Retail Weak Continuation Optimize Tenant Portfolio Release Value

Swire Properties: Retail Weak Continuation Optimize Tenant Portfolio Release Value

Swire Properties (1972) held a general meeting yesterday, shareholders asked how to narrow the share price and NAV NAV discount. Chairman Shi Minglun responded that it is difficult for the group to control its share price, but will improve its goal of achieving steady growth in operations to attract investors. Swire Properties specifically pointed out that the Hong Kong retail market weakened in the second half of 2018. This trend continued until 2019, and the retail market faced challenges. The Group will strive to optimize the tenant mix.

The stock price is 34% discount to the NAV

Looking at the stock price performance of Swire Properties in the past five years, we can find that the stock price as a whole has risen. On March 29 this year, the stock price hit a new high of 33.75 yuan per share. According to the 2018 annual report, the net asset value of Swire Properties is 281.291 billion yuan, calculated from the 5.85 billion shares issued at the end of last year, and the net asset value per share is 48 yuan. Swire Properties closed at $31.30 yesterday, and its share price was about 34% discount to its net asset value. However, the stock had fallen to less than 60% of its net asset value per share.

From the current stage, residential is not the core business of Swire Properties. The last time Swire Properties launched a residential project, it also dates back to 2017, when the West Mid-Levels project was launched.

How to release value? Today, Swire Properties’ operating income is mainly derived from the rental of investment properties such as Grade A office buildings and retail malls. In 2018, rental income accounted for 83% of total revenue, and Swire Properties was a rent-receiving unit.

Swire Properties’ earlier announcement specifically pointed out that the company’s overall office occupancy rate in the first quarter of Hong Kong was about 98%. The Taikoo Hui office building in Guangzhou, one in Beijing, and one and two in the Hong Kong Industrial Centre, with occupancy rates of 99%, 97% and 98% respectively. Due to the weakening of the retail market in Hong Kong this year, it may affect rental income. Swire Properties said it will strive to optimize the tenant mix and unlock value.

Expansion to add value to rent-collecting properties

According to market participants, another means is to increase the value of existing rental properties through expansion. The expansion of Citygate is expected to open in July 2019, which will increase the number of retail brands to approximately 150, and expand 95% of retail and catering. The floor has been pre-leased.

The third way to add value is to build a new project. The No. 11 project in Tung Chung City has just received an occupancy permit in March, and the second block of Taikoo Place is expected to be completed in 2021 or 2022, 4656 Queen’s Road East and Langdu. The project at 1A11 Street and 2A12 Jutton Street is expected to be completed in 2023. The Shanghai Foreshore Taikooli Project is expected to be completed in 2020, and the One Brickell City Centre project in Miami, Florida, USA is under planning and development, and the completion time is to be confirmed.

In addition, there were small shareholders at the scene asking about the company’s repurchase plan. The management responded that the company’s goal is to better manage its business and improve its performance. If the repurchase of shares will be beneficial to the company’s development, the repurchase will be considered.