August 9, 2017 11:31 pm JST

Shares in Hong Kong's Wharf hit high on $29 billion spinoff

Landlord aims for 'clearer division' of businesses after deal

JENNIFER LO, Nikkei staff writer

Wharf Chairman Stephen Ng Tin-hoi announces first-half earnings at a briefing on Aug. 9. (Photo by Jennifer Lo)

HONG KONG -- Hong Kong commercial landlord Wharf Holdings has announced plans to spin off landmark assets worth $29 billion for separate listings, sending its shares up 14% to a record high on Wednesday.

Wharf, a 58%-subsidiary of property developer Wheelock, will carve out six investment properties in Hong Kong, including flagship malls popular with mainland tourists -- Harbour City and Times Square -- and list them under a new entity called Wharf Real Estate Investment Company.

Other assets include Plaza Hollywood and commercial properties in the core business district of Central -- Crawford House, Wheelock House and The Murray -- which will be converted into a luxury hotel later this year. The full portfolio has a gross floor area of 11 million square feet (about 1 million square meters) and annual turnover of 13 billion Hong Kong dollars ($1.67 billion).

The spinoff proposal has been approved by the Hong Kong bourse, but permission is still pending for the separate listing by way of introduction. In other words, there will be no issuance of new shares.

"Our company is under no capital pressure. Fundraising in the market is not our purpose," said Wharf's Chairman and Managing Director Stephen Ng Tin-hoi on Wednesday, adding that the spinoff has "nothing to do with the market conditions."

After the transaction, Wharf would primarily focus on commercial and residential development on mainland China, logistics, hotels and a "less eye-catching" portfolio of Hong Kong properties, according to Ng.

Asked about Wharf's role under Wheelock, Ng said the two companies already had a clear division of businesses. After the spinoff, "this will only become clearer," he told reporters at an earnings briefing.

Analysts suggest that Wharf's spinoff mirrors the reorganization efforts of Hong Kong's richest man Li Ka-shing to separate the property unit from its conglomerate CK Hutchison Holdings, in a bid to unlock the value of its subsidiaries and allow investors to focus on a targeted business.

Morgan Stanley estimated in early August that spinning off Wharf's malls in Hong Kong could lead to a 35% rally in its stock. The investment bank likened the new entity to Hong Kong's Link REIT that delivers stable dividends and a 4% yield annually.

With its remaining assets, Wharf would resemble Hong Kong-based Hang Lung Properties but with a 10% valuation discount to its landlord peer, said Morgan Stanley analysts.

Wharf's shares closed at HK$79.65 on Wednesday on news of the spinoff. The stock has advanced nearly 54.5% so far this year, against the Hang Seng Index's 26% gain. Wheelock's shares also hit a record high, gaining 10.9% at HK$66.4.

The spinoff proposal also came as Wharf posted better first-half earnings. Net profit jumped 26% on the year to reach HK$8.44 billion in the six months ended June, lifted by a revaluation gain of HK$1.2 billion from its investment properties.

First-half revenue fell 15% to HK$17.06 billion from a year ago. Wharf blamed lower property sales in Hong Kong and mainland China, which offset a 4% rise in rental revenue from its investment properties helped by a recovering retail market.

Wharf said it has cleared "all major regulatory hurdles" on its sale of i-Cable Communications to pro-China property tycoons, signaling its exit from the media business. The struggling pay TV and broadband operator has sought to raise HK$704 million through an open offer, which is expected to complete in mid-September.

Asia300

Wheelock & Co. Ltd.

Hong Kong

Market(Ticker): HKG(20)
Sector:
Industry:
Finance
Real Estate Development
Market cap(USD): 14,857.50M
Shares: 2,040.84M
Asia300

Hang Lung Properties Ltd.

Hong Kong

Market(Ticker): HKG(101)
Sector:
Industry:
Finance
Real Estate Development
Market cap(USD): 10,954.52M
Shares: 4,497.57M
Asia300

CK Hutchison Holdings Ltd.

Hong Kong

Market(Ticker): HKG(1)
Sector:
Industry:
Producer Manufacturing
Industrial Conglomerates
Market cap(USD): 49,696.80M
Shares: 3,857.67M

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