Wharf REIC Earnings: In-Line Results; Positive Long-Term Outlook Intact Despite Near-Term Challenges

Underlying trends in narrow-moat Wharf REIC’s 2024 results were within our expectations. Both revenue and operating income declined by 3% year on year, reflecting a weak retail market in Hong Kong. The company continues to reduce net debt to mitigate high borrowing costs. Dividend per share decreased by 3.1% year on year to HKD 1.24, in line with our expectations. We have finetuned our near-term margin assumptions, as we expect Wharf REIC will continue to spend on promotional activities to attract foot traffic and boost tenant sales. We have also raised our finance cost assumptions, as the company has further increased fixed-rate debt to 20% of their total borrowings from 11% as at end June 2024 amid the high interest rate environment. This is partly offset by a lower debt level as the company remains focused on deleveraging. Overall, we lowered our 2025-27 net income forecasts by 4%-7%, but our long-term forecasts remain largely unchanged.