Sun Hung Kai Properties Ltd.

The stable outlook on SHKP reflects our expectation that the company's leverage will remain stable despite the likely weakening in the Hong Kong property sector. SHKP will continue its strong execution and achieve steady contracted sales over the next 12-24 months. We expect SHKP's recurring income base to continue growing, particularly from its increasingly established portfolio in China, and provide stability to the company's credit profile. SHKP will maintain its strong financial flexibility and conservative financial management. We may lower the rating if: (1) Hong Kong's real estate sector worsens sharply and SHKP's sales are materially below our expectation, such that its debt-to-EBITDA ratio exceeds 3x on a sustained basis and its EBITDA interest coverage deteriorates to below 7x; or

...Sun Hung Kai Properties Ltd.'s (SHKP) contracted sales in Hong Kong to remain lower but stable. We estimate they will be HK$35 billion in the fiscal year ending June 2021 (fiscal 2021), supported by strong demand in the primary mass residential market. The modest growth from HK$34 billion in fiscal 2020 will be supported by estimated saleable resources of about HK$39 billion mainly from mass residential projects. We expect SHKP's contracted sales in Hong Kong to recover to its medium-term target of HK$40 billion per year in fiscals 2022 and 2023, supported by its abundant residential land bank of over 17 million square feet (sqft). Rental revenue to take a small and manageable hit. We expect SHKP's consolidated rental revenue to drop moderately by 4% in fiscal 2021. The company's balanced leasing portfolio across retail, office, and other segments (including carparks, residential and industrial) in Hong Kong, and well-spread lease maturities (about one-third of leases expiring in a year)...

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