Hysan Development Issuer Summary

Report date: 2026-05-15
Issuer: Hysan Development Company Limited（希慎興業有限公司, HKEx: 00014）
Relevant bond reference: Hysan Development / Elect Global Investments guaranteed perpetual securities / Hysan MTN and bank debt

1. Business Snapshot and Recent Developments

Hysan Development Company Limited (“Hysan”) is a Hong Kong-listed property investment and leasing company that owns and operates retail, office, residential and Shanghai investment properties, with its core portfolio centred around Lee Gardens in Causeway Bay, Hong Kong. The first premise for bond investors is that Hysan is not a company whose repayment capacity depends heavily on contracted sales and delivery proceeds in the manner of a mainland Chinese residential developer. Rather, its credit profile is anchored in rental income from prime Hong Kong commercial property, investment property values, and access to banks and capital markets. At the same time, Hysan is not a statutory REIT, so its risk profile is not automatically constrained by statutory leverage limits or distribution rules. Credit analysis of Hysan therefore needs to consider the quality of the Lee Gardens assets, the cycle in Hong Kong retail and office markets, the development burden of Lee Garden Eight, execution of capital recycling, and the capital structure including hybrid securities on an integrated basis.

The company’s outline is straightforward, but the credit questions are not. Hysan’s revenue is mainly generated from retail, office and residential rents in Hong Kong. For the year ended December 2025, consolidated turnover was HK$3.464bn and gross profit was HK$2.778bn. The fair value of investment properties was HK$96.157bn at end-2025, accounting for most of total assets of HK$115.422bn. Hysan’s repayment capacity is therefore driven in the short term by rental income and interest coverage, in the medium term by asset values and secured / unsecured funding capacity, and in the long term by whether Causeway Bay can maintain its competitiveness within Hong Kong’s retail and office markets. Investors should read not only profit for the year on the income statement, but also investment property valuation losses, underlying profit, operating cash flow, capital expenditure, maturities, and movements in secured borrowings together.

The 2025 results showed both a modest operating recovery and increased pressure on the capital structure. Turnover rose 1.6% year on year to HK$3.464bn, gross profit rose 0.5% to HK$2.778bn, and recurring underlying profit fell 1.9% to HK$1.918bn. Underlying profit including the gain on disposal of Bamboo Grove increased to HK$2.510bn, but this was not an improvement generated solely by recurring rental earnings. Profit attributable to owners of the company remained positive at HK$315m, but was weighed down by fair value losses on investment properties of HK$1.405bn. As fair value losses have been recorded in 2022, 2023 and 2025, Hysan’s accounting net profit is more volatile to changes in capitalisation rates, discount rates, rental outlook and property valuations than to the stability of the leasing business alone.

The core of the business is Lee Gardens retail and office. In 2025, retail turnover was HK$1.727bn, office turnover was HK$1.508bn, and residential turnover was HK$229m. Hong Kong retail, taken as a whole, remained in only a gradual recovery phase. According to Hong Kong government statistics, retail sales for full-year 2025 were HK$380.5bn, up 1.0% year on year by value and broadly flat by volume. Outbound travel, consumption leakage to Shenzhen, a strong Hong Kong dollar, and structural changes in tourist spending still left pressure on retail tenants in core commercial districts. Against this backdrop, the increase in Hysan’s retail turnover suggests that Lee Gardens’ mix of tenant reshuffling, luxury flagships, dining, wellness and family-oriented consumption may have some defensive qualities. However, it does not yet mean that the overall Hong Kong retail market has returned to a strong recovery phase.

For office, the credit focus is also on resilience rather than recovery. Hysan’s Hong Kong office occupancy improved from 90% at end-2024 to 94% at end-2025. This is positive evidence that Lee Gardens offices continue to attract financial institutions, major corporates, professional services firms, consumer-related companies, and medical and wellness-related tenants. However, the broader Hong Kong office market continues to face oversupply, corporate space rationalisation, weaker investment sentiment after higher rates, and competition from Kowloon East and non-Central districts. JLL indicated that Hong Kong office vacancy was 13.4% as of September 2025 and expected Grade A office rents to decline by around 5% for full-year 2025. Hysan’s occupancy improvement is important, but additional confirmation of renewal rents and new lease rates is needed before concluding that rental reversions have turned decisively positive.

The largest credit events in 2025 were Lee Garden Eight and capital policy. Lee Garden Eight is a large mixed-use development that further expands Hysan’s core area and, once completed, may strengthen the retail and office cluster at Lee Gardens. During the development period, however, cash capex, financing, capitalised interest, post-completion leasing ramp-up, and initial yield are credit constraints. Property under development was HK$22.280bn at end-2025, equivalent to around 23% of total investment properties. Unlike operating rental properties, this is an asset that does not generate rental income before completion and operation. Therefore, in assessing Hysan’s future credit quality, the key issue is whether Lee Garden Eight can not only preserve asset value but also convert into stable rental income.

Capital recycling is equally important. In 2025, Hysan proceeded with the partial disposal of Bamboo Grove and had collected HK$2.1bn by end-2025 against its HK$8bn capital recycling plan. A further HK$1.6bn of contracted disposal proceeds is expected to be received in 2026. This is an important source of funding to mitigate the investment burden of Lee Garden Eight, rising borrowings and interest costs. However, capital recycling needs to be assessed by looking simultaneously at the assets that can be sold, sale prices, timing, and the reduction in remaining rental income. Asset sales improve liquidity but may also reduce recurring rental income, so they should not be treated as a straightforward credit-positive measure.

On funding, Elect Global Investments Limited issued U.S.$750m of subordinated guaranteed perpetual capital securities in March 2025, unconditionally and irrevocably guaranteed by Hysan. These securities are not ordinary bonds. They are hybrid securities for which investors should review subordination, perpetual tenor, optional distribution deferral, first call, step-up, and rating-agency equity credit. At Hysan, perpetual capital securities outstanding were HK$9.404bn at end-2025, supporting financial flexibility as quasi-equity capital positioned between ordinary equity and senior debt. However, when evaluating senior debt, investors should not treat hybrid securities as pure equity. Distribution burden, refinancing at call, rating-agency treatment, and market access under stress should be analysed separately.

