The Motley Fool

3 Takeaways From Hongkong Land Holdings Ltd’s Interim Earnings Update

Hongkong Land Holdings Ltd (SGX: H78) released its interim results for the first six months of the year. Here’s a look at three important takeaways from the earnings report. 

Investment properties stable

The group reported a 63% decrease in earnings per share due to revaluation loss in its investment properties compared to a gain in the corresponding period last year. However, more importantly, underlying earnings per share, which does not take into account investment property revaluation gains or losses, increased by 3%.

Hongkong Land’s core business can be divided into two segments: (1) investment properties; and (2) development properties.

Its investment portfolio consists of real estate that is leased out for rental income. In the first half of 2019, its investment properties performed well with positive rental reversions at its Hong Kong office and retail portfolio, as well as its Singapore office portfolio.

Vacancy rates in its Hong Kong office portfolio were 2.8%. However, taking into account new committed leases, vacancy rates would have been 1.6%, just a slight increase from the 1.4% recorded at the end of 2018.

The group’s Singapore office portfolio is also riding on the curtails of the rebound in office rental prices. Average rental rates in the first half of 2019 were S$9.60 compared to S$9.20 in the second half of 2018.

Profit from development properties set to increase 

Profit from its development arm is also expected to rise in the second of 2019. As of 30 June 2019, the group had US$1.7 billion in sold but unrecognised contracted sales, compared with US$1.4 billion at the end of 2018.

In its earnings report, management said that “higher profits are anticipated from the Group’s Development Properties primarily as a result of more sales completion in mainland China.”

Robust balance sheet

In the reporting period, the group’s net debt increased from US$3.125 billion to US$3.881 billion. Nevertheless, its balance sheet still remains strong in my opinion, as its net debt-to-equity ratio stands at just 10%.

This is a reasonable level for a property company with no intangible assets on its books. Chief financial officer, Simon Dixon also said that the group expects to generate operating cash flow from some of its medium-term investments it made in China and highlighted that its current net debt position can quickly turn into a net cash position when it exits some of its investments over the next few years.

The Foolish bottom line

It was another good six months for the property giant. The group’s investment properties continue to provide it with stable recurring income, while its development arm will add significant operating profit in the rest of 2019. At the time of writing, Hongkong Land’s shares trade at US$6.09 each, which translates to a price-to-book ratio of 0.37 and a trailing dividend yield of 3.6%.

Want to better understand how to benefit from the investing landscape here in Singapore? Click here now for your FREE subscription to The Motley Fool’s investing newsletter. 'Take Stock' lets you know exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead here

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn’t own shares in any companies mentioned. The Motley Fool Singapore has recommended shares of Hongkong Land Holdings.