5 revelations straight from Kerry Properties' bosses

Turns out it had acquired 4 sites in 2012.

According to Nomura, it held an investor luncheon with Kerry Properties’ management to get an update on operations and the outlook for 2013.

"Overall, we came away with a feeling of steady and measured growth. While management highlighted some areas had slowed (ie, super high-end residential leasing), Kerry’s overall operations appear to be seeing steady and measured growth," Nomura noted.

The company appears to be maintaining its overall strategy of matching new investments with contract sales. 

Here are the key takeaways from the luncheon:

Contract sales targets – In 2012, Kerry achieved HKD7bn contract sales in HK and HKD4bn from China. The overall achieved sales of HKD11bn more than cover its HKD7-8bn capex needs in 2012.

While the 2013 contract sales target is yet to be formalised, the company will likely to try to match contract sales with its capex requirements.

HK investment properties - commercial good, super luxury facing headwinds – On the HK leasing front, Kerry’s commercial properties like Megabox and Enterprise Square should see about 20% of space up for renewal.

Against rental rates signed some 3-6 years ago, Kerry should enjoy healthy upward rental reversions. While the outlook for commercial is good, the super-luxury space appears to be more challenging.

The financial downturn and cut in housing allowance has reduced interest in the super-luxury segment (eg, Tavistock, Aigburth) and resulted in some users downgrading their spatial needs.

Overall occupancy is still around 95% and the goal is to maintain the high occupancy.

Likely launches in 2013 – Likely project sales in 2013 include Yuk Yat St after the Lunar New Year and Hing Hong Street in 2H12. Ede Rd in Kowloon Tong may be launched in late 2013 or early 2014.

China investment properties – For the newer projects, there has been a good pick up in occupancy and commitment rates. While there is a healthy pick up in occupancy at the new assets, renovation work has caused occupancy at Shanghai Kerry Centre and Beijing Kerry Centre to dip.

This, however, should be more transitional in nature and beneficial over the long run as rental rates post renovation should see a good pick up. As the new China investment properties come on line post the renovations, Kerry’s China recurrent income should begin to outweigh that from HK.

Land acquisition – Kerry acquired four sites in 2012 (one in HK and three in China). As Kerry looks to balance its contract sales against its capex needs, additional landbank acquisition will depend on both opportunities as well as surplus cash returned from contract sales. Kerry continues to maintain a target gearing ratio of 35%.