Swire Properties’ Profit Beats Estimate on Rents, Home Sales

Taikoo Place
Swire Properties is planning to spend at least HK$10 billion over the next few years to redevelop the Island East area, where it’s the largest commercial property owner, as tight vacancies in the Central business district and cost cutting prompt financial companies to seek better deals elsewhere in the city. Photographer: Brent Lewin/Bloomberg

Swire Properties Ltd., Hong Kong’s second-biggest office landlord, said first-half underlying profit rose 34 percent, beating analysts’ estimates, on higher rental income and an increase in home sales.

Underlying profit, which excludes revaluation gains, was HK$3.78 billion ($488 million) in the six months ended June 30, compared with HK$2.81 billion a year earlier, the company said in a statement to the Hong Kong stock exchange. That compares with the HK$3.16 billion median estimate of four analysts surveyed by Bloomberg News.

Swire Properties is planning to spend at least HK$10 billion over the next few years to revamp its cluster of office properties in eastern Hong Kong Island, creating an alternative to the Central business district. The company, which is the biggest office owner in the city after Sun Hung Kai Properties Ltd., said demand for its properties has improved as mainland Chinese companies and existing tenants rent more space.

The company’s office portfolio “is expected to show further improvement with modest additional demand for office space in the central district and continued firm rental levels on renewals at Island East,” Chairman John Slosar said in the statement.

Shares of Swire Properties advanced 1.2 percent to HK$26.15 as of 1:43 p.m. in Hong Kong, reversing an earlier 0.4 percent decline. That compared with the 0.1 percent increase in the benchmark Hang Seng Index. The shares have gained 33 percent this year.

Office Rental

Gross rental income from its offices, totaling about 12 million square feet, rose 6.5 percent to HK$2.79 billion, the company said. Swire Properties raised rents by 27 percent in the first half at Island East, less than the 51 percent increase during the same period a year earlier, according to a filing last month.

Banks have moved some of their staff to Island East, about a 15-minute subway ride from Central, where rent is cheaper by about half. Royal Bank of Scotland Group Plc, which is giving up half of its Central office, is moving most of its staff outside its private banking unit to the area, people with knowledge of the matter said this month.

Luxury Homes

Earnings from home sales more than doubled in the first half to HK$807 million as the company booked profit from Hong Kong luxury residences including Mount Parker Residences and Argenta, it said.

Residential transactions in the city have been recovering from lows last year, after the government stepped up cooling measures, driven by developers offering discounts for new projects and low interest rates. Home prices hit a record last week, bringing this year’s gain to 4.2 percent, according to a weekly index compiled by Centaline Property Agency Ltd.

“Demand for luxury residential properties in Hong Kong has picked up over the last three months, a trend that is likely to continue into the second half,” Slosar said.

First-half gross income from its retail properties, which comprise six malls in Hong Kong, Beijing, and Guangzhou, rose 8 percent to HK$2.09 billion, Swire Properties said.

Hong Kong’s retail sales dropped for five straight months through June, led by declines in sales of jewelry and watches, as visitor arrivals from mainland China are moderating.

Retailers are becoming more cautious but it’s not expected to have a “significant adverse effect” on the company’s malls, Slosar said in the statement today.

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