Within the scope confirmed from the 2025 annual report, Hysan is rated Baa2 by Moody’s and BBB by Fitch, both with stable outlooks. This indicates that despite concentration in Hong Kong commercial property, investment property valuation losses, development investment and rising leverage, the company maintains investment-grade ratings supported by asset quality, rental income, bank relationships and capital market access. However, ratings are not a substitute for credit judgment. In particular, Hysan is not a geographically diversified property group; it depends heavily on Causeway Bay asset values and rental markets. Investors should not simply view the existence of investment-grade ratings as evidence of safety, but should assess where the conditions required to maintain those ratings could break down.

2. Industry Position and Franchise Strength

Hysan’s business base is not simply “Hong Kong property”; it is heavily dependent on the Lee Gardens cluster in Causeway Bay. This concentration is both a strength and a constraint. As a strength, Lee Gardens has a concentrated portfolio of retail, office, lifestyle, dining, wellness and residential assets in a major commercial district on Hong Kong Island, where tenants, visitors, brands and transport accessibility mutually reinforce one another. In particular, the coexistence of luxury brands, flagship stores, dining, family-oriented demand, medical and wellness services, and office worker demand provides broader customer touchpoints than a single-use retail asset. As a constraint, geographic diversification outside Hong Kong is limited, so weakness in Hong Kong retail and office markets, changes in Causeway Bay footfall, cross-border consumption, and tenants’ rental affordability feed relatively directly into performance.

Causeway Bay is one of Hong Kong’s representative retail districts, combining tourists, local consumers, office workers, high-income customers and dining demand. However, Hong Kong’s retail market after 2020 has not simply returned to its former state through a recovery in tourism. Mainland-bound consumption by Hong Kong residents, online consumption, RMB / HKD exchange-rate effects, lower tourist spending per capita, and changes in brand store strategies have led to more cautious views of rental affordability in core commercial districts. The fact that Hong Kong retail sales in 2025 rose only 1.0% year on year by value and were broadly flat by volume according to government statistics indicates that consumption has not collapsed, but broad-based recovery momentum is not yet strong either.

In this environment, the value of Hysan’s Lee Gardens depends not only on location but also on tenant curation. The ability to attract luxury flagship brands supports rental levels and brand image. However, in the recent Hong Kong retail environment, malls dependent only on luxury are exposed to changes in tourist spending and mainland China demand. Hysan’s move towards combining dining, sports, wellness, children and family-oriented offerings, culture and events may increase visit frequency and dwell time at Lee Gardens and support tenant sales. The credit-relevant question is whether the tenant mix can limit negative rental reversions, contain vacancy, and preserve revenue across the retail complex as a whole.

In retail, Hysan’s Hong Kong retail occupancy was 95% at end-2025. This indicates that a certain level of tenant demand remains despite weakness in the overall Hong Kong retail market. However, occupancy is not an indicator of rent levels. If rents are reduced to limit vacancy, short-term leases are increased, promotional support is provided, or turnover rent mechanisms are adjusted, the quality of rental income can weaken even when occupancy is high. Hysan’s credit analysis therefore needs to confirm not only occupancy but also rental reversion, tenant sales, lease expiry profile, incentives, and the proportion of turnover rent.

In office, Hysan is positioned differently from a prime Central office landlord. Causeway Bay offices can capture not only financial headquarters demand, but also demand from consumer, medical, insurance, professional services, co-working and local sales-office functions. At the same time, the broader Hong Kong Grade A office market faces oversupply and weak demand, and JLL expected office rents to decline in 2025. The improvement in Hysan’s office occupancy in 2025 is positive, but in a market-wide rental downcycle, terms on new and renewed leases may pressure future revenue. The credit role of the office segment is to provide rental income with somewhat different cyclicality from retail and to support daytime population at Lee Gardens, but it is not independent enough to ignore structural vacancy in the Hong Kong office market.

Residential is small in scale, but important in assessing capital recycling and demand for luxury rental housing. Bamboo Grove is one of Hysan’s representative residential assets, and its partial disposal in 2025 had a direct impact on liquidity and capital policy. Luxury rental housing depends on expatriates, corporate leases and high-income households, and is affected by Hong Kong’s status as an international business hub, employment, schools and living environment. Residential turnover in 2025 was HK$229m, only part of group turnover, so the segment does not by itself determine Hysan’s repayment capacity. However, residential assets as saleable assets complement funding capacity under stress.

Mainland China and Shanghai-related investments are supplementary growth options from a credit perspective. Exposure to Lee Gardens Shanghai and Grand Gateway 66 slightly reduces Hong Kong concentration, while adding exposure to mainland China commercial property, consumption, office supply-demand conditions, RMB and partnership risk. At present, the core support for Hysan’s credit quality remains Hong Kong Lee Gardens. Mainland assets and new or adjacent businesses such as GBA Flex, New Frontier and To Kwa Wan should not be overvalued. They may become future sources of earnings, but as of 2025 they are not large enough to dominate senior debt repayment capacity.

In peer comparison, Hysan is more concentrated than large property companies with broader geographic, market and asset-type diversification, such as Swire Properties and Hongkong Land. Link REIT has large exposure to Hong Kong retail and car parks, but its REIT structure, distributions, borrowing limits and asset mix differ, so direct comparison requires caution. New World Development is similar in the sense of being a Hong Kong property credit, but leverage, development sales, capital market perception and event risk differ substantially; it is closer to a negative reference case for Hong Kong property-credit downside scenarios than a direct comparable for Hysan. Hysan is weaker than large integrated property groups in diversification, but has a narrower and more transparent credit story through the concentration and quality of its assets.

3. Segment Assessment

In assessing Hysan’s segments, it is necessary to distinguish not only revenue mix, but also the stability of rental income, capital consumption, and impact on asset values. In 2025, turnover was HK$1.727bn from retail, HK$1.508bn from office, and HK$229m from residential, with retail and office forming the two main pillars. These are supplemented by the Lee Garden Eight assets under development, auxiliary Shanghai and mainland China investments, and residential assets targeted for capital recycling. From a credit perspective, existing operating assets support current interest payments, dividends and operating costs, while assets under development bring both future income and current debt burden.

