Hongkong Land Holdings Limited - Office portfolio improvement in 3Q confirms our positive view on the office market

Hongkong Land issued its Interim Management Statement for 3Q15. Vacancy of the Central office portfolio further improved to 3.7% in September 2015 from 4.2% in June 2015.

Rental reversion at Central office was marginally positive while that of the retail portfolio was positive. We believe management is rather conservative. Various newspapers have reported decent rental reversions in various leases in Exchange Square. We also expect the retail portfolio to remain relatively resilient, given the prime location of HKLand's malls.

JLL data showed that office demand from mainland companies remained intact in 3Q15. Net absorption was over 300,000 sq ft for the second consecutive quarter which drove down vacancy to 1.2%, the lowest since 2007 and pushed up the spot rent by 3.5% QoQ/11.1% YoY.

Further improvement in the Central office portfolio, asset injection of redevelopment of the Excelsior Hotel and the inclusion into MSCI DM Index should be the catalysts. Maintain OUTPERFORM.

Vacancy of Central office further improved to 3.7% in 3Q15
Hongkong Land issued its Interim Management Statement for 3Q15. Vacancy of the Central office portfolio further improved to 3.7% in September 2015 from 4.2% in June 2015.

Expect a stronger rental reversion
Rental reversion at Central office was marginally positive while that of the retail portfolio was positive. We believe management is rather conservative. Various newspapers (HKET, Apple Daily) have reported decent rental reversions in various leases in Exchange Square. We also expect the retail portfolio to remain relatively resilient, given the prime location of HKLand's malls.

JLL: Demand from mainland companies remained intact
JLL data showed that demand from mainland companies remained intact in 3Q15. Net absorption was over 300,000 sq ft for the second consecutive quarter, which drove down vacancy to 1.2%, the lowest since 2007 and pushed up the spot rent by 3.5% QoQ/11.1% YoY.

Technical Analysis
Daily Chart
Catalysts: Asset injection of Excelsior Hotel + MSCI inclusion
Further improvement in the Central office portfolio, asset injection of redevelopment of the Excelsior Hotel and the inclusion into MSCI DM Index should be the catalysts. We maintain our OUTPERFORM rating. (Read Report)

Source : Credit Suisse Asia Pacific Equity Research

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