Wharf Real Estate Investment Company Limited (Wharf REIC)
2025 Final Results Announcement – Investor Analysis

Key Financial Highlights

• Underlying Net Profit: Up 5% year-on-year to HK\$6,456 million, or HK\$2.13 per share.
• Dividend: Second interim dividend increased by 10% to HK\$0.66 per share (total 2025 dividend HK\$1.32 per share, representing 65% of underlying net profit from Hong Kong IP and hotels).
• Net Debt: Reduced by HK\$2.2 billion to HK\$32 billion; gearing ratio improved to 17.2%.
• Interest Costs: Declined by 32%, outpacing mild drops in revenue and operating profit.
• Investment Properties Occupancy: Portfolio occupancy stable at 92%.
• Net Asset Value (NAV): Fell 3% to HK\$59.85 per share.
• Group Loss Attributable to Shareholders: HK\$4,257 million loss, mainly due to a substantial IP revaluation deficit (HK\$10,528 million).

Business Review & Market Conditions

2025 was marked by global economic and geopolitical disruptions, including volatile US politics, mounting world debt, and significant advances in Chinese technology sectors. AI investment surged, promising industrial transformation but also job displacement.

The post-Covid consumer landscape shifted: aging populations, less demand for luxury, stronger domestic brands, and a more pervasive online presence. Retailers faced the challenge of adapting to these trends.

Despite these headwinds, Hong Kong showed signs of economic recovery, supported by an active stock market, improved sentiment, and currency stability. Retail sales grew modestly from May, and flagship assets Harbour City and Times Square enhanced experiential retail offerings and promotions, driving shopper engagement though not always increasing yields.

The office sector remained under pressure from oversupply and competitive rental rates, but financial institutions drove renewed leasing activity. The Group’s office assets maintained over 90% occupancy and more than 80% retention.

Hotel performance improved, aided by mega events and increased inbound visitors, translating into higher occupancy and revenue, though average room rates lagged expectations.

Asset Performance

• Harbour City: Revenue and operating profit (including hotels) both rose 1%. Retail offerings expanded, with luxury brands (Louis Vuitton, CHANEL BEAUTÉ, CANALI, Bacha Coffee) and new Chinese brands (Laopu Gold, Urban Revivo, MAOGEPING, Xiang Shang Xiang) increasing presence. Retail occupancy was 92%; office occupancy 91% amid cost-conscious tenants and competitive rental rates.
• Times Square: Revenue fell 10%, operating profit down 14%. Tenant mix rejuvenated; luxury (Louis Vuitton, LOEWE), sports (CR7® LIFE), and F&B clusters expanded. Retail occupancy was 95%. Office occupancy held at 90% but faced tougher leasing environment with competition from new supply in Causeway Bay and non-core areas.

Financial Review

• Revenue: Group revenue decreased 1% to HK\$12,815 million. Operating profit dropped 4% to HK\$9,349 million.
• IP Segment: Revenue down 1% to HK\$10,653 million; operating profit down 2% to HK\$8,904 million.
• Hotels: Revenue up 6% to HK\$1,631 million; operating profit surged 54% to HK\$152 million.
• Development Properties: Revenue down 24% to HK\$116 million; posted an operating loss of HK\$21 million (vs. profit of HK\$166 million in 2024).
• Investment Operating Profit: Up 1% to HK\$283 million, mainly from dividend income.
• IP Valuation: IP valued at HK\$211.7 billion, but a 5% revaluation deficit led to a HK\$10,528 million unrealised loss.
• Other Net Loss: HK\$350 million, mainly from HK\$257 million FX losses (vs. HK\$74 million gain in 2024) and HK\$93 million write-downs on Mainland DP projects.
• Finance Costs: Down 25% to HK\$1,359 million; effective borrowing rate fell to 4.1% (vs. 5.6% in 2024).
• Taxation: Tax charge up 7% to HK\$1,259 million.
• Net Debt: HK\$32 billion; net debt/total equity ratio improved to 17.2%.
• Shareholders’ Equity: Decreased by HK\$6.1 billion to HK\$181.7 billion.
• IP Asset Values: Harbour City (ex-hotels): HK\$146.5 billion; Times Square: HK\$40.3 billion.
• Long-Term Investments: Market value HK\$7.1 billion, split between Hong Kong (HK\$3.7 billion) and overseas (HK\$3.3 billion).
• Capital Commitments: Planned expenditures HK\$1.3 billion, with HK\$0.2 billion committed. Mainly for Hong Kong IP and Mainland DP projects.

Operational & Corporate Updates

• Human Resources: The Group employed approximately 2,900 staff, with market-driven compensation and performance bonuses.
• Corporate Governance: Full compliance with HK Corporate Governance Code except for combining Chairman and CEO roles for efficiency; more than half the Board are Independent Non-executive Directors.
• Securities Transactions: No purchases, sales, or redemptions of listed securities during 2025. No treasury shares held at year-end—these are not entitled to dividends.
• Dividend Dates: Second interim dividend ex-date: 2 April 2026; record date: 8 April 2026; payment: 23 April 2026.
• AGM Dates: Ex-date: 5 May 2026; book closure: 7–12 May 2026; AGM: 12 May 2026.

Shareholder and Price-Sensitive Considerations

• Substantial IP Revaluation Deficit: The HK\$10.5 billion unrealised loss from property revaluation is a significant negative, directly impacting the bottom line and NAV, and could influence share price.
• Dividend Growth Amid Challenging Market: Dividend increase (10% for second interim, 6.5% for full year) despite reduced asset values signals management confidence and shareholder focus, potentially supporting share value.
• Lower Net Debt and Finance Costs: Improved gearing and lower borrowing rate are positives for financial stability and future dividend capacity.
• Hotel Profit Recovery: Strong hotel profit rebound (+54%) may signal recovery in tourism and hospitality sectors, which is a positive for future growth.
• Retail and Office Market Pressures: High occupancy is positive, but pressure on rental yields, oversupply, and competitive markets are risks for future income and asset values.
• Geopolitical & Economic Risks: Outlook remains cautious, with ongoing global conflicts, trade tensions, and potential US interest rate cuts all affecting business sentiment and asset values. Investors should expect continued volatility.

Outlook for 2026

The year began with renewed geopolitical disruptions, including Ukraine, Gaza, and Iran, along with volatility in US dollar and gold prices. While Hong Kong’s recovery continues at a moderate pace, retail and hospitality sectors may benefit from stronger consumer confidence and a robust event pipeline. However, competition remains fierce, and office market oversupply remains a near-term challenge. The Group will maintain low leverage and financial discipline, positioning itself to weather volatility and seize opportunities.

Conclusion

Wharf REIC’s 2025 results reflect resilience amid global and local challenges, but substantial unrealised losses on property valuations and ongoing market pressures could weigh on share value. The dividend increase and improved financial metrics are positives, though investors should monitor market developments, asset values, and geopolitical risks closely.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own due diligence and consult a professional advisor before making any investment decisions relating to Wharf REIC or any other securities.

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