Retail is Hysan’s most straightforward source of earnings. Retail turnover in 2025 increased 2.6% year on year and accounted for roughly half of segment turnover. Hong Kong retail turnover was HK$1.704bn, while mainland retail was HK$23m; in practice, the segment is centred on Hong Kong Lee Gardens. The strength of retail is that Lee Gardens controls multiple commercial buildings as a district, allowing Hysan to combine brands, dining, events, wellness and family-oriented demand. This makes it easier to create multiple reasons to visit compared with a single-tenant or single-department-store format.

At the same time, retail is the segment most exposed to the external environment. Even if Hong Kong retail sales returned to modest growth in 2025, it does not necessarily mean that core-district rents have strongly rebounded. Luxury goods, watches and jewellery, cosmetics, dining and apparel are particularly affected by tourist mix, the Hong Kong dollar, cross-border consumption, online channels and brand strategies. Even if Hysan’s retail occupancy is high, revenue growth will be limited if rental reversions are weak. For a credit memo, the increase in retail turnover should be viewed positively, but earnings improvement should be treated cautiously until rental reversion and tenant sales are confirmed.

For office, the key point in 2025 was the improvement in occupancy from 90% to 94%. Given high vacancy and ongoing rental pressure in the broader Hong Kong office market, Hysan’s occupancy improvement indicates relative tenant demand. However, higher occupancy does not necessarily mean rents have bottomed. It may have been accompanied by rental concessions to reduce vacancy, rent-free periods, fit-out support, short-term leases, or flexible space adjustments. Hysan’s office portfolio differs from large headquarters-style floorplates in Central and connects more naturally with Causeway Bay’s commercial, medical and lifestyle functions. This is a differentiating factor, but it does not fully insulate Hysan from Hong Kong-wide office oversupply.

Residential is small in scale but has significant liquidity and capital policy implications. Residential turnover increased 5.0% year on year to HK$229m in 2025, and Hong Kong residential occupancy was 87%. The earnings contribution from rental housing is smaller than that from retail and office, but Bamboo Grove became the main source of capital recycling through partial disposals. Disposal proceeds help limit borrowing increases and ease the investment burden of Lee Garden Eight. At the same time, as disposals proceed, part of future residential rental income and asset value is lost. The impact of capital recycling should therefore be assessed by looking at both “cash increase” and “contraction of the earnings base”.

Lee Garden Eight is an asset that shows both Hysan’s future earnings and current risks. If the development is completed and appropriate tenants are recruited, it may strengthen the district-level competitiveness of Lee Gardens and deepen the rental base in both retail and office. In particular, connection with the existing Lee Gardens properties may increase tenant circulation, footfall, events and brand-curation flexibility. Conversely, if post-completion occupancy ramp-up is delayed, capitalised interest will become more visible as an actual interest burden, and the weakness in net interest coverage before capitalisation will become more important. Given the current high proportion of assets under development, Lee Garden Eight is not simply an upside factor; it is a key monitoring item that still carries execution risk.

Mainland China and strategic investments should, for now, be treated as supplementary for Hysan’s credit. Lee Gardens Shanghai and Grand Gateway 66 provide some mitigation of Hong Kong concentration. However, mainland China commercial property also faces slowing consumption, office vacancy, rent declines and uncertainty around investment property valuations. Initiatives such as GBA Flex, New Frontier and To Kwa Wan are meaningful as potential future business opportunities, but they are not core contributors to repayment capacity as of 2025. In this report, these are treated not as “growth upside” but as “supplementary options around the core assets”.

Across segments, the key point is that Hysan’s credit quality is not simply strong because “rental income is stable”. Retail depends on footfall and consumption, office on corporate space demand and rents, residential on luxury rental demand and asset disposals, and development on completion, tenant recruitment and cost of capital. As a property investment company, the fact that these segments complement one another within the same district is a strength. However, when a local shock occurs, they may deteriorate at the same time, which is the constraint.

4. Financial Profile and Analysis

For Hysan’s financial analysis, underlying profit, operating cash flow, valuation losses, borrowings, interest payments and capital expenditure need to be separated rather than focusing on profit for the year. Accounting profit for a property investment company is significantly affected by fair value movements. Profit attributable to owners in 2025 was HK$315m and remained positive, but was affected by fair value losses on investment properties of HK$1.405bn and fair value gains on disposed investment properties of HK$592m. Therefore, repayment capacity should be assessed primarily through underlying profit, recurring underlying profit, cash generated from operations, net debt and interest coverage.

From 2021 to 2025, Hysan’s turnover stayed broadly within a range of around HK$3.2bn to HK$3.6bn and did not collapse. Gross profit also remained at around HK$2.6bn to HK$3.1bn, confirming the stickiness of rental income. However, finance costs increased from HK$393m in 2021 to HK$549m in 2025. Higher rates, increased borrowings and development investment have raised the interest burden, so interest coverage can decline even when revenue is broadly flat. In 2025, net interest coverage was 6.3x after capitalisation and 2.3x before capitalisation, meaning that actual interest-paying capacity excluding capitalisation is not particularly thick.

Note: Amounts are in HK$m and, unless otherwise stated, based on company disclosures. Borrowings refers to the borrowings balance in the annual report five-year summary, while 2025 gross debt of HK$28.737bn is based on drawn debt financing by funding source and does not fully match borrowings of HK$28.524bn due to differences in presentation scope. Net debt is a company-disclosed metric calculated by deducting cash and bank deposits and investment-grade debt securities from company-disclosed gross debt. Net interest coverage should be read separately after capitalisation and before capitalisation, in line with the company’s disclosed definitions.

