2014 Investor Presentation Final version 3 - Final.pdf · 2014 Investor Presentation Final version…

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  • 1

    2014 Investor Presentation Final version 3.2

    read disclaimers on the final page

  • 2Key HighlightsKey Highlights

    Langham Place

    - strong sales growth at mall

    Citibank Plaza

    - bottoming out in 2015

    Expense Ratio Slightly Up

    - higher rental commissions

    DPU Lower

    - normalizing tax rate

    - higher interest expense

    Stable Valuation

    Resilient Financial Profile

    2014 Change

    Rental Income $2080m + 4.6%

    Net Property

    Income$1800m + 3.0%

    Expense Ratio 13.5% + 1.4pp

    Distribution

    per Unit$0.2037 - 3.0%

    Property

    Valuation$62,438m + 1.5%

    Gearing 23.1% - 0.3pp

  • 3Total Rental IncomeTotal Rental Income

    Rental Income increased 4.6% yoy to $2,080 mil, but was down 1.6% HoH

    By contribution: Citibank Plaza 51%

    Langham Place Mall 35%

    Langham Place Office 14%

    At the Trust Level1

    Langham Place OfficeB

    Langham Place MallC

    Revenue -3.7% to $1,064 mil

    Lower Passing Rent

    Decrease in occupancy in 4Q

    after BoAML moved out

    Citibank PlazaA

    Revenue +11.2% to $281 mil

    Higher Passing Rents

    A bit of down time in 2H after

    Ageas Insurance vacated

    Revenue +16.4% to $735 mil

    Higher Base Rents

    Seasonality concentrates growth

    in 2H of each year

    Minimal impact on income from

    Oct/Nov Occupy demonstrations

    No longer discussing Gross Revenue to avoid the distortion of bldg mgt fee income growth

    553 564 552 553 559 505

    113 119 120 133 140142

    259278 291

    340 350 385

    $0

    $200

    $400

    $600

    $800

    $1,000

    $1,200

    $1,400

    1H 12 2H 12 1H 13 2H 13 1H 14 2H 14

    in H

    K$

    (m

    illi

    on

    s)

    Rental Income (by Property) LP Retail LP Office Citibank Plaza

  • 4Net Property IncomeNet Property Income

    Net Property Income +3.0% to $1,800 mil

    Net Operating Expenses +16.0% to $280 mil

    Net Expenses Ratio +1.4pp to 13.5%

    Net Building Mgt Expenses increased by $13.6 mil,

    driven by higher maintenance costs at LP Mall

    Leasing Commissions increased by $17.6 mil, because of

    large amount of space rolled over at office properties

    At the Trust Level1 At the Property Level2

    Net Property

    Income

    Net Operating

    Expenses

    Citibank Plaza -6% to $932m +15% to $132m

    Langham Office +9% to $253m +34% to $28m

    Langham Mall +17% to $615m +14% to $120m

    830 836 858889 921 880

    95 126105

    136 128 151

    $0

    $200

    $400

    $600

    $800

    $1,000

    $1,200

    $1,400

    1H 12 2H 12 1H 13 2H 13 1H 14 2H 14

    in H

    K$

    (m

    illi

    on

    s)

    Rental Income (with expenses)Operating Expenses Net Property Income

    10.2%

    13.1%

    10.9%

    13.3%

    12.2%

    14.7%

    0%

    2%

    4%

    6%

    8%

    10%

    12%

    14%

    16%

    18%

    1H12 2H12 1H13 2H13 1H14 2H14

    Expense Ratio (as a % of Rental Income)

  • 5

    Cash Interest Expenses increased $37 mil, from $251

    mil to $288 mil

    $7.5bn refinancing in May 2014 at higher rates

    No refinancing and therefore no further increase in

    interest spreads for 2015.

