China / Hong Kong Industry Focus Hong Kong Property Sector
DBS Group Research . Equity 16 Jan 2020 Decentralised offices defensive, Refer to important disclosures at the end of this report suburban malls steady HSI: 28,638 • Divergent office submarket performance with Island East to outperform Central
• Suburban and community malls stay resilient ANALYST Jeff YAU CFA, +852 36684180 [email protected] despite the challenging retail scene Ian CHUI CFA, +852 36684174 [email protected] • Prefer Hang Lung Properties & Link REIT Jason LAM +852 36684179 [email protected]
Divergent office submarket performance. Office sector has been peaking out amid softened leasing demand led by global Recommendation & valuation market uncertainty. Growing vacancy continues to weigh on office rents in Central. On the other hand, Island East sees Company T ick er Mk t Cap Price 12-m T P Recom continued steady leasing demand from multinational firms with HK$bn HK$ HK$ high occupancy. Overall, we project office rents to be 5-10% Property Investors lower in 2020 with Island East to outperform Central. Hang Lung Prop 101 HK 84 18.58 21.66 BUY Investment sales market has turned very quiet after the political HK Land @ HKL SP 13 5.64 6.64 BUY protests escalated. In late 2019, SHKP clinched the sizeable Hysan Dev 14 HK 31 29.85 32.35 HOLD commercial lot atop the West Kowloon High-speed Rail Swire Properties 1972 HK 151 25.75 29.25 BUY Wharf REIC 1997 HK 141 46.35 44.10 HOLD Terminus. To diversify the investment risks, SHKP disposed of 25% stake in office portion which, we estimate, would offer Commercial REITs initial rental yield of >4% upon completion. Champion REIT 2778 HK 29 5.01 5.47 HOLD Fortune REIT 778 HK 18 9.20 10.90 BUY Challenging retail scene. The fallout of the protests brought Link REIT 823 HK 171 81.70 96.60 BUY the retail market into severe downturn. Retail turnover rents Prosperity REIT 808 HK 5 3.05 3.53 BUY evaporated as a result of diving tenants’ sales, particularly at Sunlight REIT 435 HK 8 5.07 5.87 BUY shopping landmarks. This, coupled with rental relief offered to @US$ denominated affected tenants, should dampen the rental performance of retail landlords. Lease renewal negotiations between landlords *Closing prices at Jan 10, 2020 and tenants are on hold as more time is needed to assess the Source: Thomson Reuters, DBS Bank (Hong Kong) Limited (“DBS HK”), outlook of retail market. Lease restructuring is used to address Bloomberg Finance L.P. the prevailing challenges facing retail tenants. With challenging retail scene to continue in the near term, we forecast retail rents to fall 5-15% in 2020. Rents for street-front shops should see more downward pressure while community and suburban malls should fare better.
Stock recommendation. Property investors are trading at 49% discount to our current NAV estimates on a weighted average basis, against the long-term average of 33%. Within the sector, we prefer Hang Lung Properties due to its improving retail mall performance in China. Swire Properties should be well placed to tap the steady office demand in Island East. Five commercial REITs we cover offer FY20 distribution yield of 4.1% on a weighted average basis. Link REIT and Fortune REIT are safe bets in the current volatile market given their earnings resilience. Ongoing unit repurchase lends support to Link REIT’s valuation.
ed- JS/ sa-CS / AH Industry Focus
Hong Kong Property Sector
Office Office rental index - Central The office market reversed its uptrend in 2H19 due to the lingering US-China trade dispute and ongoing social unrest in Hong Kong. After rising marginally by 1.4% in 1H19, overall (index pt) office rents fell 4.8% in 2H19 led by Central, according to 300 Jones Lang LaSalle. Central 250
Leasing demand for office space in Central among Chinese 200 firms continued to be sluggish. Office landlords failed to fill 150 returning space from tenants relocating to other submarkets. 1Q19: 1.6% QoQ This resulted in continued net withdrawal of office space in 100 2Q19: -0.1% QoQ 3Q19: -3.8% QoQ Central since Oct-18. Office vacancy in Central climbed to 50 4Q19: -3.1% QoQ 3.5% in Nov-19, the highest in more than four years, from Jun-19’s 2.3% and Dec-18’s 1.8%. Moreover, vacancy has 0
been gathering momentum in 4Q19 with diminishing new
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18 Jan-19 letting. With growing pressure from rising vacancies, Central Jan-20 landlords are adopting a flexible leasing strategy. Hence, office Central Rental Index leasing activities were dominated by renewals. According to Jones Lang Lasalle, Central office rents dropped 6.8% in 2H19 Source: Jones Lang Lasalle following 1.5% increase in 1H19.
Office vacancy - Central With net take-up of office space plunging 62% to <1.1msf in 2019, the overall office vacancy rate rose to 5.9% in Nov-19, up from Jun-19’s 5.4% and Dec-18’s 4.2%. Leasing demand % was concentrated in decentralised areas as tenants continued 6.0 Nov-19: 3.5% to seek cost effective office accommodation. 5.0 Office vacancy - overall 4.0
3.0 % 2.0 9.0
1.0 8.0 Nov-19: 5.9% 7.0 0.0 6.0 5.0 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 4.0 Source: Jones Lang Lasalle 3.0 2.0 1.0
0.0
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18 Jan-19
Source: Jones Lang Lasalle
Page 2 Industry Focus
Hong Kong Property Sector
Office vacancy – all submarkets Office vacancy – Kowloon East
% % 30.0 14.0 Oct-19 Nov-19 12.912.8 13.0 12.0 Nov-19: 12.8% 11.0 25.0 10.0 9.0 8.0 7.0 5.8 5.9 20.0 6.0 4.2 5.0 3.3 3.5 4.0 3.5 3.9 4.0 3.0 2.8 15.0 3.0 2.0 1.0 10.0 0.0 5.0 Overall Central HK East HK 0.0 Tsimshatsui Bay
Kowloon East Kowloon
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18 Jan-19 Wanchai/ Causeway Wanchai/
Source: Jones Lang Lasalle Source: Jones Lang Lasalle
Among key submarkets, Island East posted modest growth of Office vacancy rose to 4.2% in Nov-19 from Jun-19’s 3.2% in 3.5% in 2019, with relatively low vacancy of 2.8% in Nov-19, Wan Chai/Causeway where office rents fell 3.6% in 2019, according to Jones Lang LaSalle. according to Jones Lang LaSalle. Kowloon East saw its office vacancy stable at 12.8% in Nov-19, with rents dropped Office rental change – all submarkets marginally in 2019.
Office vacancy – Wan Chai/Causeway Bay % 4.0 3.0 % 2.0 6.0 1.0 5.0 0.0 Nov-19: 4.2% -1.0
4.0 -2.0
Overall Central
-3.0 East HK Tsimshatsui
3.0 -4.0 Wanchai/ Kowloon East Kowloon -5.0 Bay Causeway 2.0 -6.0 1.0
0.0
Source: Jones Lang Lasalle Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Source: Jones Lang Lasalle
Page 3 Industry Focus
Hong Kong Property Sector
As a result of subdued leasing demand, there was little taken up. We forecast that the office portion of Harbour East, improvement in commitment rates of newly built office if fully let, should generate annual rental income of c.HK$75m properties over the past six months. Occupancy at K11 Atelier p.a. King’s Road in Quarry Bay, and office space converted from Hampton Court at Harbour City stayed largely unchanged at Overall, we forecast that office rents to fall 5-10% in 2020. 50-60% while Quayside in Kwun Tong remains c.70% Island East where the leasing demand remains steady should committed. outperform. Vacancy in Central is expected to rise further amid . subdued leasing demand given uncertain market outlook. This K11 Atelier King’s Road should continue to overshadow the Central office market which should lag behind the other submarkets
Harbour East
Source: DBS HK
Co-working space operators used to be a key source of office Source: DBS HK leasing demand. WeWork was a case in point. It continued to expand its business operations in Hong Kong and grabbed After Gaw Capital purchased 625 King’s Road in North Point more office space in areas close to CBD in 1H19. However, from a consortium equally owned by Swire Properties and since its initial public offering failed, it adjusted its business China Motor Bus for HK$4.75bn in mid-19, the office strategy. It intends to surrender some of previously committed investment sales market turned very quiet, especially after the office space. The returning space, if any, could lead to slightly social unrest escalated resulting in worsening economic higher office vacancy. outlook. There were no major office transactions in 2H19.
Henderson Land is offering Harbour East in North Point for In Aug-19, Far East Consortium won the tender for a leasing. Redeveloped from the former Newton Hong Kong commercial lot in Kai Tak after defeating nine other Hotel, this newly completed office property, opposite the developers. The winning bid was HK$2.45bn or company’s AIA Tower, is a 2-minute walk from Fortress Hill HK$7,100psf. The site is adjoining to the Kai Tak Sports Park MTR Station from where it takes 10 minutes to Central by and close to Sung Wong Toi MTR Station and Kai Tak MTR subway. Harbour East is 25-storey office tower with total GFA Station. Upon scheduled completion in 2023, this project will of 144,000sf, including 130,1000sf for office use. So far, one comprise an office tower and a Dorsett branded hotel. Total office floor has been leased while the retail portion is largely GFA is 344,448sf, split into 172,224sf for office purpose,
Page 4
Industry Focus
Hong Kong Property Sector
155,002sf for hotel use and 17,222sf for retail facilities. The This development also offers strong synergies with SHKP’s office tower will be retained for long-term investment after International Commerce Centre/W Hotel/Ritz-Carlton in the completion. Including construction and financing costs, we neighbourhood. It allows the company to fully control office estimate total development costs at HK$12,000psf. Based on supply in the area which is set to emerge as a new office hub our estimated average monthly office rents of HK$30psf, we in the coming decade. estimated that the initial rental yield at c.3%. The site is the only commercial site in the Kai Tak area that the government This project will provide total GFA of 3.16msf. Three office successfully tendered out in 2019. Tenders for two other towers with 2.82msf GFA will be built above a 0.35msf retail commercial sites on the old airport runway were withdrawn. mall. The accommodation value works out to be HK$13,345psf. Including construction and interest costs, we In 2H19, the highlight of the office land market was the tender estimate the all-in development costs at c.HK$23,000psf. of a commercial site atop West Kowloon High-speed Rail Based on our assumed average monthly office rent of Terminus in Nov-19. SHKP finally secured this sizeable lot for HK$80psf, we estimate initial rental yield at >4%. However, HK$42.23bn after outbidding Cheung Kong Asset Holdings given its sheer size, this commercial project is expected to be and a consortium comprising Henderson Land, Lifestyle developed in phases, and should take 7-8 years for SHKP to International, Wharf REIC, Sino Land and Chinese Estates. This complete the entire project, implying higher investment risks. made it the most expensive site ever sold by the government in Furthermore, pursuant to the government lease, no strata- terms of total land premium. titled sale of this commercial project is allowed. This means it will take some time for SHKP to recoup its huge investment. To This commercial project is strategically located. It sits atop West diversify the investment risk, SHKP has agreed to sell a 25% Kowloon High-Speed Rail Terminus on one hand and is close to stake in the office portion to its major shareholder, Kwok Kowloon Station of Airport Express on the other. Its excellent family, in Dec-19. This arrangement enables SHKP to transportation connectivity has strong appeal for Chinese firms. participate in this strategic development without tying up too much capital. SHKP continues to search for long-term strategic Commercial site atop West Kowloon HSR* terminus investors for this project to further reduce its business risk.
*High Speed Rail
Source: DBS HK
Page 5
Industry Focus
Hong Kong Property Sector
Major office supply
2020 206-222 Wanchai Road Wan Chai 38,000 Henderson Land W Luxe Shatin 171,000 SHKP KCTL 522 Kwai Chung 57,000 SHKP KCTL 517 Kwai Chung 123,505 First Group (Unlisted)
2021 AIL 462 Wong Chuk Hang 208,933 Sino Land/Empire Group
2022 IL9051 Central 465,000 Henderson Land Two Taikoo Place Quarry Bay 1,000,000 Swire Props 222-228 Wanchai Road Wan Chai 121,000 SHKP NKIL 6582 Cheung Sha Wan 538,755 New World Development NKIL 6572 Cheung Sha Wan 371,096 New World Development YTTL 532 Yuen Long 373,215 Sino Land
2023 and beyond Peel Street/Graham Street redevelopemnt Site C Central 310,000 Wing Tai Props/CSI Props Hutchison House redevelopment Central 493,500 CK Asset Holdings Excelsior Hotel redevelopment Causeway Bay 683,508 Mandarin Oriental 226-240 Electric Road North Point 105,000 Hang Lung 46-56 Queen's Road East Wan Chai 218,000 Swire Props Redevelopment of Wa Hah Factory Building/Zung Fu Industrial Quarry Bay 779,000 Swire Props 23 Wong Chuk Hang Road Wong Chuk Hang 107,000 Rykadan Capital KIL 11262 West Kowloon 2,816,052 SHKP NKIL 6505 Cheung Sha Wan 998,201 New World Development NKIL 6557 Kai Tak 439,167 Lifestyle International NKIL 6556 Kai Tak 1,690,933 Nan Fung NKIL 6607 Kai Tak 189,448 Far East Consotium 98 How Ming Street Kwun Tong 650,000 SHKP/Transportation International Goldin Financial Global Square Redevelopment Kowloon Bay 360,000 Goldin Financial KCTL 495 Kwai Chung 228,033 Hon Kwok Land
Source: DBS HK, Lands Department, Local Press
Page 6
Industry Focus
Hong Kong Property Sector
Retail Lacklustre sales of expensive luxury items was the main culprit of the drop in retail sales. Jewellery and watches posted >40% The retail sector went through one of the toughest periods in decline in sales value between Aug-19 and Nov-19 primarily 2H19 as the social unrest led by the prolonged protests dented led by dwindling tourist spending. For 11M19, sales value of consumer spending in a big way. Total retail sales plunged by jewellery and watches tumbled 20.9% to HK$61bn 18.2%-24.4% during Aug-19 and Nov-19 in value terms. This resulted in total retail sales value for 11M19 falling by 10.3% Monthly total retail sales value growth – luxury items y-o-y to HK$395bn.
