Wharf issues a profit warning of earning a half less. The business of Champion Real Estate Investment's Langham Place falls by 19%.
The outbreak of the COVID-19 epidemic has severely hit the Mainland and Hong Kong economies. Several listed companies have issued profit warnings. Wharf (0004) published a profit warning that net profit fell by half last year, and Goldin Financial (0530) issued a profit warning due to the decline in property valuation. At the same time, Champion Real Estate Investment (2778) considers the requirement of further rent reduction from tenants of its Langham Place in Mong Kok, facing the freezing winter in Hong Kong's retail market. The Roche Group also decides to further reduce rents for tenants of Lai Chi Kok Shopping Centre D2 Place.
(By Leong Yuet Kam)
The source of Wharf's income is mainly from the Mainland. It issued a profit warning yesterday and made a preliminary assessment that the share of profit for shareholders last year would decrease by about 50% yearly. Mainly because it makes provision for possible impairment losses occurred in the net realizable value of many mainland projects evaluated by current market conditions.
Wharf makes provision for mainland projects' impairment losses.
This group had expressed when announced its interim results report in August last year that the primary demand is still high in the first-tier mainland cities. But the government controls the main sales price, which significantly affects the profitability of future projects. The group has been cautious and has not bought any new land for nearly a year. Until December last year, the Wharf Group purchased the residential development project in Fuyang, Hangzhou, from parent company Wheelock (0020) for HKD1.36 billion.
Last year's unpredictable Sino-US trade friction had a profound economic impact on both sides and Hong Kong. Besides, the demand in the weak retail industry was struck further by the devaluation of the RMB, Hong Kong's violent conflict in more than half a year, travel alert, economic slowdown, the rising unemployment, and so on. And the retail industry faces one disaster after another when the COVID-19 epidemic broke out.
The sales volume of Harbour City Shopping Centre falls.
Wharf Real Estate (1997) announced last week that it would reduce half of the rents in February for its tenants at Harbour City Shopping Centre in Tsim Sha Tsui. The sales in this shopping center have always been a reflection of Hong Kong's retail industry. In 2018, its retail sales exceeded HKD37 billion, accounting for 7.7% of the total in Hong Kong. However, the sales in the first half of last year in this shopping centre declined by 1% to HKD18.497 billion, due to the above factors alone.
The retail industry has entered a freezing winter because of the continued epidemic. Champion Real Estate Investment Trust announced last year's annual performance yesterday. It also pointed out the weak retail market not only continued to affect the share rent of Langham Place shopping center in Mong Kok but also put pressure on basic rental income. The company said it is considering the tenant's request for a further rent reduction to tide over the difficulties.
The rental income of Langham Place drops by 4.9%.
Champion announced that last year's distributable income increased by 2.3% yearly to HKD1.65 billion, and the final distribution was HKD0.1334 per fund unit, a year-on-year decrease of 2.4%. But the annual distribution of each fund unit was HKD0.2666, a year-on-year increase of 2%. The total rental income last year increased by 3.8% yearly to HKD2.78 billion. The rental income of Three Garden Road and Langham Place office buildings increased by 8.7% and 7.2%, respectively. While the revenue in the Langham Place shopping center in Mong Kok fell by 4.9%, dragging down the overall performance.
Champion expressed the tenants' sales volume in Langham Place shopping center declined by 19.4% last year because of the slowdown of the retail market, and the visitors' flow rate dropped by a double-digit percentage. In terms of office buildings, the occupancy rate of Three Garden Road in Central has dropped moderately from 95.8% in the middle of last year to 93% at the end of last year. Some tenants have held back their expansion plans due to the uncertain macro environment. The office performance of Langham Place in Mong Kok is stable, and tenants from the lifestyle industry have demand for leases.
D2 Place tenants get another rent reduction.
Also, Roche Group decides to discuss the rent arrangement for February with each tenant at D2 Place in Lai Chi Kok Shopping Mall. And it determined the content and extent of the reduction and exemption according to individual needs and circumstances to reduce the business pressure on the merchants. But the specific reduction was not disclosed. According to the data, Roche Real Estate proactively introduced rent reduction for the mall's tenants in August last year and has also contacted the tenants and introduced rental discounts in the past six months.