    Interest1

    Taxes paid increased $48 mil to $161 mil

    Effective tax rate was low at 12.8% because of

    leftover deductions from retired CB used in 1H

    The effective tax rate in 1H was 9.1% but returned

    to normal in 2H

    Taxes 2

    Non Property ExpensesNon Property Expenses

    79

    65

    117

    134139

    150

    $0

    $30

    $60

    $90

    $120

    $150

    $180

    1H 12 2H 12 1H 13 2H 13 1H 14 2H 14

    in H

    K$

    (mill

    ions

    )

    Cash Interest Expenses

    16.7%

    9.5%

    12.8%

    0%

    4%

    8%

    12%

    16%

    20%

    2012 2013 2014

    Effective Tax Rate

  • 6DistributionsDistributions

    Distributable Income decreased 2.9% to $1,234 mil.

    There was a $37 mil drop broken down as follows:

    Although NPI increased $53m

    Interest Income decreased by $5m

    Cash Finance Costs increased $37m

    Taxes increased by $48m

    Distributable Income1

    Distribution Per Unit for 2014 decreased

    3.0% to HK$0.2037

    Based on unit price of $3.80, the yield is

    5.36%

    -$90m

    The dip in 2012 DPU was due to the conversion of CBs

    Distribution Per Unit2

    1,2

    54

    1,2

    71

    1,2

    34

    -68 -70 -64

    1,1

    86

    1,2

    01

    1,1

    71

    -$400

    $0

    $400

    $800

    $1,200

    $1,600

    $2,000

    2012 2013 2014

    in H

    K$

    (m

    illi

    on

    s)

    Distribution Amount Distributable IncomeRetention

    Distribution Amount

    0.2089 0.2099 0.2037

    $0.00

    $0.05

    $0.10

    $0.15

    $0.20

    $0.25

    $0.30

    2012 2013 2014

    Distribution per Unit

  • 7

    Citibank Plaza,

    $36,332m

    Langham

    Office,

    $7,869m

    Langham

    Retail,

    $18,237m

    Valuation by Property Valuation by Property

    58%

    29%

    13%

    Value fell 4.1% to $22,000 per sq. ft.

    Implied rent decreased

    from $82.67 to $78.72 per sq. ft

    Cap Rate 3.3%

    Citibank Plaza

    Langham Place Mall

    Langham Place Office

    Comparisons are made with respect to Dec 2013 Valuation by Savills Valuation and Professional Services per sq. ft. valuations are based on Gross Floor Area

    Value rose 6.6% to $11,200 per sq. ft

    Implied rent increased

    from $35.00 to $37.32 per sq. ft

    Cap Rate 4.0%

    Value rose 12.4% to $30,000 per sq. ft.

    Implied rent increased

    from $164.32 to $185.00 per sq. ft

    Cap Rate 4.0%

    Appraised Value of Properties at $62.44bn

    Property Valuation1

  • 8

    Properties appreciated by $929mil in 2014

    Capitalization Rates unchanged over 2014, all

    adjustments to value are based on changes in rental

    assumptions

    Property Value Over Time1 Net Asset Value2

    Net Assets stand at HK$46.28bn

    NAV per unit increased 1.5% to HK$8.06 per

    unit from Dec 2013

    Based on unit price of $3.80, the discount to

    NAV is 53%

    Net Asset ValueNet Asset Value

    $7.80 $7.94 $8.06

    $0.00

    $2.00

    $4.00

    $6.00

    $8.00

    $10.00

    12/12 12/13 12/14

    Net Asset Value per Unit

    36.5 37.9 36.3

    21.823.6 26.1

    $0

    $10

    $20

    $30

    $40

    $50

    $60

    $70

    $80

    12/12 12/13 12/14

    in H

    K$

    (b

    illi

    on

    s)

    Value of Property Portfolio

    Citibank Plaza Langham Place

  • 9

    22

    00 3

    70

    0

    19

    00

    38

    00

    31

    04

    $0

    $1,000

    $2,000

    $3,000

    $4,000

    $5,000

    $6,000

    2015 2016 2017 2018 2019 2020 2021 2022 2023

    HK

    $ m

    illi

    on

    s

    Debt MaturityBank Loans MTN

    HK$11.6bn in secured bank loans and

    HK$3.1bn in unsecured notes

    Blended interest: 2.03% (1M Hibor = 0.24%)

    Average maturity: 4.1 years (as of Dec 2014)

