Hongkong Land Holds Steady as Leasing in Singapore Outperforms Home City 

Hongkong Land Holdings saw its underlying profit hold steady at $966 million last year as strong leasing income from its Singapore portfolio helped blunt the impact of weaker performance by its office assets in Hong Kong.

The group’s underlying profit attributable to shareholders inched up by 0.3 percent in 2021 from $963 million a year earlier, mainly due to a stronger performance of its investment properties in Singapore, as well as higher income generated from its ongoing development projects, according to the developer’s unaudited financial statements released on Thursday.

For 2021 Hongkong Land reported a loss attributable to shareholders of $349 million in 2021, which was down 87 percent from the $2.65 billion in red ink it incurred a year prior. Much of that shortfall on its books was due to revaluation of investment properties, where it suffered a net loss of $1.32 billion, with that figure representing a significant narrowing from the $3.61 billion net loss it recorded on those assets in 2020.

The strong Singapore results for the developer which holds the largest portfolio of office properties in Hong Kong’s Central district shows the diverging fortunes of two of Asia’s largest financial hubs as Hong Kong’s ongoing geopolitical tension and the stringent coronavirus curbs in the city have highlighted Singapore’s position as a regional business hub in Asia, according to Wong Xian Yang, research head for Singapore at Cushman & Wakefield.

S&P Says Business to Stay Resilient

The group said its performance last year remained resilient against the pandemic’s prolonged impact on the real estate sector, largely thanks to improving office rents for its assets in Singapore, which was partially offset by lower rents in Hong Kong.

Average office leasing rates in Singapore went up by four percent to S$10.3 ($7.58) per square foot in 2021 from S$9.9 per square foot the year prior despite a higher vacancy rate of 2.9 percent on the group’s portfolio from 2.1 percent previously, based on committed leasing.

Among Hongkong Land’s properties in the city-state’s downtown core are the Marina Bay Financial Centre, which it developed together with Hong Kong builder CK Asset and One Raffles Quay, which it built through a joint venture with Singapore’s Keppel Land.

In its home market where it owns 12 commercial assets in Central including Jardine House and the Exchange Square, Hongkong Land saw average office rents decline by 2.5 percent to HK$117 ($15) per square foot last year from HK120 per unit the year before. Those lower leasing rates may have helped to attract more tenants, with vacancy in the Central office portfolio improving to 4.9 percent at the end of last year from 5.9 percent at the end of 2020 across markets.

In the retail segment, the group saw sales of its tenants in its Central Landmark retail portfolio rise amid recovering consumer sentiment, which helped average rents in that segment jump 16 percent to HK$190 per square foot from HK$164 each in 2020. It said reductions in temporary rent relief provided to retail tenants under programs mandated by the Hong Kong government under pandemic economic measures also supported its leasing income last year, although it now faces up to six months of similar measures starting from this month as the city fights its worst battle with COVID-19 yet.

In a separate report on Friday, global credit rating agency S&P Global Ratings predicted that Hongkong Land’s operating performance will remain stable this year despite the expected blow to its retail portfolio from the prolonged coronavirus pandemic, while projecting that performance of the company’s central office properties will “remain strong” as the lower vacancy rate partially offsets falling rents.

Despite the flat operating performance, Hongkong Land saw the value of its Hong Kong assets fall by 5 percent last year to $26.6 billion due to lower open market rents, while the overall value of its Singapore portfolio inched up by one percent over the same period.

Growth Around the Region

Aside from the two key markets, the LSE-listed landlord also reported signs of recovery elsewhere in Asia as its luxury retail operations gained momentum in China, including recovering sales and footfall in its WF Central shopping complex in Beijing.

Investment properties portfolio remained the group’s major source of income contributing 60 percent of its underlying profit last year, while revenues from development projects accounted for 40 percent of the total, with the outlook for condo sales dimming as China’s housing market slows.

“While the profit contribution from the group’s prime investment properties portfolio is expected to largely remain stable in 2022, lower profits are anticipated from the development properties business, primarily due to the timing of sales completions in China,” said Hongkong Land chairman Ben Keswick.

During 2021 the developer reported higher earnings from development projects, despite lower margins, thanks to more completions in China where it had 36 ongoing projects worth $6.3 billion at the end of the year, up from $3.8 billion 12 months earlier.

In Singapore, Hongkong Land has continued to replenish its land bank this year, including acquiring a 49 percent stake in a 590,000 square foot Tanjong Katong residential site through a joint venture with local homebuilding heavyweight CDL last month.

“The group continues to operate in an uncertain macroeconomic environment,” Robert Wong, Hongkong Land’s chief executive said. “Looking ahead to 2022, the group’s investment properties portfolio is expected to continue generating stable returns, subject to the pace of relaxation of pandemic restrictions.”

Singapore as Regional Business Hub

Cushman’s Wong said investors are buillish on the Singapore office market where grade A office leasing in the city’s central business district is expected to outpace other key markets in Asia Pacific with rents predicted to rise by 4 percent this year, as more multinationals and regional giants turn to the city’s steady environment to establish headquarters.

“The recovery of Singapore CBD Grade A office rents reflects the city’s increasing importance as a hub for stability in an uncertain operating environment and the increased significance of the ASEAN market to corporate occupiers,” he said. “The country has maintained its reputation as a safe and stable investment destination and regional business hub.”