Yoy, % Nov-19: -43.5% y-o-y Monthly total retail sales value growth 75 11M19: -20.9% y-o-y 55 Yoy, % Nov-19: -23.6% y-o-y 2019: -10.3% y-o-y 35 40 15 30 (5) 20 (25) 10 (45)
0
Jul-09 Jul-13
(10) Jul-17
Jun-08
Jun-12
Jun-16
Oct-08
Oct-12
Oct-16
Apr-10
Sep-11
Apr-14
Sep-15
Apr-18
Sep-19
Dec-10
Dec-14
Dec-18
Nov-09
Nov-13
Nov-17
Mar-09
Mar-13
Mar-17
Aug-10
Aug-14
Aug-18
May-11
May-15
May-19
Jan-Feb 08 Jan-Feb Jan-Feb 12 Jan-Feb (20) 16 Jan-Feb
(30) *Jewellery, watches, and clocks and valuable gifts
Source: CEIC, Census & Statistics Department
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17 Jan-18 Jan-19 Inbound tourism ran into a severe downturn. The number of Source: CEIC, Census & Statistics Department tourist arrivals fell 34.2-55.9% during Aug-19 and Nov-19 after the protests escalated. In particular, tourists from Annual total retail sales value growth Mainland China, which usually accounts for >75% of total arrivals, slid 35-58.4% during the Aug-Nov period resulting in lower tourist spending. This inevitably led to falling sales for Yoy, % expensive luxury goods. 25 20 Total visitor arrival growth 15 Yoy, % 10 60 Nov-19: -55.9% y-o-y 5 40 11M19: -10.0% y-o-y 0 20 (5) 0 (10) (20) (15)
(40)
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016 2017 2018 (60) 11M19
Source: CEIC, Census & Statistics Department (80)
Jul/08
Jul/09
Jul/10
Jul/11
Jul/12
Jul/13
Jul/14
Jul/15
Jul/16
Jul/17
Jul/18
Jul/19
Jan/08
Jan/09
Jan/10
Jan/11
Jan/12
Jan/13
Jan/14
Jan/15
Jan/16
Jan/17 Jan/18 Jan/19
Source: CEIC, HK Tourism Board
Page 7
Industry Focus
Hong Kong Property Sector
Total visitor arrival growth – China Monthly growth of retail sales value – department store items
Yoy, % Yoy, % Nov-19: -32.9% y-o-y 80 Nov-19: -58.4% y-o-y 40 11M19: -11.6% y-o- 60 11M19: -9.9% y-o-y 30 40 20 20 10 0 0 (20) (10) (40) (20) (60) (30)
(80) (40)
Jul/08
Jul/09
Jul/10
Jul/11
Jul/12
Jul/13
Jul/14
Jul/15
Jul/16
Jul/17
Jul/18
Jul/19
Jul-09
Jul-13
Jul-17
Jan/08
Jan/09
Jan/10
Jan/11
Jan/12
Jan/13
Jan/14
Jan/15
Jan/16
Jan/17
Jan/18
Jan/19
Jun-08
Jun-12
Jun-16
Oct-08
Oct-12
Oct-16
Apr-10
Sep-11
Apr-14
Sep-15
Apr-18
Sep-19
Dec-10
Dec-14
Dec-18
Nov-09
Nov-13
Nov-17
Mar-09
Mar-13
Mar-17
Aug-10
Aug-14
Aug-18
May-11 May-15
May-19
Jan-Feb 08 Jan-Feb Jan-Feb 12 Jan-Feb Source: CEIC, HK Tourism Board 16 Jan-Feb Source: CEIC, Census & Statistics Department Local shoppers had also cut their discretionary consumption or spending on big-ticket items. On one hand, locals found it Monthly growth of retail sales value – clothing & difficult to shop in traditional retail hubs such as Causeway Bay footwear and Tsim Sha Tsui due to traffic disruptions led by the protests. On the other hand, the propensity to consume also diminished as a consequence of the prolonged protests and the resulting Yoy, % Nov-19: -31.8% y-o-y economic downturn. 50 40 11M19: -13.3% y-o- Real GDP growth in HK 30 20 10 % 0 10 3Q19: -2.9% y-o-y (10) 8 (20) 6 (30) 4 (40) 2 (50)
0
Jul-09 Jul-13
(2) Jul-17
Jun-08
Jun-12
Jun-16
Oct-08
Oct-12
Oct-16
Apr-10
Sep-11
Apr-14
Sep-15
Apr-18
Sep-19
Dec-10
Dec-14
Dec-18
Nov-09
Nov-13
Nov-17
Mar-09
Mar-13
Mar-17
Aug-10
Aug-14
Aug-18
May-11 May-15
(4) May-19
Jan-Feb 08 Jan-Feb Jan-Feb 12 Jan-Feb (6) 16 Jan-Feb (8)
(10) Source: CEIC, Census & Statistics Department
1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 3Q15 1Q16 3Q16 1Q17 1Q18 3Q18 1Q19 3Q19 1Q15 3Q17 3Q09 The similar trend was seen for tenants’ sales at major shopping Source: CEIC, Census & Statistics Department landmarks. In 3Q19, Harbour City and Times Square posted 35% and 30% decline in retail tenants’ sales respectively, Department store items recorded sales decline of 26.1-32.9% underperforming the overall market, partly due to their heavy during Aug-19 and Nov-19 in value terms. Retail sales value of exposure to luxury goods sector. We estimate The Mall at clothing and footwear items fell slightly more in the same Pacific Place registered 27% fall in retail sales value in 3Q19. period. Subdivision of space surrendered by Harvey Nicols also dragged
Page 8
Industry Focus
Hong Kong Property Sector
its retail sales performance in addition to the poor consumer Quarterly growth of total restaurant receipts – fast sentiment. food
Restaurant business, which used to be relatively resilient, was Yoy, % hard hit by the prolonged protests, especially those in key 12 shopping landmarks and on high streets. On the other hand, 3Q19: 2.1% y-o-y those restaurants in neighbourhood malls or community 10 centres saw relatively stable business. Overall, total restaurant receipts fell 11.8% to HK$26.4bn in 3Q19. Among the key 8 categories, Chinese restaurants and bars posted respective declines of 17.8% and 18% in receipts. On the other hand, 6 receipts from fast food shops recorded modest growth of 2.2% in the same period. If there is no improvement in the 4 short term, we expect a number of restaurants to cease operations after the Chinese New Year. 2
0
Quarterly growth of total restaurant receipts
1Q09
1Q10
1Q11
1Q12
1Q13
1Q14
1Q15
1Q16
1Q17 1Q18 1Q19 Yoy, % Source: CEIC, Census & Statistics Department 20 3Q19: -11.8% y-o-y
15 Retail sales of consumer staples remained stable despite the 10 economic slowdown. Supermarket items is a case in point. Its sales value stayed largely steady even after the protests 5 escalated as more and more locals avoided dining out given 0 the road diversions caused by the protests. This mirrored the sales performance of neighbourhood malls held by Link REIT (5) where supermarket is a key group of tenants (10) Monthly growth of retail sales value – supermarket
(15)
1Q08
1Q09
1Q10
1Q11
1Q12
1Q13
1Q14
1Q15
1Q16
1Q17 1Q18 1Q19 Yoy, % Source: CEIC, Census & Statistics Department Nov-19: 2.6% y-o-y 20 11M19: 1.0% y-o-y
15
10
5
0
(5)
Jul-09 Jul-13 Jul-17
Jun-08 Jun-12 Jun-16
Oct-08 Oct-12 Oct-16
Apr-10 Sep-11 Apr-14 Sep-15 Sep-19 Apr-18
Dec-10 Dec-14 Dec-18
Nov-09 Nov-13 Nov-17
Mar-09 Mar-13 Mar-17
Aug-10 Aug-14 Aug-18
May-11 May-15 May-19
Jan-Feb 12 Jan-Feb 16 Jan-Feb Jan-Feb 08 Jan-Feb Source: CEIC, Census & Statistics Department
Page 9
Industry Focus
Hong Kong Property Sector
The considerable decline in tenants’ sales should result in retail for key malls unless the market stages a swift recovery in 1H20. turnover rents falling remarkably in 2H19. Turnover rents That said, for some leases, base rents may be unchanged but usually account for up to 20% of mall income. For example, the overall rental payment would be much lower as turnover Harbour City derived 18% of its retail income from turnover rent is a key rental component. Some landlords may provide a rents in 1H19. Turnover rents made up of 20% of income from longer rent-free period instead of a sharp cut in base rents. Langham Place Mall in the same period. We expect the turnover rents for these landmark shopping malls to almost Suburban or community malls should fare better due to steady evaporate in 2H19. This should weigh on their retail income for tenants’ sales. For example, we expect retail facilities of Link 2H19. Due to different leasing terms, turnover rent is less REIT to maintain reversionary growth of >10% in 2020. Other crucial for certain retail landlords such as Link REIT and Fortune suburban malls should see neutral rental reversions in 2020. REIT. OP Mall opened for business in 2H19 with committed tenants With substantially lower retail sales, occupancy cost ratio gradually moving in. Situated atop Tsuen Wan West Rail should have deteriorated in 2H19. We estimate that most of Station, OP Mall, owned by Cheung Kong Asset Holdings, the key shopping malls, if not all, would see their occupancy provides GFA of 0.43msf. Don Don Donki, the biggest discount cost ratio surging to >20%. This points to tough operating store in Japan, is an anchor tenant and occupies 50,000sf on conditions for these tenants. As in the previous retail market 2/F. This marked its second store in Hong Kong. Given the downturn, most retailers had requested landlords to offer popularity among locals, Don Don Donki should help draw rental relief to alleviate pressure on their operating cost. Most shopper traffic, increasing its catchment area. Like other retail landlords had provided tenants with temporary rental suburban malls, OP Mall has a supermarket, healthcare concessions after reviewing their requests individually, tenants, medical clinics and education tenants to serve the especially for those tenants that hold strategic value. Lease daily needs of residents living nearby. Elsewhere, committed restructuring is also common. Some landlords are willing to F&B tenants include Haidilao Hot Pot. Currently, OP Mall is lower the current rents to provide immediate cost relief for >80% let. If fully leased, we estimate this mall would generate tenants. The shortfall will be partially compensated for by an annual rental income of c.HK$180m to Cheung Kong Asset higher rents in the subsequent years, as the retail market Holdings, further strengthening its recurring income. should recover by then. OP Mall The ongoing social unrest and local economic uncertainty should continue to weigh on consumer sentiment in 2020. But allowing for low comparison base in the second half of the year, we project that total retail sales values to be 1-2% higher in 2020.
According to Jones Lang LaSalle, rents for high-street shops and prime shopping malls fell by 18.4% and 5.6% respectively in 2019 given the retail market downturn. With the challenging retail scene to continue in the near term, we forecast that the overall retail rents to fall 5-15% in 2020. High-street shops should register rental decline of 10-15%. Suburban and community malls should see more resilient rental performance.
Lease renewal negotiations also came to a standstill. Given the market uncertainty led by the social unrest, it is extremely difficult for both landlords and tenants to predict future Source: DBS HK prospects and conclude the lease renewal agreement.
Developed by a consortium equally owned by Swire Properties, Since the occupancy cost ratio has reached a record high of Henderson Land, New Word, SHKP and Hang Lung Group, >20%, retail reversionary growth is expected to turn negative Citygate Outlet Extension held a soft opening in Aug-19. With
Page 10
Industry Focus
Hong Kong Property Sector
GFA of 0.34msf, the Extension further widens the retail and Elsewhere, K11 Musea, retail portion of New World’s Victoria food offering of the entire outlet mall, which targets mainly Dockside located along the Tsim Sha Tsui waterfront, also tourists. However, with falling number of tourist arrivals, opened for business in late Aug. Currently, K11 Musea is particularly from Mainland China, after the protests escalated, >97% committed. With GFA of >1.1msf, K11 Musea houses it will take longer to ramp up the operations of this newly built more than 250 international brands and flagship stores. Some outlet mall. are marking their HK debut in Hong Kong at K11 Musea. New York’s The Museum of Modern Art (MOMA) and UK-based Citygate Outlet Extension Fortnum & Mason are cases in point. Meanwhile, this newly built mall attracts the interest of the local consumer.
K11 Musea
Source: DBS HK
Source: DBS HK
Page 11
Industry Focus
Hong Kong Property Sector
Property investors reversionary growth. The renovation works at South Building at Grand Gateway 66 is being gradually completed and mall Share price performance – Property Investors occupancy has recovered to >90%. The newly built mall at Kunming Spring City 66 is >90% committed with maiden
1M 3M 6M 2H19 1H19 2019 rental contributions flowing through in 2H19. Opened in Sep- Name T ick er (%) (%) (%) (%) (%) (%) 19, Conrad Hotel in Forum 66 has been ramping up its Hang Lung Props 101 HK 13.9 5.7 (1.4) (8.0) 27.4 17.3 operations. New office towers at Spring City 66 and Center 66 HK Land @ HKL SP 2.6 4.4 (15.2) (10.7) 1.6 (9.3) are being handed over to tenants. The stock is trading 49% Hysan Dev 14 HK (0.3) 4.7 (26.6) (24.3) 10.7 (16.2) below our estimated current NAV. BUY with HK$21.66 TP. Swire Props 1972 HK 4.3 9.6 (17.6) (18.1) 15.8 (5.1) Wharf REIC 1997 HK 10.1 10.8 (11.6) (13.6) 19.9 3.6 Swire Properties should see moderating office reversionary Market cap wt. 7.6 8.6 (13.5) (15.2) 18.0 0.1 Hang Seng Index 8.3 11.4 1.5 (1.2) 13.6 12.2 growth at Pacific Place while leasing demand for Island East Hang Seng Prop. Index 5.5 8.9 (6.1) (6.2) 19.2 11.8 Offices remains steady. The performance of retail malls in Hong Kong and China has been mixed. Tenants’ sales at Pacific Place *Closing prices at Jan 10, 2020 Mall tumbled in 3Q19, and this led to significantly lower Source: Bloomberg Finance L.P. turnover rents. This, coupled with rental concessions, should drag retail income. On the other hand, tenants’ sales at retail Share prices of property investors fell 8-24% or 15% on a malls in China are showing improving growth momentum. This weighted average basis in 2H19, underperforming the broad points to higher turnover rents and better reversionary growth. market. Within the sector, Hang Lung Properties stood out as Elsewhere, the company has joined hands with Sino Land and the best performer with its share prices down by just 8%, as Kerry Properties to secure the development rights for the the company is less impacted by the prolonged protests than 0.64msf Wong Chuk Hang Station Package 4. The counter is its peers given its strong commercial exposure in China. On the trading 50% below our appraised current NAV. BUY with other hand, shares price of retail landlord, Hysan Development, HK$29.25 TP. lost 24% in the same period. The overall office market in Central has been peaking out with Following the share price pull back over the past six months, rising vacancy on one hand and falling rents on the other. This property investors are now trading at discounts ranging from should weigh on Hongkong Land’s future reversionary growth 42% to 61%. This translates into a weighted average discount which remained positive in 3Q19. The Singapore office of 49%, compared to the long-term average of 33%. The portfolio is faring better with improving occupancy and current sector valuation is inexpensive in our view. That said, favourable rental increment upon renewals. Hongkong Land given challenging retail scene led by the ongoing social unrest, posted robust growth in contracted sales in China in 3Q19 we do not envisage any near-term catalyst to prompt a re- thanks to more project launches. Its strong net order book also rating of retail landlords such as Wharf REIC and Hysan points to growing residential sales contributions in the years Development. Yet, Wheelock & Co has been raising its stake in ahead. The stock is trading at 55% discount to our appraised Wharf REIC while Hysan has been doing share buybacks, which current NAV. BUY with US$6.64 TP. should help cushion the downside risk on their share prices. Central office market has peaked out. But the negatives should Hysan Development should see substantially lower retail be largely factored in Hongkong Land’s share price. Hence, we turnover rents in 2H19 given dwindling tenants’ sales led by maintain our BUY call on the stock for its cheap valuation. We the prolonged protests. This, coupled with rental concession are also a buyer of Swire Properties due to its strong office offered to certain tenants, should drag retail income. Office exposure in Island East where demand remains steady and as occupancy currently remains firm at 97% but leasing enquiries valuation becomes attractive after the share sell-off. Within the have been waning. Given higher expiring rents, office sector, we prefer Hang Lung Properties which is seeing reversionary growth is set to moderate in FY20 from FY19’s accelerating growth momentum for tenants’ sales at its China c.15%. The stock is trading at 61% discount to our appraised malls. current NAV. Maintain HOLD with HK$32.35 TP.
