Hysan Previews $115M Loss as Investment Markdowns Continue

Hong Kong’s Hysan Development warned of a 2023 attributable loss on the order of HK$900 million ($115 million) in an update issued without fanfare on Chinese New Year’s Eve.

The expected loss marks a narrowing of the HK$1.16 billion shortfall posted by Hysan in 2022, the commercial builder said Friday in the filing with the Hong Kong stock exchange.

Causeway Bay’s biggest landlord cited an estimated HK$2.8 billion fair-value loss driven by lower valuations in its office development pipeline during the second half of 2023. The full-year figure would be down from a fair-value loss of HK$3.2 billion in 2022.

“The overall financial position of the group remains healthy,” Hysan chairman Irene Lee said in the filing, noting that with the fair-value loss being non-cash in nature, the company expects the result to have no effect on its operating cash flow.

Causeway Bay Makeover

Last August, Hysan declared an underlying profit of HK$1 billion for the first half of 2023, down 16.9 percent year-on-year, amid weaker results from office and retail holdings. Underlying profit ignores the fair-value change of investment properties to show a clearer ongoing trend.

Hysan saw turnover for the first six months of last year decline 9.3 percent to HK$1.6 billion as it undertook renovation and enhancement works at some of its Hong Kong Island properties. The developer reported 89 percent occupancy in its office portfolio and 98 percent occupancy at its retail properties.

“Recovery of retail sales at Hysan surpassed that of Hong Kong,” the company said in its interim report. “The strategic move of rejuvenating our core portfolio also made good progress.”

Hysan is spending $256 million to revamp its Lee Garden commercial portfolio with covered walkways and footbridges linking Causeway Bay MTR station to existing Lee Garden developments and the upcoming Caroline Hill on Leighton Road.

The Caroline Hill project, which Hysan and partner Chinachem acquired for HK$19.8 billion in 2022, is expected to provide 1.09 million square feet (101,264 square metres) of gross floor area across office, retail and cultural components when it opens in late 2026.

Mainland-Led Retail Rebound

Hysan’s profit warning comes after Hong Kong’s retail market saw a 15.9 percent year-on-year rise in December sales amid increased leasing demand from mainland Chinese operators, according to JLL’s latest Market Monitor report.

Notably, Shenzhen-based MuWu BBQ debuted its first restaurant in Hong Kong at a ground-floor unit of Chong Hing Square in Mong Kok for a monthly rent of HK$104 ($13.30) per square foot. The rate is 4 percent greater than the rent paid by the previous tenant at the 2,583 square foot space, the consultancy said.

“The number of new brands from mainland China surged by more than 10 times last year, reflecting a remarkable expansion of mainland Chinese operators into Hong Kong, with F&B operators the most aggressive in the expansion,” said Cathie Chung, senior director of research at JLL in Hong Kong.

In the largest December retail leasing deal tracked by the agency, Japan’s Don Don Donki department store took up 10,898 square feet of space on the second floor of MPM Plaza in Mong Kok for HK$28 per square foot.