Amazing primer/write-up! Far East Consortium ($0035.hk) is a personal favorite of mine with lots of development assets out of HK (Australia and UK) as well, but a high gearing and a recent dividend cut.
Don’t you think that Swire is probably the highest quality counter on this entire list which justifies the valuation that it trades at.
Their assets in both the mainland and Hong Kong are very high quality with stellar occupancy rates. Only their newer properties have occupancy rates below 90% and most of their occupancy rates especially for their offices and shopping are above 95%. Some of their high quality retail assets even have 100% occupancy
Their gearing is one of the lowest in this list at only 13%, their recurring profits only fell 8% in H1 24 and they managed to increase their dividend even in the toughest macro situation that both Hong Kong and China have faced in the last 25 years.
They have an investment plan of HK$100 billion and they’re branching outside to SE Asia and the U.S. as well.
At a 7% dividend yield and 0.32x times book with professional management very very conservative gearing and a dividend which wasn’t cut even in this macro environment I think it’s the safest buy here
Agree on most of these. Properties is the best run part of Swire Pacific, Cathay is a disaster. Probably the highest quality portfolio of any company on the mainland; HK I don't like quite as much. Pacific Place will be fine but think Taikoo Shing will keep underperforming.
Main pushback I'd have is: Why keep spending more than 100% of market cap on expansion when you're so cheap?
In general I also shy away from subsidiaries because they're easier/more appealing for controlling shareholders to expropriate from. Swire has always had decent corp gov but it's a general rule that's served me pretty well.
Also worth noting that the recurring profits for many of the names here actually fell a similar single digit amount as well, not just Swire. Rents have been resilient/even going up, it's mainly cap rate expansion creating all the doom and gloom.
I also agree on most of your points apart from two of them:
1) I actually appreciate spending on expansion in this bearish environment especially if it’s done abroad like Swire has been doing. They’ve expanded into residential real estate in Jakarta and Bangkok: two markets where there’s a lack of quality players like Swire in the residential market and where shoddy construction and development is unfortunately still common. They also have plans for expansion into Vietnam whose economy has by far been the fastest growing and most resilient in SE Asia. Also I feel like with the mainland government being stern on its support for the property market and Swire being perhaps one of the only players extracting figures of 95-100% occupancy on its retail assets and some of its office assets I forgot the precise figures, this expansion actually could pan out very well for value creation instead of management just piling money into endless buybacks in a market like Hong Kong which has been so punishing to anything real estate in the last 4 years in hopes of creating some form of value. I own a property manager stock First Service which trades at a negative enterprise value, 4 PE ratio and has still managed to rapidly grow GFA. I feel more confident in allocating money to expansion rather than buybacks
2) Taikoo Shing hasn’t been underperforming that bad really. Their shopping mall CityPlaza is fully occupied and One Taikoo Place has healthy occupancy as well especially in this environment Two Taikoo Place and the others well yeah I share your sentiment maybe they got way too aggressive way too fast.
Expanding into adjacent businesses or something that they have expertise in have more synergy than into new business. Unless the new businesses (Jakarta and Bangkok residential real estate) are in distressed valuation, which I don't think they are? (I only did some quick google search)
I second that first comment; Amazing write-up! ...cannot wait for the next parts!... I do hold my fingers crossed that the next parts will be more optimistic ;-) ... I wouldn't mind learning about additional attractive investment ideas in HK.
Superb work, the best that i have read on hk property companies.
One of the companies that i follow is Tai Cheung 88 HK. Rare amongst property developers, TC has abt HK$1bn in net cash (nearly 60% of mkt cap) and virtually no debt - so even if interest rate remains high, it will still get a decent interest income from its cash hoard. Since its Repulse Bay and The Peak projects are fully constructed, any sale will flow directly to its bottomline. The revalued surplus of its stake in Sheraton Hotel already fully accounts for its current mkt cap. And an investor is paid in excess of 8% dividend in the meantime. Would you have any strong views regarding it?
That is a great piece of work! Do you plan to make a deep-dive on Great Eagle? An interesting stock IMHO. PE of ~5, dividend yield at ~8%, valuable international hotel portfolio and decent corporate governance, no? Looking forward to reading your next articles.
Love your approach to investing! You can't invest in a company unless you know how all their competitors do things. I am much lazier than you and reading your writeup gave me motivation to work harder. So thank you for the post!