Tenants’ sales growth momentum at Hang Lung Properties’ In 3Q19, Wharf REIC registered respective retail sales decline of malls in China showed signs of accelerating in 2H19. This 35% and 30% at Harbour City and Times Square led by the should lead to increased turnover rents and favourable retail ongoing social unrest. This should lead to substantial shortfall
Page 12
Industry Focus
Hong Kong Property Sector
of turnover rents which made up of 14% of the company’s Jun-19’s 16% to 19% which remains comfortable. The counter retail income in 1H19. In Dec-19, Wharf REIC expanded to is trading at 42% discount to our assessed current NAV. Given Singapore with the acquisition of Wheelock Place and Scotts the uncertain retail scene, we maintain HOLD with HK$44.10 Square in the Orchard Road belt from its parent Wheelock & TP. Co. Following this, Wharf REIC’s gearing should increase from
Valuation Comparison - Property Investors
Disc. to Mk t Last 12-m PE PE Dec-20 Dec-20 Yield Yield Company Code FYE Cap Price target Recom F Y19 F Y20 NAV NAV F Y19 F Y20 HK$bn HK$ HK$ x x HK$ % % %
Hang Lung Props 101 HKDec 84 18.58 21.66BUY 19.417.2 36.1 (49) 4.04.1 HK Land @ HKL SPDec 13 5.64 6.64BUY 12.712.6 12.1 (53) 3.9 3.9 Hysan Dev 14 HKDec 31 29.85 32.35HOLD 11.911.9 71.9 (58) 5.1 5.1 Swire Props 1972 HK Dec 151 25.75 29.25BUY 6.319.8 48.7 (47) 3.4 3.5 Wharf REIC1997 HKDec 141 46.35 44.10HOLD 14.414.2 73.5 (37) 4.5 4.6
@ Denominated in US$
*Closing prices at Jan 10, 2020
Source: Bloomberg Finance L.P., DBS HK
Page 13 Industry Focus
Hong Kong Property Sector
Hang Lung Properties – Discount to NAV HK Land – Discount to NAV
% % 40 10 0 20 +2SD: -7% +2SD: 6% (10) 0 +1SD: -20% +1SD: -13% (20) (20) (30) Average: -33% Average: -32% (40) (40) (50) -1SD: -46% (60) -1SD: -52% (60) -2SD: -58% -2SD: -71% (80) (70) Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Hysan Development – Discount to NAV Swire Properties – Discount to NAV
% % (5) (10) (15) +2SD: -19% (20) +2SD: -22% (25) +1SD: -28% (30) +1SD: -32% Average: -41% (35) Avg: -36% (40) (45) (50) -1SD: -44% -1SD: -51% (60) (55) -2SD: -53% -2SD: -61% (70) (65) Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Wharf REIC – Discount to NAV Property Investors Sector – Discount to NAV
% % (12) 0 +2SD: -9% (17) +2SD: -17% (10) (22) +1SD: -21% +1SD: -25% (20) (27) Average: -33% (30) (32) Average: -33% (37) (40) -1SD: -41% -1SD: -44% (42) (50) -2SD: -56% (47) -2SD: -49% (60) (52) (70) Jul-18 Jul-19 Jan-18 Jan-19 Sep-18 Sep-19 Nov-17 Nov-18 Nov-19 Mar-18 Mar-19 May-18 May-19 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Source: Bloomberg Finance L.P., DBS HK Source: Bloomberg Finance L.P. DBS HK
Page 14
Industry Focus
Hong Kong Property Sector
REITS HK 10Y Government Bond Yield
Unit price performance - REITs % 3.5 3.0 1M 3M 6M 2H19 1H19 2019 Dec-19: 1.76% Name T ick er (%) (%) (%) (%) (%) (%) 2.5 Champion REIT 2778 HK 1.2 2.7 (25.1) (20.9) 20.8 (4.5) 2.0 Fortune REIT 778 HK 2.2 5.8 (16.1) (15.4) 18.2 - Link REIT 823 HK 2.5 1.5 (16.0) (14.1) 22.8 5.5 1.5 Prosperity REIT 808 HK 2.4 10.9 (13.8) (10.6) 13.7 1.7 1.0 Sunlight REIT 435 HK 0.2 4.3 (18.9) (15.9) 17.9 (0.8) Market cap wt. 2.1 2.4 (18.1) (15.9) 21.0 1.8 0.5 Hang Seng Index 8.3 11.4 1.5 (1.2) 13.6 12.2 0.0
Hang Seng Prop. Index 5.5 8.9 (6.1) (6.2) 19.2 11.8
Jul-14
Jan-11
Jan-18
Jun-17
Oct-12
Feb-15
Oct-19
Sep-15
Apr-16
Dec-13
Nov-16
Mar-12
Mar-19
Aug-11 Aug-18 *Closing prices at Jan 10, 2020 May-13 Source: Bloomberg Finance L.P. HK 10Y Gov bond yield
Source: Bloomberg Finance L.P. After posting 21% gain in 1H19, unit prices of the five commercial REITs we cover fell >15% in 2H19 on a weighted The five commercial REITs under our coverage are trading at average basis, largely in line with the landlords. Champion REIT FY20 distribution yield of 3.6-6% or 4.1% on a weighted saw its unit price drop by 21% making it the worst performer average basis. The yield on Hong Kong 10-year Government for 2H19. Unit prices of Link REIT, Fortune REIT and Sunlight bonds currently stands at 1.6%. This translates into a current REIT fell between 14% and 16% during the same period. sector yield spread of 2.5%. We like Link REIT for its steady Prosperity REIT fared better with its unit price declining by earnings growth. The recent office acquisition in Sydney offers 11%. immediate yield accretion on one hand and provides asset and geographical diversification on the other. Unit buyback should The US fed fund rate was cut by 75bps in 2H19. While the 10- support its unit price. We also like Fortune REIT for its earnings year US treasury bond yield edged down slightly to 1.9% at resilience. Sunlight REIT is rated BUY as its proactive asset and the end of 2019 from 2% six months earlier, the Hong Kong capital management adds momentum to its distribution 10-year Exchange bond yield inched up to 1.8% from 1.5% at growth. end of Jun-19. This could have exerted pressure on the REIT sector’s performance. HK Commercial REIT – sector* yield spread
US 10Y Treasury Bond Yield % 10 max: 8.62% % 9 3.5 Dec-19: 1.88% 8 3.0 7 6 2.5 5 +1sd 3.63% 2.0 4 3 1.5 avg: 2.92% 2 1.0 -1sd: 2.22% 1 0.5 0
0.0 (1)
Jul-14
Jan-11
Jan-18
Jun-17
Oct-12
Oct-19
Feb-15
Sep-15
Apr-16
Dec-13
Nov-16
Mar-12
Mar-19
Aug-11
Aug-18
Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-16 Nov-17 Nov-18 Nov-19 Nov-15
May-13
May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-15 May-16 May-17 May-18 May-19 May-14 May-13 *Includes Champion REIT, Fortune REIT, Link REIT, Prosperity REIT, US 10Y Treasury yield Sunlight REIT Source: Bloomberg Finance L.P. Source: Bloomberg Finance L.P.
Page 15
Industry Focus
Hong Kong Property Sector
Link REIT has entered an into agreement with Blackstone to increased its hedging ratio to 70% with the aid of interest rate acquire 100 Market Street, a 10-storey office property in swaps. This helps shield the REIT’s earnings from interest rate Sydney CBD for A$683m. This marked its first acquisition volatility. Prosperity REIT offers distribution yield of 6% for beyond Greater China. The property is fully let with weighted FY19-20. BUY with HK$3.53 TP. average lease expiry of 8.45 years. Initial rental yield is c.4% which should grow steadily given the step-up rent structure. Office occupancy at Three Garden Road retreated to 92-93% Funded by domestic borrowings, this acquisition should be from Jun-19’s 95.8% amid waning leasing demand. In view of immediately yield accretive. This acquisition also offers challenging Central office market, Champion REIT has adopted geographical and asset diversification. Following the a flexible leasing strategy for this Grade A office property. Spot acquisition, Hong Kong and China assets account for 86% and rents have come off slightly but remains above expiring rents 12% of total portfolio value with the remaining 2% from for FY20. Hence, reversionary growth should stay favourable at overseas. Retail and car park facilities represent 91% of total >15% in FY20. Tenants’ sales at Langham Place Mall in portfolio value with the balance made up of office properties. Mongkok fell noticeably since the political protests escalated. Link REIT offers distribution yield of 3.6-3.9% for FY20-21. This resulted in substantially lower turnover rents which will Ongoing unit buyback should support the unit price drag mall income. Lingering market uncertainty is also slowing performance. BUY with HK$96.6 TP lease negotiations with tenants. Champion REIT trades at distribution yield of 5.3% for FY19-20. We have downgraded Fortune REIT’s portfolio occupancy stands high at 97-98%. Champion REIT to HOLD with HK$5.47 TP Rental reversion moderated to c.5% in 2H19 with limited new demand. For leases expiring in 2020, negotiation with tenants are put on hold given the uncertainty in the prevailing retail market. Asset enhancement works at West Block of Fortune Kingswood was completed in Sep-19 with revamped area largely committed. ROI exceeds 10%. Given the retail market slump, Fortune REIT has decided to defer its asset enhancement initiative at East Block of Fortune Kingswood to late 2020. Fortune REIT offers distribution yield of 5.6-5.7% for FY19-20. BUY with HK$10.90 TP
Sunlight REIT’s office portfolio should stay resilient. Office reversionary growth at Sunlight Tower should remain healthy at >10% in FY20. Full commencement of the lease of co- working space operator, theDesk, would boost passing rents at Strand 50. At The Harvest, Sunlight REIT has filled up the office space surrendered by Chong Hing Bank with higher-yielding tenants from semi-retail and service trades. Sheung Shui Centre Shopping Arcade is affected by the prolonged protests and rental relief has been given to affected tenants. Metro City Ph 1 property, which serves the daily needs of residents living nearby, is faring better. Overall, retail reversionary growth should moderate in FY20. Sunlight REIT offers distribution yield of 5.4% for FY20 and 5.5% for FY21. Maintain BUY with HK$5.87 TP.
Prosperity REIT’s portfolio occupancy remains firm at 97% despite waning leasing demand from SMEs. Reversionary growth has been moderating to 2-3% in 2H19 from 1H19’s 8.8%. About 39% of leases are scheduled for expiry in 2020. The overall rental reversion is expected to turn neutral with Prosperity Millennium Plaza faring better. Prosperity REIT has
Page 16
Industry Focus
Hong Kong Property Sector
Valuation Comparison – Commercial REITs
Mk t Last 12-m Yield Yield Price/ REIT Code FYE Cap Price T arget Recom F Y19F F Y20 BV HK$bn HK$ HK$ % % (x) Champion REIT 2778 HKDec 29 5.015.47HOLD5.35.30.42 Fortune REIT 778 HKDec 18 9.2010.90BUY5.65.70.55 Prosperity REIT 808 HKDec53.053.53BUY6.06.00.53 Sunlight REIT 435 HKJun85.075.87BUY5.45.40.52 Link REIT 823 HKMar 171 81.7096.60BUY3.33.60.90
*Closing prices at Jan 10, 2020 Source: Bloomberg Finance L.P., DBS HK
Champion REIT – historical yield band Champion REIT – price to book value band
HK$ HK$ 9.00 10 8.00 9 7.00 8 Ceiling: 4% 0.74x 6.00 7 0.63x 5.00 6 5 0.52x 4.00 4 0.42x 3.00 Mid: 3 2.00 14.21% 0.31x 2 1.00 Floor: 24.41% 1 - 0 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan/10 Jan/12 Jan/14 Jan/16 Jan/18 Jan/20 Sep/10 Sep/12 Sep/14 Sep/16 Sep/18 May/11 May/13 May/15 May/17 May/19 Fortune REIT – historical yield band Fortune REIT – price to book value band
HK$ HK$ 14.00 16 Ceiling: 4.3% 0.9x 12.00 14 0.76x 12 10.00 10 0.61x 8.00 8 0.47x 6.00 6 Mid: 13.4% 4.00 4 0.32x 2.00 2 Floor: 22.4% 0 - Jul/10 Jul/11 Jul/12 Jul/13 Jul/14 Jul/15 Jul/16 Jul/17 Jul/18 Jul/19 Jan/10 Jan/11 Jan/12 Jan/13 Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 Jan/19 Jan/20 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Source: Bloomberg Finance L.P., DBS HK Source: Bloomberg Finance L.P., DBS HK
Page 17
Industry Focus
Hong Kong Property Sector
Link REIT – historical yield band Link REIT – price to book value band
HK$ HK$ 120.00 140 Ceiling: 2.81% 1.41x 100.00 120 1.21x 80.00 100 1.02x 80 60.00 Mid: 0.83x 4.82% 60 40.00 0.63x 40 20.00 Floor: 6.82% 20 -
0
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Jul/10
Jul/11
Jul/12
Jul/13
Jul/14
Jul/15
Jul/16
Jul/17
Jul/18
Jul/19
Jan/10
Jan/11
Jan/12
Jan/13
Jan/14
Jan/15
Jan/16
Jan/17
Jan/18 Jan/19 Jan/20 Prosperity REIT – historical yield band Prosperity REIT – price to book bands
HK$ HK$ 4.50 5.0 0.77x 4.00 Ceiling: 4.8% 4.5 3.50 4.0 0.68x 3.00 3.5 0.59x 2.50 3.0 0.5x Mid: 2.00 11.1% 2.5 0.41x 1.50 2.0 1.00 1.5 0.50 Floor: 17.4% 1.0 - 0.5
0.0
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Jul/10
Jul/11
Jul/12
Jul/13
Jul/14
Jul/15
Jul/16
Jul/17
Jul/18
Jul/19
Jan/10
Jan/11
Jan/12
Jan/13
Jan/14
Jan/15
Jan/16
Jan/17
Jan/18 Jan/19 Jan/20 Sunlight REIT – historical yield band Sunlight REIT – price to book bands
HK$ HK$ 9.00 Ceiling: 4.27% 8 8.00 7 0.76x 7.00 6 0.66x 6.00 5 5.00 0.55x 4.00 4 0.45x 3.00 Mid: 3 0.34x 14.6% 2.00 2 1.00 Floor: 24.9% 1 -
0
Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-19 Jul-18
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Jul/10
Jul/11
Jul/12
Jul/13
Jul/14
Jul/15
Jul/16
Jul/17
Jul/18
Jul/19
Jan/10
Jan/11
Jan/12
Jan/13
Jan/14
Jan/15
Jan/16
Jan/17
Jan/18 Jan/19 Jan/20 Source: Bloomberg Finance L.P., DBS HK Source: Bloomberg Finance L.P., DBS HK
Page 18
Industry Focus
Hong Kong Property Sector
Property Investors – Asset Breakdown
GAV Breakdown (%) Hang Lung Props Hongkong Land Hy san Swire Props Wharf REIC HK 49 64 93 76 96 Residential 8 0 15 4 3 Office 16 55 45 55 33 Retail 22 8 32 13 57 Hotel 0 1 0 3 3 Industrial 0 0 0 0 0 Others 2 0 1 2 0 Farmland 0 0 0 0 0 China 51 18 6 21 0 Overseas 0 18 0 2 2 Listed subsidiaries. associates & 0 0 0 0 2 investments Other assets 0 0 0 0 0 T otal 100 100 100 100 100
Source: DBS HK
Property Investors – NAV sensitivity
% increase in NAV Hang Lung Props Hongkong Hy san Swire Props Wharf REIC if the following prices Land rise by 10% Office -HK 1.9% 6.2% 4.8% 6.1% 4.0% Retail - HK 2.6% 0.8% 3.4% 1.3% 6.8% Residential - HK 1.0% 0.0% 1.3% 0.5% 0.3% Hotels - HK 0.0% 0.1% 0.0% 0.3% 0.3%
Source: DBS HK
Page 19 HK Property Sector Hang Lung Properties
Bloomberg: 101 HK | Reuters: 101.HK Refer to important disclosures at the end of this report
BUY Harvest time Last Traded Price ( 10 Jan 2020): HK$18.58 (HSI : 28,638) Price Target 12-mth: HK$21.66 (16.6% upside) (Prev HK$22.38) • Retail tenants’ sales growth in China gaining momentum Analyst Jeff YAU CFA, +852 36684180, [email protected] • New properties to augment recurring income Ian CHUI CFA,+852 36684174, [email protected] Jason LAM +852 36684179, [email protected] • BUY with HK$21.66 TP Retail tenants’ sales growth in China gaining momentum. Price Relative Growth momentum for Hang Lung Properties tenants’ sales at HK$ Relative Index 24.0 222 retail malls in China exhibited signs of accelerating in 2H19. This 202 22.0 182 should bode well for turnover rent growth and retail rental 20.0 162 reversion, pointing to favourable organic growth in retail income. 18.0 142 122 16.0 The renovation of the South Building at Grand Gateway 66 in 102 14.0 82 Shanghai has gradually been completed with the mall’s 12.0 62 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 occupancy recovering to >90%. The entire asset enhancement Hang Lung Properties (LHS) Relative HSI (RHS) works are expected to be completed in mid-2020. With Forecasts and Valuation budgeted capital expenditure of HK$800m, we estimate a FY Dec (HK$ m) 2018A 2019F 2020F 2021F payback period of 4-5 years. Turnover 9,408 8,793 9,991 10,417 EBITDA 6,326 5,791 6,465 6,698 New properties to augment recurring income. Opened for Pre-tax Profit 5,703 5,977 6,704 6,951 business in Aug-19, Hang Lung’s retail mall at Spring City 66 in Underlying Profit 4,093 4,297 4,852 5,031 Kunming is >90% committed with >75% of shops opened for EPS (HK$) 0.91 0.96 1.08 1.12 business. The 315-room Conrad Hotel at Forum 66 opened in EPS Gth (%) (26.0) 5.0 12.9 3.7 Sep-19. When its operations are gradually ramped up, the hotel PE (X) 20.4 19.4 17.2 16.6 should bring in desirable foot traffic to the mall. The newly built P/Cash Flow (X) 12.3 13.8 11.9 8.9 office tower at Spring City 66 and second office tower at Center EV/EBITDA (X) 18.2 19.9 17.8 17.2 DPS (HK$) 0.75 0.75 0.77 0.77 66 were handed over to tenants from Aug-19. Meanwhile, both Div Yield (%) 4.0 4.0 4.1 4.1 towers are c.10% committed. Retail mall at Heartland 66 in Net Gearing (%) 11 20 24 28 Wuhan is scheduled to open in mid-20 with >40% of space ROE (%) 3.0 3.1 3.5 3.6 being committed. Office tower has topped out but pre-leasing Est. NAV (HK$) 36.4 36.1 has yet to start. Construction works of Westlake 66 in Hangzhou Disc. to NAV (%) (49) (49) has commenced with project completion targeted for 2024.
