Hongkong Land’s 1H14 earnings plummeted 17% to US$433mn

It's better than expected forecasts, though.

Hongkong Land’s 1H 2014 underlying earnings came in at US$433mn, down 17% y/y, but higher than the US$377mn it was estimated to generate.

According to a research note from Barclays, against Bloomberg’s full year estimate of US$863mn, 1H earnings were exactly 50%.

Compared to Barclays' forecasts, the US$55mn variance was due to reversal of previous writedowns and timing of contributions from Serenade (US$24mn), higher rental income (US$17mn), and income from associates (US$10mn).

At the recurrent income level, HK Land’s net rental income rose 4% y/y and was 4% above Barclays' forecast.

Also in 1H 2014, revaluations for HK Land’s Central portfolio returned to positive but the US$16mn revaluation gain implies an upward revaluation of only 0.1% against December’s book value.

Here's more from Barclays:

Revaluation gain and cap rate- Central portfolio resumed asset growth: In Hong Kong, Central portfolio recorded a revaluation gain of US$16mn in 1H 2014, implying only 0.1% upward revision from the asset value at the beginning of 2014.

After US$43mn and US$39mn downward revaluation in 1H and 2H 2013, Central portfolio resumed the asset growth.

In Singapore, investment properties continued to deliver asset growth with a revaluation gain of US$123mn in 1H 2014 from HK Land’s associates and joint ventures, slightly lower than US$131mn and US$220mn in 1H and 2H 2013, respectively.

We will provide more color on cap rate after tomorrow’s analyst briefing.

Passing rental stable in Central despite the lackluster demand: According to the result announcement, sentiment was cautious in the Hong Kong office leasing market as demand remained lackluster despite increased leasing enquiries in 1H.

However, rental reversions were positive overall in 1H 2014. Hongkong Land expects the market to continue to benefit from the limited upcoming supply over the next five years.

Hongkong Land’s Central portfolio recorded positive but moderate growth in passing rents.

The average office rent rose slightly to HK$103psf from HK$97psf in 1H 2013 and HK$101psf in 2H 2013, while the average retail rents increased to HK$210psf in 1H 2014 from HK$201psf in 2013.

Dividends stayed unchanged in 1H 2014: Interim dividend remains unchanged from last year at US$0.06 per share.

According to the result announcement, management expects the commercial properties to stay steady in 2H 2014, while the residential business will show improvement with the final sales of Serenade and completions in mainland China and Singapore.

We expect more color on the Central office market outlook from the analyst briefing.

Rental margin and development margin: The rental margin remained stable at 83.6% in 1H 2014, compared with average 83.3% in 2013.

As for the residential business, development margin rose to 73% in 1H 2014 due to the sales of high-margin project – 10 units at Serenade in Hong Kong sold in 1H 2014, together with the reversal of US$34mn writedowns due to positive sales activity mainly at the Hallmark Residence in Singapore.

Net debt rose 7% h/h with gearings at 11.9%: In 1H 2014, Hongkong Land’s net debt rose 7% h/h from US$3.0bn to US$3.2bn, while the gearing climbed slightly from 11.3% at December 2013 to 11.9% at June 2014