Hong Kong Retail Landlords Link REIT, Wheelock And Emperor International Set Alarm Bells Ringing With Profit Warnings (South China Morning Post)

May 8, 2020 — Major listed Hong Kong retail landlords have set alarm bells ringing after issuing a spate of profit warnings recently.Over the past two weeks, Link Reit, Wheelock and Company and Emperor International have all said they expect to report losses. And analysts said they could be the first of many more, as the coronavirus continues to weigh on rents and property valuations.

Hotel landlords will be the worst affected, followed by those owning retail and office properties, said Phillip Zhong, senior equity research analyst at global financial services company Morningstar. Landlords with high exposure to hotels and retail properties were more likely to issue profit warnings, he said, as net incomes fall quite a bit because of revaluation losses and declining revenues.

“We believe retail will take longer to recover, while offices will recover sooner,” Zhong said, adding that he expected income from hotel rents to decline by 15 per cent to 30 per cent, retail rents by 5 per cent to 10 per cent and office rents by 2 per cent to 5 per cent annually when compared to 2019.The profit warnings come amid a deep decline in retail sales. The novel coronavirus and resulting containment measures have brought tourism to a standstill and disrupted consumption. Retail sales fell by a record 43.8 per cent year on year in February, and ended the first quarter of this year 36.9 per cent lower, according to the Census and Statistics Department.

Link, which issued a report on the impact of Covid-19 on its operations on Monday, said it expected to report a net loss for the year ended March 31 because the valuations of properties it had invested in had fallen by 12.3 per cent. This decline, in turn, was down to uncertainty linked to the pandemic, weak economies in Hong Kong and mainland China, and relief measures extended to tenants.

It said that since its investment properties were held long term for stable and recurring income, the loss in valuation would not affect its cash flow and distribution per unit.

“As the impact of Covid-19 is expected to last for a few more months, we assessed that its underlying profit was still under some pressure for the coming year,” said Raymond Cheng, head of Hong Kong and China research at CGS-CIMB Securities, which rated the Reit as “reduce”.

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