Moody's affirms Sun Hung Kai Properties' A1 ratings; outlook stable

Moody's Investors Service has affirmed the A1 ratings on Sun Hung Kai Properties (Capital Market) Ltd.'s backed senior unsecured notes and the provisional (P)A1 backed senior unsecured rating for its multicurrency medium-term note (MTN) program.

The rating affirmation mainly reflects the proven resilience of SHKP's core residential and commercial property portfolio across economic cycles, and our expectation that the company will maintain a stable and sizeable recurring income stream and healthy financial leverage at least over the next couple of years

SHKP is known for solid business and financial profiles, supported by the strong recurring rental income from its portfolio of high-quality investment properties; its high financial flexibility, characterized by low leverage and excellent liquidity; its leadership position and long operating track record in the property market in Hong Kong SAR, China and its prudent financial management with excellent liquidity.

Moody's expects SHKP to continue to draw on its rich development experience in Hong Kong and take a cautious approach to investing in China (A1 stable) to minimize expansion risks. Earnings will come under further pressure in full-year fiscal 2022, which ends 30 June, largely because disruptions caused by the fifth wave of the coronavirus pandemic will weaken SHKP's retail rental and property development operations in Hong Kong over the next several quarters.

Local macroeconomic uncertainty will likely lower renewal rents for Hong Kong office operations. Consequently, non-property-development income/interest coverage will decline to around 7.0x in fiscal 2022 from 7.3x in fiscal 2021. Nevertheless, this level of coverage continues to support the company's financial stability and robust debt-servicing capacity. On the other hand, SHKP's leverage will likely remain stable at 16.0%-16.5% over the next 12 months if the company does not undertake any major land acquisitions and maintains prudent capital spending and a stable dividend policy.

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