    Interest Expense2

    floating interest rate of Hibor + 1.33%. fixed coupon of 3.75%

    79% 21%

    Debt As Of Dec 2014 Debt As Of Dec 2014

    Basic Information1

    At 1M Hibor = 0.24%, 2015 interest expenses

    should be $298m

    (compared to $289m for 2014 )

  • 10

    Total borrowings have remained steady at $14.7bn

    Gross Assets at $63.6bn

    Langham Place Mall is presently unpledged

    Total Borrowings1

    Interest cover remains comfortable at 6.2x

    Debt to Assets (Gearing) ratio is low at 23.1%, well

    within REIT Code maximum of 45%

    Debt to Equity ratio at a robust level of 31.8%

    Ratios 2

    Debt HistoryDebt History

    Interest cover is calculated using NPI as the numerator.

    12,219

    14,704 14,704

    0x

    4x

    8x

    12x

    16x

    0

    5,000

    10,000

    15,000

    20,000

    2012 2013 2014

    HK

    $ (m

    illi

    on

    s)

    Debt Levels

    Total Borrowings (L) Interest Coverage (R)

    31.8%

    23.1%

    0%

    20%

    40%

    60%

    80%

    100%

    2012 2013 2014

    Leverage RatiosDebt / Equity Debt / Assets

  • 11

    OFFICE MARKET UPDATEOFFICE MARKET UPDATE

  • 12

    $0

    $20

    $40

    $60

    $80

    $100

    $120

    $140

    $H

    K p

    er

    sq.

    ft.

    Index rebased from original data series to the approximate equivalent rental levels

    Collier's Rental Indices(Dec 2011 - Dec 2014)

    Wanchai

    Central

    Tsim Sha Tsui

    HK HK Grade A Office Rents Grade A Office Rents

    vacancy 5%

    vacancy 3%

    vacancy 2%

  • 13

    0.0

    0.2

    0.4

    0.6

    0.8

    1.0

    1.2

    1.4

    1.6

    1987

    1988

    1989

    1990

    1991

    1992

    1993

    1994

    1995

    1996

    1997

    1998

    1999

    2000

    2001

    2002

    2003

    2004

    2005

    2006

    2007

    2008

    2009

    2010

    2011

    2012

    2013

    2014

    2015

    2016

    2017

    NE

    T F

    LOO

    R A

    RE

    A (

    mill

    ion

    sq

    ft)

    HONG KONG CENTRAL GRADE A OFFICE SUPPLY (1986 - 2016)

    Grade Grade A Office A Office Supply Supply -- Central Central

    No new land from reclamation

    3 possible future sites:

    Murray Road Carpark (350,000 sq. ft.)

    GPO (300,000 sq. ft.)

    site opp new Government HQ (180,000 sq. ft.)

    Longer Term Supply2

    Virtually 0 Grade A supply in Central

    Shanghai Commercial Bank Redevelopment (95,000 sq. ft.)

    Only Grade-B buildings, but in good locations

    33 Des Voeux Rd Central (74,000 sq. ft.)

    Imminent Supply1

    20 year Average Supply

    490,000 sq. ft. per year

  • 14

    0.0

    1.0

    2.0

    3.0

    4.0

    5.0

    6.0

    7.0

    8.0

    198

    7

    198

    8

    198

    9

    199

    0

    199

    1

    199

    2

    199

    3

    199

    4

    199

    5

    199

    6

    199

    7

    199

    8

    199

    9

    200

    0

    200

    1

    200

    2

    200

    3

    200

    4

    200

    5

    200

    6

    200

    7

    200

    8

    200

    9

    201

    0

    2011

    201

    2

    201

    3

    201

    4

    201

    5

    201

    6

    201

    7

    NE

    T FL

    OO

    R A

    REA

    (mill

    ion

    sq

    ft)

    HONG KONG SAR GRADE A OFFICE SUPPLY (1986 - 2016)

    Central Rest of HKSAR

    Grade Grade A Office A Office Supply Supply -- HKSARHKSAR

    20 year Average Supply

    2,470,000 sq. ft. per year

    2016 Supply2

    550k sq. ft. - 2 projects in Shatin

    710k sq. ft. - 2 projects in Kwln E

    240k sq. ft. - project in Island E

    600k sq. ft. - Somerset Hse in Island E

    180k sq. ft. - Sunning Plaza in CWB

    240k sq. ft. - Asia House in CWB

    Recent Demolitions3 2015 Supply1

    2.3m sq. ft. - 5 projects in Kwln E

    250k sq. ft - Octagon in Tsuen Wan

    120k sq. ft. - Observatory Rd in TST

  • 15Capitalization RatesCapitalization Rates

  • 16

    CITIBANK PLAZACITIBANK PLAZA

  • 17

    Citibank Plaza priced competitively with face rents at

    $75-80 per sq. ft.

