Swire Properties Profit Misses Estimates on Rental Slowdown

Swire Properties Ltd., the biggest commercial landlord in Hong Kong’s Island East, reported first-half profit that missed analysts’ estimates as retail rents slowed and home sales trailed. The stock fell.

Earnings excluding revaluation gains and deferred taxes rose 16 percent from a year earlier to HK$2.81 billion ($362 million) in the six months ended June 30, the company said in a statement to the Hong Kong’s stock exchange today. That compares with a HK$2.95 billion median estimates of five analysts surveyed by Bloomberg News.

Profit booked from apartment sales at the luxury Azura project was less than forecast, Adrian Ngan, an analyst at Citic Securities International, said after the earnings. Growth in rental income from shopping malls is also diminishing as mainland Chinese tourists spend less on luxury and fashion goods amid a slowdown in the world’s second-largest economy.

“It just doesn’t have much of a growth driver, at least in the short term,” said Hong Kong-based Ngan. “The results are in line with our expectation, but it’s pretty clear that shopping mall rents are slowing down, while apartment sales won’t be picking up anytime soon.”

Shares of Swire Properties fell 2.6 percent to HK$22.70 at the close of trading in Hong Kong, reversing earlier gains of as much as 2.6 percent. The stock has declined 12 percent this year, compared with the 0.5 percent drop in the benchmark Hang Seng Index.

First Decline

Retail rents in Hong Kong will post their first annual decline since 2008 this year as a pledge by the Chinese government to limit additional stimulus adds to the risk of a deeper economic slowdown, property broker Cushman & Wakefield Inc. said in a July report.

The city has the world’s most-expensive shopping locations as rents almost quadrupled over the past decade after China relaxed travel visas to the city for its citizens, the broker said.

Demand for the group’s shopping malls will stay strong “albeit at a moderate pace than hitherto,” Swire Properties Chairman Christopher Pratt said in today’s statement.

The company plans to pay 20 Hong Kong cents interim dividend, down from 22 cents last year.

“We are a little concerned” about weaknesses in the Hong Kong office market and also earnings from property sales, Pratt said at a briefing in Hong Kong today.

Gross income from the company’s Hong Kong retail portfolio, which include 2.4 million square feet of space at the Pacific Place and Cityplaza shopping malls, rose 7 percent in the first half to HK$1.28 billion, it said.

Island East

Still, earnings were supported by rising demand for office space in Island East as companies relocate away from the city’s Central business district to reduce occupancy costs.

Swire Properties, which owns almost 11 million square feet of office space in Hong Kong, said office rents at the Island East district rose 51 percent to HK$40 per square foot a month at the end of the first half, according to a filing in July.

Rents of prime offices in Central extended last year’s decline in the first half, property broker CBRE Group Inc. has said. JPMorgan Chase & Co. and Royal Bank of Scotland Plc are among banks that moved some of their staff to Island East, about a 15-minute subway ride from Central, over the past two years.

Gross rental income from offices in the city, which includes the Pacific Place complex in the Admiralty area, rose 5 percent to HK$2.48 billion from a year earlier, Swire Properties said today.

Home Prices

The developer booked a total of HK$278 million in profit from apartments sold in projects including the Azura, compared with a loss of HK$18 million a year earlier, it said. The company has also sold units at the Dunbar Place and Argenta projects in the first half and will book profits from those sales when the developments are completed.

Home prices in the city have fallen about 2.6 percent from a record in March, after the government imposed its toughest yet measures to quell concerns of an asset bubble, including raising mortgage down-payment requirements and charging extra property transaction taxes.

Gross rental income from the developer’s properties in other parts of China, where it has more than 6 million square feet of commercial property space, was HK$784 million in the first half, HK$132 million higher than a year earlier, the group said.

Swire Properties and partner Sino-Ocean Land Holdings Ltd. sold an office tower at their project in the western Chinese city of Chengdu for 2.1 billion yuan ($343 million), the companies said Aug. 7. The 6.4 billion yuan-project, which also includes a shopping mall, is scheduled to open in early 2014.

In a separate statement, Swire Pacific Ltd., the parent of Swire Properties, said underlying profit rose 48 percent from a year earlier to HK$3.3 billion. Swire Pacific also controls Cathay Pacific Airways Ltd., the city’s biggest carrier.

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