Fitch Ratings downgraded Hysan from A- to BBB+
On Thursday (9/28) Fitch Ratings downgraded Hysan Development Company Limited (Hysan) from ‘A-‘ to ‘BBB+’ in its Long-Term Foreign-Currency Issuer Default Rating with a Stable Outlook. This rating downgrade primarily reflects the weakening of Hysan’s financial position due to increasing leverage in an elevated interest rates environment. However, the company also possesses a high-quality investment property portfolio in Hong Kong, which has demonstrated resilience in rental performance even in challenging operating conditions.
Key points from the rating action include:
• Weakened financials during expansion: due to capital expenditure required for the Caroline Hill Road development, Hysan’s leverage increased from 27% in 2022 to 29%. The interest coverage ratio declined from 2.3x in 2022 to 1.9x. Fitch anticipates gradual improvement in the interest coverage ratio to 2.5x and 2.7x by 2025 and 2026, respectively.
• Revamp Affected Retail Recovery: retail segment rental revenue fell 10% yoy in 1H23, affected by the temporary closure of 11% of retail space for asset enhancement purposes. Management said Hysan is partnering its key tenants to revamp their luxury retail offerings and expects most of the closed space to be back in service by end-2023. Hysan’s retail segment outperformed that of industry peers over the pandemic and Fitch expected its resilient performance to continue, help by its planned new luxury offerings.
• Office Portfolio Pressure to Persist: Fitch believes the Hong Kong office market outlook remains uncertain. The pick-up in leasing activity after the China-Hong Kong border re-opening was more modest than expected. It is believed that occupancy can be maintained at current levels although rental rate pressure will persist. Hysan offers a differentiated product in its Causeway Bay location and management is likely to continue to prioritize occupancy over rental rates.
In summary, compared to most other rated property companies in Hong Kong, Hysan has a smaller investment property scale and higher geographical concentration. However, Fitch believes that Hysan’s investment property portfolio exhibits higher asset quality, resulting in sector-leading profit margins. This is expected to enable Hysan to sustain strong operational performance.
HYSAN in the secondary market
• HYSAN 2029 senior unsecured bonds traded near 6.42%
• HYSAN 4.1 PERP subordinated bonds traded near 15.1%
惠譽將希慎的長期外幣發行人評級自Ａ-下調至BBB+
週四（9/28）惠譽將希慎興業有限公司（希慎）的長期外幣發行人評級自Ａ-下調至BBB+，展望穩定。本次評級下調主要反映出希慎的財務狀況有所削弱，因為在利率持續在高位的市場環境下，槓桿率攀升。但是，該公司亦擁有優質的香港投資物業組合，因此在具挑戰性的經營環境下，其物業組合的租金業績表現具韌性。
本次信評變化摘要如下：
• 財務指標因擴張而暫時受到影響：槓桿率從2022年的27%升至29%，利息保障倍數從2022年的2.3倍降至1.9倍，惟惠譽預期2025年、2026年利息保障倍數可望逐步改善至2.5倍、2.7倍。
• 改裝影響零售行業復甦：受臨時關閉11%零售店鋪物業的影響，2023年上半年希慎的零售行業租金收入較去年同期下降10%。管理層表示，希慎正在與其主要租戶合作，提升其奢侈品零售店面，並預期大部分已關閉的樓面將在2023 年末前重新開業。希慎的零售部門在疫情期間表現優於行業同行，受惠於其奢侈品店面的新規劃，惠譽預期其零售行業收入將持續展現韌性。
• 辦公室投資組合壓力猶在：惠譽認為香港辦公室市場前景依然有不確定性，中國和香港邊境重新開放後的租賃活動增加幅度小於預期。雖然租金壓力將持續存在，但相信辦公室出租率可以維持在目前水平。希慎在銅鑼灣地區提供獨特的產品，管理層可能會繼續優先考慮出租率而不是租金水平。
整體而言，與多數其他受評香港物業公司相比，希慎的投資物業規模較小、地域分布集中度較高，但惠譽認為希慎投資組合的資產質量更高，使得利潤率在業內居先，預期希慎將可延續強勁的業績表現。
希慎（HYSAN）債券的次級市場
• HYSAN 2.82 2029主順位債券收益率約6.42%
• HYSAN 4.1 PERP次順位債券收益率約15.1%