Swire Properties underlying profit grows 4% to HK$3.9bn

Thanks to its stable rental business.

Swire Properties delivered solid interim earnings, due to stable rental business.

According to a research note from Jefferies, underlying profit grew 4% YoY to HK$3.9bn, thanks to higher rental income from both retail and office portfolio coupled with stronger sales of luxury residential properties in HK.

Further, interim DPS slightly increased by 5% YoY to HK$0.23, in line with the growth of underlying profit. Gearing edged down slightly to 15.7% as of June. Operating margin of rental business maintained at a stable level of 76.3%.

Here's more from Jefferies:

Robust performance of office portfolio: Leveraging on the sustained demand for more HK office space from Chinese companies, rental income from HK office portfolio grew 7% YoY. On the back of high occupancy rate (99% as of June), the company expects the momentum of the HK office segment to continue in 2H15, evidenced by the higher renewed rents at Taikoo Place. Mainland office portfolio also saw 18% growth YoY, attributable to the robust demand for Grade A office in Guangzhou. However, office rents in Beijing are likely to be under pressure due to imbalanced supply and demand.

China retail performance offsets sector headwind in HK: Despite the 1.6% decline of overall HK retail sales in 1H15, Swire's HK retail segment maintained stable with 1% growth in gross rental income and the malls were effectively 100% occupied in 1H15. China retail portfolio delivered 11% YoY growth in gross rental income, smoothing out the lower growth in HK. With the malls mainly situated in Guangzhou, Beijing and Chengdu, Swire expects the retail sales in the three cities to grow at rates above the national average, despite the weakening demand for luxury goods in mainland.

Capitalize value of residential market in HK: Thanks to the historical high home price and handover of 96 units of AREZZO to buyers, revenue from property sales surged 26% YoY in 1H15. Looking forward, the company expects to recognize the sales of the remaining units of AREZZO in 2H15. Sale of office portion of the Daci Temple development in Chengdu is also expected to be recognized in 2H15.

Hotel business to be under pressure: Despite a moderate growth in hotel revenue in 1H15, the company expects the hotel performance in Beijing and HK to remain weak in 2H15 while Guangzhou and Miami hotel business will likely improve.