Wharf REIC: Tourist Spending Leakage Puts Pressure on Tenant Sales

We keep narrow-moat Wharf REIC's fair value estimate at HKD 46 per share after a management update. We continue to expect Wharf REIC to fare better than peers amid the northbound traveling trend, given its focus on luxury retail. However, we believe that first-half tenant sales at Wharf’s flagship assets, Harbour City and Times Square, will be challenged, as more people opt to purchase luxury products outside of Hong Kong, given the strong HKD. We expect that to be partly offset by tenant mix management, which includes replacing the supermarket space in Harbour City with higher-rent-paying retail tenants, as well as the return of Louis Vuitton to the Times Square mall after its exit in 2021. Over the longer term, management anticipates a price harmonization by luxury brands across countries to mitigate the tourist spending leakage.