Earnings Rev (%): (2) (9) New BUY with HK$21.66 TP. The stock is trading at 49% discount to Consensus EPS (HK$): 0.99 1.07 1.11 our appraised current NAV. The company’s retail mall operations Other Broker Recs: B:13 S:3 H:0 in China is going from strength to strength. Portfolio expansion Source of all data on this page: Company, DBS Bank (Hong Kong) Limited should add spice to its recurrent earnings growth. By applying (“DBS HK”), Thomson Reuters 40% discount to our Dec-2020 NAV estimate, we set our TP at HK$21.66, suggesting 17% upside potential. Maintain BUY.
At A Glance Issued Capital (m shrs) 4,498 Mkt Cap (HK$m/US$m) 83,728 / 10,759 Major Shareholders (%) Hang Lung Group Ltd 57.9 Free Float (%) 42.1 3m Avg. Daily Val. (US$m) 10.39 GICS Industry: Real Estate / Real Estate Management & Development
Page 20
ed-KK/ sa- CS /AH HK Property Sector
Hang Lung Properties
Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2018A 2019F 2020F 2021F FY Dec 2018A 2019F 2020F 2021F Turnover 9,408 8,793 9,991 10,417 Fixed Assets 168,078 180,706 188,195 196,560 EBITDA 6,326 5,791 6,465 6,698 Other LT Assets 1,423 1,435 1,444 1,451 Depr / Amort (45) (45) (45) (45) Cash & ST Invts 12,363 4,853 4,092 4,090 EBIT 6,281 5,746 6,420 6,653 Other Current Assets 4,589 6,037 7,395 6,759 Associates Inc 49 51 49 48 Total Assets 186,453 193,031 201,125 208,860 Interest (Exp)/Inc (627) 180 235 250 ST Debt 2,414 2,000 1,000 1,000 Exceptionals 0 0 0 0 Creditors 5,974 5,867 5,760 5,653 Pre-tax Profit 5,703 5,977 6,704 6,951 Other Current Liab 558 658 758 858 Tax (1,203) (1,255) (1,408) (1,460) LT Debt 24,839 30,253 37,253 42,753 Minority Interest (407) (424) (444) (460) Other LT Liabilities 9,074 9,074 9,074 9,074 Underlying Profit 4,093 4,297 4,852 5,031 Minority Interests 6,033 6,302 6,570 6,837 Shareholder’s Equity 137,561 138,877 140,710 142,685 Sales Gth (%) (16) (7) 14 4 Total Cap. & Liab. 186,453 193,031 201,125 208,860 Net Profit Gth (%) (26) 5 13 4 Share Capital (m) 4,498 4,498 4,498 4,498 EBITDA Margins (%) 67 66 65 64 Net Cash/(Debt) (14,890) (27,400) (34,161) (39,663) EBIT Margin (%) 67 65 64 64 Working Capital 8,006 2,365 3,968 3,338 Tax Rate (%) 21 21 21 21 Net Gearing (%) 11 20 24 28
Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2018A 2019F 2020F 2021F FY Dec 2018A 2019F 2020F 2021F EBIT 6,281 5,746 6,420 6,653 Revenues (HK$ m) Tax Paid (1,063) (1,255) (1,408) (1,460) Property sales 1,227 338 963 963 Depr/Amort 45 45 45 45 Property leasing 8,181 8,420 8,932 9,348 Chg in Wkg.Cap 501 282 547 2,716 Hotel 0 34 96 105 Other Non-Cash (26) 0 0 0 Total 9,408 8,793 9,991 10,417 Operating CF 5,738 4,818 5,605 7,954 Net Capex (13,661) (12,012) (6,867) (7,736) Assoc, MI, Invsmt 8,402 239 320 361 Key Assumptions (%) 2020F 2021F Investing CF (5,259) (11,773) (6,547) (7,375) Net Chg in Debt 3,053 5,000 6,000 5,500 Office rental - HK (8) 0 New Capital 0 0 0 0 Dividend (3,718) (3,797) (3,862) (3,923) Retail rental (Shopping centre) - HK (10) 0 Other Financing CF (1,261) (1,757) (1,957) (2,157) Financing CF (1,926) (554) 181 (580) Chg in Cash (1,447) (7,510) (761) (1)
Source: Company, DBS HK
Page 21 HK Property Sector Hongkong Land
Bloomberg: HKL SP | Reuters: HKLD.SI Refer to important disclosures at the end of this report
BUY Undemanding valuations amid Last Traded Price ( 10 Jan 2020): US$5.64 (STI : 3,256) uncertain outlook Price Target 12-mth: US$6.64 (17.7% upside)
Analyst • Central portfolio facing challenges Jeff YAU CFA, +852 36684180, [email protected] • Improving residential sales from China Ian CHUI CFA,+852 36684174, [email protected] Jason LAM +852 36684179, [email protected] • BUY with US$6.64 TP Central portfolio facing challenges. The office vacancy of Price Relative
US$ Relative Index Hongkong Land’s Central portfolio improved slightly to 2.4% in 222 8.2 202 Sep-19 from Jun-19’s 2.8% as tenants took up previously 7.7 182 committed space. That said, the overall Central office market saw 7.2 162 6.7 142 vacancy increasing to 3.5% in Nov-19 with rents starting to retreat. 6.2 122 5.7 102 This should weigh on Hongkong Land’s future reversionary growth 5.2 82 4.7 62 which was positive in 3Q19. The company’s Central retail portfolio Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 was 99% occupied as of Sep-19. Base rent reversion remained Hongkong Land (LHS) Relative STI (RHS) positive in 3Q19 with the impact from the social unrest on retail Forecasts and Valuation spending yet to be reflected. Singapore office portfolio fared better FY Dec (US$ m) 2018A 2019F 2020F 2021F with favourable rental growth in lease renewals. Vacancy was also Turnover 2,665 2,160 1,802 3,130 EBITDA 1,094 1,004 1,049 1,150 lower at 1.3% in Sep-19. Pre-tax Profit 1,240 1,205 1,233 1,300 Improving residential sales from China. Hongkong Land’s Underlying Profit 1,036 1,040 1,045 1,094 attributable contracted sales in China more than tripled to US$566m EPS (US$) 0.44 0.45 0.45 0.47 in 3Q19 due to more project launches and change in product mix. EPS Gth (%) 9.1 0.7 0.5 4.7 PE (X) 12.7 12.7 12.6 12.0 This brought cumulative contracted sales in 9M19 to US$1.2bn, up P/Cash Flow (X) 17.0 11.0 17.6 6.5 50% y-o-y. As of Sep-19, sold but unrecognised contracted sales EV/EBITDA (X) 15.7 17.1 16.4 14.9 from China reached US$2bn, of which c.40% is expected to be DPS (US$) 0.22 0.22 0.22 0.23 booked before end-2020. In Singapore, contracted sales amounted Div Yield (%) 3.9 3.9 3.9 4.1 to US$403m for 9M19 with net order book of US$540m as of Sep- Net Gearing (%) 9 11 13 11 19. The company intends to launch Leedon Green (formerly known ROE (%) 2.8 2.7 2.7 2.9 as Tulip Garden) in 1H20. Est. NAV (HK$) 12.5 12.1 Disc. to NAV (%) (55) (53) BUY with US$6.64 TP. The stock is trading at 55% discount to our assessed current NAV, near the low end of its historical trading Earnings Rev (%): Nil Nil Nil range. Estimated dividend yield for FY19-20 is 3.9%. Even allowing Consensus EPS (US$): 0.45 0.47 0.49 for challenging office and retail market in Central that would Other Broker Recs: B:9 S:4 H:1 overshadow the company’s core rental earnings, the current Source of all data on this page: Company, DBS Bank (Hong Kong) Limited valuation remains low from the historical viewpoint. Maintain BUY (“DBS HK”), Thomson Reuters with US$6.64 TP, based on 45% discount to Dec-2020 NAV estimate.
At A Glance Issued Capital (m shrs) 2,334 Mkt Cap (US$m) 13,163 Major Shareholders (%) Jardine Strategic Holdings Ltd 50.4 Free Float (%) 49.6 3m Avg. Daily Val. (US$m) 1.72 GICS Industry: Real Estate / Real Estate Management & Development
Page 22
ed-JS/ sa- CS /AH HK Property Sector
Hongkong Land
Income Statement (US$ m) Balance Sheet (US$ m) FY Dec 2018A 2019F 2020F 2021F FY Dec 2018A 2019F 2020F 2021F Turnover 2,665 2,160 1,802 3,130 Fixed Assets 33,846 33,534 32,558 32,260 EBITDA 1,094 1,004 1,049 1,150 Other LT Assets 6,855 7,171 7,489 7,788 Depr / Amort (4) (4) (4) (4) Cash & ST Invts 1,375 1,150 958 1,840 EBIT 1,089 1,000 1,045 1,146 Other Current Assets 2,887 3,813 4,490 4,160 Associates Inc 265 328 331 314 Total Assets 44,963 45,669 45,495 46,048 Interest (Exp)/Inc (114) (122) (142) (160) ST Debt 794 300 450 500 Exceptionals 0 0 0 0 Creditors 1,337 1,362 1,366 1,370 Pre-tax Profit 1,240 1,205 1,233 1,300 Other Current Liab 119 119 119 119 Tax (206) (167) (190) (207) LT Debt 4,145 5,139 5,289 5,539 Minority Interest 2 1 1 1 Other LT Liabilities 198 198 198 198 Underlying Profit 1,036 1,040 1,045 1,094 Minority Interests 28 21 14 7 Shareholder’s Equity 38,342 38,529 38,059 38,315 Total Cap. & Liab. 44,963 45,669 45,495 46,048 Sales Gth (%) 65 (19) (17) 74 Share Capital (m) 2,334 2,334 2,334 2,334 Net Profit Gth (%) 9 0 0 5 Net Cash/(Debt) (3,564) (4,289) (4,781) (4,199) EBITDA Margins (%) 41 46 58 37 Working Capital 2,011 3,181 3,512 4,010 EBIT Margin (%) 41 46 58 37 Net Gearing (%) 9 11 13 11 Tax Rate (%) 17 14 15 16
Cash Flow Statement (US$ m) Segmental Breakdown (US$ m) / Key Assumptions FY Dec 2018A 2019F 2020F 2021F FY Dec 2018A 2019F 2020F 2021F EBIT 1,089 1,000 1,045 1,146 Revenues (US$ m) Tax Paid (172) (167) (190) (207) Rental income 983 1,026 1,032 1,030 Depr/Amort 4 4 4 4 Service and mgmt charges 150 145 148 152 Chg in Wkg.Cap (329) 316 (150) 1,060 Sale of trading properties 1,533 989 622 1,948 Other Non-Cash 12 (128) (152) (171) Total 2,665 2,160 1,802 3,130 Operating CF 604 1,025 558 1,832 Net Capex (93) (30) (30) (30) Assoc, MI, Invsmt (963) (1,200) (500) (700) Key Assumptions (%) 2020F 2021F Investing CF (1,056) (1,230) (530) (730) Net Chg in Debt 838 500 300 300 Office rental - HK (8) 0 New Capital (132) 0 0 0 Dividend (469) (521) (519) (519) Retail rental (Shopping centre) - HK (10) 0 Other Financing CF 0 0 0 0 Financing CF 237 (21) (219) (219) Chg in Cash (215) (225) (192) 882
Source: Company, DBS HK
Page 23 HK Property Sector Hysan Development
Bloomberg: 14 HK | Reuters: 0014.HK Refer to important disclosures at the end of this report
HOLD Embracing challenges Last Traded Price ( 10 Jan 2020): HK$29.85 (HSI : 28,638) • Lower turnover rents and rental concessions to Price Target 12-mth: HK$32.35 (8.4% upside) (Prev HK$34.10) drag retail income
Analyst • Office reversionary growth set to moderate Jeff YAU CFA, +852 36684180, [email protected] • HOLD with HK$32.35 TP Ian CHUI CFA,+852 36684174, [email protected] Jason LAM +852 36684179, [email protected] Lower turnover rent and rent concessions to drag retail income. In 3Q19, tenants’ sales of Hysan’s retail portfolio fell Price Relative broadly in line with the overall market, which recorded an 18% drop HK$ Relative Index
50.7 219 in total retail sales value. This led to occupancy cost ratio rising to 199 45.7 23-24% from 1H19’s 18%. Given dwindling tenants’ sales, turnover 179 40.7 159 rents for 2H19 should be substantially lower. Coupled with rental 139 35.7 119 concessions offered to those tenants impacted by the prolonged 99 30.7 79 protests, we project retail income to be slightly lower in FY19. 25.7 59 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 (1H19:+4%). Retail occupancy remains high at 96%. Hysan is
Hysan Development (LHS) Relative HSI (RHS) actively seeking replacement tenants for space vacated by Hang Forecasts and Valuation Seng Bank at Lee Garden Two. In 2020, about 18% of leases are FY Dec (HK$ m) 2018A 2019F 2020F 2021F scheduled for renewal with likely negative rental reversions. Turnover 3,890 4,079 4,096 4,091 Office reversionary growth set to moderate. Office occupancy EBITDA 3,157 3,302 3,308 3,291 remains firm at 97% currently. Due to the global economic Pre-tax Profit 3,159 3,274 3,272 3,248 Underlying Profit 2,536 2,624 2,621 2,603 uncertainty, leasing enquiries have showed signs of waning in recent EPS (HK$) 2.42 2.51 2.51 2.49 months. This should exert pressure on rentals in 2020. About 20% EPS Gth (%) 1.7 3.6 0.0 (0.7) of leases are scheduled for expiry in 2020. Given higher expiring PE (X) 12.3 11.9 11.9 12.0 rents, we expect overall office reversionary growth to moderate to P/Cash Flow (X) 9.7 9.4 9.4 9.4 c.5% in 2020 from 2019’s 15%. Residential occupancy has EV/EBITDA (X) 12.4 11.9 11.9 11.9 retreated to 80-85% currently from Jun-19’s 91% led by reduced DPS (HK$) 1.44 1.51 1.51 1.51 expatriate demand. But rents continue to grow modestly on lease Div Yield (%) 4.8 5.1 5.1 5.1 Net Gearing (%) 5 5 5 5 renewals or new lettings. Overall, we forecast the company’s gross ROE (%) 3.5 3.5 3.6 3.5 rental receipts to rise 5% in FY19, mainly led by increased office Est. NAV (HK$) 77.2 71.9 revenue. Growth momentum, however, should lose steam in FY20. Disc. to NAV (%) (61) (58) HOLD with HK$32.35 TP. The stock is trading at 61% discount to our appraised current NAV, against its 10-year average of 43%. Earnings Rev (%): (3) (6) New While the valuation is low from a historical perspective, the Consensus EPS (HK$): 2.52 2.56 2.63 Other Broker Recs: B: 4 S: 5 H: 4 uncertainty in the commercial market could cap its upside potential. HOLD with HK$32.35 TP, based on 55% discount to our Dec-2020 Source of all data on this page: Company, DBS Bank (Hong Kong) Limited (“DBS HK”), Thomson Reuters NAV estimate. Since Aug-19, Hysan has repurchased 3m shares from the market for HK$91.2m or HK$30.4/sh. Share buyback could limit any further downside risk. At A Glance Issued Capital (m shrs) 1,047 Mkt Cap (HK$m/US$m) 31,253 / 4,011 Major Shareholders (%) Lee Hysan Company Ltd 41.5 Silchester International Investors, L.L.P. 8.0 First Eagle Investment Management, L.L.C. 5.0 Free Float (%) 45.5 3m Avg. Daily Val. (US$m) 12.08 GICS Industry: Real Estate / Real Estate Management & Development