On profitability, the gross profit margin in 2025 was 80.2%, high for a property leasing operation. However, this is profitability after property operating expenses, and does not show the headroom after absorbing finance costs, administrative expenses, investment property valuation losses, taxes and distributions on hybrid securities. Hysan has high operating-stage margins, but its business is capital intensive, so interest rates and asset values have a large impact on credit quality. In particular, during periods with large developments such as Lee Garden Eight, capitalisation may make finance costs on the income statement appear lower, so coverage before capitalisation also needs to be considered.

Cash flow in 2025 consisted of cash generated from operations of HK$2.531bn and net cash from operating activities of HK$2.288bn. By contrast, cash capex was HK$2.633bn, meaning that operating cash flow alone did not fully cover development investment. This is not unusual for a property investment company, but it shows that Hysan is not funding growth investment solely from stable rents. While capital expenditure continues, asset sales, bank borrowings, capital market issuance and hybrid securities become funding sources.

Capital recycling including the Bamboo Grove disposal offsets this cash-flow weakness. Hysan had collected HK$2.1bn by end-2025 and expects to receive a further HK$1.6bn of contracted proceeds in 2026. This is close to the size of a single year’s operating cash flow and has a large effect in reducing the development burden. However, asset disposals are non-recurring and are not a substitute for recurring underlying profit. The reason 2025 underlying profit of HK$2.510bn exceeded recurring underlying profit of HK$1.918bn was the large disposal gain. This difference should not be mistaken for an improvement in sustainable earnings capacity.

For leverage, direction matters more than the absolute level. Net debt to equity increased from 11.7% in 2021 to 32.4% in 2025. Gross debt of HK$28.737bn against investment property value of HK$96.157bn is around 30% on a simple asset-value basis, which is not a distressed level for a property investment company when viewed through a rough LTV lens. However, this view does not reflect encumbered assets, unencumbered asset capacity, property-level collateral, or bank covenants. In a phase where investment property values decline due to valuation losses while development investment and borrowings increase, LTV can rise easily. The 2025 investment property valuation loss of HK$1.405bn is small relative to total asset value in a single year, but if repeated over multiple years, it erodes the equity cushion and rating headroom.

Interest-paying capacity is the financial metric that requires the most attention for Hysan. Net interest coverage after capitalisation was 6.3x, which looks sufficient at first glance. However, coverage before capitalisation was 2.3x and has been flat since 2023. During large-scale development, part of interest is capitalised into assets, so if rental income does not ramp up after completion, the actual interest burden becomes more visible. Hysan’s credit scenario partly depends on Lee Garden Eight absorbing leverage and interest burden through future earnings growth. Conversely, if post-completion leasing ramp-up is delayed, coverage can weaken easily.

The capital structure including hybrid securities also complicates the financial analysis. Perpetual capital securities are treated in a manner close to equity for accounting purposes, and HK$9.404bn was outstanding at end-2025. This suppresses net debt to equity, but the securities carry distribution obligations and may create refinancing needs at the first call. For senior bondholders, hybrids are supportive because they have loss-absorbing features, but market access under stress and the impact of distribution deferral decisions on issuer credit also need to be considered. In particular, the U.S.$750m issue in March 2025 showed that Hysan could raise substantial capital from capital markets, but also that its capital structure has come to rely on foreign-currency, subordinated, perpetual, equity-like securities.

In summary, Hysan maintains high operating-stage margins and has stable rental income and a large investment property base. However, rising leverage, development investment, asset valuation losses and interest burden mean that credit headroom is clearly thinner than in 2021. As of 2025, distance to investment grade remains, but Lee Garden Eight completion / leasing, capital recycling, interest coverage before capitalisation, and the direction of investment property valuations will determine future credit quality.

5. Structural Considerations for Bondholders

Hysan bond investors need to distinguish among issuer and guarantor, senior debt and hybrid securities, and secured borrowings and unsecured debt. Hysan Development Company Limited is a listed holding company, while investment properties are held within group property-owning companies and project companies. Ordinary rental income is visible on a consolidated basis, but which creditor has direct access to which assets depends on the issuer, guarantee, security, negative pledge, cross-default, change-of-control and financial covenant terms of each bond.

At end-2025, debt financing was split almost equally between bank borrowings and capital market financing. Of gross debt of HK$28.737bn, bank borrowings accounted for 51% and capital market issuances for 49%. Bank borrowings included secured term loans related to Lee Garden Eight, with HK$12.951bn available, HK$10.218bn drawn and HK$2.733bn undrawn. This shows that funding for assets under development is being raised on a secured basis. Secured funding is a natural source of financing for project development, but for unsecured creditors it is a reason to confirm future collateral capacity and the depth of unencumbered assets.

Capital market issuances were HK$14.165bn drawn, demonstrating Hysan’s market funding access. However, the detailed terms of individual bonds have not been confirmed in this report. In particular, before investing in individual bonds, investors need to confirm MTN programme or senior unsecured bond guarantees, negative pledge, restrictions on collateral creation, subsidiary debt limitations, change of control, cross-default and restrictions on material asset disposals. Even if the issuer can be assessed as an investment-grade property company, recovery ranking and covenant protection at the individual bond level are separate issues.

The U.S.$750m subordinated guaranteed perpetual capital securities issued by Elect Global Investments Limited in March 2025 are important for reading Hysan’s capital structure. Hysan unconditionally and irrevocably guarantees these securities, but unlike ordinary senior debt, they are equity-like instruments that are subordinated, perpetual, allow for distribution deferral, and may include first-call and step-up features. The Offering Circular needs to be reviewed for optional distribution deferral, non-cumulative / cumulative treatment, first call date, step-up margin, existence of any replacement capital covenant, liquidation ranking, and tax / rating-agency equity credit. In this issuer summary, the hybrid securities are treated as equity-like instruments that support Hysan’s financial flexibility but carry risks different from senior bonds.

Hybrid securities have two-sided implications for senior bondholders. First, because they are subordinated, they have capacity to absorb losses after senior debt. Second, their accounting and rating-agency equity characteristics can support Hysan’s leverage metrics and rating headroom. Third, under stress, the issuer may be able to defer distributions or skip calls, reducing cash outflow. On the other hand, hybrid securities are not ordinary equity and affect market confidence, ratings, future funding and the parent’s capital policy. If the issuer defers distributions, short-term liquidity may be protected, but the impact on capital market access and investor base cannot be ignored.

