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Share prices of protest-battered shopping centre owners may go even lower
25-11-2019, 07:42 PM.
Post: #1
Share prices of protest-battered shopping centre owners may go even lower
Share prices of protest-battered shopping centre owners may go even lower, meaning investors should wait to buy, analysts say
* Wharf REIC’s share price has fallen 23 per cent since protests turned violent in July
* Part of mall owners’ rents are tied to tenants’ revenues. That’s not good, these days

Georgina Lee
Published: 7:30am, 25 Nov, 2019

Battered shares of mall owners – like Wharf REIC, down 23 per cent since protests turned violent at the start of July – may fall further, stock analysts say. The time for bottom fishing may not be here yet.

Wharf REIC’s properties include such luxury shopping palaces as Times Square in Causeway Bay and Harbour City in Tsim Sha Tsui, areas of Hong Kong that are normally teeming with mainland tourists on buying sprees.

But these are anything but normal times.

Increasingly violent protests – now in their sixth month – have dried up foot traffic from the all-important mainland shopper as well as locals. Malls have closed early. And even when they are open, many stores in them have far more employees than customers.

One retailer – Tse Sui Luen (TSL) Jewellery – saw its first half profit plunge 94 per cent, amid the worsening protests as well as the long US-China trade war. A visit to its outlet at Times Square at lunchtime Friday found three clerks but no customers.

The danger for mall owners is that rents are partly tied to how much revenue tenants earn. Also, some retailers have asked for rent reductions. And, if protests continue for a very long time, some outlets may simply close at malls or even go out of business.

“Given the tough retail and economic environment in Hong Kong, we see next year (in the first quarter) as the better point for bottom fishing Hong Kong property stocks in general,” said Macquarie’s head of China and Hong Kong properties David Ng.

[Image: fd607ff0-0d10-11ea-afcd-7b308be3ba45_132...232246.jpg]

Wharf REIC, Swire Pacific, Hysan Development, Sun Hung Kai Properties and CK Asset together own about 40 shopping centres in the city.

A few have offered rent breaks to struggling tenants.

“For the third quarter, retail sales in Harbour City and Time Square probably fell by 30 to 35 per cent … given the protest will unlikely end in the near term, I don’t see retail sales during Christmas or Chinese New Year (in January) will shine either,” said Raymond Cheng, an analyst at CGS-CMIB.

But shopping centre owners aren’t equally exposed to Hong Kong’s retail downturn.

The exposure of Swire Pacific and Sun Hung Kai to Hong Kong’s retail decline is more limited, as their Hong Kong retail business accounts for only 20 per cent of their operating earnings, said Phillip Zhong, an equity analyst at Morningstar.

Meanwhile, looking at Swire Pacific, only three per cent of its retail leases are due for expiry in the second half of the year, guarding it against the risks of leases being renewed at lower rents, or negative rental reversion – the percentage change in rent on lease renewals – under current market conditions. If the protests end this year, Swire Pacific’s rental income is unlikely to be affected significantly, Zhong said.

Sun Hung Kai has a diversified retail mall portfolio, with 12 million square feet of retail space spreading across the New Territories, Kowloon and Hong Kong Island. Its malls in Sha Tin, such as New Town Plaza, and Yoho Mall in Yuen Long, have been protest hot spots.

But given that Sun Hung Kai Properties’ residential property sales have performed well year-to-date, and the government’s new measure to relax the ceiling on mortgage financing to 90 per cent of the home’s value for first-time buyers, its residential property business will cushion its downside risks. For the full year ended June, profit generated from property sales rose 15 per cent to HK$18.7 billion, while net rental income rose 6 per cent to HK$19.7 billion.

Even with all the uncertainty about when the protests will end, analysts tracked by Bloomberg overwhelmingly have more “buy” ratings on these stocks – with the exception of Wharf REIC – because their hammered shares are very undervalued and the unrest is expected to end eventually.

But there’s even a mix of feelings about Wharf REIC.

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