Hang Lung to focus on building in China, not on ‘sexy’ sprees

HONG KONG: Hang Lung Properties Ltd, the Hong Kong developer spending US$5.2 billion (RM17.62 billion) building offices and malls in China, will focus on land already bought and refrain from further “sexy” acquisitions, chairman Ronnie Chan said.

“It’s time to hunker down and complete construction,” Chan said in a Nov 20 interview in Hong Kong. “It’s very sexy whenever Hang Lung announces it’s buying a piece of land; it’s a high, I cannot have a high all the time. A spending spree doesn’t make you money right now.”

Hang Lung, Hong Kong’s fifth-biggest developer by market value, is building on land bought earlier even as rivals including China Overseas Land & Investment Ltd and Glorious Property Holdings Ltd continue to buy sites.

Hang Lung has committed HK$38.3 billion (RM16.6 billion) to projects in China, and may spend a further US$300 million. In May, it bought a site in the northeastern city of Dalian, its first mainland purchase after two years when high land prices deterred it from buying. Hang Lung has 18 Chinese projects planned.

“In the last six months and next year, we will be building everything, except Dalian,” Chan said. Hang Lung expects to complete a project in the northeastern city of Shenyang in June, then a project in Jinan in 2011. It has started work in Tianjin and Wuxi, Chan said.

The shares of Hang Lung fell 0.5% to HK$29.60 at 11.46am Hong Kong time on Nov 24. The stock has risen 76% this year, compared with the 62% gain in the Hang Seng Property Index of which it’s a member.

The mainland contributed 41% of Hang Lung’s revenue in the year ended June 30, up from 15% in the previous 12 months, as declining home sales in Hong Kong boosted China’s share of earnings.

Hang Lung is bullish about the outlook of rental growth at its shops and offices in China, Chan said.

“We already know what our cash flow from rental is for the next 13 years,” Chan said, based on internal forecasts. “We know what’s the growth in rental for our projects and we have full confidence we’ll complete them within budget and lease them out accordingly,” Chan said, declining to be more specific.

Hang Lung’s profit from rents rose to HK$3.44 billion from HK$3.05 billion the last fiscal year, driven by increases in Hong Kong and Shanghai, the company said in July.

Rental profit from malls and housing in Shanghai rose 19% to HK$1.42 billion as tenants renewed leases at higher rates and Hang Lung rented out more shops at its Plaza 66 shopping mall and office tower, it said.

Hang Lung’s two completed Shanghai commercial projects yielded an average 27% profit margin last year, Chan said.

Hang Lung, owner of the Hong Kong head office of Standard Chartered Plc and builder of apartment complexes in the city including the HarbourSide, has avoided housing projects in China built for sale because of competition among domestic developers.

“China already has huge residential developers that can do a decent job and they have ways to buy land that you and I will never know,” Chan said, without elaborating. – Bloomberg LP