Ratings agency Moody’s has praised Hong Kong property company Hysan Developments, owner of Hysan Place and Lee Gardens.
In a statement overnight, Moody’s Investors Service said Hysan Development’s 2015 results – reported in detail by Inside Retail Hong Kong yesterday – support its A3 issuer ratings and stable outlook, with its operating performance “showing strength in a difficult environment”.
During 2015, rent increases and low vacancy rates in both its retail and office properties led to overall revenue growth, stronger interest coverage, and lower leverage – all during a time total retail sales in the territory fell by 3.7 per cent and luxury sales were hammered.
“Moody’s notes that revenue grew 6.4 per cent year over year to HK$3.4 billion and was mainly driven by positive rental reversions of about 25 per cent and 30 per cent in the company’s retail and office portfolios, respectively,” said Joe Morrison, a Moody’s VP and senior credit officer.
“The retail portfolio was fully let and the office portfolio reported an occupancy rate of 99 per cent in 2015, and the strong operating performance of the two portfolios more than offset a modest decline in residential portfolio revenue, which was largely attributable to a renovation project,” said Morrison.
Moody’s said it expects Hysan’s retail performance to remain resilient over the next 12-18 months, despite the slowdown in Hong Kong’s overall economic and retail environment.
“While the economic slowdown in China (Aa3 negative) and slower overall tourist flows from the mainland will continue to negatively affect retail sales in Hong Kong, we expect that Hysan’s proactive management of its diversified portfolio of properties – which caters to a cross-section of Hong Kong’s population – will mitigate the impact on the company,” Moody’s concluded in a report on the Hysan business.
“Moody’s notes that Hysan has proactively managed down its reliance on turnover rent – the percentage of sales that retail tenants pay Hysan – and that such rent accounted for only 3.7 per cent of rental income from its retail properties in 2015, down from over 8 per cent in 2012.
“In addition, a balanced expiry profile limits the impact of rent renegotiations in any given year. About 31 per cent of Hysan’s retail leases will expire in 2016 and 23 per cent in 2017.”
Moody’s conclusions were contained in its just-released report on Hysan, “2015 Results Support Its A3 Ratings”.