    Passing rent has moved down to $77.53 psf from

    lease rollovers with negative rental reversion.

    Steps taken to increase competitiveness Citibank

    Plaza

    Rents Rates1

    Citibank Plaza Citibank Plaza

    Occupancy fell to 75.4% after the relocation of BoAML,

    which formerly occupied 14.3% of floor area.

    3.5% in 1H15 new lease commencements confirmed.

    New demand for Central offices from China-based

    financial companies

    Occupancy 2

    86

    .10

    85

    .12

    85

    .26

    84

    .60

    82

    .07

    77

    .53

    $0

    $20

    $40

    $60

    $80

    $100

    $120

    Jun

    -12

    De

    c-12

    Jun

    -13

    De

    c-13

    Jun

    -14

    De

    c-14

    Effe

    ctiv

    e R

    en

    t p

    er

    sq.

    ft.

    (Le

    tta

    ble

    )

    Passing Office Rents at Citibank Plaza

    88

    .3%

    88

    .7%

    88

    .0%

    84

    .8%

    88

    .2%

    75

    .4%

    0%

    20%

    40%

    60%

    80%

    100%

    120%

    Jun

    12

    De

    c 12

    Jun

    13

    De

    c 13

    Jun

    14

    De

    c 14

    Occupancy at Citibank Plaza (Office)

    In the past occupancy was reported for the combined office and retail portions

  • 18Citibank Plaza Citibank Plaza

    Expiry risk is lower in 2015 with less than 10% of

    the floor area up for renewal.

    Passing rents have further to fall as the average

    expiring rents in 2015 are $98 psf.

    Leases commission charged up front at

    commencement of new leases operating

    expenses will go up in re-letting phase

    Lease Maturities 2 Tenant Mix 1

    Banking has been reduced to a third of the floor area

    with the exit of BoAML

    The growing segments are:

    Asset Management which increased from 8% to 14%

    Hedge Funds which increased from 4% to 7%.

    Banking33%

    Asset Management

    14%Hedge Funds

    7%Securities

    2%

    Legal5%

    Consultancy2%

    Others11%

    Vacant25%

    Tenant

    ProfileCitibank Plaza - Office

    (Dec 2014)

    Citibank

    18%

    ICBC

    12%

    24.6%

    9.9%

    27.4%

    18.4%

    1.9%

    6.9%

    1.8%

    12.6%

    1.4%

    0%

    10%

    20%

    30%

    40%

    50%

    Vacant 2015 2016 2017 2018

    Perc

    en

    tage

    of F

    loo

    r A

    rea

    Citibank Plaza Expiries (Dec 2014)Vacant Leases Expiring Rent Review

  • 19Asset EnhancementAsset Enhancement

    Planned2 In Progress1

    Car park is currently undergoing renovation.

    Completion expected in 3Q 15.

    A facelift to the main office lobby, including the lift cars,

    is being launched.

    Work is scheduled to begin in early 2016.

  • 20

    SUPPLIMENTARY MATERIALSSUPPLIMENTARY MATERIALS

    LANGHAM PLACE LANGHAM PLACE

  • 21

    Face rents steady at $38-45 per sq. ft.

    Passing rent improved further to $35.87 per sq. ft.

    but growth will begin to taper as rental reversion gap

    narrows.

    Rent Rates 1

    LanghamLangham Place Office TowerPlace Office Tower

    Several tenants vacated upon expiry in 2014 but

    were replaced.

    There was a bit of downtime for a few floors in 2H

    but occupancy returned to 100% by year end.

