Goldman Sachs has issued a research report downgrading HYSAN DEV (00014) from "Neutral" to "Sell," citing limited room for dividend growth and uncertainties surrounding the pre-leasing of the Lee Garden Eight office project. The investment bank has also cut its target price for the stock from HK$24.9 to HK$16.

According to the report, since Hysan Development reduced its dividend by 25% in 2023, the payout has been barely covered by cash earnings. Given that the company's net debt-to-equity ratio, including perpetual securities, stands at 49.2%—significantly higher than the industry range of 10% to 30%—Goldman Sachs believes there is limited scope for dividend increases over the next two to three years. The bank forecasts the company's dividend payout ratios for 2026, 2027, and 2028 to be 138%, 97%, and 88%, respectively.

Regarding Lee Garden Eight, the project's 850,000 square feet of office space is slated to open in the fourth quarter. Goldman Sachs notes that management has provided limited details on pre-leasing progress. Market speculation has suggested that ZA Bank has leased 45,000 square feet at an average monthly rent of approximately HK$50 per square foot. The bank projects the office occupancy rate for the project to reach around 30%, 50%, and 80% in 2026, 2027, and 2028, respectively, corresponding to rental income of HK$34 million, HK$188 million, and HK$286 million. Compared with a total capital expenditure of approximately HK$30 billion, the expected cost return rate by 2028 is only around 1%, which will weigh on the group's return on equity.