Hong Kong outlook 'pathetic', 'dire' in near term, mall and hotel operator Wharf REIC says as it reports drop in revenue, profit

By Pearl Liu pearl.liu@scmp.com / https://www.scmp.com/business/article/3065251/hong-kong-outlook-pathetic-dire-near-term-mall-and-hotel-operator-wharf?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp | March 10, 2020 2:21 PM SGT
Hong Kong shopping centre and hotel operator Wharf Real Estate Investment Company (Wharf REIC) said on Thursday the outlook for the city's economy was "pathetic" and "dire" in the near term.
"We feel Hong Kong is pathetic in the short term. It could take three months, six months or even nine months [for the Covid-19 outbreak to subside and the city's economy to bottom out], but we have no idea," Stephen Ng, the company's chairman and managing director, said during its annual results briefing. "However, in the long run, we believe Hong Kong is still a lovely place to do business. As long as we can walk through the current [crisis], it will be better."
The company, which owns the Harbour City and Times Square shopping centres in Hong Kong's core shopping districts of Tsim Sha Tsui and Causeway Bay, reported a 3 per cent decline in underlying profit to HK$9.8 billion (US$1.3 billion) for 2019. Its attributable profit plunged 78 per cent after an investment property revaluation revealed a deficit of HK$5.7 billion. Wharf REIC's revenue dropped 3 per cent year on year to HK$16.04 billion.
In lieu of a final dividend, the company plans to pay a second interim dividend of HK$0.93 per share on April 23. Its full-year dividend will amount to HK$2.03 per share.
Ng said leases up for renewal as well as new leases at the company's shopping centres are expected to face a downward pressure throughout this year. "No landlord can successfully keep the same rents when the market is so dire," he said.
Tenants at Wharf REIC's Harbour City shopping centre reported a 23 per cent drop in retail sales for 2019, while those at Times Square reported a 19 per cent drop, according to the annual result the company filed with the Hong Kong stock exchange. The decline in retail sales affects Wharf REIC as the rent it charges has two parts " a base rent, which is fixed, and shared rent, which is a portion of tenants' retail sales.
The company said the Covid-19 outbreak was expected to weigh on its outlook during this quarter and the next. "We saw our retail performance decline in the third and fourth quarters last year. It will become even worse in the first quarter this year," Ng said.
Meanwhile, three of Wharf REIC's five-star hotels in Harbour City, Marco Polo Hong Kong, Gateway and Prince, reported an occupancy rate of less than 10 per cent last month despite lowered room rates. "The revenue at our five-star hotels can hardly fetch 5 per cent of that last year. This is a pretty serious situation, not only for us, but for the whole industry," Ng said.
The company's share price jumped 1.95 per cent to HK$36.55 on Thursday.
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