Sun Hung Kai Properties, the biggest Hong Kong developer by value, warned of a bleak outlook for the hospitality and retail sectors after its hotel business took a pounding in the second half of last year.
The company’s hotel operating profit plummeted by HK$595 million, or 75.1 per cent, to HK$197 million, with a significant drop in revenue per available room as social unrest led to a severe decline in visitor arrivals. Its other businesses, from retail to telecoms and logistics, were also hit badly.
The developer owns high-end hotels like the Four Seasons, Ritz Carlton, W Hong Kong, Hyatt Centric Victoria Harbour and The Royal Garden.
Its shopping malls have been forced to offer concessions to retail tenants as tourist arrivals plunged 98 per cent to 3,000 in mid-February.
“In Hong Kong, external economic uncertainties, coupled with the latest [coronavirus] epidemic and local social unrest, will pose greater downside risks to the territory’s economy, particularly tourism and retail-related sectors,” said Raymond Kwok Ping-luen, chairman and managing director of the SHKP in a filing to the Hong Kong stock exchange on Thursday.
“The operating environment of the hospitality industry worsened amid plunging visitor arrivals as a result of local social [unrest],” said Kwok. “The near-term performance of the group’s hotel portfolio will be exacerbated by the recent epidemic.”
Hospitality companies in Hong Kong have suffered across the board.
Sino Hotels saw profit fall 93.4 per cent to HK$6.4 million for the six months ended December 31, said chairman Robert Ng Chee Siong in a filing to the Hong Kong stock exchange on Wednesday.
“Hong Kong’s economy has been challenging … due to unprecedented and exceptional circumstances where hospitality businesses have been operating under significant pressure,” said Ng. “Not only has tourist spending decreased, local citizens have turned more cautious. The hospitality industry has been impacted significantly.”
Sino Land and its parent Tsim Sha Tsui Properties reported underlying profit rose 14.9 per cent and 16.1 per cent, respectively, for the six months ended December 31.
The number of tourists coming to Hong Kong fell by more than half in November and December, Ng noted. Occupancy rates for the Conrad Hong Kong in Admiralty suffered the biggest dive, plunging by 35.2 percentage points to 55.5 per cent from the same period a year earlier.
Kwok warned there is worse to come for the retail sector as the coronavirus outbreak delivers a further blow to its shopping centres like New Town Plaza in Sha Tin, after they became a virtual warzone during violent clashes between protesters and police last year.
The retail sector in Hong Kong with downward pressure on retail rental, especially for shops and malls in tourist areas,” Kwok said. “The prevailing coronavirus epidemic has further hit both domestic and tourist spending.”
Underlying profit for the six months ended December 31 fell 2.3 per cent on the year to HK$13.42 billion, excluding the effect of fair-value changes on investment properties.
After incorporating the gains on investment properties, net profit sank 24.7 per cent to HK$15.42 billion
Kwok noted that home sales in China have been “severely disrupted by the outbreak”, while telecom company SmarTone, owned by SHKP, reported operating profit down 18.2 per cent.
The group’s transport infrastructure and logistics businesses fell 4.3 per cent.
“With the global, Chinese and local economies all facing strong headwinds, corporates and businesses may elect to stay cautious in 2020,” said Tom Gaffney, regional managing director, Greater Bay Area and Hong Kong, at CBRE.
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