Hongkong Land: Operations On Track; Macroeconomic Uncertainties Delay Hong Kong Office Recovery

Narrow-moat Hongkong Land's first-quarter operations were in line with our expectations. We maintain our fair value estimate of USD 4.88. Shares are now fairly valued, and we advise investors to wait for a better entry point. The Hong Kong office portfolio continues to face challenges due to the oversupply situation, but the end-March 2025 committed vacancy rate of 7.3% is broadly unchanged from 7.1% as of end-2024, outperforming the 11.5% vacancy rate for the broader central grade A office market, according to JLL data. Office rental reversions remain negative as leases are renewed at lower market rents, but we think further downside for 2025 is limited, given that only 2% of the office portfolio is expiring for the remainder of the year. For the Hong Kong retail portfolio, rental contributions declined given temporary disruptions due to its Tomorrow's Central renovation plan for the Landmark retail portfolio. Meanwhile, the Singapore office portfolio performed well with a 0.8% committed vacancy rate, compared with 1.0% as of end-2024, and rental reversions were positive due to the tight market supply.