Company Reports

Wharf REIC's flagship properties are Harbour City and Times Square, which are well-known destinations for locals and tourists alike. Historically, the two properties collectively account for around 8%-10% of total retail sales in Hong Kong. As the company intends to hold Hong Kong investment properties exclusively, the China operation is being progressively scaled down. The Murray hotel was added to the Hong Kong portfolio in mid-2018, but given the corporate mandate and the current real estate environment, we do not expect Wharf REIC to make significant acquisitions in the near term. Its rental revenue growth is limited to reversion of the existing assets. While asset enhancement opportunities exist for Marco Polo Hong Kong Hotel, the biggest driver is the state of retail sales in Hong Kong.

Wharf REIC's first-half underlying net profit rose 6% year on year due to lower financing costs following the company's deleveraging efforts. Shares rallied about 20% after the company increased its core earnings payout ratio to 90% from 65%. The interim dividend increased 42% to HKD 0.94 per share.

Wharf REIC's flagship properties are Harbour City and Times Square, which are well-known destinations for locals and tourists alike. Historically, the two properties collectively account for around 8%-10% of total retail sales in Hong Kong. As the company intends to hold Hong Kong investment properties exclusively, the China operation is being progressively scaled down. The Murray hotel was added to the Hong Kong portfolio in mid-2018, but given the corporate mandate and the current real estate environment, we do not expect Wharf REIC to make significant acquisitions in the near term. Its rental revenue growth is limited to reversion of the existing assets. While asset enhancement opportunities exist for Marco Polo Hong Kong Hotel, the biggest driver is the state of retail sales in Hong Kong.

Wharf REIC's flagship properties are Harbour City and Times Square, which are well-known destinations for locals and tourists alike. Historically, the two properties collectively account for around 8%-10% of total retail sales in Hong Kong. As the company intends to hold Hong Kong investment properties exclusively, the China operation is being progressively scaled down. The Murray hotel was added to the Hong Kong portfolio in mid-2018, but given the corporate mandate and the current real estate environment, we do not expect Wharf REIC to make significant acquisitions in the near term. Its rental revenue growth is limited to reversion of the existing assets. While asset enhancement opportunities exist for Marco Polo Hong Kong Hotel, the biggest driver is the state of retail sales in Hong Kong.

Hongkong Land's Singapore Central Private Real Estate Fund agreed to acquire Wheelock Place in Singapore from Wharf REIC in late August for SGD 1.1 billion, modestly above Wharf REIC's end-June book value of SGD 1 billion but in line with a recent independent valuation, according to HKL.

Hong Kong retail sales grew 11% year on year in the first five months of 2026, according to the Census and Statistics Department. Sales of jewelry, watches, clocks, and valuable gifts—proxy for higher-end spending, in our view—increased 26%.

Wharf REIC's flagship properties are Harbour City and Times Square, which are well-known destinations for locals and tourists alike. Historically, the two properties collectively account for around 8%-10% of total retail sales in Hong Kong. As the company intends to hold Hong Kong investment properties exclusively, the China operation is being progressively scaled down. The Murray hotel was added to the Hong Kong portfolio in mid-2018, but given the corporate mandate and the current real estate environment, we do not expect Wharf REIC to make significant acquisitions in the near term. Its rental revenue growth is limited to reversion of the existing assets. While asset enhancement opportunities exist for Marco Polo Hong Kong Hotel, the biggest driver is the state of retail sales in Hong Kong.

Wharf REIC's 2025 underlying net profit increased 5% to HKD 6.5 billion as finance costs declined on lower net debt and interest costs. Wharf REIC's full-year dividend rises 6% to HKD 1.32.

According to Census and Statistics Department data, Hong Kong October retail sales rose 6.9% year on year, narrowing the year-to-October sales decline to 0.2%. Meanwhile, the jewelry, watches and clocks, and valuable gifts category—a proxy for luxury sales—grew 0.3% for the year-to-October period.

Wharf REIC reported a 1% year-on-year decline in revenue, driven by a 3% drop in investment property income amid a soft retail market, especially at Times Square. This was partly offset by a 2% increase in hotel revenue. Interim dividend increased 3% to HKD 0.66 per share.

Wharf REIC's flagship properties are Harbour City and Times Square, which are well-known destinations for locals and tourists alike. Historically, the two properties collectively account for around 8%-10% of total retail sales in Hong Kong. As the company intends to hold Hong Kong investment properties exclusively, the China operation is being progressively scaled down. The Murray hotel was added to the Hong Kong portfolio in mid-2018, but given the corporate mandate and the current real estate environment, Wharf REIC is unlikely to make significant acquisitions in the near term, in our view. Its rental revenue growth is limited to reversion of the existing assets. While asset enhancement opportunities exist for Times Square and Marco Polo Hong Kong Hotel, the biggest driver is the state of retail sales in Hong Kong.

The Census and Statistics Department of Hong Kong reported a 2.4% year-on-year increase in May retail sales, marking the first growth after 14 consecutive months of decline. As a result, the year-on-year decline for the first five months of 2025 narrowed to 4%.

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.

