Hang Lung Properties net debt jumped to HK$1.9b in 1H 2014

Net debt to equity ratio is comfortable.

Hang Lung Properties net debt rose from HK$658mn to HK$1,923mn in 1H 2014.

According to a research note from Barclays, the sale of Long Beach helped to bring in HK$901mn in development revenues but HLP also incurred HK$2,650mn in capex for its investment properties under development.

Although HLP’s net debt has increased slightly, its net debt to equity ratio remains very comfortable at 1.5% (versus 0.5% as at December 2013).

Looking ahead, Barclays believes Hang Lung Properties' net debt position would largely be a function of property sales.

If Hang Lung Properties were to tap the recent pick up in sentiment to launch more Long Beach, Harbourside or 18 townhouses at Blue Pool Road, it is believed the sales proceeds could quickly restore Hang Lung Properties back to a net cash position.

Here's more from Barclays:

At today’s briefing, management said it believes that the government’s various policies are starting to bear fruit and lead to a steady and healthy housing market.

If the opportunity is there, it hopes to sell more of its inventory in the not too distant future.

Development margins – Unchanged at 60% for Long Beach – Hang Lung Properties recognized the sale from 88 units of the Long Beach during 1H 2014.

This helped to generate development revenue of HK$901mn. We had expected HLP to recognize 74 units and HK$764mn. Development margin was stable at 60%, same as 2H of 2013.

Passing rental growth – New assets helping to sustain growth - HLP’s gross rentals rose 10% y/y in 1H 2014 to HK$3,556mn.

Split by country, Hong Kong gross rentals rose by 7% while the additional contributions from Wuxi Centre 66 helped to lift China gross rentals by 14%. Excluding new contributions from Wuxi, China rentals would have risen 5% y/y.

Looking ahead, while retail sales in Hong Kong and China have slowed, Hang Lung Properties expects its Hong Kong and Shanghai assets will deliver steady growth in 2H 2014.

Furthermore, as new assets like Tianjin Riverside 66 are opened (26 September 2014) and the Wuxi Office Tower (Q4 2014 completion) and Shenyang Office Tower (2015 completion) are completed, this should help underpin overall rental growth for Hang Lung Properties.

Revaluations and cap rates – Revaluations marginally positive but hurt by a weaker Rmb – In 1H 2014, although investment property revaluations remained positive, the gains were very small.

HLP’s Hong Kong and China investment properties were revalued up by HK$712mn and HK$36mn, respectively. Compared to the December 2013 valuation, this suggests positive revaluation of only 1.3% and 0.04% for its Hong Kong and China portfolios, respectively.

While revaluations were positive, the weaker Rmb in the 1H of 2014 resulted in a -HK$1,248mn exchange difference, which caused HLP’s BVPS dropping slightly from HK$27.8 as at December 2013 to HK$27.7 as at June 2014.