We have raised full-year earnings by 8% on the assumption that more units will be sold and booked at One Central Macau given the improved market conditions, and reflecting the good prices fetched by The Sail at Victoria.
Capital values for offices in Central have come down only 2% ytd, while rents have fallen 36%, an anomaly caused by excess liquidity. Such discrepancy is not sustainable in the long run. We expect office value to fall 15% from the current level before bottoming out, caused partly by another 5% softening in rents, resulting in our appraised NAV of US$4.90. Our fair price is based on the recent peak valuation of a 15% discount to NAV.
Upside risk? If office capital values stabilise at the current level, using Hongkong Land’s US$5.92 appraised asset value as at Jun 09, fair price will rise to US$5.03.
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