Slightly Reducing Wharf REIC Valuation on Higher Finance Costs; Near-Term Headwinds Remain

Wharf Real Estate Investment Co., or Wharf REIC's, flagship properties are Harbour City and Time Square. They are well-known destinations for locals and tourists alike. Historically, the two properties collectively account for around 8%-10% of total retail sales in the city. As the company intends to hold Hong Kong investment properties exclusively, the China operation is progressively scaled down. Murray Hotel was added to the Hong Kong portfolio in mid-2018, but given the corporate mandate and the current real estate environment, Wharf REIC is unlikely to make significant acquisitions in the near term, in our view. Its rental revenue growth is limited to reversion of the existing assets. While some asset-enhancement opportunities may exist, the biggest driver is the state of retail sales in Hong Kong.