Fitch Expects Sun Hung Kai Properties’ Commercial Assets In Hong Kong To Recover Gradually
HONG KONG – Fitch said the outlook of Sun Hung Kai Properties (SHKP) is stable after it affirmed Hong Kong’s biggest property developer by market value, according to a press release published by the ratings agency on Monday afternoon (13 March, SGT).
In particular, Fitch affirmed SHKP’s Long-Term Issuer Default Rating (IDR) at ‘A’ and Short-Term IDR at ‘F1’.
Among the rationale for affirming is that the ratings agency expects the performance of the developer’s investment properties in Hong Kong to recover gradually, as the border reopening with mainland China and withdrawal of COVID-related measures will likely lead to tourists returning to Hong Kong, benefitting the commercial properties of SHKP.
Notably, the commercial property landlord holds a diverse portfolio of malls and office buildings in Hong Kong that collectively generated HK$11 billion in earnings before interest, taxes, depreciation, and amortization (EBITDA) for the fiscal year 2022. However, the developer’s rental EBITDA in the city fell 5 percent year-on-year during the 1st half of FY2023 as the Chinese territory was still impacted by COVID-related curbs.
The overall average occupancy level of its office assets in Hong Kong stands at 93 percent, while that for its retail portfolio remained healthy at 96 percent.
Between FY2022 and FY2025, Fitch foresees that the developer’s total rental income would grow by 4 to 5 percent per annum primarily due to the recovery from the COVID-19 pandemic and the strong pipeline of new investment properties.
“SHKP expects to increase the gross floor area (GFA) of mainland investment properties by 45 percent by end-2025, mainly from new office and retail properties in Shanghai and Nanjing. It will also expand the GFA of its Hong Kong investment properties by 5 million sq ft to more than 37 million sq ft by FY26.
However, Fitch expects the developer’s commercial property portfolio would come under pressure in the fiscal year ending June 2023 (FY23) and FY24 due to higher interest rates, while the recovery in rental income is forecasted to be gradual.