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Covid-19 weighs on two of HK's biggest retail landlords

Wharf Real Estate Investment posts half-year loss of HK$4.45b, while Hang Lung Properties HK$2.54b in the red

Wharf owns Hong Kong's iconic Times Square in Causeway Bay. Unlike Hang Lung, almost all of its rental income comes from HK.

Hong Kong

TWO of Hong Kong's biggest landlords reported lacklustre results on Thursday, showing early evidence of how deep the retail pain extends in the city.

Losses at Wharf Real Estate Investment sank to HK$4.45 billion (S$787 million) for the six months ended June 30 from a HK$7 billion profit the period prior, while Hang Lung Properties posted a loss of HK$2.54 billion versus a HK$3.52 billion gain a year earlier.

Wharf owns Hong Kong's largest shopping centre Harbour City as well as the iconic Times Square in Causeway Bay.

The coronavirus pandemic came as a double whammy to Hong Kong, already reeling from months of anti-government protests. Those sometimes-violent demonstrations largely kept mainland Chinese tourists away, hurting everything from shopping malls to hotels. With all international travel off the table, the city's economy has sunk into a deep recession.

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"I've been in the industry for four decades and I've never seen a time like this," Ronnie Chan, the chairman of Hang Lung Properties, said at a virtual media briefing on Thursday. "We're facing three things in Hong Kong: the pandemic, the riots last year and escalating China-US tension. These are very harmful to businesses."

Pressure on landlords is only expected to continue. After brief signs Hong Kong may have beaten back Covid-19, the city is struggling with resurgent infections. The government has adopted strict social distancing rules including cutting the gathering limit to two as locally transmitted cases climb.

The Hong Kong Retail Management Association recently urged landlords to reduce rents and not take legal action to reclaim space when tenants cannot pay.

However, Stephen Ng, chairman of Wharf REIC, said the public should not put all the pressure solely on landlords.

"Landlords have their own difficulties. Landlords have a lot of expenditures," he said at a briefing on Thursday. "They have to pay interest, loans to the banks, salaries to their employees and taxes to the government. We can't expect landlords alone to save the world when the business environment is very detrimental."

Wharf provided cash relief of more than HK$1 billion to tenants during the first half. Almost all of Wharf's rental income comes from Hong Kong, while for Hang Lung, mainland China contributes slightly more than half. Wharf was downgraded to underweight by Morgan Stanley earlier this month.

Mr Chan said that Hang Lung was experiencing a quick rebound in its mainland China malls, especially for luxury goods sales. In China, Hang Lung owns the 66 series of shopping centres in cities from Shanghai to Shenyang.

The company said in a statement earlier that as Covid-19 subsides in China, the recovery among "retail properties carrying lighter luxury contents has been modest, reflecting a much more prudent approach on the part of both government and businesses towards resumption of normal life".

Hang Lung's properties in Hong Kong include the Standard Chartered Bank Building and Peak Galleria. More

tourist-oriented shops like those in Fashion Walk Causeway Bay and Mongkok were the worst hit.

Shares of Hang Lung are up 13 per cent this year as at Thursday, while stock in Wharf REIC has tumbled 41 per cent. BLOOMBERG

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