Page 24
ed-JS/ sa- CS /AH HK Property Sector
Hysan Development
Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2018A 2019F 2020F 2021F FY Dec 2018A 2019F 2020F 2021F Turnover 3,890 4,079 4,096 4,091 Fixed Assets 78,189 76,922 75,680 75,961 EBITDA 3,157 3,302 3,308 3,291 Other LT Assets 5,607 6,399 7,199 8,007 Depr / Amort (17) (18) (18) (18) Cash & ST Invts 2,817 2,739 2,673 2,768 EBIT 3,140 3,284 3,290 3,273 Other Current Assets 430 415 400 385 Associates Inc 192 202 209 217 Total Assets 87,043 86,476 85,953 87,122 Interest (Exp)/Inc (173) (212) (227) (242) ST Debt 300 300 300 200 Exceptionals 0 0 0 0 Creditors 873 858 843 863 Pre-tax Profit 3,159 3,274 3,272 3,248 Other Current Liab 662 662 662 662 Tax (481) (499) (497) (492) LT Debt 6,022 5,922 5,822 5,972 Minority Interest (142) (151) (154) (153) Other LT Liabilities 1,549 1,549 1,549 1,549 Underlying Profit 2,536 2,624 2,621 2,603 Minority Interests 3,206 3,199 3,196 3,268 Shareholder’s Equity 74,431 73,986 73,581 74,608 Total Cap. & Liab. 87,043 86,476 85,953 87,122 Sales Gth (%) 10 5 0 0 Share Capital (m) 1,044 1,044 1,044 1,044 Net Profit Gth (%) 2 3 0 (1) Net Cash/(Debt) (3,505) (3,483) (3,449) (3,404) EBITDA Margins (%) 81 81 81 80 Working Capital 1,412 1,334 1,268 1,428 EBIT Margin (%) 81 81 80 80 Net Gearing (%) 5 5 5 5 Tax Rate (%) 15 15 15 15
Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2018A 2019F 2020F 2021F FY Dec 2018A 2019F 2020F 2021F EBIT 3,140 3,284 3,290 3,273 Revenues (HK$ m) Tax Paid (473) (499) (497) (492) Property rental income 3,890 4,079 4,096 4,091 Depr/Amort 17 18 18 18 Total 3,890 4,079 4,096 4,091 Chg in Wkg.Cap 63 0 0 35 Other Non-Cash 4 0 0 0 Operating CF 2,751 2,804 2,811 2,834 Net Capex (1,265) (300) (300) (299) Key Assumptions (%) 2020F 2021F Assoc, MI, Invsmt 275 (543) (543) (543) Investing CF (990) (843) (843) (842) Office rental - HK (8) 0 Net Chg in Debt 150 (100) (100) 50 New Capital 0 (91) 0 0 Retail rental (Shopping centre) - HK (10) 0 Dividend (1,572) (1,587) (1,659) (1,657) Other Financing CF (304) (260) (275) (290) Financing CF (1,726) (2,038) (2,034) (1,897) Chg in Cash 35 (78) (66) 95
Source: Company, DBS HK
Page 25 HK Property Sector Swire Properties
Bloomberg: 1972 HK | Reuters: 1972.HK Refer to important disclosures at the end of this report
BUY Good value Last Traded Price ( 10 Jan 2020): HK$25.75 (HSI : 28,638) • Replenished residential land bank in Hong Kong Price Target 12-mth: HK$29.25 (13.6% upside) (Prev HK$29.70) • Island East offices and China malls are bright spots Analyst • BUY with HK$29.25 TP Jeff YAU CFA, +852 36684180, [email protected] Ian CHUI CFA,+852 36684174, [email protected] Replenished residential land bank in Hong Kong. In Oct-19, Jason LAM +852 36684179, [email protected] Swire Properties teamed up with Kerry Properties and Sino Land to secure the development rights of Wong Chuk Hang Station Price Relative Package 4 through tender after defeating five other developers. HK$ Relative Index
37.1 This marked the company’s first residential project along the 209
189 32.1 railway line in more than two decades. Swire Properties has a 25% 169
149 stake in this package which will provide about 800 units in two 27.1 129 residential towers with 0.64msf upon completion. Land premium is 22.1 109 89 fixed at HK$6.76bn or HK$10,587psf. In addition to sharing 25% 17.1 69 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 of development profit with MTRC, the consortium has to give an Swire Properties (LHS) Relative HSI (RHS) undisclosed lump sum to this rail operator. Elsewhere, Swire Forecasts and Valuation Properties is in land premium negotiation for converting Chai Wan FY Dec (HK$ m) 2018A 2019F 2020F 2021F Bus Depot into residential use. In Singapore, the newly completed Turnover 14,719 14,565 14,764 13,689 EDEN has been offered for sale. EBITDA 10,326 10,770 9,217 9,372 Pre-tax Profit 11,304 25,133 8,993 9,195 Island East offices and China malls are bright spots. Spot Underlying Profit 10,148 23,850 7,597 7,779 office rents at One & Two Pacific Place and Three Pacific stayed at EPS (HK$) 1.73 4.08 1.30 1.33 HK$130-160psf and HK$115-125psf respectively as of Sep-19 with EPS Gth (%) 29.5 135.0 (68.1) 2.4 firm rental reversion of 18% in 9M19. In view of rising office PE (X) 14.8 6.3 19.8 19.4 vacancy in Central and increased expiring rents, office reversionary P/Cash Flow (X) 13.0 13.5 16.4 15.4 growth for Pacific Place is set to moderate in FY20. Taikoo Place EV/EBITDA (X) 16.3 15.6 18.3 18.0 and One Island East recorded office reversionary growth of 13% DPS (HK$) 0.84 0.88 0.90 0.90 Div Yield (%) 3.3 3.4 3.5 3.5 and 11% respectively in 9M19. Compared to Pacific Place, the Net Gearing (%) 11 6 7 8 Island East office portfolio is seeing steady leasing demand and ROE (%) 3.8 8.4 2.6 2.6 hence a more stable outlook. We estimate The Mall at Pacific Place Est. NAV (HK$) 51.1 48.7 registered 27% decline in tenants’ sales in 3Q19 led by the Disc. to NAV (%) (50) (47) political protests and downsizing of Harvey Nicols. On the other hand, tenants’ sales growth at retail malls in China has been Earnings Rev (%): (1) (1) New gaining momentum in 3Q19. This should point to increased Consensus EPS (HK$): 1.35 1.40 1.46 Other Broker Recs: B:9 S:2 H:3 turnover rents and better reversionary growth. Source of all data on this page: Company, DBS Bank (Hong Kong) Limited BUY with HK$29.25 TP. The stock, trading 50% below our (“DBS HK”), Thomson Reuters assessed current NAV, is attractively valued. The company offers strong office exposure in Island East where leasing performance remains steady. Continued portfolio expansion in Hong Kong and China should spice up its rental earning in the medium term. BUY with HK$29.25 TP, premised on 40% discount to our Dec-2020 NAV estimate. At A Glance Issued Capital (m shrs) 5,850 Mkt Cap (HK$m/US$m) 150,638 / 19,394 Major Shareholders (%) Swire Pacific Ltd 82.0 Free Float (%) 18.0 3m Avg. Daily Val. (US$m) 10.63 GICS Industry: Real Estate / Real Estate Management & Development
Page 26
ed-JS/ sa- CS /AH HK Property Sector
Swire Properties
Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2018A 2019F 2020F 2021F FY Dec 2018A 2019F 2020F 2021F Turnover 14,719 14,565 14,764 1,5138 Fixed Assets 281,063 274,286 280,214 290,926 EBITDA 10,326 10,770 9,217 9,372 Other LT Assets 31,000 33,184 34,508 35,854 Depr / Amort (394) (414) (434) (456) Cash & ST Invts 2,094 13,896 13,334 11,238 EBIT 9,932 10,356 8,783 8,916 Other Current Assets 19,490 19,171 19,191 19,291 Associates Inc 915 848 930 1,018 Total Assets 333,647 340,536 347,246 357,309 Interest (Exp)/Inc (894) (640) (720) (739) ST Debt 1,230 7,690 7,690 7,690 Exceptionals 1,351 14,569 0 0 Creditors 10,368 10,168 9,818 9,918 Pre-tax Profit 11,304 25,133 8,993 9,195 Other Current Liab 392 392 392 392 Tax (1,086) (1,154) (1,290) (1,308) LT Debt 30,769 24,309 26,309 28,309 Minority Interest (70) (129) (106) (108) Other LT Liabilities 9,597 9,597 9,597 9,597 Underlying Profit 10,148 23,850 7,597 7,779 Minority Interests 2,016 2,045 2,051 2,058 Shareholder’s Equity 279,275 286,335 291,389 299,344 Total Cap. & Liab. 333,647 340,536 347,246 357,309 Sales Gth (%) (21) (1) 1 (7) Share Capital (m) 5,850 5,850 5,850 5,850 Net Profit Gth (%) 30 135 (68) 2 Net Cash/(Debt) (29,905) (18,103) (20,665) (24,761) EBITDA Margins (%) 70 74 62 68 Working Capital 9,594 14,817 14,625 12,529 EBIT Margin (%) 67 71 59 65 Net Gearing (%) 11 6 7 8 Tax Rate (%) 10 5 14 14
Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2018A 2019F 2020F 2021F FY Dec 2018A 2019F 2020F 2021F EBIT 9,932 10,356 8,783 8,916 Revenues (HK$ m) Tax Paid (1,443) (1,154) (1,290) (1,308) Property Investment 12,254 12,944 13,392 13,689 Depr/Amort 394 414 434 456 Property trading 1,061 330 0 0 Chg in Wkg.Cap 2,311 399 (50) 400 Hotels 1,404 1,290 1,371 1,449 Other Non-Cash (1,803) (615) (734) (832) Total 14,719 14,565 14,764 15,138 Operating CF 9,391 9,400 7,143 7,632 Net Capex 3,717 9,790 (3,699) (5,727) Assoc, MI, Invsmt (2,964) (2,257) (699) (636) Key Assumptions (%) 2020F 2021F Investing CF 753 7,532 (4,398) (6,363) Residential price - HK Net Chg in Debt 111 0 2,000 2,000 Office rental - HK (8) 0 New Capital 0 0 0 0 Dividend (4,646) (5,131) (5,307) (5,365) Retail rental (Shopping centre) - HK (10) 0 Other Financing CF (5,177) 0 0 0 Financing CF (9,712) (5,131) (3,307) (3,365) Chg in Cash 432 11,801 (562) (2,096)
Source: Company, DBS HK
Page 27 HK Property Sector Wharf REIC
Bloomberg: 1997 HK | Reuters: 1997.HK Refer to important disclosures at the end of this report
Navigating in rough seas HOLD Last Traded Price ( 10 Jan 2020): HK$46.35 (HSI : 28,638) • Retail turnover rents are evaporating Price Target 12-mth: HK$44.10 (4.9% downside) (Prev HK$45.70) • Expanding to Singapore Analyst • HOLD with HK$44.10 TP Jeff YAU CFA, +852 36684180, [email protected] Ian CHUI CFA,+852 36684174, [email protected] Retail turnover rents are evaporating. In 3Q19, retail sales at Jason LAM +852 36684179, [email protected] Harbour City and Times Square fell sharply by 35% and 30% respectively, and underperformed the overall market. Business Price Relative conditions remained very tough in Oct and Nov. Against this HK$ Relative Index backdrop, turnover rents, which made up 14% of the company’s 66.9 204 retail income (or 18% for Harbour City) in 1H19, should see 61.9 184 56.9 164 substantial decline in 2H19. This should in turn drag retail income. 51.9 144 We estimate occupancy cost ratio for both malls edged up further 46.9 124 41.9 104 to >24% in 2H19. After posting single-digit rental growth upon 36.9 84 Nov-17 May-18 Nov-18 May-19 Nov-19 renewal in FY19, reversionary growth at its office assets at Harbour
Wharf REIC (LHS) Relative HSI (RHS) City/Times Square should moderate. Forecasts and Valuation Expanding to Singapore. In Dec-19, Wharf REIC agreed to buy FY Dec (HK$ m) 2018A 2019F 2020F 2021F Wheelock Place and Scotts Square in the Orchard Road Belt in Turnover 16,481 16,109 16,577 16,983 EBITDA 13,037 12,955 13,295 13,770 Singapore from its parent Wheelock & Co. for a total of Pre-tax Profit 12,187 11,812 11,953 12,265 HK$6.42bn. These two properties were previously held by Underlying Profit 10,052 9,788 9,913 10,157 Wheelock Properties (Singapore) which was privatised by EPS (HK$) 3.31 3.22 3.26 3.35 Wheelock & Co a year ago. Completed in 1993, Wheelock Place EPS Gth (%) 5.8 (2.6) 1.3 2.5 comprises an office building, retail podium and car parks with GFA PE (X) 14.0 14.4 14.2 13.9 of 465,707sf. Completed in 2011, Scotts Square is a residential- P/Cash Flow (X) 15.2 52.5 14.5 14.1 cum-retail redevelopment. The residential portion contains 338 EV/EBITDA (X) 14.2 14.6 14.0 13.3 units of which 28 remain unsold and are held for rental. The retail DPS (HK$) 2.10 2.10 2.12 2.16 Div Yield (%) 4.5 4.5 4.6 4.7 podium offers GFA of 130,900sf. Based on acquisition price and Net Gearing (%) 18 20 18 16 1H19 operating profit, the annual rental yield is estimated at ROE (%) 4.7 4.5 4.6 4.6 3.5%. The overall earnings enhancement from this acquisition is Est. NAV (HK$) 79.4 73.5 minimal. Following this acquisition, Wharf REIC’s gearing is Disc. to NAV (%) (42) (37) expected to increase from Jun-19’s 16% to 19% which remains comfortable. Financial risk is well managed in our view. Earnings Rev (%): (3) (3) New Consensus EPS (HK$): 3.30 3.30 3.37 HOLD with HK$44.10 TP. The stock is trading at 42% discount to Other Broker Recs: B:5 S:5 H:5 our appraised current NAV with dividend yield of 4.5-4.6% for Source of all data on this page: Company, DBS Bank (Hong Kong) Limited FY19-20. Valuation is inexpensive from the historical perspective. (“DBS HK”), Thomson Reuters However, the retail scene remains challenging led by the prolonged protests. This should cap the upside for Wharf REIC which is seen as the key retail landlord in Hong Kong. Based on 40% discount to our Dec-2020 NAV estimate, we set our TP at HK$44.10. Maintain HOLD. At A Glance Issued Capital (m shrs) 3,036 Mkt Cap (HK$m/US$m) 140,719 / 18,118 Major Shareholders (%) Wheelock and Co Ltd 62.4 Free Float (%) 37.6 3m Avg. Daily Val. (US$m) 20.88 GICS Industry: Real Estate / Real Estate Management & Development
