Henderson Calls Bottom for Hong Kong Property After Profit Held Steady in 2023

Henderson Land Development booked an attributable net profit of HK$9.3 billion ($1.2 billion) in 2023, a 0.2 percent increase from the prior year, as growth in property development sales and leasing income helped offset a HK$1.7 billion ($217 million) markdown on investment properties.

The HKEX-listed builder grew its total revenue 7.9 percent to HK$27.6 billion ($3.5 billion) last year, with Henderson’s co-chairmen Peter Lee Ka Kit and Martin Lee Ka Shing calling a bottom for Hong Kong’s property market following the government’s introduction of support measures last month, including the removal of all taxes on residential property transactions and relaxation of down payment requirements.

“Both initiatives were conducive to the purchase of new and replacement homes for local residents and encouraged Mainland talents and professionals to work and buy their own homes in Hong Kong. Property transaction volume increased in the past three weeks. The property market has bottomed out and stabilised,” Henderson’s co-chairmen said in the earnings announcement on Thursday.

The company’s results also received a boost from an 84.7 percent year-on-year jump in revenue at its Miramar hospitality business, as occupancy and average room rates climbed after pandemic travel curbs and social distancing measures were scrapped in late 2022.

Residential Green Shoots

Residential development sales in Hong Kong and mainland China, Henderson’s largest revenue contributor, increased 4.0 percent to HK$24.3 billion ($3.1 billion) last year despite Hong Kong’s protracted property downturn which saw home sales slump to a record low.

“After a brief rebound in early 2023, the residential property market experienced a downturn and remained sluggish for the remainder of the year. In 2023, the total number of sale and purchase agreements of residential units fell to 43,002, which was the lowest level on record,” said Henderson’s co-chairmen.

The company sold some projects at lower margins, however, which cut the segment’s attributable pre-tax profit to HK$4.3 billion, down 22.6 percent from a year earlier.

Henderson expects housing demand in Hong Kong to improve this year, driven by government support as well as by expected interest rate cuts and the city’s talent attraction programme, which have drawn around 108,000 new arrivals to the city to date according to mainland media accounts.

In the three weeks after the cooling measures were lifted in February, Henderson sold 946 units worth HK$5.9 billion, and plans to put 7,100 residential units on the market this year, including its Belgravia Place (Phase 1) project in Cheung Sha Wan along with 12 additional developments.

The Henderson Half-Full

Income from property leasing in Hong Kong and mainland China, Henderson’s second largest segment by revenue, grew 3.7 percent to HK$8.8 billion ($1.1 billion) last year, driven by positive rental reversions within its retail portfolio as foot traffic and sales in its shopping centres surpassed 2018 levels.

The company’s attributable pre-tax rental income increased 3.4 percent year-on-year to HK$6.4 billion ($821 million), while average occupancy for the company’s major investment properties stood at 92 percent as of December.

Henderson also pointed to its “resilient” office portfolio, which saw “solid” occupancy rates despite high vacancies and a supply glut in the Hong Kong office leasing market, according to the company. The builder highlighted rising occupancy at its AIA Tower in North Point and 208 Johnston in Wan Chai, as well as a 1 percent year-on-year increase in attributable rental income from its 40.77 percent stake in the IFC complex in Central.

The company expects rental income this year to benefit from contributions by The Henderson office project in Central following the completion of the 36-storey grade A tower in January. The building is now over 50 percent occupied, and counts Swiss watchmaker Audemars Piguet, US private equity giant Carlyle Group, and auction house Christine’s among its tenants.

“The addition of this world-class project will further strengthen the group’s foothold in Hong Kong’s central business district and serve as a new growth driver for the group’s recurrent income stream,” said Henderson’s co-chairmen.

Among Henderson Land’s ongoing projects is its 1.8 million square foot Site 3 development adjoining the IFC complex in the New Central Harbourfront, plans for which were approved by the government a little over a year ago. The three-tower office and retail complex is being constructed in a pair of phases slated for completion in 2026 and 2032.

Henderson recognised a HK$1.7 billion decrease in fair value on its investment properties and investment properties under development. Attributable underlying profit, which excludes the effect of fair value changes, grew 0.8 percent to HK$9.7 billion.

Net debt to shareholders’ equity declined by 1.5 percentage points to 22.6 percent as of December.