Kerry's overall gross rentals surge 51% y/y to HK$1,474mn

China side is making increasing contributions.

The overall gross rentals of Kerry Properties rose 51% y/y to HK$1,474mn.

According to a research note from Barclays, this was largely driven by a 96% rise in China gross rentals as Shanghai Jing An Kerry Centre (RMB0.3bn in 1H) began to make contributions from 2H 2013 onwards.

Management still expects Jing An Kerry Centre to generate RMB0.6-0.7bn annual rental revenue during its first leasing cycle.

Here's more from Barclays:

For the next project, Tianjin Kerry Centre, which will open in November 2014, 81% of the space has now been committed, up from 35% back in March 2014.

Dividend and outlook – dividend cut by 14%, contract sales target unchanged. Among the Hong Kong property companies, Kerry is the first one to cut its interim DPS this results season. Looking back, Kerry had also cut its 1H 2013 DPS from HK$0.40 to HK$0.35. In both instances, the reduction in interim DPS reflected the decline in underlying profit. In light of the 21% drop in core profits, although Kerry has cut its DPS by 14%, its payout has risen slightly to 24%.

In terms of outlook, Kerry appears optimistic on its China investment property portfolio and recurrent income growth appears to be a new focus for the company.

By comparison, it was more guarded on the outlook for China contract sales. Against its 2014 contract sales target of HK$12.0bn (HK$6.5bn for Hong Kong and HK$5.5bn for China), Kerry achieved HK$5.1bn in Hong Kong and HK$2.6bn in China up to 18 August 2014.

Despite China sales activities remaining slow, Kerry keeps its 2014 contract sales target unchanged.

Looking into 2H 2014, management expects China contract sales to benefit from potential policy relaxation and one to two new launches.

In Hong Kong, after launching the Ede Road project in August, Kerry will also launch 8 LaSalle in Ho Man Tin and Dragons Range in Kau To in 2H.

Revaluation and cap rates – revaluation continued to slow, BVPS +0.3% h/h. Compared with revaluation gain of HK$5.9bn and HK$1.7bn in 1H and 2H 2013 respectively, investment properties valuation growth further slowed with a revaluation gain of only HK$0.8bn in 1H 2014.

This implies a 1.5% upward revision on the valuation of investment properties. As a result, BVPS marginally increased by 0.3% h/h to HK$52.63 as of June 2014.

Net debt and gearings – Gearings stable. Net debt rose 3.1% h/h to HK$24.2bn in 1H, while the gearing ratio increased slightly from 31.0% as at December 2013 to 31.9% as at June 2014. In 1H, Kerry incurred HK$3bn capex and management estimates full-year capex at HK$7-8bn.