Page 28
ed-JS/ sa- CS /AH HK Property Sector
Wharf REIC
Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2018A 2019F 2020F 2021F FY Dec 2018A 2019F 2020F 2021F Turnover 16,481 16,109 16,577 16,983 Fixed Assets 267,261 266,900 264,495 267,235 EBITDA 13,037 12,955 13,295 13,770 Other LT Assets 5,738 5,803 5,903 5,953 Depr / Amort (292) (304) (316) (328) Cash & ST Invts 2,675 728 3,058 5,460 EBIT 12,745 12,651 12,979 13,441 Other Current Assets 4,682 5,494 5,544 5,594 Associates Inc 233 65 100 50 Total Assets 280,356 278,925 278,999 284,242 Interest (Exp)/Inc (791) (904) (1,126) (1,226) ST Debt 3,070 4,900 4,901 4,902 Exceptionals 0 0 0 0 Creditors 8,351 8,151 8,171 8,191 Pre-tax Profit 12,187 11,812 11,953 12,265 Other Current Liab 2,926 2,926 2,926 2,926 Tax (1,994) (1,941) (1,956) (2,016) LT Debt 39,027 39,197 38,196 37,195 Minority Interest (141) (84) (85) (93) Other LT Liabilities 2,650 2,650 2,650 2,650 Underlying Profit 10,052 9,788 9,913 10,157 Minority Interests 5,535 5,519 5,504 5,499 Shareholder’s Equity 218,797 215,582 216,651 222,879 Total Cap. & Liab. 280,356 278,925 278,999 284,242 Sales Gth (%) (21) (2) 3 2 Share Capital (m) 3,036 3,036 3,036 3,036 Net Profit Gth (%) 6 (3) 1 2 Net Cash/(Debt) (39,422) (43,369) (40,039) (36,637) EBITDA Margins (%) 79 80 80 81 Working Capital (6,990) (9,755) (7,396) (4,965) EBIT Margin (%) 77 79 78 79 Net Gearing (%) 18 20 18 16 Tax Rate (%) 16 16 16 16
Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2018A 2019F 2020F 2021F FY Dec 2018A 2019F 2020F 2021F EBIT 12,745 12,651 12,979 13,441 Revenues (HK$ m) Tax Paid (2,519) (1,941) (1,956) (2,016) Investment Property 14,304 14,277 14,647 14,917 Depr/Amort 292 304 316 328 Development Property 89 10 0 0 Chg in Wkg.Cap (240) (980) (30) (30) Hotels 1,821 1,549 1,652 1,783 Other Non-Cash (780) (936) (1,126) (1,226) Others 267 273 278 284 Operating CF 9,498 9,098 10,183 10,498 Total 16,481 16,109 16,577 16,983 Net Capex (588) (6,417) (500) (500) Assoc, MI, Invsmt 375 0 0 0 Key Assumptions (%) 2020F 2021F Investing CF (213) (6,417) (500) (500) Net Chg in Debt (3,369) 2,000 (1,000) (1,000) Office rental - HK (8) 0 New Capital 0 0 0 0 Dividend (6,199) (6,628) (6,354) (6,596) Retail rental (Shopping centre) - HK (10) 0 Other Financing CF 0 0 0 0 Financing CF (9,568) (4,628) (7,354) (7,596) Chg in Cash (283) (1,947) 2,329 2,403
Source: Company, DBS HK
Page 29 HK Property Sector Champion REIT
Bloomberg: 2778 HK | Reuters: 2778.HK Refer to important disclosures at the end of this report
HOLD (Downgrade from BUY) Challenging times Last Traded Price ( 10 Jan 2020): HK$5.01 (HSI : 28,638) Price Target 12-mth: HK$5.47 (9.2% upside) (Prev HK$5.80) • Flexible leasing strategy for Three Garden Road
Analyst • Langham Place Mall sees much lower turnover rents Jeff YAU CFA, +852 36684180, [email protected] • Downgrade to HOLD with HK$5.47 TP Ian CHUI CFA,+852 36684174, [email protected] Jason LAM +852 36684179, [email protected] Flexible leasing strategy for Three Garden Road. Occupancy at Three Garden Road has softened slightly to 92- Price Relative 93% from Jun-19’s 95.8%, amid waning leasing demand from HK$ Relative Index
10.0 219 both Chinese firms and MNCs. An existing tenant has put its 9.0 199 expansion plans on hold given the market uncertainty. The spot 8.0 179 7.0 159 rate has retreated slightly to HK$125-130psf. In 2020, about 6.0 139 22% of leases are expiring with another 14% up for rent 5.0 119 4.0 99 review. Given rising office vacancies in Central, Champion REIT 3.0 79 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 is adopting a flexible leasing strategy with an aim to maintain Champion REIT (LHS) Relative HSI (RHS) high occupancy. Nevertheless, with expiring rents of Forecasts and Valuation HK$105psf, reversionary growth, though a moderation from FY Dec (HK$ m) 2018A 2019F 2020F 2021F FY19’s >25%, should remain favourable at >15% in FY20. Gross Revenue 2,965 3,103 3,158 3,333 Net Property Inc 2,405 2,501 2,545 2,691 Langham Place Mall sees much lower turnover rents. Net Profit 7,812 1,496 1,501 1,598 Occupancy at Langham Place Office Tower remains firm at Distribution Inc 1,530 1,564 1,571 1,672 97% with spot rent stable at >HK$50psf. Location sensitive DPU (HK$) 0.26 0.27 0.27 0.28 tenants such those offering beauty services have been DPU Gth (%) 8 2 0 6 occupying more space over time. With 26% of floor area up for Div Yield (%) 5.2 5.3 5.3 5.6 roll over in 2020, rental reversion is expected to remain healthy Gross Gearing (%) 18 18 18 18 at 10%. Tenants’ sales at Langham Place Mall is estimated to Book Value (HK$) 11.42 11.31 10.99 11.22 P/Book Value (x) 0.4 0.4 0.5 0.4 fall 20-30% in 3Q19 led by the ongoing protests with no improvement in Oct/Nov. Against this backdrop, turnover rents, Earnings Rev (%): (3) (4) New which accounted for 20% of mall income in 1H19, should fall Consensus DPU (HK$): 0.27 0.28 0.29 substantially in 2H19. This, coupled with rental concession, Other Broker Recs: B:5 S:4 H:6 should drag the income from Langham Place Mall. Champion Source of all data on this page: Company, DBS Bank (Hong Kong) REIT has also refined the trade mix at the basement level with Limited (“DBS HK”), Thomson Reuters the addition of new F&B and confectionary stores. In 2020, about 21% of leases will be up for renewal. Negotiation with tenants is currently on hold. Downgrade to HOLD with HK$5.47 TP. Champion REIT is trading at a distribution yield of 5.3% for FY19-20. We have lowered our DDM-based TP to HK$5.47 to reflect ongoing challenges in the retail sector and Central office market. We downgrade the REIT to HOLD from BUY. At A Glance Issued Capital (m shrs) 5,847 Mkt Cap (HK$m/US$m) 29,293 / 3,778 Major Shareholders (%) Great Eagle Holdings Ltd 58.8 Eagle Asset Management (CP) Ltd. 7.4 Free Float (%) 33.8 3m Avg. Daily Val. (US$m) 3.20 GICS Industry: Real Estate / Equity Real Estate Investment
Page 30
ed-JS/ sa- CS /RM HK Property Sector
Champion REIT
Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2018A 2019F 2020F 2021F FY Dec 2018A 2019F 2020F 2021F Gross revenue 2,965 3,103 3,158 3,333 Fixed Assets 83,135 82,757 81,139 82,798 Property expenses (560) (602) (613) (642) Other LT Assets 258 258 258 258 Net Property Income 2,405 2,501 2,545 2,691 Cash & ST Invts 1,400 1,427 1,484 1,587 Other expenses (316) (329) (335) (354) Other Current Assets 498 498 498 498 Interest (Exp)/Inc (400) (412) (433) (445) Total Assets 85,291 84,940 83,379 85,141 Exceptionals 6,412 0 0 0 ST Debt 3,697 200 3,685 643 Pre-Tax Profit 8,101 1,760 1,776 1,892 Creditors 1,337 1,337 1,337 1,337 Tax (289) (264) (275) (293) Other Current Liab 1,591 1,574 1,585 1,636 Non-Controlling Interests 0 0 0 0 LT Debt 11,307 14,804 11,319 14,361 Net Profit 7,812 1,496 1,501 1,598 Other LT Liabilities 598 598 598 598 Distribution income 1,530 1,564 1,571 1,672 Non-Controlling Interests 0 0 0 0 Unitholders’ funds 66,761 66,428 64,855 66,566 Revenue Gth (%) 10 5 2 6 Total Capital 85,291 84,940 83,379 85,141 NPI Gth (%) 11 4 2 6 Share Capital (m) 5,847 5,873 5,904 5,935 Dist. Inc Growth (%) 8 2 0 6 Gross Debt (15,004) (15,004) (15,004) (15,004) DPU Growth (%) 8 2 0 6 Working Capital (4,727) (1,186) (4,625) (1,531) Book NAV (HK$) 11.42 11.31 10.99 11.22 Gross Gearing (%) 18 18 18 18
Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2018A 2019F 2020F 2021F FY Dec 2018A 2019F 2020F 2021F Pre-Tax Income 8,101 1,760 1,776 1,892 Revenues (HK$ m) Tax Paid (289) (264) (275) (293) Rental income 2,594 2,710 2,753 2,912 Depr/Amort 0 0 0 0 Carpark income 48 46 47 48 Chg in Wkg.Cap. 0 0 0 0 Building management fee 288 309 321 334 Other Non-Cash (6,130) 110 113 121 income Rental related income 36 37 38 39 Operational CF 1,682 1,606 1,614 1,720 Net Capex (39) (38) (37) (36) Total 2,965 3,103 3,158 3,333 Assoc, MI, Invsmt 28 40 40 40 Investment CF (11) 2 3 4 Net Chg in Debt 0 0 0 0 Key Assumptions (%) 2020F 2021F New issues/Unit Buyback 0 0 0 0 Distribution Paid (1,462) (1,581) (1,560) (1,621) Office rental - HK (8) 0 Other Financing CF 0 0 0 0 Financing CF (1,462) (1,581) (1,560) (1,621) Retail rental (Shopping centre) - HK (10) 0 Chg in Cash 209 27 57 103
Source: Company, DBS HK
Page 31 HK Property Sector Fortune REIT
Bloomberg: 778 HK | Reuters: 0778.HK Refer to important disclosures at the end of this report
Quality in uncertain times BUY Last Traded Price ( 10 Jan 2020): HK$9.20 (HSI : 28,638) • Steady portfolio occupancy, moderating reversionary growth Price Target 12-mth: HK$10.90 (18.5% upside) • Value unlocking via property enhancement • BUY with HK$10.90 TP
Analyst Steady portfolio occupancy, moderating rental reversions. Jeff YAU CFA, +852 36684180, [email protected] Fortune REIT’s portfolio occupancy currently stays firm at c.97% (Jun- Ian CHUI CFA,+852 36684174, [email protected] 19: 97.4%) despite challenging retail environment led by the ongoing Jason LAM +852 36684179, [email protected] social unrest. Reversionary growth for 2H19 should moderate to c.5% from 1H19’s 7.8%. Education and community service tenants Price Relative
HK$ Relative Index registered better-than-average reversionary growth. On the contrary, 11.8 rental reversion for general retail trades could have turned negative. 204 10.8 184 In FY20, >30% of the REIT’s leases are scheduled for renewal. In 164 9.8 144 general, retailers have been shelving their expansion plans amid the 8.8 124 104 US-China trade disputes and prolonged protests. This should weigh 7.8 84 on leasing demand for retail space. Lease renewal negotiations with 6.8 64 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 existing tenants are proceeding slowly due to the uncertain market Fortune REIT (LHS) Relative HSI (RHS) outlook. Fortune REIT has adopted a more flexible leasing strategy in Forecasts and Valuation order to maintain a higher retention rate. Overall, we expect a flattish FY Dec (HK$ m) 2018A 2019F 2020F 2021F rental reversion for the portfolio in FY20. Gross Revenue 1,940 1,964 2,031 2,093 Net Property Inc 1,472 1,486 1,534 1,579 Value unlocking via property enhancement. Asset enhancement Net Profit 5,991 846 868 865 works at the West Block of Fortune Kingswood was completed in Distribution Inc 986 997 1,024 1,026 Sep-19 with committed occupancy of c.95%. With a total capex of DPU (HK$) 0.51 0.51 0.53 0.52 HK$150m, the ROI is estimated at >10%. The asset enhancement DPU Gth (%) 1 0 2 0 plan for the East Block has been delayed to late 2020. Faced with Div Yield (%) 5.6 5.6 5.7 5.7 falling tourist traffic after the commissioning of Express Rail Link, Gross Gearing (%) 21 20 20 19 Fortune REIT is exploring the feasibility to renovate and reposition Book Value (HK$) 16.61 17.27 17.89 18.56 P/Book Value (x) 0.6 0.5 0.5 0.5 Fortune Metropolis in Hung Hom. It plans to improve the layout of the mall and optimise the tenant mix by increasing F&B exposure. Earnings Rev (%): Nil Nil Nil Fortune REIT remains active in exploring acquisition opportunities in Consensus DPU (HK$): 0.53 0.55 0.56 Hong Kong. However, given the low yields in the retail property Other Broker Recs: B:9 S:0 H:2 market currently, it is challenging for the REIT to pursue accretive Source of all data on this page: Company, DBS Bank (Hong Kong) property acquisitions. The REIT is also open to Mainland properties Limited (“DBS HK”), Thomson Reuters (mainly Greater Bay Area) but has no concrete acquisition plans for the near term. BUY with HK$10.90 TP. Fortune REIT offers distribution yield of 5.6- 5.7% for FY19-20. Over 60% of the REIT’s rental income is derived from those tenants selling consumer staples with relatively stable business across the economic cycles. This should point to strong earnings resilience, and makes it a safe bet in the current shaky market. We maintain our BUY recommendation with DDM-based TP of HK$10.90. At A Glance Issued Capital (m shrs) 1,928 Mkt Cap (HK$m/US$m) 17,738 / 2,299 Major Shareholders (%) Focus Eagle Investments Ltd. 21.4 Ballston Profits Ltd. 5.8 Free Float (%) 72.8 3m Avg. Daily Val. (US$m) 2.79 GICS Industry: Real Estate / Equity Real Estate Investment
