Moody's Investors Service says Hongkong Land Holdings Limited's (HKLH) results for 2014 are in line with expectations and continue to support its A3 issuer rating.
The results also support the A2 issuer rating of Hongkong Land Company Limited, a wholly-owned subsidiary of HKLH.
The outlook for all ratings remains stable.
"HKLH's 2014 results reflect the benefits of the stable rental income from its portfolio of premier properties in Hong Kong's Central District," says Joe Morrison, a Moody's Vice President and Senior Analyst. "Over 2014, the company's credit profile continued to show strength, with adjusted debt to EBITDA of about 3.4x and EBITDA interest coverage of about 9.3x."
HKLH's revenues for 2014 were largely stable from 2013, growing by around 1% year-on-year to USD1.9 billion as the growth in rental income was offset by a slight decline in revenue from property development.
The company's rental income grew around 3.9% year-on-year, benefitting from positive rental revisions in 2013 and 1H 2014 for its Central office portfolio, despite slightly negative rental reversions for the full year of 2014.
Furthermore, its office vacancy rate remained low at 5.4% as Hong Kong continued to demonstrate limited new supply of grade-A offices in its central business district. The company's retail portfolio remained fully let, similar to previous years.
Moody's expects that the limited office supply situation in Central will continue to support the Central portfolio's rental and occupancy rates in the near-to-medium term.
Meanwhile, HKLH's Singapore office portfolio had stable performance with a low office vacancy rate of 1.7% at end-2014, unchanged from a year earlier.
As a result, HKLH 's adjusted EBITDA interest coverage -- which excludes fair value gains, but includes dividends from joint ventures -- was strong at 9.3x in 2014, while adjusted debt/EBITDA was at 3.4x.
Moody's expects HKLH's EBITDA interest coverage and adjusted debt/EBITDA may weaken moderately in the next 2-3 years, as the company raises debt for land acquisitions and development projects. The impact, however, should be partially mitigated by the contribution from property development.
Five projects in Singapore -- including Ripple Bay and J Gateway, which were 100% presold at end-2014 -- are scheduled for completion in 2015 and 2016 respectively. Meanwhile, in mainland China, HKLH had USD533 million of unrecognized contracted sales at end-2014, with the company expecting to recognize 80% of this amount in 2015.
HKLH's solid liquidity profile, with cash of USD1.7 billion at end-2014 and committed unutilized facilities of USD2.9 billion, also support its A3 rating. These resources are more than sufficient to cover short-term debt of USD289 million.
