Analysts at Moody’s Investors Service rates the early termination of Lifestyle International Holdings Limited announced that the lease on its Tsim Sha Tsui SOGO department store in Hong Kong would be terminated early by the landlord, New World Development Company Limited (NWDC) has been credit negative.
In a research note published yesterday, the analysts mention that as the early closure of SOGO TST has no immediate rating impact, it is credit negative for Lifestyle as the loss of the retail space and the associated loss of revenue in 2014.
Moody’s expects Lifestyle to take some time in finding a suitable alternative property due to the high rental rates for retailers in Hong Kong and the relatively large size of the company’s stores, which have mainly occupied 100,000 square feet.
The closure of SOGO TST would also raise Lifestyle’s high level of revenue concentration risk. Also, the continuous growth of revenue and cash flow from Lifestyle’s Chinese operations. The proportion of the company’s Mainland revenues has been expected to increase to 20 percent in 2017 to 24 percent of total revenue, which is a development which would gradually reduce its concentration risk, the analysts say.