Page 32
ed-JS/ sa- CS /RM HK Property Sector
Fortune REIT
Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2018A 2019F 2020F 2021F FY Dec 2018A 2019F 2020F 2021F Gross revenue 1,940 1,964 2,031 2,093 Fixed Assets 42,000 43,570 45,078 46,608 Property expenses (468) (478) (496) (514) Other LT Assets 25 25 25 25 Net Property Income 1,472 1,486 1,534 1,579 Cash & ST Invts 543 483 518 428 Other expenses (139) (151) (156) (161) Other Current Assets 64 65 66 67 Interest (Exp)/Inc (260) (263) (278) (320) Total Assets 42,632 44,144 45,687 47,129 Exceptionals 5,140 0 0 0 ST Debt 400 3,505 3,800 1,200 Pre-Tax Profit 6,212 1,072 1,100 1,097 Creditors 1,271 1,283 1,292 1,300 Tax (221) (226) (232) (233) Other Current Liab 17 17 17 17 Non-Controlling Interests 0 0 0 0 LT Debt 8,459 5,354 5,159 7,759 Net Profit 5,991 846 868 865 Other LT Liabilities 471 471 471 471 Distribution income 986 997 1,024 1,026 Non-Controlling Interests 0 0 0 0 Unitholders’ funds 32,013 33,513 34,948 36,381 Revenue Gth (%) (4) 1 3 3 Total Capital 42,632 44,144 45,687 47,129 NPI Gth (%) 1 1 3 3 Share Capital (m) 1,927 1,940 1,953 1,960 Dist. Inc Growth (%) 2 1 3 0 Gross Debt (8,859) (8,859) (8,959) (8,959) DPU Growth (%) 1 0 2 0 Working Capital (1,081) (4,256) (4,524) (2,021) Book NAV (HK$) 16.61 17.27 17.89 18.56 Gross Gearing (%) 21 20 20 19
Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2018A 2019F 2020F 2021F FY Dec 2018A 2019F 2020F 2021F Pre-Tax Income 6,212 1,072 1,100 1,097 Revenues (HK$ m) Tax Paid (188) (226) (232) (233) Base rent & other income 1,696 1,714 1,770 1,823 Depr/Amort 0 0 0 0 Charge-out collections 244 250 260 270 Chg in Wkg.Cap. 11 5 5 5 Total 1,940 1,964 2,031 2,093 Other Non-Cash (4,758) 396 415 462 Operational CF 1,277 1,247 1,288 1,332 Net Capex (61) (50) (50) (50) Key Assumptions (%) 2020F 2021F Assoc, MI, Invsmt 1,991 0 0 0 Investment CF 1,930 (50) (50) (50) Retail Rental (Shopping (10) 0 Net Chg in Debt (1,950) 0 100 0 Center) - HK New issues/Unit Buyback 0 0 0 0 Distribution Paid (988) (993) (1,026) (1,051) Other Financing CF (244) (263) (278) (320) Financing CF (3,182) (1,256) (1,204) (1,371) Chg in Cash 25 (60) 34 (90)
Source: Company, DBS HK
Page 33 HK Property Sector Link REIT
Bloomberg: 823 HK | Reuters: 823.HK Refer to important disclosures at the end of this report
BUY Geographical and asset diversification • Maiden foray into Australia Last Traded Price ( 10 Jan 2020): HK$81.70 (HSI : 28,638) Price Target 12-mth: HK$96.60 (18.2% upside) • Positive rental reversion to continue • BUY with HK$96.6 TP Analyst Jeff YAU CFA, +852 36684180, [email protected] Maiden foray into Australia. In Dec-18, Link REIT inked an Ian CHUI CFA,+852 36684174, [email protected] agreement to buy 100 Market Street, a Grade A office property in Jason LAM +852 36684179, [email protected] the Sydney CBD, from Blackstone for A$683m. This marked the first acquisition beyond Greater China. This property is 10-storey Price Relative office building with total net lettable area of c.28,385sm. It is fully HK$ Relative Index 108.3 221 occupied by Australian Securities and Investment Commission, 98.3 201 Australian Taxation Office and Scentre Group with a weighted 88.3 181 78.3 161 average lease expiry of 8.45 years. The long lease and high-quality 68.3 141
58.3 121 tenant base point to very minimal occupancy risk. Net passing rent 48.3 101 is A$26.7m with rental escalation of c.4% p.a. built into the 38.3 81 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 tenancy agreements. Initial rental yield is c.4%, which will grow Link REIT (LHS) Relative HSI (RHS) steadily over time. The acquisition, funded by domestic borrowings, Forecasts and Valuation should be yield accretive immediately. This property purchase also FY Mar (HK$ m) 2018A 2019A 2020F 2021F offers geographical and asset diversification for the REIT. Following Gross Revenue 10,023 10,037 10,828 11,759 this acquisition, Hong Kong and China assets account for 86% and Net Property Inc 7,663 7,689 8,288 9,100 12% of Link REIT’s portfolio value with the remaining 2% from Net Profit 47,761 20,329 5,987 6,443 overseas. In terms of asset class, retail and carparks represents Distribution Inc 5,431 5,723 6,157 6,613 DPU (HK$) 2.50 2.71 2.95 3.17 c.91% of its portfolio value with the balance made up of office DPU Gth (%) 9 9 9 7 properties. Div Yield (%) 3.1 3.3 3.6 3.9 Positive rental reversion to continue. Despite the retail market Gross Gearing (%) 12 11 13 13 slump, the average monthly retail gross sales of Link REIT’s tenants Book Value (HK$) 83.06 89.48 91.48 93.56 in Hong Kong grew 1.4% in 1HFY20 on a psf basis. In particular, P/Book Value (x) 1.0 0.9 0.9 0.9 supermarket and foodstuff trades are bright spots with 4.5% Earnings Rev (%): Nil Nil growth in gross sales in the same period. Rent-to-sales ratio inched Consensus DPU (HK$): 2.91 3.14 up to 14.4% which remains healthy. This suggest rental reversion, Other Broker Recs: B:11 S:3 H:5 which was 18.1% in 1HFY20, should remain positive in the years Source of all data on this page: Company, DBS Bank (Hong Kong) ahead. In China, retail reversionary growth is even stronger Limited (“DBS HK”), Thomson Reuters especially for newly acquired Roosevelt Plaza in Beijing and CentralWalk in Shenzhen. BUY with HK$96.6 TP. Link REIT offers distribution yields of 3.6- 3.9% for FY20-21. This translates into a yield spread of 2-2.3%. With over 60% of rental income derived from food related tenants whose businesses are more stable, Link REIT’s income stream should be resilient. Continued unit buyback does not only push up DPU, but also provides a strong support to unit price performance. BUY with HK$96.6 TP. At A Glance Issued Capital (m shrs) 2,109 Mkt Cap (HK$m/US$m) 172,305 / 21,882 Major Shareholders (%) State Street Global Advisors Asia Ltd. 6.0 APG Asset Management N.V. 5.4 Capital Research Global Investors 5.2 Free Float (%) 83.4 3m Avg. Daily Val. (US$m) 62.26 GICS Industry: Real Estate / Equity Real Estate Investment
Page 34
ed-JS/ sa- CS /RM HK Property Sector
Link REIT
Income Statement (HK$ m) Balance Sheet (HK$ m) FY Mar 2018A 2019A 2020F 2021F FY Mar 2018A 2019A 2020F 2021F Gross revenue 10,023 10,037 10,828 11,759 Fixed Assets 203,206 218,634 227,777 232,714 Property expenses (2,360) (2,348) (2,540) (2,659) Other LT Assets 696 469 469 469 Net Property Income 7,663 7,689 8,288 9,100 Cash & ST Invts 11,689 6,789 5,590 6,063 Other expenses (417) (405) (429) (451) Other Current Assets 813 1,045 1,055 1,065 Interest (Exp)/Inc (646) (513) (634) (751) Total Assets 216,404 226,937 234,891 240,310 Exceptionals 42,799 15,030 0 0 ST Debt 2,589 3,367 6,827 6,427 Pre-Tax Profit 49,399 21,801 7,225 7,898 Creditors 2,462 2,585 2,575 2,565 Tax (1,420) (1,359) (1,263) (1,384) Other Current Liab 2,174 2,174 2,204 2,234 Non-Controlling Interests (218) (113) 25 (71) LT Debt 23,196 20,850 23,250 24,650 Net Profit 47,761 20,329 5,987 6,443 Other LT Liabilities 6,915 8,635 8,635 8,635 Distribution income 5,431 5,723 6,157 6,613 Non-Controlling Interests 474 587 562 633 Unitholders’ funds 178,594 188,739 190,838 195,166 Revenue Gth (%) 8 0 8 9 Total Capital 216,404 226,937 234,891 240,310 NPI Gth (%) 10 0 8 10 Share Capital (m) 2,143 2,109 2,086 2,086 Dist. Inc Growth (%) 7 5 8 7 Gross Debt (25,785) (24,217) (30,077) (31,077) DPU Growth (%) 9 9 9 7 Working Capital 5,277 (292) (4,961) (4,098) Book NAV (HK$) 83.34 89.48 91.48 93.56 Gross Gearing (%) 12 11 13 13
Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Mar 2018A 2019A 2020F 2021F FY Mar 2018A 2019A 2020F 2021F Pre-Tax Income 49,399 21,801 7,225 7,898 Revenues (HK$ m) Tax Paid (904) (1,359) (1,263) (1,384) Retail and commercial 7,554 7,648 8,439 9,228 Depr/Amort 20 20 20 20 properties Car parks 2,046 1,979 1,960 2,076 Chg in Wkg.Cap. (50) (4) 10 10 Other revenues 423 410 430 456 Other Non-Cash (41,980) (14,517) 592 751 Operational CF 6,485 5,941 6,584 7,295 Net Capex 20,951 9,338 (4,485) (625) Total 10,023 10,037 10,828 11,759 Assoc, MI, Invsmt (12,864) (2,563) (297) 150 Investment CF 8,087 6,775 (4,782) (475) Net Chg in Debt (1,760) (4,320) 5,860 1,000 Key Assumptions (%) 2020F 2021F New issues/Unit Buyback (4,349) (3,216) (2,131) 0 Distribution Paid (5,254) (5,517) (5,916) (6,446) Retail rental (Shopping centre) -HK (10) 0 Other Financing CF (599) (89) (814) (901) Financing CF (11,962) (13,142) (3,001) (6,347) Chg in Cash 2,610 (426) (1,199) 473
Source: Company, DBS HK
Page 35 HK Property Sector Prosperity REIT
Bloomberg: 808 HK | Reuters: 0808.HK Refer to important disclosures at the end of this report
BUY Steady as she goes Last Traded Price ( 10 Jan 2020): HK$3.05 (HSI : 28,638) Price Target 12-mth: HK$3.53 (15.7% upside) (Prev HK$3.79) • Firm occupancy, moderating rental reversions
Analyst • Raised hedging ratio via interest rate swaps Jeff YAU CFA, +852 36684180, [email protected] • BUY with HK$3.53 TP Ian CHUI CFA,+852 36684174, [email protected] Jason LAM +852 36684179, [email protected] Firm occupancy, moderating rental reversions. Despite weaker leasing demand from SMEs led by the US-China trade Price Relative war, Prosperity REIT’s portfolio occupancy remained steady at HK$ Relative Index
3.9 c.97%. Rental reversion, however, should moderate to 2-3% 206 3.7 186 in 2H19 from 1H19’s 8.8%. This should result in c.5% rental 3.5 166 3.3 146 reversion for the full year of 2019. In 2020, leases covering 3.1 2.9 126 about 38.7% of floor area are scheduled for roll over with 2.7 106 2.5 86 reversionary growth expected to turn largely neutral. 2.3 66 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Prosperity Millennia Plaza in North Point should continue to Prosperity REIT (LHS) Relative HSI (RHS) outperform the portfolio given steady office demand in Island Forecasts and Valuation East led by continued office decentralisation. FY Dec (HK$ m) 2018A 2019F 2020F 2021F Gross Revenue 447 464 477 491 Raising the hedging ratio via interest rate swaps. The Net Property Inc 351 364 373 383 installation of advertising light box at Prosperity Place and new Net Profit 688 210 212 222 air conditioning system at 9 Chong Yip Street have been Distribution Inc 269 275 277 289 DPU (HK$) 0.18 0.18 0.18 0.19 completed. Renovation of ground floor lobby at Prosperity DPU Gth (%) 2 1 0 3 Millennia Plaza is currently well underway. Prosperity REIT is Div Yield (%) 6.0 6.0 6.0 6.2 planning to upgrade the ground floor lobbies for The Gross Gearing (%) 21 20 20 20 Metropolis Tower in 2020. In 2H19, Prosperity REIT entered Book Value (HK$) 5.74 5.74 5.71 5.77 into further interest rate swap arrangements, raising its P/Book Value (x) 0.5 0.5 0.5 0.5 hedging ratio to 70% from Jun-19’s 50%. This should help mitigate the earnings impact resulting from interest rate Earnings Rev (%): (1) (3) New Consensus DPU (HK$): 0.19 0.20 0.22 volatility. Other Broker Recs: B:2 S:0 H:1 BUY with HK$3.53 TP. Prosperity REIT offers a distribution Source of all data on this page: Company, DBS Bank (Hong Kong) Limited (“DBS HK”), Thomson Reuters yield of 6% for both of FY19 and FY20. In view of the REIT’s steady earnings prospects in the year ahead, we maintain our BUY call with DDM-based TP of HK$3.53, implying total return of 22%.
