Two of Hong Kong’s biggest commercial landlords, Hang Lung and Wharf Reic, posted huge losses in the first half of the year as Covid-19 “destroyed the global economy” and condemned retail sales to 17 straight months of decline.
The disappointing results for the two mall owners came as organisations representing restaurants, shops and cinemas issued ultimatums to their landlords to help their plight by cutting rents.
Seasoned property mogul Ronnie Chan, chairman of Hang Lung Properties, said the impact of the health pandemic, on top of last year’s social unrest and what he described as the “cold war” between the US and China, has been unprecedented.
“I have been in this [property] industry for 40 years. I have never seen a time like this,” said Chan at a results briefing on Thursday. “I am not sure whether [social unrest] will return. China and the US have waged a war. These will be very bad for business.”
He said it was too early to tell whether Hang Lung, which owns the Fashion Walk and Peak Galleria shopping centres, should “embrace the bear market” and make new investments.
“In Hong Kong, nobody knows whether the pandemic will get worse after the second and third wave of infections.”
Weber Lo, chief executive at Hang Lung, said: “Deterioration is possible if the social distancing measures continue.”
The net losses – HK$2.54 billion (US$330 million) for Hang Lung and HK$4.45 billion for Wharf Reic – were reported as #SaveHKFnB, a catering association, the Hong Kong Retail Management Association and the Hong Kong Theatres Association publicly called on landlords to cut rent to help them weather the storm.
Speaking at Wharf Reic’s results briefing, entitled “Novel coronavirus destroyed the global economy”, chairman and managing director Stephen Ng said landlords are unable to satisfy the wishes of every tenant.
“It’s not just the tenants struggling with difficulties, landlords are in the same situation. All landlords have their own costs, including repaying interest, loans, paying salaries, rates and government rent, etc,” said Ng.
He compared the landlord’s current predicament to someone being called upon to rescue drowning people but having to weigh up the risk of going under themselves during the attempt.
In Thursday’s filing, Wharf Reic said it had offered cash relief of over HK$1 billion to tenants during the first half of 2020.
“If we can help the tenants, we will try our best, but we must evaluate our own ability,” said Ng. “Almost every landlord has loans, and if we have a financial crunch, one thing leads to another. Credit from the bank will get tightened and our ratings will be affected. We hope tenants can understand that.”
He said the near-total collapse of tourist arrivals had dealt a heavy blow to the hotel industry.
Wharf Reic’s hotel revenue nosedived by 72 per cent, resulting in an operating loss of HK$243 million (US$31.35 million).
“We’ve only been getting a few hundred tourists every day. It translates to less than one guest for each hotel in Hong Kong now,” said Ng.
For Hang Lung Properties, underlying net profit fell 11 per cent on the year to HK$1.99 billion.
Its net loss for the six months ended June 30 came to HK$2.54 billion, including fair value losses, according to the company’s filing on Thursday. That compared with a net profit at HK$3.52 billion in the same period of 2019.
Wharf Reic, which owns the Harbour City and Times Square shopping centres, reported underlying net profit for the first half down 26 per cent to HK$3.8 billion.
It recorded a net loss of HK$4.45 billion after an investment property revaluation revealed a deficit of HK$7.35 billion, a reversal from profit in the same period last year.
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