Hysan Development Company (14) H1 2018 earnings summary

Executive summary

• H1 2018 turnover rose 6.8% YoY and recurring underlying profit increased 4.3%; reported profit included a HK$1.7bn investment-property valuation gain.

• Retail and office occupancy stood at 96% and 95%, respectively; Lee Garden Three began soft-opening in April.

Financial highlights

• Reported profit benefited from a HK$1.7bn valuation gain, versus a valuation drop in H1 2017; cap rates were unchanged.

• Retail turnover was HK$962m, down 2%; turnover rent more than doubled to HK$54m as tenant sales strengthened.

• Office turnover grew 22% to HK$820m; residential portfolio turnover fell 3% to HK$130m, mainly due to unit renovations.

Outlook and guidance

• Lee Garden Three is expected to contribute HK$300m–HK$350m revenue in 2019; 2018 is estimated at 75%–80% of full-year capacity, split 40% H1 and 60% H2.

• Lee Garden Three property-expense ratio is expected at 14%–15% for 2018, then normalize to 10%–11% from 2019.

• Its grand opening was planned for Q4 2018; additional tenants and offerings were expected to roll out over the following months.

• Retail rental reversion was neutral across renewals, rent reviews and new lettings; office rental reversion was positive.