20180425-高盛-Rental_growth_to_follow_a_faster_pace_of_retail_sales_recovery__Buy_Wharf_REIC_16页_422kb

Hong Kong Real Estate: Retail Summary

Core Content

The Hong Kong retail market is showing signs of recovery, driven by favorable currency trends, resilient China consumption, and improved store management by retail operators. The report highlights the following key aspects:

• Retail Sales Growth: The retail sales growth for 2018E is estimated at 8% yoy, up from 2% in 2017. This is attributed to a weaker 2017 base, HKD depreciation against CNY, and improved consumer sentiment.
• Inbound Visitor Growth: Inbound visitor growth is expected at 7% yoy for 2018E, up from 3% in 2017, with a notable increase in both overnight (+13%) and same-day (+14%) Chinese arrivals.
• Rental Trends: High street shop rents increased by 0.3% qoq in Q1 2018, marking the first increase in five years. Prime shopping mall rents are expected to resume growth, with a model of 7% p.a. for 2018E/19E.
• OCR Improvement: Occupancy Cost Ratio (OCR) for prime shopping mall tenants has improved, especially in 2017 and early 2018, as retail sales recovery and better tenant performance offset previous declines.

Main Points

• The retail market is recovering more broadly, with both tourist and domestic spending contributing to growth.
• The recovery is expected to continue into the June 2018 quarter, supported by airline booking data, FX trends, and consumer comments.
• The improved OCR situation is a positive indicator for landlords, as it suggests better affordability and tenant performance.
• The report suggests that the recovery may not lead to double-digit rent growth in the near future due to long-term challenges like competition and policy changes.

Key Information

• Wharf REIC: Initiated at Buy due to its exposure to quality retail properties and strong tenant performance. Its OCR improved significantly in 4Q17.
• Hysan Development: Upgraded to Neutral due to a better domestic spending recovery.
• Market Outlook: The report forecasts a CAGR of 4-5% for arrivals and 3-4% for retail sales into 2019E/2020E.
• Risks: Policy changes, shifts in tourist spending behavior, and potential new competition are key risks to the medium-term outlook for retail rent growth.
• Historical Performance: Retail sales and rents have shown a mixed performance over the past decade, with a notable recovery since 2017.

Exhibit Highlights

• Exhibit 1: Summary of valuation metrics for key Hong Kong retail property companies, including price targets and potential upside/downside.
• Exhibit 2: Retail sales growth has strengthened since September 2017, aligning with increased Chinese visitor numbers.
• Exhibit 3: Tourist spending behavior has evolved, with changes in per capita spending and average length of stay.
• Exhibit 4: Policy changes in the tourism sector have influenced retail sales growth, with a reversal from 2013 onwards.
• Exhibit 5: Detailed breakdown of retail sales growth by category, showing varied performance across sectors.
• Exhibit 6: Visitor arrivals growth by mainland China and other countries, with a focus on the strong growth in Chinese visitors.
• Exhibit 7: Methodology and key risks for 12-month target prices, including potential economic downturns and policy changes.

Conclusion

The Hong Kong retail market is on a recovery path, supported by improved consumer sentiment, favorable FX trends, and increased visitor numbers. While there are short-term positives, long-term challenges such as competition and policy changes remain. Landlords with strong retail exposure are being viewed more positively, with Wharf REIC and others recommended for investment. The report underscores the importance of monitoring these factors for a sustainable recovery.