Hongkong Land - DBS Research 2023-01-16: Flight To Quality; Steady Rental Income Despite Market Challenges

• Physical vacancy of Hongkong Land (SGX:H78)’s Central office portfolio improved to 5.1% in Sep-22 from Jun-22’s 5.4%. On a committed basis, vacancy was 4.8%. (Jun-22: 5.1%). These compared favourably with the overall Central market which saw its office vacancy edging up to 8.3% in Sep-22 from 7.9% in Jun-22, according to Jones Lang LaSalle. Heightened global economic uncertainty has inevitably led to softened leasing demand in 2H22.
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• Nonetheless, negative rental reversion continues to work its way through its Central office portfolio in 2H22 given high expiring rents of HK$136psf. About 24% of floor area is scheduled for roll over in 2023. With expiring rents remain high at HK$111psf, office reversionary growth should continue to stay negative.
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• Hong Kong is gradually re-opening its border with Mainland China, which should pave way for full-fledged retail sector recovery. This could brighten the earnings outlook of the company’s retail portfolio.
• Hongkong Land's Singapore portfolio continued to enjoy favourable rental growth upon renewals and new lettings. Supported by healthy leasing sentiment, physical vacancy improved to 4% in Sep-22 from Jun-22’s 4.7%. The committed vacancy was low at 0.7%.

Construction delays to drag Hongkong Land's near-term earnings.

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Jeff YAU CFA DBS Group Research | Percy Leung DBS Research | https://www.dbs.com/insightsdirect/ 2023-01-16 SGinvestors.io

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