• A Chinese bank reportedly agreed to take up half of office space at Three Exchange Square surrendered by HNA.
• Leasing demand from China-based financial institutions remains strong.
• Maintain BUY with US$8.57 Target Price.

What’s New

China-based HNA Group reportedly surrendered 8 floors (Levels 24-31) at Three Exchange Square in Central with lettable area of 88,000sf. The lease has just commenced in Jun-18 and will expire in May-27. This move should not surprise the market as this conglomerate has been reducing its business operations in Hong Kong in the previous year.

• According to the press, China Merchants Bank has agreed to take up four floors for business expansion based on market sources
• According to Jones Lang Lasalle, office vacancy in Central remained tight at 1.5% in Aug-18. With solid demand from Chinese firms on one hand and tight vacancy on the other, it should not be difficult for the market to absorb the remaining space surrendered by HNA.
• Hongkong Land is trading at 45% discount to our assessed current NAV. Valuation sounds inexpensive from the historical perspective. And Central office market remains in good shape. 
• We maintain our BUY call with Target Price of US$8.57. 

Source: DBS Research - 19 Sep 2018