The increase in secured borrowings gradually changes Hysan’s structural risk. Secured term loans for Lee Garden Eight are a reasonable funding method for a large pre-completion project. However, if secured debt increases too much, the asset value and flexibility left for unsecured creditors decline. Secured term loans drawn at end-2025 were HK$10.218bn, equivalent to around 36% of gross debt. This is not immediately a dangerous level, but in a declining investment-property valuation environment, secured debt ratio, unencumbered asset pool and additional collateral capacity need to be reviewed.

There is also a parent / controlling shareholder issue. Hysan is a Hong Kong-listed company with close links to the Lee family and has historically operated its assets on a long-term hold basis. This can support credit because it emphasises asset value and brand maintenance rather than short-term expansion of development sales. On the other hand, the presence of a controlling shareholder means that views on dividends, capital policy, asset disposals, related-party transactions, hybrid issuance and future M&A may not always be fully aligned between minority shareholders and creditors. No evidence of material governance concern has been identified at present, but bond investors should continue monitoring whether long-term capital policy remains conservative.

The structural conclusion is that Hysan’s senior bonds cannot be assessed adequately through issuer credit alone. Investment property value and rental income are substantial, but investors need to distinguish which assets are pledged, which debts sit at subsidiaries or project companies, and which securities are subordinated, perpetual and distribution-deferrable. Hysan is relatively easy to understand as an operating company, but individual bond investment requires review of the OC and funding structure.

6. Capital Structure, Liquidity and Funding

Hysan’s liquidity was manageable for an investment-grade issuer at end-2025. However, the quality of its headroom is supported not by large cash balances alone, but by undrawn committed lines, capital market access, asset sales and collateral capacity. Cash and bank deposits were HK$3.831bn at end-2025, and investment-grade debt securities were HK$579m, giving immediate liquidity of around HK$4.410bn. By contrast, undrawn committed facilities were HK$10.502bn and undrawn uncommitted loans were HK$2.180bn. Headline liquidity resources therefore depend significantly on bank lines, not only cash.

Note: Amounts are in HK$m. The undrawn amount of HK$10.502bn under Total committed facilities includes HK$2.733bn of undrawn secured term loans and HK$7.769bn of undrawn committed revolving loans. In liquidity assessment, cash, investment-grade debt securities and committed undrawn lines are the main resources, while uncommitted loans are treated as supplementary capacity with lower certainty under stress.

The maturity profile is not particularly long, with average debt maturity of 2.8 years at end-2025. For a property investment company with long-lived assets, extending debt maturity is important. An average tenor of 2.8 years does not mean Hysan is excessively dependent on short-term refinancing, but if capital markets close or bank lines shrink, refinancing conditions could be affected relatively quickly. Given the funding needs through completion of Lee Garden Eight, Hysan will need to maintain liquidity from 2026 to 2028 through a combination of capital recycling, bank lines, bond markets and the hybrid market. Based on the annual report information reviewed, maturity amounts by year, remaining capex for Lee Garden Eight, unencumbered asset value and covenant headroom by bank line have not been reflected in this report with sufficient granularity. Therefore, the liquidity assessment in this report is provisional, based on total lines, average maturity and capital recycling progress at end-2025; individual bond investment requires rechecking the maturity schedule and remaining investment burden.

The fixed-rate debt ratio is important for interest-rate risk. The fixed-rate debt ratio after swaps was 54% at end-2025. This means the impact of rate increases is mitigated by about half, while the remaining floating-rate debt and new rates at refinancing remain exposed. The effective interest rate in 2025 was 3.7%. If Hong Kong dollar interest rates fall, finance costs will benefit, but the effect will be limited if borrowings increase. Credit improvement should not be assumed based solely on lower rates; gross debt movements and average funding cost should be assessed together.

A simple LTV view shows gross debt of HK$28.737bn equivalent to around 29.9% of investment properties of HK$96.157bn, and net debt of HK$24.693bn equivalent to around 25.7%. On simple LTV, there appears to be a degree of headroom relative to investment property value. However, this calculation is only a rough indicator that assumes all investment property value can be used equally for collateral, sale or refinancing. Actual debt capacity differs depending on assets under development, pledged assets, residential assets targeted for sale, Shanghai and Hong Kong assets, lease status and valuation assumptions. Investors in Hysan should not be reassured by simple LTV alone, but should confirm the secured debt ratio and unencumbered asset value.

A positive point in the 2025 liquidity assessment is that capital recycling has involved concrete cash realisation. The Bamboo Grove disposal is not merely a plan; it resulted in HK$2.1bn collected by end-2025 and a further HK$1.6bn of contracted proceeds expected in 2026. This has the effect of funding part of development investment with non-debt capital. If asset sales can limit the increase in gross debt, they may help maintain ratings. However, achieving the remaining HK$8bn target requires supportive market conditions and prices, and rushed disposals could result in weaker pricing.

Capital market access was confirmed by the U.S.$750m hybrid securities issue in March 2025. This is an important fact demonstrating both investor demand and issuer franchise. At the same time, the fact that Hysan raised substantial funds through hybrid securities rather than senior unsecured debt can also be read as a capital policy choice that was conscious of leverage metrics and ratings. Hybrid securities have equity-like characteristics, but they depend on future calls / refinancing, distributions, foreign-currency payments and demand in the subordinated securities market. In evaluating capital market access, it is necessary to confirm not only that the company was able to issue, but also which layer of the capital structure it issued in.

Hysan’s main liquidity risk is not the cash balance itself, but the possibility of multiple burdens arriving at the same time. Specific combinations include continued capex for Lee Garden Eight, delayed additional Bamboo Grove disposals, weak office / retail rents, continued investment property valuation losses, worse refinancing terms for bank borrowings, and approaching call / refinancing decisions for hybrid securities. Any single factor is unlikely to create near-term funding pressure, but if several burdens overlap, net debt to equity and interest coverage could deteriorate relatively quickly.