Wharf REIC's flagship properties are Harbour City and Times Square, which are well-known destinations for locals and tourists alike. Historically, the two properties collectively account for around 8%-10% of total retail sales in Hong Kong. As the company intends to hold Hong Kong investment properties exclusively, the China operation is being progressively scaled down. The Murray hotel was added to the Hong Kong portfolio in mid-2018, but given the corporate mandate and the current real estate environment, Wharf REIC is unlikely to make significant acquisitions in the near term, in our view. Its rental revenue growth is limited to reversion of the existing assets. While asset enhancement opportunities exist for Times Square, the biggest driver is the state of retail sales in Hong Kong.

We are increasing our Morningstar Uncertainty Rating to High from Medium for narrow-moat Wharf REIC. In our view, the updated rating better reflects the headwinds faced by Hong Kong’s retail market, which is being negatively affected by net spending leakage as inbound tourist spending fails to make up for the loss in domestic spending by Hong Kong residents. In particular, the luxury retail sector, to which Wharf REIC is exposed, has suffered disproportionately more as luxury buyers shift to Japan to take advantage of the weak yen.

Wharf REIC's flagship properties are Harbour City and Times Square, which are well-known destinations for locals and tourists alike. Historically, the two properties collectively account for around 8%-10% of total retail sales in Hong Kong. As the company intends to hold Hong Kong investment properties exclusively, the China operation is being progressively scaled down. The Murray hotel was added to the Hong Kong portfolio in mid-2018, but given the corporate mandate and the current real estate environment, Wharf REIC is unlikely to make significant acquisitions in the near term, in our view. Its rental revenue growth is limited to reversion of the existing assets. While asset enhancement opportunities exist for Times Square, the biggest driver is the state of retail sales in Hong Kong.

Our fair value estimate of HKD 31 per share for narrow-moat-rated Wharf REIC is unchanged. We believe the 24% drop in share price since the end of September is due to the market pricing in fewer US federal-fund rate cuts, which could add pressure to Wharf REIC’s 2025 financing costs. We leave our finance cost assumptions unchanged, as we have only conservatively assumed a 120-basis-point cut in Wharf’s effective net interest rate from the 2024 level to 3.5% in 2025, which remains above the 2.4% in 2023. This compares with the market expectation of three more 25-basis-point cuts by July 2025, on top of the 50-basis-point and 25-basis-point reductions in September and November 2024, respectively. We continue to believe that Wharf REIC is better positioned than its peers to reap the benefits of rate cuts, as 89% of its debt is under floating rates as of June 2024. We think shares are currently attractive with a 32% discount to our valuation, supported by a 2025 dividend yield of 6.2%.

Trends within narrow-moat Wharf REIC’s first-half results were generally within expectations, with retail properties’ rental growth largely offset by weakness in the office segment. That said, the interim dividend declined 4% year on year to HKD 0.64 per share as the hotel segment's gross margin was weaker than expected. While the Harbour City and Times Square malls in Hong Kong showed resilient year-on-year revenue growth of 7% and 4% respectively, we adjusted our assumptions to reflect weaker retail and hotel performance in the near term. This is because we anticipate tourist spending leakage and weakness in the Chinese economy to continue to hit tenant sales and hotel demand. As such, we cut our 2024-26 core net income forecasts by 6%-10% and lowered our 2024 dividend-per-share forecast to HKD 1.24 from HKD 1.37. While Wharf REIC’s assets are mostly in Hong Kong, we believe the company is indirectly exposed to risks in the mainland China economy given its reliance on mainland tourist spending. We raised our weighted average cost of capital to 7.8% from 6.7% to reflect this. As a result, we cut our fair value estimate for Wharf REIC to HKD 31 from HKD 46.

Wharf Real Estate Investment Co., or Wharf REIC's, flagship properties are Harbour City and Time Square. They are well-known destinations for locals and tourists alike. Historically, the two properties collectively account for around 8%-10% of total retail sales in the city. As the company intends to hold Hong Kong investment properties exclusively, the China operation is progressively scaled down. Murray Hotel was added to the Hong Kong portfolio in mid-2018, but given the corporate mandate and the current real estate environment, Wharf REIC is unlikely to make significant acquisitions in the near term, in our view. Its rental revenue growth is limited to reversion of the existing assets. While asset enhancement opportunities exist for Times Square, the biggest driver is the state of retail sales in Hong Kong.

We keep narrow-moat Wharf REIC's fair value estimate at HKD 46 per share after a management update. We continue to expect Wharf REIC to fare better than peers amid the northbound traveling trend, given its focus on luxury retail. However, we believe that first-half tenant sales at Wharf’s flagship assets, Harbour City and Times Square, will be challenged, as more people opt to purchase luxury products outside of Hong Kong, given the strong HKD. We expect that to be partly offset by tenant mix management, which includes replacing the supermarket space in Harbour City with higher-rent-paying retail tenants, as well as the return of Louis Vuitton to the Times Square mall after its exit in 2021. Over the longer term, management anticipates a price harmonization by luxury brands across countries to mitigate the tourist spending leakage.