    Occupancy2

    28

    .09

    28

    .36

    30

    .42

    32

    .86

    34

    .78

    35

    .87

    $0

    $5

    $10

    $15

    $20

    $25

    $30

    $35

    $40

    Jun

    -12

    De

    c-12

    Jun

    -13

    De

    c-13

    Jun

    -14

    De

    c-14

    Eff

    ect

    ive

    Re

    nt

    pe

    r sq

    . ft

    . (G

    FA)

    Passing Office Rents

    at Langham Place 98

    .0%

    99

    .2%

    98

    .8%

    99

    .0%

    98

    .8%

    10

    0.0

    %

    0%

    20%

    40%

    60%

    80%

    100%

    120%

    Jun

    12

    De

    c 12

    Jun

    13

    De

    c 13

    Jun

    14

    De

    c 14

    Office Occupancy at Langham Place

  • 22

    Insurance, formerly 10% of floor area, is no longer a

    category with the relocation of Ageas.

    Merchandizing & Trading decreased by a further 3%.

    Most of this 13% has been taken up by tenants from

    the Health & Beauty sector.

    Tenant Mix 1

    LanghamLangham Place Office TowerPlace Office Tower

    Lease Maturities2

    15% of floor area to expire in 2015.

    The renewal of the majority of these have

    already been negotiated.

    Merchandizing& Trading

    38%

    Professional & Sales Services

    18%

    Health & Beauty

    31%

    Lifestyle10%

    Others3%

    Tenant

    ProfileLangham Place Office

    (Dec 2014)

    0.0%

    14.8%

    53.1%

    12.3%5.1%

    2.5%

    1.0%

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    Vacant 2015 2016 2017 2018

    Pe

    rce

    nta

    ge

    of

    Flo

    or

    Are

    a

    Langham Place Office Expiries (Dec 2014) Vacant

    Leases Expiring

    Rent Review

    Sears

    17%

    Neo

    Derm

    12%

  • 23Some 2014 LP Mall EventsSome 2014 LP Mall Events

  • 24

    Fashion & Accessories

    44%

    Health &Beauty10%

    Entertainment16%

    Food & Beverage

    20%

    Others10%

    Tenant

    ProfileLangham Place Mall

    (Dec 2014)

    LanghamLangham Place MallPlace Mall

    9.8% growth in Tenant Sales per sq. ft. in 2014.

    Focus on cosmetics and mid-priced fashion and

    accessories isolates mall from slowdown in the HK luxury

    retail segment.

    Tenant Sales2

    Trade mix unchanged - focus is on selecting the

    individual tenants.

    Cinema City with its 4DX cinemas is a major

    new tenant. Other recent new shops include

    Uniqlo, Holly Brown, TeaWood, Clarks Originals.

    Tenant Mix 1

    $9

    56

    $1

    ,05

    3

    $1

    ,14

    3

    $8

    51

    $9

    39

    $1

    ,04

    1

    $0

    $200

    $400

    $600

    $800

    $1,000

    $1,200

    $1,400

    2012 2013 2014

    Mo

    nth

    ly A

    vera

    ge

    (pe

    r sq

    . ft

    .)

    Tenant Salesex Cinema

    with Cinema

  • 25

    10

    2.6

    5

    11

    4.8

    9

    11

    8.7

    1

    14

    4.2

    6

    14

    6.0

    1

    16

    5.4

    4

    $0

    $40

    $80

    $120

    $160

    $200

    Jun

    -12

    De

    c-12

    Jun

    -13

    De

    c-13

    Jun

    -14

    De

    c-14

    Effe

    ctiv

    e R

    en

    t p

    er s

    q.

    ft.

    (Let

    tab

    le)

    Passing Retail Rents at Langham Place

    (exclusive of turnover rent)

    LanghamLangham Place MallPlace Mall

    The passing base rent increased to $165.44 per sq. ft.

    following the rollover of 36% of floor area in 2014.

    Including turnover rent, the comprehensive rent is

    $180 per sq. ft. compared to $152 per sq. ft. in 2013.

    Rent as a percent of sales is 17.5%.

    Passing Rent1

    In spite of the hefty jump in passing rent,

    turnover rent only decreased marginally from

    $25.87 to $25.21 per sq. ft. (there

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