In summary, Hysan is not currently an issuer for which near-term liquidity stress is a central concern. Cash, undrawn committed lines, investment-grade ratings, asset sales and bank relationships provide support. However, average debt maturity of 2.8 years, secured development borrowings, interest coverage before capitalisation of 2.3x, and the upward trend in net debt to equity show that credit headroom is not unlimited. Investors should regularly monitor maturities from 2026 onward, capital recycling, Lee Garden Eight leasing, and rating outlook.

7. Rating Agency View

Hysan’s international ratings, as shown in the 2025 annual report, are Moody’s Baa2 / stable and Fitch BBB / stable. Both are in the lower-to-mid investment-grade range. This can be read as incorporating concentration in Hong Kong commercial property and rising leverage, while recognising asset quality, recurring income, bank and capital market access, and a long operating track record. This report has not obtained the latest full rating-agency reports, so upgrade / downgrade triggers, equity credit for hybrid securities, and views on Lee Garden Eight remain unconfirmed items.

When interpreting the rating level, it is important to note that Hysan is not a highly rated, broadly diversified property company. Baa2 / BBB does not imply high default risk, but it indicates less headroom against leverage, asset concentration, office and retail markets, and investment property valuation losses than strong A-category property issuers. In particular, with net debt to equity rising and interest coverage before capitalisation remaining at 2.3x, maintaining the ratings requires capital recycling and stable rental income.

The likely key factors for Moody’s and Fitch are, first, Hysan’s investment property values and collateral capacity; second, recurring EBITDA / interest coverage; third, net debt / EBITDA or LTV; fourth, Lee Garden Eight completion / leasing; and fifth, capital policy and hybrid securities. This report does not fully reproduce leverage metrics using rating-agency definitions, so it focuses mainly on company-disclosed net debt to equity and interest coverage. Rating-agency-defined leverage and coverage should be confirmed at the next update or before individual investment.

Natural downgrade risks include a case where investment property valuation losses and higher borrowings combine to raise LTV, a case where delayed monetisation of Lee Garden Eight reduces coverage, a case where renewed large declines in Hong Kong retail / office rents reduce recurring underlying profit, and a case where capital recycling does not proceed as planned and debt-funded capex increases. Upgrade prospects can only be discussed if Lee Garden Eight ramps up smoothly, rental income increases, leverage declines through asset sales and internal cash flow, and interest coverage improves. At present, the more appropriate reading is not that credit quality is improving because the ratings are stable, but that the credit profile still fits within the investment-grade range.

Rating-agency views are supporting evidence for Hysan’s credit analysis, not the conclusion itself. For Hysan, the key issue is not the rating level alone but whether the assumptions needed to maintain that rating are deteriorating in actual financials and liquidity. Investors should use the stable outlook shown in the annual report as a starting point while monitoring the 2026 interim results, Lee Garden Eight, capital recycling, interest rates, and the direction of Hong Kong property valuations.

8. Credit Positioning

Within Hong Kong property credits, Hysan is positioned as a property investment company with relatively limited development-for-sale risk but high geographic and asset concentration. The risks of sales collections, unfinished units, presale fund regulation and large short-term maturities that affect mainland Chinese residential developers are not the main issues. Conversely, Hysan also has limited ability to absorb shocks across multiple countries, cities and asset classes like a broadly diversified Asian property major. Hysan is a credit that directly gives investors exposure to the quality of Lee Gardens and the Hong Kong commercial property cycle.

Compared with Swire Properties and Hongkong Land, Hysan is smaller and less diversified. Swire Properties owns large assets in Hong Kong such as Taikoo Place and Pacific Place as well as major mainland China assets, while Hongkong Land owns Central offices and development / investment properties across multiple Asian cities. Compared with these issuers, Hysan has greater concentration in Causeway Bay, making the success or failure of a specific area more visible in its credit profile. On the other hand, Hysan’s portfolio is relatively easier to understand and has a coherent Lee Gardens operating story. Investors are not buying broad diversification, but rather confidence in the asset quality and capital policy of a specific district.

Compared with Link REIT, there is a common retail element, but the structure and asset characteristics differ. Link REIT is a REIT with Hong Kong neighbourhood retail, parking, logistics and commercial assets, and is subject to institutional rules around distribution, borrowing and asset management. Hysan is a listed company and can use capital recycling, development investment, hybrid securities, dividends and bank borrowings more flexibly. That flexibility is a strength, but from investors’ perspective it also means accepting potential leverage increases and development risk driven by management decisions.

Compared with Hong Kong property investment holding companies such as Nan Fung International Holdings, Hysan’s listed-company disclosure, Lee Gardens brand, investment-grade ratings and capital market access are easier to analyse. At the same time, being a public company does not mean capital policy will always prioritise creditors. Dividends, shareholder returns, development investment and asset disposals need to balance shareholder value and creditor protection.

The comparison with New World Development should instead be used to understand how Hysan’s risks differ. New World has broad exposure across Hong Kong property, development, investment, infrastructure and hotels, but in recent years has been associated with high leverage, asset sales, credit concerns and weaker capital market perception. Hysan is not that type of diversified, highly leveraged restructuring credit. However, when the Hong Kong property market is weak, Hysan is not fully insulated from deterioration in valuations, refinancing conditions and investor sentiment. Hysan’s defensive qualities are meaningful, but in a phase where Hong Kong property credit premia widen, market perception may deteriorate alongside peers.

This report does not assess relative value because it has not reviewed live bond prices, yields, spreads or CDS. Actual investment decisions require spread comparison among Hysan senior bonds, hybrid securities, Hong Kong property issuers of similar tenor, Hong Kong REITs, Asian investment-grade property companies, and similarly rated non-property issuers. What can be said from public information is that Hysan maintains investment-grade business and liquidity characteristics, but it carries risks clearly different from A-category broadly diversified property credits due to sector and capital-structure constraints.

