the demand for retail space in Hong Kong continued to be good,” said Pratt.

Including revaluation gains and deferred taxes, Swire Properties’ net income fell to HK$9.86 billion from HK$20 billion a year earlier, the company said.

Swire Properties will pay an interim dividend of 22 Hong Kong cents.

The developer is scheduled to open a 6.4 billion yuan ($1.01 billion) retail and office project in the western Chinese city of Chengdu in early 2014, a joint development with Sino- Ocean Land Holdings Ltd.

Sanlitun Village

Including 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, projects in mainland China will account for about a third of Swire’s total assets, the company has said.

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 65 percent from a year earlier to HK$8.44 billion. The company will pay an interim dividend HK$1 for each of its A shares.

Created as a trading company in London in 1816, Swire Pacific (19) also bottles Coca-Cola in China and supplies offshore oil rigs.

To contact the reporter 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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