Swire Properties: Resilient Operations; Shares Remain Attractive

We maintain our fair value estimate of HKD 22 for narrow-moat Swire Properties, as the company’s resilient first-quarter operations, despite market challenges, were within our expectations. For the Hong Kong office portfolio, end-March occupancy, including Two Taikoo Place and Six Pacific Place, which opened during the current downturn in 2022 and 2024, respectively, was 89%, unchanged from end-2024. Pacific Place and Taikoo Place office clusters reported negative 16% and negative 14% rental reversions, respectively, as leases continue to be renewed at lower market rents compared with the previous lease cycle. However, headline rents have stabilized at fourth-quarter 2024 levels. For the retail portfolio, Hong Kong malls remain fully leased, while occupancy for mainland China malls continues to be well above 90%. Declines in tenant sales generally narrowed compared with 2024, with select malls seeing year-on-year sales improvement as they benefit from tenant mix optimization.