Fourth-Quarter Operating Statement Shows Strong Office Coupled With Recovering Retail

Swire Properties' Full-Year Results a Miss, but Future Growth Intact

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Equity Bottom-Up

Swire Property has reported first-quarter 2017 operating results. In Hong Kong, the office portfolio continued to perform well, in line with our view. Pacific Place, with renewal of nearly 200,000 square feet during the period, saw even stronger positive rental revision of 15%, on top of the 13% seen during the year-ago period, owing to the spill-over effect of a very tight Central office market. Reversions for other office assets in Island East have slowed, with rates staying flat year on year. All office assets achieved 100% occupancy at the end of the quarter. On the retail side, retail sales decline slowed to 2% and 1%, respectively, at the tourist-driven Pacific Place and City Gate, versus a 15% drop a year ago. On the back of the office portfolio's strong performance, along with recovering retail assets, we maintain our narrow moat rating and our fair value estimate of HKD 27.For the city as a whole, retail sales were up 2.7% in March, the first monthly upturn since late 2015, beating the forecast of a 3.2% decline. Also, tourist arrivals rose 9% year on year in March. Mainland tourists were up 10%, the first double-digit increase in two years. While we believe the city’s retail sector has reached a trough, March data may be distorted by the timing of Easter holiday weekend, as well as the political dispute between China and South Korea. Surprisingly, at the non-discretionary-focused City Plaza, the retail sales decline accelerated to 8% year on year, versus 4% a year ago.Outside Hong Kong, retail assets in China saw continued growth. Mature properties Taikoo Li Sanlitun and Taikoo Hui Guangzhou logged retail sales gains of 8% and 32%, respectively, while the newer Indigo and Taikoo Li Chengdu saw retail sales up more than 50% year on year. Pre-sales for the residential towers in Miami were slow in 2016, and the pace continued during the first quarter, with around 70% of units sold, unchanged from the end of last year.Analyst: Phillip Zhong

Swire Property has reported first-quarter 2017 operating results. In Hong Kong, the office portfolio continued to perform well, in line with our view. Pacific Place, with renewal of nearly 200,000 square feet during the period, saw even stronger positive rental revision of 15%, on top of the 13% seen during the year-ago period, owing to the spill-over effect of a very tight Central office market. Reversions for other office assets in Island East have slowed, with rates staying flat year on year. All office assets achieved 100% occupancy at the end of the quarter. On the retail side, retail sales decline slowed to 2% and 1%, respectively, at the tourist-driven Pacific Place and City Gate, versus a 15% drop a year ago. On the back of the office portfolio's strong performance, along with recovering retail assets, we maintain our narrow moat rating and our fair value estimate of HKD 27.For the city as a whole, retail sales were up 2.7% in March, the first monthly upturn since late 2015, beating the forecast of a 3.2% decline. Also, tourist arrivals rose 9% year on year in March. Mainland tourists were up 10%, the first double-digit increase in two years. While we believe the city’s retail sector has reached a trough, March data may be distorted by the timing of Easter holiday weekend, as well as the political dispute between China and South Korea. Surprisingly, at the non-discretionary-focused City Plaza, the retail sales decline accelerated to 8% year on year, versus 4% a year ago.Outside Hong Kong, retail assets in China saw continued growth. Mature properties Taikoo Li Sanlitun and Taikoo Hui Guangzhou logged retail sales gains of 8% and 32%, respectively, while the newer Indigo and Taikoo Li Chengdu saw retail sales up more than 50% year on year. Pre-sales for the residential towers in Miami were slow in 2016, and the pace continued during the first quarter, with around 70% of units sold, unchanged from the end of last year.Analyst: Phillip Zhong

1Q Results Show Strong Office and Recovering Retail