[True Burn Insights] Wharf REIC (01997.HK): Management more positive on tenant sales outlook compared to previous years

$WHARF REIC(01997.HK) reported a 5% year-on-year increase in underlying net profit to HKD 6.456 billion in 2025, with earnings per share (EPS) ranging from HKD 2.02 to HKD 2.13. Despite solid performance in its core business, the company recorded a net loss attributable to shareholders of HKD 4.257 billion, dragged down by a substantial HKD 10.528 billion impairment loss on the revaluation of its investment properties. The total dividend for the year was HKD 1.32 per share, maintaining a payout policy of 65% of the underlying profit from investment properties and hotels. Affected by asset valuation and market volatility, net asset value (NAV) per share decreased by 3% year-on-year to HKD 59.85.

Divisional performance was polarized. Revenue and profit from the flagship Harbour City project edged up 1%, with the mall occupancy rate remaining at 92%. In contrast, Times Square continued to show weakness, with revenue and profit declining by 10% and 14% respectively. The highlight was the hotel business, where operating profit surged 54%, driven by the recovery of inbound tourists. Additionally, the company successfully reduced debt by HKD 2.2 billion, lowering its gearing ratio to 17.2%. Coupled with lower interest rates, this resulted in a 25% saving in finance costs, becoming a key factor supporting profit growth.

Looking ahead to 2026, although the Hong Kong retail market shows signs of improvement, geopolitical conflicts and global trade tensions remain major risks. While management is more positive about tenant sales prospects than in previous years, there is a clear lag in the expected recovery of rental income. Overall, the company will maintain a low-leverage, robust financial position, cautiously seeking development opportunities amid turbulent global conditions.

Source: KGI Securities