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Sun Hung Kai pushing to expand mainland China commercial portfolio

Hong Kong-based Sun Hung Kai Properties Ltd. is looking to increase its investment property portfolio in mainland China in a bid to boost rental revenue, the company said during a Feb. 27 press conference.

In reporting earnings the same day, the developer, which owns a diversified portfolio of flats, retail and office space in Hong Kong and mainland China, logged a 60% increase in reported profit attributable to shareholders to HK$33.03 billion for the fiscal six months ended Dec. 31, 2017. Underlying profit increased 37% year over year to HK$19.97 million, largely due to strong residential sales in Hong Kong.

During the briefing, however, the company said its home sales in mainland China have been affected by the government's cooling measures.

"In the past 12 months, home transactions have declined significantly in China [because of the cooling measures], which has affected our sales to a certain extent," said Adam Kwok, executive director at Sun Hung Kai Properties.

He stressed that the company's key advantage is in developing and operating large-scale commercial complexes and said Sun Hung Kai's strategy on the mainland will focus on commercial properties.

According to Chairman Raymond Kwok, the company has 12 million square feet of investment properties under construction in Shanghai, Nanjing and Chengdu. The scale of its mainland investment property portfolio will nearly double upon the completion of these projects in the next five to six years.

Rental income from the company's existing mainland investment properties rose by 13% to 1.82 billion yuan during the period, due in part to positive rental reversions and newly launched properties.

"As we enjoy a low gearing ratio, we will actively seek opportunities in China's tier 1 and tier 1.5 cities to develop IFC/ICC-like projects to generate stable, long-term rental income," Raymond Kwok said, referencing the company's landmark IFC and ICC towers in Hong Kong and Shanghai.

In Hong Kong, the company is targeting annual contracted home sales of HK$4 billion in the medium term. As of Feb. 27, the company has achieved HK$3.5 billion of contracted sales in the current fiscal year.

Despite concerns over rate hikes, Sun Hung Kai expects a 5% rise in Hong Kong home prices in 2018 amid strong demand from first-time home buyers and a favorable economic environment.

Raymond Kwok added that the company will maintain its current dividend policy to pay an annual dividend of 45% to 50% of profit. The developer's board increased its interim dividend by 9% year over year to HK$1.20 per share.

As of Feb. 26, US$1 was equivalent to 6.31 Chinese yuan.