9. Key Credit Strengths and Constraints

Hysan’s credit quality rests on the combination of asset quality and concentration risk. Its largest strength is the ownership of a concentrated base of retail, office and residential assets around Lee Gardens in Causeway Bay, Hong Kong. This asset base is the source of tenant demand, brand value, visitors, footfall, bank collateral value and capital market access. Investment properties of HK$96.157bn at end-2025 show asset-value depth in a simple comparison with gross debt of HK$28.737bn, and are an important support for the investment-grade ratings. However, unencumbered asset capacity, property-level collateral and bank covenants have not been confirmed, so asset coverage for senior unsecured bonds should not be concluded from this simple comparison alone.

The second strength is the recurring nature of rental income. Recurring underlying profit in 2025 was HK$1.918bn and did not collapse despite a weak Hong Kong commercial property environment. The two pillars of retail and office expose Hysan to both consumption and corporate space demand, while reducing dependence on a single tenant or single use. Hysan’s operating-stage gross profit margin was 80.2%, indicating high profitability in property operations. However, this assessment is based mainly on turnover and occupancy. Rental reversion, tenant sales, lease maturity and incentives have not been confirmed, so it is not yet possible to conclude that rental quality has clearly improved.

The third strength is liquidity and funding access. At end-2025, Hysan had cash and bank deposits of HK$3.831bn, investment-grade debt securities of HK$579m and undrawn committed facilities of HK$10.502bn, while maintaining investment-grade ratings of Moody’s Baa2 / Fitch BBB within the scope confirmed from the 2025 annual report. The U.S.$750m hybrid securities issuance in March 2025 shows that capital market access remains available. In addition, capital recycling including Bamboo Grove disposals provides a means of partly funding development investment with non-debt capital.

The largest constraint is geographic concentration. Hysan is a Causeway Bay / Lee Gardens credit and would face pressure through multiple channels — retail, office, valuation and funding — if Hong Kong commercial property markets were to remain weak for a prolonged period. Geographic concentration is beneficial for depth of asset management and brand formation, but weakens shock-absorption capacity. Even if Hong Kong retail sales returned to modest growth in 2025, it does not necessarily mean that core-district rents or tenant sales are recovering strongly.

The second constraint is development investment and leverage. Lee Garden Eight may enhance future value, but as shown by property under development of HK$22.280bn and secured term loans drawn of HK$10.218bn at end-2025, it is currently a burden on the capital structure. Net debt to equity increased to 32.4%, and net interest coverage before capitalisation remained only 2.3x. If rents do not ramp up quickly after completion, credit metrics could deteriorate.

The third constraint is asset valuation losses and volatility in accounting profit. Investment property values are large, but fair value losses have continued from 2022 to 2025. Valuation losses are not an immediate cash outflow, but they affect the equity cushion, LTV, ratings, collateral capacity and investor sentiment. Hysan’s repayment capacity cannot be assessed from operating cash flow alone; it is necessary to assess how far asset-value declines could reduce funding capacity.

The fourth constraint is increasing capital-structure complexity. Hybrid securities support financial flexibility, but they may include subordination, perpetual tenor, optional deferral, call and step-up features, and differ from ordinary bonds. As secured term loans increase, asset coverage for unsecured creditors also needs confirmation. Hysan’s credit quality is supported by a clear asset base, but the risks of individual bonds differ by capital layer.

10. Downside Scenarios and Monitoring Triggers

The most realistic downside scenario for Hysan is one in which Hong Kong retail / office rents remain weak, monetisation of Lee Garden Eight is delayed, capital recycling progresses more slowly than planned, and leverage and interest burden gradually rise. In this scenario, rating headroom and capital market perception would deteriorate gradually rather than through a sudden liquidity crisis. Even if turnover is flat, recurring underlying profit and interest coverage would be pressured if rental reversions are negative, incentives increase, office occupancy falls again, and retail tenant sales are weak.

The first stage of deterioration would appear in operating indicators. For retail, tenant sales, rental reversion, occupancy, turnover rent and lease renewals should be monitored. The key issue is not only whether Hong Kong retail sales as a whole are weak, but also how Causeway Bay footfall, tourist spending and northbound consumption affect tenant sales at Lee Gardens. For office, investors should watch whether occupancy falls again from 94%, whether renewal rents decline materially, and whether major tenants reduce space. For residential, progress on Bamboo Grove disposals and the remaining rental income should be confirmed.

The second stage would appear in development and capital structure. If Lee Garden Eight completion is delayed, opening occupancy is low, anchor tenants are weaker than expected, initial yield is low, or capex increases, Hysan would need to rely on additional borrowings or asset sales. Assets under development do not generate rent before completion, and capitalised interest also affects coverage after completion. Given that interest coverage before capitalisation is 2.3x, actual interest-paying capacity is a monitoring item.

The third stage would appear in asset values and funding. If investment property valuation losses continue, equity declines, net debt to equity and LTV rise, and secured borrowing capacity and rating headroom are reduced. Changes such as rising cap rates in the Hong Kong property market, weak rental outlook, lower valuations for Lee Garden Eight and lower collateral values may appear on the balance sheet before they appear in cash flow. Hysan’s large asset base makes an immediate liquidity crisis less likely, but valuation declines feed through to funding costs and investor sentiment.

The fourth stage would appear in capital market access. If Moody’s or Fitch changes the outlook to negative, banks tighten renewal terms for committed facilities, hybrid securities prices weaken, or new senior bond issue spreads widen, Hysan’s refinancing capacity would narrow. This report has not reviewed live spreads, so current market pricing is not assessed. However, for investment decisions, investors need to assess how the market pricing of Hysan’s senior bonds and hybrid securities is moving relative to similarly rated Hong Kong property issuers and Asian investment-grade issuers.

An upside scenario should also be defined. Hysan’s credit view would improve clearly if rental reversions in Hong Kong retail and office bottom out, Lee Garden Eight is completed and occupied on schedule, capital recycling proceeds without major price sacrifice, and net debt to equity and interest coverage stabilise or improve. A modest increase in Hong Kong retail sales alone is not sufficient. For Hysan’s credit quality, the key questions are whether tenants can continue paying rent, whether post-development assets generate cash income, and whether asset disposals reduce leverage.

