Hang Lung Group (10) H1 2017 earnings summary

Executive summary

• China retail recovery appeared to be starting, led by tier-one cities; tier-two markets remained uneven, prompting a cautious outlook on rent growth.

• Financial resilience was underpinned by near-zero debt, while ongoing investment and selective land buying remained priorities.

Financial highlights

• Plaza 66 tenant sales rose 29% YoY and rents increased 23%; sales growth was ~20% excluding the basement’s nine-month closure.

• Grand Gateway like-for-like retail sales rose 7% and rental income increased 9% excluding renovation space; including offline area, rental income fell 7%.

• Hong Kong retail rents had grown 7%-10% annually in recent years despite weak market conditions, lifting the comparison base as the market began showing recovery signs.

Outlook and guidance

• Mainland non-Shanghai rental growth expected to emerge gradually as 25%-30% of leases come up for renewal each year.

• 2019 was expected to bring completion of Kunming and Wuhan projects, Shenyang hotel and office additions, the Wuxi office tower, and Grand Gateway renovation.

• Annual CapEx was projected to average HKD 5 billion over five years while developing the existing land bank; net gearing could reach ~20% by year five.

• Selective China land acquisition remained under consideration, with purchases contingent on high-quality sites at acceptable prices.