Wharf Holdings Set to Swing to Six-Month Loss of Up to $360M on Revaluations

Asset markdowns plagued Wharf Holdings during the first six months of the year, with the Hong Kong developer warning of an attributable loss for the period in the range of HK$2.5 billion to HK$2.8 billion ($320 million to $360 million).

The red ink would reverse an attributable profit of HK$696 million in the corresponding period a year earlier, the blue-chip builder said Monday in a profit warning. For all of 2023, Wharf posted a full-year attributable profit of HK$945 million.

Based on an independent revaluation of Wharf’s investment properties, the net attributable revaluation deficit for the six months to the end of June may have exceeded the underlying net profit for the same period, according to the group majority-owned by Peter Woo’s Wheelock and Company.

“Notwithstanding the above information, the overall financial position of the group remains healthy,” Wharf said. “Revaluation deficits are non-cash and unrealised items.”

Stalled Retail Recovery

Wharf Real Estate Investment Co, a Wheelock-controlled commercial spin-off, issued a separate announcement warning of a loss of at least HK$900 million for the first six months of the year, swinging from a HK$1.8 billion profit in the prior-year period.

Wharf REIC, whose properties include the giant Harbour City mall and hotel complex, said Hong Kong’s retail sales recovery stalled “very soon after” the post-pandemic reopening of borders in the first quarter of 2023. “Deterioration followed in 2024,” the company added.

After a 6 percent year-on-year drop in the city’s retail sales during the first five months of 2024, S&P Global Ratings predicted that the sector would remain under pressure due to structural changes in domestic and tourist spending patterns and increasing outbound travel by locals.

The weakness spans both ordinary and luxury spending, with even supermarket sales flashing caution, the ratings agency said.

“Given the pie is not growing, major landlords need to attract footfall from rival shopping areas and online retail,” said S&P analyst Wilson Ling.

Double Whammy Hits City Shops

Hong Kong’s economic weakness has delivered a blow to discretionary spending, with the city also suffering from a loss of consumer activity to neighbouring markets including Japan and mainland China, according to CBRE’s Asia Pacific mid-year review.

Despite what the consultancy described as a stronger-than-expected rental performance in the first half, driven by demand from mainland Chinese retailers, tight vacancy and weakening sales prompted Hong Kong retailers to turn more cautious in recent months — meaning that rental growth in the city’s core shopping districts is expected to soften over the remainder of the year.

In APAC more broadly, food and beverage and sporting goods are among the key retail sectors expanding their footprints.

“While vacancy rates in prime shopping precincts have fallen back to pre-pandemic levels, some retailers are expected to rein in their expansion plans now that they’ve rebuilt their store networks following pandemic-era closures,” CBRE said.