At A Glance Issued Capital (m shrs) 1,486 Mkt Cap (HK$m/US$m) 4,532 / 590 Major Shareholders (%) CK Asset Holdings Limited 18.3 Free Float (%) 81.7 3m Avg. Daily Val. (US$m) 0.47 GICS Industry: Real Estate / Equity Real Estate Investment
Page 36
ed-JS/ sa- CS /RM HK Property Sector
Prosperity REIT
Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2018A 2019F 2020F 2021F FY Dec 2018A 2019F 2020F 2021F Gross revenue 447 464 477 491 Fixed Assets 10,990 11,117 11,200 11,429 Property expenses (96) (100) (104) (108) Other LT Assets 21 21 21 21 Net Property Income 351 364 373 383 Cash & ST Invts 359 352 343 339 Other expenses (62) (64) (65) (67) Other Current Assets 16 16 16 16 Interest (Exp)/Inc (53) (50) (56) (53) Total Assets 11,386 11,506 11,580 11,805 Exceptionals 490 0 0 0 ST Debt 0 0 800 1,540 Pre-Tax Profit 726 249 252 263 Creditors 193 196 198 201 Tax (38) (39) (40) (41) Other Current Liab 159 162 164 170 Non-Controlling Interests 0 0 0 0 LT Debt 2,312 2,312 1,512 772 Net Profit 688 210 212 222 Other LT Liabilities 197 208 218 228 Distribution income 269 275 277 289 Non-Controlling Interests 0 0 0 0 Unitholders’ funds 8,524 8,628 8,689 8,894 Revenue Gth (%) 0 4 3 3 Total Capital 11,386 11,506 11,580 11,805 NPI Gth (%) (1) 4 2 3 Share Capital (m) 1,486 1,504 1,523 1,542 Dist. Inc Growth (%) 3 2 1 4 Gross Debt (2,340) (2,340) (2,340) (2,340) DPU Growth (%) 2 1 0 3 Working Capital 23 10 (803) (1,555) Book NAV (HK$) 5.74 5.74 5.71 5.77 Gross Gearing (%) 21 20 20 20
Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2018A 2019F 2020F 2021F FY Dec 2018A 2019F 2020F 2021F Pre-Tax Income 726 249 252 263 Revenues (HK$ m) Tax Paid (28) (29) (30) (31) Rental income 365 376 387 398 Depr/Amort 0 0 0 0 Carpark income 30 30 31 31 Chg in Wkg.Cap. 4 2 2 2 Rental-related income 51 57 59 61 Other Non-Cash (385) 105 111 110 Total 447 464 477 491 Operational CF 317 327 335 344 Net Capex (12) (12) (12) (12) Assoc, MI, Invsmt 4 6 6 6 Investment CF (8) (6) (6) (6) Key Assumptions (%) 2020F 2021F Net Chg in Debt 0 0 0 0 New issues/Unit Buyback 0 0 0 0 Office rental - HK (8) 0 Distribution Paid (264) (272) (276) (283) Other Financing CF (50) (56) (61) (59) Financing CF (313) (328) (337) (342) Chg in Cash (5) (7) (9) (4)
Source: Company, DBS HK
Page 37 HK Property Sector Sunlight REIT
Bloomberg: 435 HK | Reuters: 0435.HK Refer to important disclosures at the end of this report
BUY Proactive asset management Last Traded Price ( 10 Jan 2020): HK$5.07 (HSI : 28,638) • Office income remains in good shape Price Target 12-mth: HK$5.87 (15.8% upside) (Prev HK$5.90) • Embracing retail challenges Analyst • BUY with HK$5.87 TP Jeff YAU CFA, +852 36684180, [email protected] Ian CHUI CFA,+852 36684174, [email protected] Office income remains in good shape. Despite slowing leasing Jason LAM +852 36684179, [email protected] demand, the spot rate at Sunlight Tower in Wan Chai has been stable at c.HK$45psf. About 21% of leases are scheduled for expiry in FY20, Price Relative with expiring rents of HK$40psf. Rental reversion should stay healthy at >10% in FY20. The HK$50m asset enhancement works at Strand 50 in Sheung Wan is largely completed. Occupying 29,000sf of space, co-working space operator, theDesk, has fully opened for business. This not only brings the property’s occupancy back to >90% but has also given a boost to passing rents. Two eateries on the ground floor will gradually open for business. At The Harvest in Mongkok, Sunlight REIT has filled up the office space vacated by Chong Hing Bank with Forecasts and Valuation semi-retail or serviced trades, which are now impacted by the ongoing FY Jun (HK$ m) 2018A 2019A 2020F 2021F protests. Overall, Sunlight REIT’s office income should remain in good Gross Revenue 817 851 879 913 shape. Net Property Inc 646 683 706 734 Embracing retail challenges. Sheung Shui Centre Shopping Arcade Net Profit 1,442 1,591 423 429 Distribution Inc 436 450 456 463 has been impacted by the ongoing social unrest with jewellery and DPU (HK$) 0.26 0.27 0.27 0.28 cosmetic trades seriously hit. Businesses of F&B outlets remain DPU Gth (%) (20) 3 1 1 resilient. Turnover rents account for <1% of its income and hence the Div Yield (%) 5.2 5.4 5.4 5.5 impact should not be a big concern. Sunlight REIT has provided rental Gross Gearing (%) 22 20 20 20 relief to affected tenants. Despite lower tenants’ sales, the overall Book Value (HK$) 9.03 9.68 9.68 9.97 occupancy cost ratio remains in the low-to-mid teens which is not P/Book Value (x) 0.6 0.5 0.5 0.5 demanding. Sunlight REIT has been replacing fashion retailers with Earnings Rev (%): (1) (2) specialty restaurants and confectionary stores. Retail shops at Kwong Consensus DPU (HK$): 0.29 0.30 Wah Plaza in Yuen Long are also affected by the political protests. Other Broker Recs: B:2 S:0 H:0 Metro City Ph 1 property is faring relatively better as it serves mainly the daily needs of residents nearby. Overall, retail reversionary growth Source of all data on this page: Company, DBS Bank (Hong Kong) Limited (“DBS HK”), Thomson Reuters should show signs of moderation in FY20. Meanwhile, Sunlight REIT remains prudent in pursuing acquisitions in Hong Kong. It is also exploring acquisition opportunities in Southern China. BUY with HK$5.87 TP. Sunlight REIT offers distribution yield of 5.4- 5.5% for FY20-21. We remain positive on its investment value in view of its steady growth supported by its balanced portfolio and proactive asset management. We reiterate our BUY call with DDM-based TP of HK$5.87. At A Glance Issued Capital (m shrs) 1,652 Mkt Cap (HK$m/US$m) 8,458 / 1,081 Major Shareholders (%) Shau Kee Financial Enterprise Ltd. 22.6 Silchester International Investors, L.L.P. 14.9 Henderson Land Development Co Ltd 8.7 Henderson Sunlight Asset Management Limited 8.6 Free Float (%) 45.2 3m Avg. Daily Val. (US$m) 0.72 GICS Industry: Real Estate / Equity Real Estate Investment
Page 38
ed-JS/ sa- CS /RM HK Property Sector
Sunlight REIT
Income Statement (HK$ m) Balance Sheet (HK$ m) FY Jun 2018A 2019A 2020F 2021F FY Jun 2018A 2019A 2020F 2021F Gross revenue 817 851 879 913 Fixed Assets 18,755 20,003 20,111 20,702 Property expenses (171) (168) (173) (179) Other LT Assets 168 180 180 180 Net Property Income 646 683 706 734 Cash & ST Invts 642 550 534 525 Other expenses (113) (119) (120) (123) Other Current Assets 66 73 73 73 Interest (Exp)/Inc (64) (85) (88) (101) Total Assets 19,631 20,806 20,898 21,480 Exceptionals 1,052 1,194 0 0 ST Debt 20 599 1,645 0 Pre-Tax Profit 1,522 1,672 497 511 Creditors 64 70 70 70 Tax (80) (81) (75) (82) Other Current Liab 286 305 305 305 Non-Controlling Interests 0 0 0 0 LT Debt 4,231 3,638 2,592 4,237 Net Profit 1,442 1,591 423 429 Other LT Liabilities 174 202 202 202 Distribution income 436 450 456 463 Non-Controlling Interests 0 0 0 0 Unitholders’ funds 14,857 15,992 16,085 16,666 Revenue Gth (%) 4 4 3 4 Total Capital 19,631 20,806 20,898 21,480 NPI Gth (%) 4 6 3 4 Share Capital (m) 1,645 1,652 1,662 1,672 Dist. Inc Growth (%) (19) 3 1 2 Gross Debt (4,251) (4,237) (4,237) (4,237) DPU Growth (%) (20) 3 1 1 Working Capital 339 (350) (1,412) 224 Book NAV (HK$) 9.03 9.68 9.68 9.97 Gross Gearing (%) 22 20 20 20
Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Jun 2018A 2019A 2020F 2021F FY Jun 2018A 2019A 2020F 2021F Pre-Tax Income 1,522 1,672 497 511 Revenues (HK$ m) Tax Paid (80) (81) (75) (82) Rental income 655 684 710 739 Depr/Amort 0 0 0 0 Carpark income 33 35 36 36 Chg in Wkg.Cap. 7 0 0 0 Rental-related income 129 131 133 138 Other Non-Cash (942) (1,058) 138 152 Total 817 851 879 913 Operational CF 507 533 561 581 Net Capex (665) (96) (30) (30) Assoc, MI, Invsmt 11 18 18 18 Key Assumptions (%) 2020F 2021F Investment CF (654) (78) (12) (12) Net Chg in Debt 325 0 0 0 Office rental - HK (8) New issues/Unit Buyback (7) 0 0 0 Distribution Paid (547) (446) (450) (460) Retail rental (Shopping centre) - HK (10) 0 Other Financing CF (75) (103) (106) (118) Financing CF (304) (549) (556) (578) Chg in Cash (451) (95) (7) (9)
Source: Company, DBS HK
Page 39 Industry Focus
Hong Kong Property Sector
Company share buybacks since Jul-19
HYSAN DEV (14 HK) Date No. of shares Avg price (HK$) Amount (HK$) 30-Dec-19 270,000 30.77 8,306,901 18-Dec-19 100,000 30.20 3,019,800 11-Dec-19 100,000 30.27 3,027,000 9-Dec-19 100,000 29.87 2,986,900 6-Dec-19 100,000 30.07 3,007,150 3-Dec-19 80,000 28.95 2,316,000 12-Nov-19 200,000 30.82 6,163,200 11-Nov-19 200,000 30.98 6,195,100 10-Oct-19 100,000 28.78 2,877,900 9-Oct-19 400,000 29.27 11,707,800 8-Oct-19 600,000 30.53 18,316,200 4-Oct-19 150,000 30.93 4,638,945 3-Oct-19 300,000 30.78 9,233,250 27-Sep-19 100,000 31.58 3,158,400 26-Sep-19 150,000 31.12 4,667,745 16-Aug-19 1,000 33.80 33,800 15-Aug-19 49,000 31.89 1,562,551 T otal 3,000,000 30.41 91,218,642
Source: HKEXNews
Page 40 Industry Focus
Hong Kong Property Sector
Company share buybacks since Jul-19
LINK REIT (823 HK) Date No. of shares Avg price (HK$) Amount (HK$) 15-Jan-20 900,000 83.04 74,737,620 14-Jan-20 1,500,000 83.18 124,762,950 13-Jan-20 519,400 82.71 42,957,964 10-Jan-20 83,900 81.47 6,835,652 9-Jan-20 49,400 80.99 4,000,857 8-Jan-20 24,400 80.27 1,958,571 7-Jan-20 1,470,000 81.02 119,099,106 6-Jan-20 777,700 80.82 62,852,703 3-Jan-20 870,000 81.68 71,063,427 2-Jan-20 1,370,000 82.20 112,608,383 31-Dec-19 958,000 82.20 78,745,013 30-Dec-19 249,000 81.91 20,395,988 27-Dec-19 678,000 81.37 55,168,996 24-Dec-19 207,000 80.81 16,727,070 23-Dec-19 350,500 80.97 28,381,457 20-Dec-19 300,000 80.95 24,285,120 11-Dec-19 1,100,000 79.42 87,367,280 10-Dec-19 890,000 79.76 70,985,599 9-Dec-19 1,553,000 80.85 125,561,292 6-Dec-19 2,000,000 80.38 160,769,200 5-Dec-19 3,093,500 79.50 245,946,243 4-Dec-19 2,008,000 78.70 158,037,230 24-Sep-19 1,000,000 86.52 86,517,900 23-Sep-19 119,000 86.98 10,350,251 19-Sep-19 310,000 88.01 27,283,441 18-Sep-19 500,000 88.38 44,188,050 17-Sep-19 560,500 88.72 49,727,224 16-Sep-19 330,000 88.74 29,285,025 11-Sep-19 10,000 88.40 884,000 10-Sep-19 222,500 88.44 19,677,077 5-Sep-19 1,522,000 89.05 135,531,056 4-Sep-19 798,000 88.15 70,341,146 3-Sep-19 1,515,000 86.46 130,993,718 2-Sep-19 2,600,000 86.44 224,736,460 15-Aug-19 340,500 88.39 30,098,191 14-Aug-19 3,203,500 86.76 277,931,175 T otal 33,982,800 83.30 2,830,792,434
Source: HKEXNews
Page 41 Industry Focus
Hong Kong Property Sector
Major shareholder stake increase
WHARF REAL ESTAT (1997 HK) Name of substantial No. of shares Average price per No. of shares % of issued Date of relevant shareholder inv olv ed Buy /Sell share (HK$) interested share capital ev ent
Wheelock and Company 1,053,000 B 43.18 2,004,154,608 66.01 12-Dec-19 Wheelock and Company 1,328,000 B 46.21 1,973,710,608 65.01 1-Nov-19 Wheelock and Company 6,431,000 B 44.51 1,949,535,608 64.21 5-Sep-19 Wheelock and Company 166,000 B 61.13 1,912,950,608 63.00 29-Apr-19 Wheelock and Company 370,000 B 52.38 1,882,671,608 62.01 30-Aug-18
Source: HKEXNews
Page 42 Industry Focus
Hong Kong Property Sector
DBS HK recommendations are based on an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return, i.e., > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable share price catalysts within this time frame)
*Share price appreciation + dividends
Completed Date: 16 Jan 2020 12:29:38 (HKT) Dissemination Date: 16 Jan 2020 16:27:44 (HKT) Sources for all charts and tables are DBS HK unless otherwise specified. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank (Hong Kong) Limited (“DBS HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS HK, DBS Vickers (Hong Kong) Limited (“DBSV HK”), and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS HK. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report. This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein. Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc (“DBSVUSA”), a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.
Page 43 Industry Focus
Hong Kong Property Sector
ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have proprietary positions in Hysan Development Co Ltd (14 HK), Swire Properties Ltd (1972 HK), Wharf Real Estate Investment Co Ltd (1997 HK), Champion REIT (2778 HK), Fortune Real Estate Investment Trust (778 HK), Link REIT (823 HK), Prosperity REIT (808 HK) and Sunlight Real Estate Investment Trust (435 HK) recommended in this report as of 14 Jan 2020.
DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have a proprietary position in Hongkong Land Holdings Ltd (HKL SP) recommended in this report as of 31 Dec 2019.
2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
3. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued share capital in Fortune Real Estate Investment Trust (778 HK) and Prosperity REIT (808 HK) recommended in this report as of 14 Jan 2020.
4. DBS Bank Ltd, DBS HK, DBSVS, DBS Vickers Securities (USA) Inc (“DBSVUSA”), or their subsidiaries and/or other affiliates beneficially own a total of 1% of the issuer's market capitalization of Prosperity REIT (808 HK) as of 14 Jan 2020.
5. Compensation for investment banking services: DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Wharf Real Estate Investment Co Ltd (1997 HK) and Far East Consortium International Ltd/HK (35 HK) as of 31 Dec 2019.
6. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for Wharf Real Estate Investment Co Ltd (1997 HK) and Far East Consortium International Ltd/HK (35 HK) in the past 12 months, as of 31 Dec 2019.
DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
Page 44 Industry Focus
Hong Kong Property Sector
7. Disclosure of previous investment recommendation produced: DBS Bank Ltd, DBSVS, DBS HK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.
Page 45 Industry Focus
Hong Kong Property Sector
RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia This report is being distributed in Australia by DBS Bank Ltd, DBSVS or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946.
DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS Bank Ltd and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws.
Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
Hong Kong This report is being distributed in Hong Kong by DBS Bank Ltd, DBS Bank (Hong Kong) Limited and DBS Vickers (Hong Kong) Limited, all of which are registered with or licensed by the Hong Kong Securities and Futures Commission to carry out the regulated activity of advising on securities.
Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia. Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.
Wong Ming Tek, Executive Director, ADBSR Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report. Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. United This report is produced by DBS HK which is regulated by the Hong Kong Monetary Authority Kingdom This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd (“DBSVUK”). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom. In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication. Dubai This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at units 608-610, 6th Floor, Gate International Precinct Building 5, PO Box 506538, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Financial Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for Centre professional clients (as defined in the DFSA rulebook) and no other person may act upon it.
Page 46 Industry Focus
Hong Kong Property Sector
United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined Emirates in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent. United States This report was prepared by DBS HK. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate. Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
DBS Bank (Hong Kong) Limited 13 th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong Tel: (852) 3668-4181, Fax: (852) 2521-1812
Page 47 Industry Focus
Hong Kong Property Sector
DBS Regional Research Offices
HONG KONG MALAYSIA SINGAPORE DBS Bank (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Carol Wu Contact: Wong Ming Tek (128540 U) Contact: Janice Chua 13th Floor One Island East, 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 18 Westlands Road, Capital Square, Marina Bay Financial Centre Tower 3 Quarry Bay, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 852 3668 4181 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 Fax: 852 2521 1812 Tel.: 603 2604 3333 Fax: 65 65353 418 e-mail: [email protected] Fax: 603 2604 3921 e-mail: [email protected] e-mail: [email protected] Company Regn. No. 196800306E
INDONESIA THAILAND PT DBS Vickers Sekuritas (Indonesia) DBS Vickers Securities (Thailand) Co Ltd Contact: Maynard Priajaya Arif Contact: Chanpen Sirithanarattanakul DBS Bank Tower 989 Siam Piwat Tower Building, Ciputra World 1, 32/F 9th, 14th-15th Floor Jl. Prof. Dr. Satrio Kav. 3-5 Rama 1 Road, Pathumwan, Jakarta 12940, Indonesia Bangkok Thailand 10330 Tel: 62 21 3003 4900 Tel. 66 2 857 7831 Fax: 6221 3003 4943 Fax: 66 2 658 1269 e-mail: [email protected] e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand
Page 48