MTR Corp. records low property cash since 2017

S&P expects property development cash inflows to reach $1.5b to $2b yearly.

MTR Corporation's cash flow from recurring operations and property development may fall short of covering its capital expenditure and dividend payouts over the next two to three years, S&P Global Ratings said.

This shortfall is driven by delayed tender awards, with most ongoing projects expected to be completed by 2026, and a record number of unsold residential units likely discouraging property developers from purchasing new land.

S&P expects property development cash inflows to reach $1.5b to $2b per year, compared to $17b in 2021. In the first half of 2024, MTR Corp. reported just $388m gross cash from property development, a record low since 2017.

The agency noted that MTR Corp.'s debt levels may rise due to its "Rail + Property" business model, where it builds railways using its own resources and later seeks returns from property development.

The company is still recovering, with patronage below pre-pandemic levels due to weak inbound tourism and shifts in commuter behaviour. Station commercial and property rentals are under pressure from weak retail sentiment and local shoppers buying in China, with unit revenue already down 30% from pre-pandemic peaks.

However, the early termination of its loss-making Stockholm services in 2024 and new projects coming online could boost revenue. S&P expects MTR Corp. to maintain ample access to capital markets and competitive financing costs.

MTR Corporation's operating conditions could improve over the next 12 to 24 months despite its leverage likely climbing further due to increasing capital expenditure for the new metro investments. It is also expected to have a weaker cash inflow from a tapering property development pipeline given the property cycle in Hong Kong.