Hongkong Land trims its debt by 7% in 2023

S&P Global expects HKL’s luxury retail segment to drive growth in 2024.

Hongkong Land (HKL)’s China property sales increased 18% in 2023 and is expected to continue the upward shift in 2024 due to new project launches, according to S&P Global Ratings.

The key project launches include projects in Singapore and the West Bund residential project in Shanghai.

HKL’s leverage is also seen to gradually improve in 2024-2025 following project deliveries and improved property sales. In 2023, HKL’s leverage increased to 6.0x-6.2x from 5.7x in 2022.

HKL reduced its adjusted debt by 7% to $7.59b (US$5.7b) in 2023 by improving cash flow from property sales, fewer share buybacks, and a 38% reduction in new investments compared with the past 5-year average.

S&P Global also reported that HKL maintained a steady debt-to-debt-plus-equity ratio at 15.1% in 2023 despite a 5% valuation loss of its investment properties.

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The loss was due to lower market rents and a 10-basis point expansion in the capitalisation rate in its Hong Kong office portfolio.

Meanwhile, the backlog of sold but not yet recognized sales in Mainland China due for recognition in 2024 increased by 33% YoY.

HKL’s Central office portfolio will also face further pressure in 2023 due to economic uncertainty and new supply. However, the continuous tourist arrivals will drive good performance at HKL’s luxury-focused retail properties in Central.

In 2023, 65% of HKL’s gross rental income came from Hong Kong office and retail revenue, including share of JVs and associates.

In addition, S&P Global expects positive rental reversions for HKL's prime Singapore offices, following the cheap expiring rents and high market rents.