Swire Properties Ltd - Core operations showing improving signs
- Retail tenant sales growth accelerating
- Luxury home sales show strong gains
- Continued capital recycling
- BUY with higher TP of HKD30.38
Pacific Place portfolio outperformed Taikoo Place counterparts. Overall occupancy of the Hong Kong office portfolio, excluding Two Taikoo Place and Six Pacific Place, retreated slightly to 91% in Dec-25 from 92% in Sep-25, primarily due to slightly lower occupancy at Taikoo Place. Office occupancy at Pacific Place stood firm at 96% in Dec-25. Spot rents for One/Two Pacific Place, Three Pacific Place, and One Island East/One Taikoo Place remained stable at HKD85-95psf, HKD80-90psf, and HKD50-65psf, respectively. Rental reversionary growth for the Pacific Place and Taikoo Place portfolios was negative at 13% and 15% in 2025, respectively. In China, occupancy at One INDIGO in Beijing improved to 93% in Dec-25 from 89% in Sep-25. Taikoo Hui Offices and HKRI Centre 1 & Centre 2 reported stable occupancies of 90% and 93% in Dec-25, respectively.
Retail tenant sales growth gaining momentum. The Mall, Pacific Place, and Cityplaza recorded sales growth of 5.6% and 2.7% in 2025 compared to 1.4% and 2% in 1H25. Sales at Citygate Outlets grew by 1.6% in 2025, a turnaround from a decline of 3.3% in 1H25. All three malls outperformed the broader retail market, which registered 1% sales growth in 2025. Asset-enhancement initiatives fuelled outperformance at Taikoo Li Sanlitun in Beijing and HKRI Taikoo Hui in Shanghai, both of which registered solid sales growth of 11.2% and 49.6% in 2025, respectively (1H25: 6.8% and 13.5%). Tenant sales at other malls in China also gained momentum, increasing by 1.6% to 6.9% in 2025, compared with a range of -2.1% to +4.0% growth in 1H25.
The Headland Residences sales update. Swire Properties launched The Headland Residences Phase 1 in Chai Wan for pre-sale in Sep-25 and has since sold 128 units, generating proceeds of >HKD1.1bn, at an average of c.HKD17,000psf. This represents 22% of the total 592 units in Ph 1.
The Headland Residences, redeveloped from the former China Motor Bus depot, is scheduled for completion from the second half of 2025 onwards. The project, developed in two phases, will comprise 850 units across three residential towers with a total gross floor area of 0.69msf. Pre-sale consent for Ph 2 is currently pending government approval. Swire Properties holds an 80% stake in the redevelopment, with the remaining 20% owned by China Motor Bus. The joint venture acquired the site from China Motor Bus in 2015 for HKD850m and subsequently converted it to residential use following a land premium payment of HKD4.54bn. Including construction and financing costs, we estimate the all-in cost at approximately HKD16,500psf on a saleable area basis. As such, the development is expected to be only marginally profitable.
Continued capital recycling to power long-term growth. In Oct-25, Swire Properties offered car park spaces at Taikoo Shing Ph 10 for sale. To date, the company has sold > 400 spaces, generating total proceeds of HKD500m. Separately, the company sold an industrial property in Tsing Yi for HKD750m. This divestment not only enhances bottom-line earnings but also facilitates capital recycling for new investments.
Decent gains from luxury home sales. In Dec-25, Swire Properties agreed to sell 6 Deep Water Bay Road in Island South for HKD2.2bn or HKD147,010psf. Redeveloped from the former rental property Rocky Bank, the site comprises two three-storey houses on a single lot, with saleable areas of approximately 9,600sf and 5,300sf. The transaction is expected to close in 1Q26, and we forecast the disposal to generate pre-tax earnings of over HKD1bn for Swire Properties.
BUY with HKD30.38 TP. Over the past three months, shares of Swire Properties appreciated 10%, underperforming most other landlords. Meanwhile, the stock is trading at a 50% discount to our appraised current NAV, against its 10-year average of 53%. The Pacific Place office portfolio shows signs of stabilisation. This, coupled with improving tenant sales momentum in its Hong Kong and China retail portfolios, should augur well for its rental income in the medium term. Portfolio expansion in China should provide additional growth momentum to earnings and dividends, which should warrant a higher stock valuation over the long term. Reiterate BUY with TP of HKD30.38, based on target discount of 40% to our Dec-26 NAV estimate.
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