RPT-Fitch Affirms Hong Kong's Hysan at 'BBB+'; Outlook Stable
Oct 10 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Hong Kong-based Hysan Development Company Limited's (Hysan) Long-Term Issuer Default Rating (IDR) at 'BBB+'. The Outlook is Stable. Fitch has also affirmed Hysan's senior unsecured rating at 'BBB+'.
KEY RATING DRIVERS
Stable Recurring Rental Income: Hysan is one of the largest commercial landlords in the Causeway Bay district in Hong Kong - it owns prime shopping centres and Grade A office buildings in the well-known shopping area. Its investment property portfolio generates stable and recurring income (2012: HKD2.5bn) and was valued at HKD62.5bn as at mid-2013. Its shopping centres cater to both domestic and mainland Chinese shoppers. Its office buildings, which charge half the rents of top Grade A offices in Central, the territory's main business district, attract a diversified tenant mix, including businesses involved in insurance, consulting, banking, high-end retail and semi-retail.
Successful Hysan Place Opening: The opening of Hysan Place in mid-2012 was a success. The 450,000 square feet (sf) shopping centre is fully occupied and had average daily foot traffic of 83,000 visitors in December 2012 (the prominent SOGO department store nearby had a 2012 average of 90,600). KPMG is the anchor tenant of the 15-floor Hysan Place office tower with five floors. The office committed occupancy rate significantly improved to 93% in end-June 2013 from 53% in end-2012. Fitch estimates that in its first full year of operation, Hysan Place will drive a 30-40% increase in Hysan's gross rental revenue.
Prudent Financial Management: Hysan prepared for its 2013-14 refinancing needs by issuing a 3.5% USD300m bond in early 2013 before the recent surge in borrowing costs. The 10-year bond lengthens Hysan's maturity profile and the amount raised is more than enough to cover its HKD1.8bn debt due in 2013-14. Hysan's leverage, as measured by net debt/investment portfolio value, remained low at 6.1% in mid-2013. Its leverage compares favourably with its Hong Kong peers. Fitch expects Hysan's leverage to stay at 5-6% over the next three years.
Sunning Redevelopment Financially Flexible: Hysan's next asset enhancement project, the redevelopment of Sunning Plaza and Sunning Court, will begin soon.
The 440,000 sf redevelopment will need capex of HKD2.2bn and is expected to be completed in 2018. Fitch estimates that only HKD200m (about 7% of total revenue) of rentals will be forgone each year during the redevelopment. With the boost in rental income from Hysan Place, Fitch believes that the Sunning redevelopment will have minimal impact on Hysan's leverage and coverage levels.
Scale Constrains Ratings: Hysan's ratings are constrained by its smaller scale compared with other Hong Kong property investment companies rated in the 'A' rating category. Hysan's investment property EBITDA of HKD2.0bn-2.5bn is much less than the HKD6bn-10bn of Hongkong Land, Wharf Holdings and Sun Hung Kai Properties Limited.
Negative: Future developments that may, individually or collectively, lead to negative rating action include-
- Sustained deterioration of investment property EBITDA/gross interest coverage below 4.0x (2012: 9.7x)
- Net debt/investment property asset exceeding 30% on a sustained basis (end-June 2013: 6.1%)
- Change in business mix away from investment property
Fitch does not envisage any positive action given the scale constraint.
- Insight: How U.S. spying cost Boeing multibillion-dollar jet contract
- Exclusive: Secret contract tied NSA and security industry pioneer |
- With Fed out of the way, what's next on Wall Street?
- Yemeni al Qaeda says attack on hospital was mistake
- Insight: For Chinese farmers, a rare welcome in Russia's Far East