UOB Kay Hian
August 8, 2025
Wharf REIC: Strong 1H25 Earnings, Deleveraging Drive, and Strategic AEI Plans Signal Growth Potential
Introduction: Wharf REIC Delivers Resilient 1H25 Results Amid Market Headwinds
Wharf Real Estate Investment Company (Wharf REIC), a leading Hong Kong landlord with a prime retail and office portfolio, has reported robust financial results for the first half of 2025. Despite broader sector challenges, the company demonstrated earnings growth, prudent balance sheet management, and forward-looking asset enhancement plans. UOB Kay Hian maintains a BUY rating and raises the target price, signaling optimism for future performance.
Company Overview: Focused on Prime Hong Kong Assets
Wharf REIC, spun off from Wharf Holdings in 2017, manages six premium properties in Hong Kong, including the iconic Harbour City and Times Square. With a primary focus on the retail sector, Wharf REIC is a key player in shaping the city’s commercial landscape.
- GICS Sector: Real Estate
- Bloomberg Ticker: 1997 HK
- Shares Issued: 3,036.2 million
- Market Cap: HK\$78.0 billion (US\$9.94 billion)
- Major Shareholder: Wheelock & Co Ltd (61.6%)
- FY24 NAV/Share: HK\$62.62
- FY24 Net Debt/Share: HK\$10.43
1H25 Financial Highlights: Core Earnings and Dividend Growth
Wharf REIC reported a 3% year-on-year increase in both core underlying net profit (UNP) and dividend per share (DPS) for 1H25, even as retail rental income softened. This growth was primarily driven by a significant 27% reduction in finance costs, reflecting the benefits of a lower HIBOR environment and disciplined deleveraging.
| Key Metrics (HK\$ million) |
1H25 |
2H24 |
1H24 |
YoY Change |
HoH Change |
| Revenue |
6,407 |
6,411 |
6,501 |
-1.4% |
-0.1% |
| Underlying Net Profit |
3,119 |
3,016 |
3,123 |
-0.1% |
3.4% |
| Core Underlying Net Profit |
3,084 |
2,780 |
2,989 |
3.2% |
10.9% |
| DPS (HK\$/share) |
0.66 |
0.60 |
0.64 |
3.1% |
10.0% |
| Net Gearing Ratio |
17.6% |
17.8% |
18.3% |
-0.7 ppt |
-0.2 ppt |
Segment Performance: Investment Properties, Hotels, and Development
- Retail: Retail rental income declined year-on-year, primarily due to lower turnover rent, though base rent saw positive growth. Occupancy cost ratios remained stable at ~20%.
- Office: Office rents grew 2% year-on-year, with improved occupancy rates at both Harbour City and Times Square, though rental reversions stayed negative.
- Hotels: Hotel segment revenues increased 2.4% year-on-year, reflecting steady recovery.
- Development Properties: Significant year-on-year growth in revenue, albeit from a low base.
| Property |
1H24 Total (HK\$b) |
1H25 Total (HK\$b) |
Comments |
| Harbour City |
4.6 |
4.6 |
Stable; positive base rent offset by lower turnover rent; office occupancy up 2 ppt |
| Times Square |
0.9 |
0.8 |
Down 15% YoY; weaker retail recovery in CWB; office occupancy up 3 ppt |
Financial Strength: Deleveraging and Interest Rate Sensitivity
- Net Debt and Gearing: Net debt decreased 2.6% half-on-half and 5.1% year-on-year to HK\$33.3 billion. Net gearing dropped to 17.6%, the lowest in recent years, underscoring steady deleveraging.
- Borrowing Costs: Effective borrowing rate fell to 4.4%, mirroring a 1.63 ppt drop in average 1M HIBOR. Floating rate debt accounted for 79% of the total, making Wharf REIC highly sensitive to HIBOR movements—beneficial in a declining rate environment.
Strategic Initiatives: Marco Polo Hotel Redevelopment
Wharf REIC is planning a major asset enhancement initiative (AEI) or redevelopment of the aging Marco Polo Hotel, which has a gross floor area of 737,000 square feet. Capital expenditure for this project could reach HK\$2 billion. The initiative is in its planning stage and could commence by late 2026 if approved. While such a project may create short-term headwinds, it is expected to deliver long-term value.
2H25 Outlook: Cautious but Opportunistic
- Retail: Management remains cautious on the sustainability of retail sales recovery, expecting overall rental reversions in the low single digits.
- Office: Office segment faces continued pressure on occupancy rates and rental reversions.
- Deleveraging: The company is committed to further reducing leverage, aiming for lower finance costs and a stronger balance sheet.
Financial Forecasts and Valuation
UOB Kay Hian has revised its earnings estimates upward for 2025-2027 to reflect the impact of lower funding costs, assuming HIBOR remains between 2-3% in 4Q25.
| Year (HK\$m) |
2023 |
2024 |
2025F |
2026F |
2027F |
| Net Turnover |
13,306 |
12,912 |
12,682 |
12,972 |
13,270 |
| EBITDA |
10,239 |
9,928 |
9,273 |
9,480 |
9,682 |
| Net Profit (Adjusted) |
6,011 |
6,139 |
6,304 |
6,575 |
6,748 |
| EPS (HK\$ cent) |
198.0 |
202.2 |
205.2 |
210.3 |
215.5 |
| Dividend Yield (%) |
5.0 |
4.8 |
5.1 |
5.2 |
5.3 |
| Net Debt/Equity (%) |
19.0 |
18.2 |
16.7 |
15.2 |
13.7 |
| ROE (%) |
2.5 |
0.5 |
3.3 |
3.3 |
3.4 |
Valuation and Recommendation: Upgraded Target Price, BUY Maintained
UOB Kay Hian raises its target price for Wharf REIC to HK\$28.50, reflecting a more positive outlook for Hong Kong’s market conditions and a lower targeted 2025 dividend yield of 4.6% (versus 4.8% previously). Improved liquidity and a stable-to-lower HIBOR environment remain key catalysts for share price performance.
Key Share Price Catalysts
- Lower-than-expected HIBOR in 2H25
- Successful execution of the Marco Polo Hotel AEI/redevelopment
- Continued deleveraging and improved financial flexibility
Conclusion: Investment Case for Wharf REIC
Wharf REIC’s 1H25 results highlight the company’s resilience and adaptability, underpinned by strict cost control, prudent debt management, and a balanced approach to growth and risk. The upcoming asset enhancement initiatives, ongoing deleveraging, and sensitivity to lower interest rates position the company for sustained long-term value creation. Investors seeking stable yields and exposure to Hong Kong’s commercial property recovery should closely monitor Wharf REIC in the quarters ahead.
