Hong Kong retail landlords Link Reit, Wheelock and Emperor International set alarm bells ringing with profit warnings
- Hotel landlords will be the worst affected, followed by those owning retail and office properties, according to Morningstar
- Link Reit’s underlying profit will be under some pressure for the coming year: CGS-CIMB Securities
Major listed Hong Kong retail landlords have set alarm bells ringing after issuing a spate of profit warnings recently.
Hotel landlords will be the worst affected, followed by those owning retail and office properties, said Phillip Zhong, senior equity research analyst at global financial services company Morningstar. Landlords with high exposure to hotels and retail properties were more likely to issue profit warnings, he said, as net incomes fall quite a bit because of revaluation losses and declining revenues.
“We believe retail will take longer to recover, while offices will recover sooner,” Zhong said, adding that he expected income from hotel rents to decline by 15 per cent to 30 per cent, retail rents by 5 per cent to 10 per cent and office rents by 2 per cent to 5 per cent annually when compared to 2019.
Link, which issued a report on the impact of Covid-19 on its operations on Monday, said it expected to report a net loss for the year ended March 31 because the valuations of properties it had invested in had fallen by 12.3 per cent. This decline, in turn, was down to uncertainty linked to the pandemic, weak economies in Hong Kong and mainland China, and relief measures extended to tenants.
It said that since its investment properties were held long term for stable and recurring income, the loss in valuation would not affect its cash flow and distribution per unit.
“As the impact of Covid-19 is expected to last for a few more months, we assessed that its underlying profit was still under some pressure for the coming year,” said Raymond Cheng, head of Hong Kong and China research at CGS-CIMB Securities, which rated the Reit as “reduce”.
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Two of Wheelock’s units, The Wharf (Holdings) and Wharf Reic, issued their profit warnings late last month and expected to report losses for the six months ending June 30. Wheelock said it expected to report losses of up to HK$6 billion (US$773.9 million) for the three months ended March 31. It said this was mainly down to reduced profitability of its principal businesses and the unrealised revaluation loss of the group’s properties.
The Wharf (Holdings) owns 11 commercial complexes in mainland China, including a Times Square in coronavirus-struck Wuhan. Wharf Reic has six investment properties in Hong Kong, including the Times Square and Harbour City shopping centres, and The Murray hotel in Central.
Emperor, which owns shops at street level in Causeway Bay and Tsim Sha Tsui, two of Hong Kong’s biggest shopping districts, as well as shopping centres and hotels, said last month it expected a net loss for the year ended March 31. It attributed this decline to a significant loss in the value of its investment properties and a decrease in sales revenue from residential property development of not more than 50 per cent.
Elsewhere, of the 97 small Link Reit tenants the Democratic Party surveyed late last month, more than 91 per cent said the rent relief it had offered was not enough. Link said on Tuesday a scheme launched had been expanded on April 10 to HK$300 million with the aim of helping “tenants in sectors hardest hit by the pandemic, such as education centres, food and beverage outlets, especially Chinese restaurants”. The Reit manages a portfolio of 126 properties totalling 8.7 million sq ft of retail facilities and offices, and 57,000 car parking spaces.
Another poll of 152 retailers, conducted by the Hong Kong Retail Management Association last month, too found that 84 per cent believed the rent relief offered to them was not enough and would not help them reduce losses and survive. Hutchison Whampoa Properties, Link Asset Management, New World Development, Sun Hung Kai Properties and Chinachem Group had provided the least amount of rent relief, it said.
