January 5, 2018 / 3:35 AM / a year ago

Fitch Assigns Swire Properties' USD notes 'A' Rating

(The following statement was released by the rating agency) HONG KONG, January 04 (Fitch) Fitch Ratings has assigned Swire Properties Limited's (A/Stable) USD500 million 3.50% guaranteed notes due 2028 an 'A' rating. The notes are issued by Swire Properties MTN Financing Limited, a subsidiary of Swire Properties, under its USD4 billion medium-term note programme rated at 'A'. The notes are rated at the same level as Swire Properties' senior unsecured rating because they are guaranteed by the parent. The rating on Swire Properties reflects the delivery of stable rental income from its mature investment property portfolio, which provides strong investment-property EBITDA interest coverage ratios. The company has remained prudent regarding expansion in China, and demonstrated strong execution in boosting rental income in China. Its financial position remains solid, with healthy liquidity. KEY RATING DRIVERS Stable Hong Kong Rentals: Swire Properties' gross rental income from its investment properties rose 0.5% in 2016, which resulted in a strong investment-property EBITDA interest coverage ratio of 6.0x. Gross rental income from Hong Kong remained stable at HKD8.6 billion in 2016 due to the moderate growth in office rents, which almost offset a slight decline in retail rental income. Swire Properties has a well-established Grade A office portfolio with an occupancy rate of 99% in 2016. The company also repositioned its tenant mix at the Pacific Place Mall in Hong Kong by introducing more food and beverage outlets and reducing the floor space for luxury items. Growth via Redevelopment: The redevelopment of the Taikoo Place commercial space into two Grade A office buildings will strengthen Swire Properties' leasing income in the medium to long term. The first new office building will be completed in 2018 and the second will be completed in 2021 or 2022. Redevelopment sites carry lower execution risks, and allow Swire Properties to tap resilient demand for office and other commercial space in existing well-developed areas. Rising Rentals outside Hong Kong: The growth of Swire Properties' attributable gross rental income in China in the near term will be driven by the shopping mall and office towers at its 50% owned HKRI Taikoo Hui in Shanghai. The shopping mall and one of the two office towers of the project were completed in 2016. Swire Properties is prudent in its expansion in China as it only invests in first-tier cities (for example, Guangzhou, Beijing and Shanghai) or second-tier cities with very strong potential (for example, Chengdu). In the USA, Swire Properties' 60.25% owned shopping mall at Brickell City Centre in Miami opened in 2016. Less Reliance on Parent's Funding: Swire Properties will continue to refinance its existing intercompany loans from Swire Pacific Limited (A-/Stable) with external funding sources. Borrowings from Swire Pacific have fallen to 20% of total borrowings at end-2016 from 74% at end-2011. This is neutral for Swire Properties' credit rating because Fitch expects the company's stable rental income streams will support its current credit profile. Adequate Interest Coverage: Fitch expects Swire Properties' recurring interest coverage (investment property EBITDA/gross interest expense) to stay above 4.5x in the next few years, due to additional rental income from newly completed properties. DERIVATION SUMMARY Swire Properties' rating of 'A' is well-positioned relative to peers such as Hongkong Land Holdings Limited (A/Stable) and Sun Hung Kai Properties Limited (SHKP, A/Stable). Its investment property EBITDA scale of about USD1 billion is between that of Hongkong Land (USD0.8 billion) and SHKP (USD1.7 billion). Its leverage, as defined by net debt/ investment property value, at 15%-16% is similar to peers, which are at 10%-20%. Its investment property EBITDA/cash interest coverage of 6x is also similar to the 5x-6x of its peers. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Total rental income growth at 2%, 2% and 4% in 2017, 2018 and 2019, respectively (2016: 0.5%). - Operating EBITDA margin at 50%, 58% and 56% in 2017, 2018 and 2019, respectively (2016: 55%). - Capex (including equity investment in JV companies) of HKD9 billion-10 billion in 2017, HKD3 billion-4 billion in 2018 and HKD2 billion-3 billion in 2019. (2016: HKD6.5 billion) - Net debt at HKD37 billion-40 billion in 2017-2019. (2016: HKD35.4 billion) RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action - Fitch does not envisage any positive rating action within the next 12-18 months, until Swire Properties' China investment portfolio reaches a critical mass, which would enable the company to achieve meaningful geographical diversification for its leasing income. Developments That May, Individually or Collectively, Lead to Negative Rating Action - Investment property EBITDA/gross interest expense falls below 4.0x on a sustained basis (2016: 6.0x) - There is an aggressive expansion in China with heightened execution and financial risk - Material weakening of Swire Pacific's non-property business, which may require Swire Properties to increase its support to the group LIQUIDITY Ample Liquidity: Swire Properties had a cash balance of HKD1.7 billion, undrawn committed facilities of HKD8.5 billion and undrawn uncommitted facilities of HKD1.1 billion at end-2016, which is more than sufficient to cover its short-term debt of HKD7.5 billion. None of its debts is secured, which gives it flexibility in financing options. Contact: Primary Analyst Silvia Fun Associate Director +852 2263 9975 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Rebecca Tang Associate Director +852 2263 9933 Committee Chairperson Su Aik Lim Senior Director +852 2263 9914 Date of Relevant Rating Committee: 18 May 2017 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Criteria for Rating Non-Financial Corporates - Effective from 10 March 2017 to 7 August 2017 (pub. 10 Mar 2017) here Additional Disclosures Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2018 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001 Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO’s credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see here), other credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below