On 4th September 2017, Wharf Holdings Ltd proposed a spin-off and separate listing of Wharf Real Estate Investment Company Limited on the Main Board of The Stock Exchange of Hong Kong Limited. Wharf Real Estate Investment Company Limited (WREIC) consists of 6 Hong Kong investment properties, namely Harbour City, Times Square, Plaza Hollywood, Crawford House, Wheelock House and The Murray. In which, Harbour City and Times Square are Hong Kong’s 2 biggest malls in central shopping districts. The spin-off would increase the operational and financial transparency of both entities and would enable WREIC to have independent access to equity and debt capital markets. The listing of WREIC took place on 23rd November. So what are we buying now when we invest in Wharf Holdings Ltd after the spin-off? Here are 7 key things you need to know about Wharf Holdings Ltd.
1. Stock Information
Ticker Symbol: HKG:0004
Market Cap: HKG97.24 billion (Updated 26 January 2018)
Market Price / Share: HKG32 (Updated 26 January 2018)
After the demerger of Wharf Real Estate Investment Company, The Wharf (Holdings) Limited is now principally engaged in property development and investment properties in China, port and logistics business, Hong Kong development properties, as well as running a hotel portfolio under Wharfs Hotels in Asia.
Hong Kong Development Properties
The group’s development properties in Hong Kong consists of Peak Portfolio and Kowloon East Waterfront Portfolio.
Source: Wharf Holdings’s Website
Port and Logistics
The group owns 67.6% of Modern Terminals, which is a leading operator of world-class container terminal services in the South China Region. Besides, the group has a 20.8% stake in Hong Kong Air Cargo Terminals Limited. It is a leading air cargo terminal operator located at Hong Kong International Airport.
Development and Investment Properties in China
As of 30th September 2017, the group’s development properties has a land bank of 3.8 million square metres, with a focus on first-tier and top second-tier cities in China. Besides, the group’s wide portfolio of investment properties in Mainland consists of International Finance Square (IFS) Series, Times Square series and Times Outlets Series.
Source: Wharf Holdings’s Website
Wharf hotels manage 14 hotels in China, Hong Kong and the Philippines under the legacy brand of Marco Polo Hotels and the new luxury brand, Niccolo Hotels.
3. Key Opportunities
Completion of Chongqing IFS and Changsha IFS
Upon the completion of IFS in Chongqing, Changsha and Suzhou, the Group expects to strengthen its recurrent income. Since the opening of Chengdu International Finance Square (IFS), a retail-cum-office development, it has rapidly become a landmark destination in western China. The upcoming retail-oriented IFS complexes in Chongqing and Changsha are set to mirror the success of Chengdu IFS, as evidenced by their promising retail pre-leasing status. There are over 90% and 85% of the respective retail floor plates at Chongqing IFS and Changsha IFS are either committed or nearly committed to key tenants.
The new mega malls in Chongqing and Changsha will tap the huge experience-based consumption markets in the regions. Chongqing IFS was opened in September 2017, whereas Changsha IFS is targeted to open in the first quarter of 2018.
Increase in Hotel Portfolio in Future
In line with the Group’s vision to expand its portfolio in the Asia Pacific, another 3 Niccolo Hotels are expected to open in the near future upon the completion of IFS complexes in Chongqing, Changsha and Suzhou. Another Niccolo Hotel located in The Murray, Hong Kong is under conversion from Central’s landmark Murray Building, was opened in late 2017. In 2016, hotel revenue rose by 2% to HK$1,587 million (2015: HK$1,549 million) and operating profit grew by 4% to HK$289 million. With the opening of new hotels in the future, the Group’s revenue contributed from hotel segment is expected to grow in the future.
4. Key Risks
Declining Economic Moat
Harbour City and Times Square Developments were best-known prime assets and contributed most of the operating profit for the Group before the spin-off. However, the operations that remain at Wharf once the spin-off is completed will be only around 25% of the original total value of investment properties at end-June 2017 and Wharf’s EBITDA is expected to decrease by more than 60%. The property business in China has a high-risk profile due to frequent policy changes and a rapidly evolving competitive landscape. Shopping mall owners in China also face higher business cyclicality than in Hong Kong as competition is stiffer because of greater supply. Wharf’s China business, which is dominated by investment properties, will be its largest business segment after the spin-off.
Economic Uncertainty and Government Regulations
Risks pertaining to Development Properties (“DP”): Since the demerging of Wharf Real Estate Investment Company, The Wharf (Holdings) Limited’s main business is development properties in Mainland China. The development properties segment is subjected to economic, political and legal developments in Mainland China as well as in the economies in the surrounding region. In recent years, the development property market movements in Mainland China have been concurrently affected by the economic trend and government policies. For instance, since last year, local governments have passed restrictions on house purchase and increased the minimum down payment required for a mortgage. Besides, loans to the real estate sector continued to grow at a slower pace, according to the People’s Bank of China. All these dampened the outlook for the property development sector in China.
As at 26 January 2018, The Wharf (Holdings) Limited is trading at 0.3 times its book value and 4.19 times its earnings. The dividend yield is around 7%.
6. Investor Relations
Annual Relation Material:
For Investors Enquiries
Investor Relations Department
The Wharf (Holdings) Limited
16th Floor, Ocean Centre, Harbour City
Canton Road, Kowloon, Hong Kong
Tel: (852) 2118 8179
Fax: (852) 2118 2048 9 .0
7. Top Shareholders (25/January/2018)
1. Wheelock & Co. Ltd. – 62.0%
2. APG Asset Management – 1.82%
3. The Vanguard Group Inc. – 1.19%
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