11. Credit View and Monitoring Focus

Hysan’s current credit quality can be assessed as a lower-to-mid investment-grade property credit concentrated in Hong Kong commercial property. The Lee Gardens asset base, recurring rental income, investment-grade ratings shown in the 2025 annual report, and bank and capital market access limit near-term credit concerns. The credit trajectory is broadly stable, but headroom is thinner than in 2021 and can move gradually up or down depending on Lee Garden Eight, capital recycling, and movements in Hong Kong retail / office rents. The probability of a rapid and material change in credit quality is not currently high, but if negative changes overlap in the rating outlook, capital market access, Lee Garden Eight leasing ramp-up and investment property valuations, the view could deteriorate relatively quickly.

This view is supported by investment property value and rental income. Investment properties were HK$96.157bn at end-2025, turnover was HK$3.464bn, and recurring underlying profit was HK$1.918bn. Despite a weak Hong Kong retail / office market, Hysan increased retail turnover and improved office occupancy to 94%. However, the assessment of rental resilience currently relies heavily on occupancy and turnover, while rental reversion, tenant sales, lease maturity and incentives remain unconfirmed. Therefore, any judgment that earnings quality has clearly improved should remain limited. Cash of HK$3.831bn, investment-grade debt securities of HK$579m and undrawn committed facilities of HK$10.502bn also support short-term liquidity. The actual cash realisation from Bamboo Grove capital recycling also mitigates the development burden.

At the same time, the credit constraints are concentration, development, leverage and interest costs. Hysan is supported by the asset quality of Lee Gardens, but it is not independent of weakness in Hong Kong retail / office markets. Net debt to equity has increased to 32.4%, and net interest coverage before capitalisation remains at 2.3x. Until Lee Garden Eight generates sufficient rent after completion, assets under development consume funding. Investment property valuation losses also continue, meaning asset value is both a support for credit quality and a vulnerability through downward valuation adjustments that reduce financial flexibility.

From a bond investor’s perspective, Hysan is a relatively defensive issuer within Hong Kong property exposure, but it is not a strongly diversified credit. For senior bonds, investment property value, rental income, bank lines and investment-grade ratings shown in the 2025 annual report are supportive, while secured development borrowings, individual bond terms and unencumbered asset capacity require confirmation. For hybrid securities, subordination, optional distribution deferral, first call, step-up and rating-agency equity credit should be assessed separately in addition to issuer credit. Consolidated financials should not be used to assess all security classes in the same way.

The main monitoring points for investment decisions are, first, retail and office rental reversion, tenant sales and occupancy; second, Lee Garden Eight completion, pre-leasing and opening yield; third, pricing and progress of capital recycling including Bamboo Grove; fourth, net debt to equity, LTV and interest coverage before capitalisation; and fifth, Moody’s / Fitch outlook and capital market access. In the 2026 interim results, investors need to confirm whether the 2025 retail / office improvement is continuing and whether capex and debt growth are being contained. Live spreads and individual bond terms are unconfirmed in this report and require additional review for buy, hold or sell decisions.

12. Short Summary & Conclusion

Hysan Development is a property investment company that owns and operates retail, office and residential assets centred on Lee Gardens in Causeway Bay, Hong Kong. Its credit quality is supported by high-quality investment properties and recurring rental income. Investment-grade ratings of Moody’s Baa2 / Fitch BBB as confirmed in the 2025 annual report, bank lines and capital market access limit near-term credit concerns, while the development burden of Lee Garden Eight, weakness in Hong Kong retail / office markets, rising net debt to equity, and thin interest coverage before capitalisation are constraints. Investors should assess Hysan as a leasing operator rather than a sales-collection developer, while confirming rental reversion, development progress, capital recycling, secured borrowings and hybrid security terms.

13. Sources

Primary company sources

• Hysan Development Company Limited, Annual Report 2025, published March 2026. Used to confirm full-year 2025 financials, investment properties, debt, liquidity, ratings, segments, capital recycling and Lee Garden Eight.
• Hysan Development Company Limited, Announcement of Final Results for the Year Ended 31 December 2025, 2026-02-26. Used to confirm key figures for full-year 2025 results, segment turnover, profit and fair value changes.
• Hysan Development Company Limited, 2025 Annual Results presentation materials, 2026-02-26. Used as supplementary confirmation for 2025 business commentary, Lee Gardens, capital recycling and Lee Garden Eight.
• Hysan Development Company Limited, Publication of the Offering Circular - U.S.$750,000,000 Subordinated Guaranteed Perpetual Capital Securities issued by Elect Global Investments Limited, 2025-03-12. Used to confirm the hybrid securities issuer, guarantee and security type. Detailed terms of the Offering Circular have not been obtained.

Rating agency and market sources

• Hysan Development Company Limited Annual Report 2025, credit rating disclosure. Used to confirm Moody’s Baa2 / Fitch BBB, both with stable outlook.
• Fitch and Moody’s latest full rating action reports: not obtained. Downgrade / upgrade triggers, hybrid equity credit and treatment of secured debt remain items for next review.
• CACIB transaction note / public transaction summary for Hysan 2025 subordinated perpetual capital securities. Used as supplementary confirmation of the transaction overview in the issuance market, and not treated as the primary source for security terms.

Sector and macro sources

• Hong Kong Census and Statistics Department, Provisional Statistics of Retail Sales for December 2025 and for the Whole Year of 2025, 2026-02-03. Used to confirm Hong Kong retail sales of HK$380.5bn in 2025, up 1.0% year on year by value and broadly flat by volume.
• JLL Hong Kong, Hong Kong office market 3Q25 preliminary summary, 2025-10-21. Used as supplementary confirmation of Hong Kong office vacancy of 13.4% as of September 2025 and the outlook for rent declines in full-year 2025.
• JLL Hong Kong, 2026 Hong Kong office and housing market outlook, 2025-12. Used as supplementary confirmation of 2026 Hong Kong office vacancy, rents and market conditions.

Internal structured data

• issuers/hysan_development/data/hysan_development_2025_key_metrics.json. Structured storage of key financial, segment, funding, liquidity, rating and external market data extracted from the annual report and results announcement.

Unverified / Pending items