UBS: WHARF REIC (01997) management is cautious about the outlook for retail rent, rated "neutral"

UBS released a research report stating that WHARF REIC (01997) mid-year performance is in line with expectations, with a basic profit proportionate to 3.1 billion Hong Kong dollars, which is 4% lower than expected by the bank. Mid-term dividend per share increased by 3% to 0.66 Hong Kong dollars, in line with expectations. However, the management remains cautious about retail rents, expecting the retail rent return to turn negative. It is anticipated that there will be a low single-digit decrease in rental adjustments at Harbour City, compared to the positive adjustments in the first half of the year. The bank maintains a "neutral" rating on Wharf Real Estate Investment Company Limited and a target price of 20 Hong Kong dollars. In addition, the management of Wharf Real Estate Investment Company Limited revealed plans to undertake a major asset enhancement or comprehensive reconstruction of the Marco Polo Hotel, with construction set to begin after 2025. If it is an "asset enhancement" (AEI), the required capital expenditure is approximately 2 billion Hong Kong dollars, with a interruption period of only two years and limited financial impact expected. However, if it is a full-scale reconstruction, considering the intensified competition from luxury shopping malls like K11 MUSEA in Tsim Sha Tsui, the bank is more concerned about the potential impact on physical luxury tenants on Canton Road.