Hong Kong company reporting season

Trade war, weakening yuan pose challenges for Harbour City mall operator ahead after stellar first half

Wharf Real Estate Investment reports 8pc rise in core profit, while Hysan Development posts a 4.3pc jump in underlying profit for the first six months

PUBLISHED : Tuesday, 07 August, 2018, 4:32pm
UPDATED : Tuesday, 07 August, 2018, 11:13pm

The owner of the city’s biggest shopping mall expects retail sales to remain stable after a strong recovery in the first half this year even as dark clouds loom in the form of the US-China trade war and a weakening yuan.

“We don’t see much impact yet, but we have to be very vigilant,” said Stephen Ng Tin-hoi, chairman and managing director of Wharf Real Estate Investment, which owns Harbour City and Times Square. “Generally speaking, we are not pessimistic.”

Ng said some of his tenants told him that retail sales showed double-digit growth in July.

He, however, admitted that it would be challenging for the company to repeat the same level of growth in the second half.

In 2017, the company’s second half sales were better than the first half.

The company’s retail sales rose 31.4 per cent to a record HK$24.6 billion, which contributed to nearly 10 per cent of Hong Kong’s total retail sales from January to June.

The company posted an 8 per cent increase in core profit for the first six months on the back of strong retail sales.

Retail sales jumped by 36.1 per cent at Harbour City in Tsim Sha Tsui, the city’s largest mall, to a record HK$18.6 billion (US$2.3 billion), contributing 7.5 per cent to Hong Kong’s retail sales. At Times Square in Causeway Bay, sales rose 22 per cent to HK$4.6 billion, the company said in a statement.

The interim results, announced on Thursday, were the first for the Hong Kong-based developer which was spun off from conglomerate Wharf Holdings last November.

It holds and operates a portfolio of prime assets that includes Plaza Hollywood, Crawford House, Wheelock House and The Murray, which are popular with mainland visitors.

The core profit, excluding investment property revaluation and property disposal, of Wharf Real Estate Investment amounted to HK$5.02 billion or HK$1.65 per share. Revenue, however, dropped by 15 per cent because of the exit from Development Properties by its listed subsidiary Harbour Centre Development.

The sales growth at Harbour City and Times Square were well above the city’s overall retail sales growth of 13.4 per cent in the first half, according to government figures released last week. Tourist arrivals jumped 10.1 per cent year on year in the first half, led by a 13.4 per cent surge in visitors from the mainland.

“We expect the retail sector in Hong Kong, especially high-end retail, to experience another boost in the years ahead as mainland Chinese visitors to Hong Kong continue to increase,” said Raymond Cheng, head of Hong Kong and China property research at CGS-CIMB Securities. “Wharf REIC could be the largest beneficiary as Harbour City is a ‘must-go’ mall for mainland visitors for its large scale, choice of luxury products and convenient location.”

Separately, Hysan Development, one of the largest landlords in the city’s most famous shopping district of Causeway Bay and operator of Hysan Place, reported a 4.3 per cent jump in underlying profit to HK$1.28 billion for the first half, according to the company’s filing to the stock exchange.

Revenue rose 6.8 per cent to HK$1.91 billion from a year earlier.

Its newly completed Lee Garden Three, which has a gross floor area of 467,000 square feet, boasts some blue chip tenants, including Goldman Sachs. The international investment bank will occupy 92,000 sq ft spread over five floors, according to sources.

For the first six months, the occupancy rate of Hysan’s retail portfolio was 96 per cent and 95 per cent for its office portfolio.

An interim dividend of HK$1.05 per share was declared by Wharf Real Estate Investment and 27 HK cents by Hysan Development.