Cheung Kong Holdings Ltd (長江實業), the developer controlled by Hong Kong tycoon Li Ka-shing (李嘉誠), posted an 18 percent decline in property-related earnings last year amid lower-than-expected sales in some Chinese cities.
Earnings from property sales fell to HK$8.4 billion (US$1.1 billion) from HK$10.2 billion in the prior year, according to a Hong Kong stock exchange statement yesterday.
Excluding property revaluations and earnings from its Hutchison Whampoa Ltd (和記黃埔) unit, Cheung Kong’s profit fell 15 percent to HK$15.3 billion.
“Contribution from property sales on the mainland [China] fell significantly in a difficult market environment,” the company said in the statement. “Sale results in some of the cities were below expectations.”
Cheung Kong derived 26 percent of its first-half revenue from China, where housing prices are in decline as the world’s No. 2 economy slows. New-home prices posted a record year-on-year drop last month, according to Bloomberg Intelligence analysis of government data tracking 70 cities.
Net income for Cheung Kong increased 53 percent to HK$53.9 billion last year after the inclusion of property revaluations, gains from the listing of an electricity business, and earnings from Hutchison, the statement said.
The company and Hutchison are proposing to combine real-estate assets into a new entity, Cheung Kong Property Holdings Ltd (長地集團), as billionaire Li sets in motion the biggest reorganization of his corporate empire.
Following the reshuffle, the property spinoff is expected to hold more investment properties, making it the largest hotel owner and second-largest landlord in Hong Kong.
Prospects for Hong Kong’s property market “remain positive as a whole,” Cheung Kong said in the statement.
It had HK$22.6 billion of contracted home sales in the territory last year, the most after Sun Hung Kai Properties Ltd (新鴻基地產), according to Centaline Property Agency Ltd (中原地產).
Hong Kong residential prices rose 13 percent to a record high last year, despite government curbs including higher taxes and tightened mortgages.
Home prices still have room to rise as interest rates remain low, Cheung Kong executive director Justin Chiu said on Feb. 3.
The firm said that in Hong Kong it expects “further progress to be achieved in property sales in 2015 as compared to 2014.”
“Local construction costs and labor wages are likely to continue their rising trends, and government policy measures will remain a major factor in determining the overall market direction,” it added.
In the first step of Li’s corporate reorganization, Cheung Kong shareholders passed a resolution on Wednesday to exchange their shares for stakes in CK Hutchison Holdings Ltd (長和集團), a new holding company. CK Hutchison is to then issue new shares to buy out minority owners of Hutchison and spin off its property business.
The CK Property entity could sell some of its held-for-rent properties, which tend to drag on returns, according to JPMorgan Chase & Co analysts Cusson Leung (梁啟棠) and Leo Ng.
It could sell some assets or inject them into real-estate investment trusts under the group, they said in a report on Monday.
If the “current business model of Cheung Kong is anything to follow, we believe CK Property is unlikely to sit on too many investment-property assets,” the analysts wrote.
Hutchison owns the Cheung Kong Center, which is home to offices of Goldman Sachs Group Inc and the city’s securities regulator.
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