Hongkong Land's office occupancy improved on back of 3% profit dip

It's also more optimistic about office market.

Hongkong Land has just announced its 1H FY15 results, and it booked a net profit decline of 3% y/y to US$419.2mn in 1H FY2015.

According to a research note from Barclays, however, despite this, its office occupancy has improved and the company also turned more positive in its outlook statement.
Its Hong Kong office vacancy compressed 1.2ppt in 1H FY2015 from 5.4% to 4.2%. Equally important, Hongkong Land also wrote that the Central office market had showed signs of improvement and that it is well positioned to benefit from the strengthening demand.

Here's more from Barclays:

A more positive office outlook: Hongkong Land reported an improvement in its office operating data. Vacancy was compressed from 5.4% to 4.2% while Central office passing rent remained flat h/h at HK$101psf.

Notably, it also reported that reversion had turned back to being marginally positive in 1H FY2015 from previously being slightly negative in FY2014. Compared with the FY2014 results announcement where Hongkong Land wrote that the office market was likely to remain stable in 2015, it has turned more positive this time, writing that the market had showed signs of improvement in 1H FY2015 with increases in leasing activity, and that it is well-positioned to benefit from the strengthening demand due to a lack of comparable supply.

Core earnings were in line: Rental revenue in 1H FY2015 dropped 0.2% y/y to US$485.2mn. Net property income (NPI) dropped 0.4% y/y to US$405.0mn as rental margin recorded a slight decline from 83.6% to 83.5% y/y. Along with higher tax rate due to higher China property trading contribution, net profit dropped 3.1% y/y to US$419.2mn. If we only consider rental as the core business for Hongkong Land, its core earnings were in line with our expectation with NPI being slightly lower than our estimate by 1%.

BVPS grew 0.4% h/h to US$11.76: Hongkong Land booked a revaluation gain of US$72.3mn in 1H FY2015 at the subsidiary level, representing 0.3% of the investment properties value at the start of FY2015. Book value per share (BVPS) as a result also grew from US$11.71 to US$11.76 in the past 6 months, which was up by 0.4% h/h.

Net debt to shareholders’ fund dropped 0.3%ppt h/h to 9.3%: Hongkong Land remained lowly geared with a net debt to shareholders fund ratio of 9.3%. Its net debt dropped 3% h/h to US$2.6bn from US$2.7bn.