Rating Action: Moody's affirms Sun Hung Kai Properties' A1 ratings; outlook stableGlobal Credit Research - 14 Mar 2022Hong Kong, March 14, 2022 -- Moody's Investors Service has affirmed the A1 ratings on Sun Hung Kai Properties (Capital Market) Ltd.'s backed senior unsecured notes and the provisional (P)A1 backed senior unsecured rating for its multicurrency medium-term note (MTN) program. Both the notes and MTN program are unconditionally and irrevocably guaranteed by its parent, Sun Hung Kai Properties Limited (SHKP).The outlook remains stable."The rating affirmation mainly reflects the proven resilience of SHKP's core residential and commercial property portfolio across economic cycles, and our expectation that the company will maintain a stable and sizeable recurring income stream and healthy financial leverage at least over the next couple of years," says Stephanie Lau, a Moody's Vice President and Senior Credit Officer.RATINGS RATIONALEThe A1 ratings mainly reflect SHKP's solid business and financial profiles, supported by the strong recurring rental income from its portfolio of high-quality investment properties; its high financial flexibility, characterized by low leverage and excellent liquidity; its leadership position and long operating track record in the property market in Hong Kong SAR, China (Aa3 stable); and its prudent financial management with excellent liquidity.The ratings also reflect the risks associated with SHKP's geographic concentration in Hong Kong and exposure to the more volatile Chinese property market. Nevertheless, Moody's expects SHKP to continue to draw on its rich development experience in Hong Kong and take a cautious approach to investing in China (A1 stable) to minimize expansion risks.Earnings will come under further pressure in full-year fiscal 2022, which ends 30 June, largely because disruptions caused by the fifth wave of the coronavirus pandemic will weaken SHKP's retail rental and property development operations in Hong Kong over the next several quarters. Local macroeconomic uncertainty will likely lower renewal rents for Hong Kong office operations. Consequently, non-property-development income/interest coverage will decline to around 7.0x in fiscal 2022 from 7.3x in fiscal 2021. Nevertheless, this level of coverage continues to support the company's financial stability and robust debt-servicing capacity.On the other hand, SHKP's leverage will likely remain stable at 16.0%-16.5% over the next 12 months if the company does not undertake any major land acquisitions and maintains prudent capital spending and a stable dividend policy.In terms of environmental, social and governance (ESG) considerations, the ratings factor in SHKP's ownership concentration in various members of the Kwok family and trust. This risk is balanced by the company's prudent financial policy and stable financial profile through different economic cycles. SHKP also has a stable and seasoned management team with good property sector experience.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe stable outlook reflects Moody's expectation that SHKP will maintain a stable business profile and contain the impact of investments and acquisitions on its financial metrics through prudent financial management.The ratings are unlikely to be upgraded in the near term, given SHKP's geographical concentration and its material exposure to China's property market.Moody's could downgrade the ratings if there is a significant departure from SHKP's prudent financial policy, such that the company's core financial indicators weaken, with its non-property-development EBIT/interest declining below 4.5x-5.0x or its adjusted debt/capitalization exceeding 20%-25%. A significant increase in the company's exposure to China to more than 30%-35% of total assets could strain its ratings.The principal methodology used in these ratings was Homebuilding And Property Development Industry published in January 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1108031. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Sun Hung Kai Properties Limited (SHKP), headquartered in Hong Kong, is one of Hong Kong's leading property development and investment companies. The company's revenue was HKD85 billion in fiscal 2021.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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