Wharf retail tills ringing in the mainlandBusiness | Ivan Tong 13 Jun 2019
Wharf Holdings (0004) saw its underlying net profit plunge 59 percent year-on-year to HK$6.51 billion in 2018. Underlying net profit however decreased by only 11 percent if the spin-off of Wharf Real Estate Investment Company (1997) in November 2017 is accounted for.
The highlight in the group's 2018 annual report is that revenues from its mainland property investments rose 30 percent, mainly driven by the two International Finance Square projects - in Chengdu and Changsha - which have started to fuel profit growth.
Last weekend, I traveled by high-speed train to Changsha to visit the IFS which was launched in the tier-three city just a year ago. The trip gave me a better picture of what this mega commercial project means to Wharf.
With a population of over 7 million, Changsha's GDP is the 14th largest in the mainland, but the medium-sized city lacked any international-size shopping centers. Thus, it was a good move by Wharf to launch a diversified mall catering to consumers of different age groups, as Changsha's market is not as competitive as other tier-one cities and it also has a large young population with a strong consumer and pop culture.
In the past, Wharf mainly used its Times Square model for property investment projects within the mainland.
However, in recent years, the company has replaced that model with the IFS brand, with Changsha becoming the third in the series, in addition to Chengdu and Chongqing, in May last year. The company will now take its IFS brand to Eastern China next year and launch Suzhou IFS.
Wharf's expansion path of the IFS series - from Western China through Central China and then to Eastern China - is of strategic significance.
Aryna Choi, the director of Changsha IFS and assistant director and general manager (retail, leasing and operations) of Wharf China Estates, tells me that the Sino-US trade war is yet to have an impact on revenues at Changsha IFS.
This is probably because Changsha is nestled in Central China within the mainland economy and consumer market, and so is less affected by external economic forces.
Since its launch, the number of VIP customers at Changsha IFS have surged from 5,000 to 190,000 in 12 months with VIP revenues growing at an average of 19 percent per month.
Young consumers aged between 25 to 35 account for 42 percent of the mall's total revenues while VIP revenues have hit around 1 billion yuan (HK$1.13 billion) so far.
In terms of investment, Wharf won the land tender for 6 billion yuan in 2011, and is expected to invest a total of 23 billion yuan in the Changsha complex, which is the biggest among its IFS series.
Changsha IFS comprises a six-story shopping mall with a total gross floor area of 240,000 square meters (larger than Hong Kong's Harbour City), 435,000 sq m of grade A office space and a five-star hotel, the Niccolo Changsha. Its two iconic office towers include a 93-story skyscraper that soars 452 meters high and is the tallest in Hunan province and the 15th tallest in the world.
The biggest problem that property investors in the mainland face is an oversupply of office buildings and hotels.
Located on the topmost floors of the 93-story Tower 1, the Niccolo Changsha offers just 243 rooms and commands good occupancy rates. However, another hotel in Tower 2 is still courting a suitable operator.
Meanwhile, Wharf is mulling the sale of one of the towers to a single buyer on an "en bloc" basis. Wharf usually undertakes commercial projects for long-term investment but on such a mega project, the sale of a tower would also be a good way to recover funds.
Ivan Tong is Editor in Chief of The Standard