Swire Properties and Swire Pacific: Fair Value Loss in Investment Properties to Hit Bottom Line

Our fair value estimates of HKD 31 for Swire Properties and HKD 83 for Swire Pacific are unchanged after Swire Properties’ profit warning. Swire Properties anticipates around a 70% decline in reported profit, given an expected HKD 4.5 billion fair value loss on investment properties for the full year. This implies a further HKD 3.2 billion fair value loss in the second half of 2023, mainly from office assets under development and lower fair value gains from mainland China retail assets. Swire Properties' share price rose 1.7% on Dec. 27 as weaker valuations were much within expectations. While the fair value loss is noncash and does not affect our fair value estimate or narrow moat rating, we have lowered our 2023 revenue forecast for Swire Properties by 5% to HKD 14.6 billion, given the challenging Hong Kong office market.