I always wanted to invest in HK real estate stocks but there are just so many grifters and bad corporate governance. Only ended up with small positions of $173.hk and $J36.SG
Great work. Recommend checking 1036.hk. Trading at ~90% discount. Net cash. Hybrid developer and manager for parent. One concern they recently cut div to ~4.8% while hoarding cash.
Amazing primer/write-up! Far East Consortium ($0035.hk) is a personal favorite of mine with lots of development assets out of HK (Australia and UK) as well, but a high gearing and a recent dividend cut.
Don’t you think that Swire is probably the highest quality counter on this entire list which justifies the valuation that it trades at.
Their assets in both the mainland and Hong Kong are very high quality with stellar occupancy rates. Only their newer properties have occupancy rates below 90% and most of their occupancy rates especially for their offices and shopping are above 95%. Some of their high quality retail assets even have 100% occupancy
Their gearing is one of the lowest in this list at only 13%, their recurring profits only fell 8% in H1 24 and they managed to increase their dividend even in the toughest macro situation that both Hong Kong and China have faced in the last 25 years.
They have an investment plan of HK$100 billion and they’re branching outside to SE Asia and the U.S. as well.
At a 7% dividend yield and 0.32x times book with professional management very very conservative gearing and a dividend which wasn’t cut even in this macro environment I think it’s the safest buy here
Agree on most of these. Properties is the best run part of Swire Pacific, Cathay is a disaster. Probably the highest quality portfolio of any company on the mainland; HK I don't like quite as much. Pacific Place will be fine but think Taikoo Shing will keep underperforming.
Main pushback I'd have is: Why keep spending more than 100% of market cap on expansion when you're so cheap?
In general I also shy away from subsidiaries because they're easier/more appealing for controlling shareholders to expropriate from. Swire has always had decent corp gov but it's a general rule that's served me pretty well.
Also worth noting that the recurring profits for many of the names here actually fell a similar single digit amount as well, not just Swire. Rents have been resilient/even going up, it's mainly cap rate expansion creating all the doom and gloom.
I also agree on most of your points apart from two of them:
1) I actually appreciate spending on expansion in this bearish environment especially if it’s done abroad like Swire has been doing. They’ve expanded into residential real estate in Jakarta and Bangkok: two markets where there’s a lack of quality players like Swire in the residential market and where shoddy construction and development is unfortunately still common. They also have plans for expansion into Vietnam whose economy has by far been the fastest growing and most resilient in SE Asia. Also I feel like with the mainland government being stern on its support for the property market and Swire being perhaps one of the only players extracting figures of 95-100% occupancy on its retail assets and some of its office assets I forgot the precise figures, this expansion actually could pan out very well for value creation instead of management just piling money into endless buybacks in a market like Hong Kong which has been so punishing to anything real estate in the last 4 years in hopes of creating some form of value. I own a property manager stock First Service which trades at a negative enterprise value, 4 PE ratio and has still managed to rapidly grow GFA. I feel more confident in allocating money to expansion rather than buybacks
2) Taikoo Shing hasn’t been underperforming that bad really. Their shopping mall CityPlaza is fully occupied and One Taikoo Place has healthy occupancy as well especially in this environment Two Taikoo Place and the others well yeah I share your sentiment maybe they got way too aggressive way too fast.
Expanding into adjacent businesses or something that they have expertise in have more synergy than into new business. Unless the new businesses (Jakarta and Bangkok residential real estate) are in distressed valuation, which I don't think they are? (I only did some quick google search)
great note
I second that first comment; Amazing write-up! ...cannot wait for the next parts!... I do hold my fingers crossed that the next parts will be more optimistic ;-) ... I wouldn't mind learning about additional attractive investment ideas in HK.
Superb work, the best that i have read on hk property companies.
One of the companies that i follow is Tai Cheung 88 HK. Rare amongst property developers, TC has abt HK$1bn in net cash (nearly 60% of mkt cap) and virtually no debt - so even if interest rate remains high, it will still get a decent interest income from its cash hoard. Since its Repulse Bay and The Peak projects are fully constructed, any sale will flow directly to its bottomline. The revalued surplus of its stake in Sheraton Hotel already fully accounts for its current mkt cap. And an investor is paid in excess of 8% dividend in the meantime. Would you have any strong views regarding it?
Thanks
That is a great piece of work! Do you plan to make a deep-dive on Great Eagle? An interesting stock IMHO. PE of ~5, dividend yield at ~8%, valuable international hotel portfolio and decent corporate governance, no? Looking forward to reading your next articles.
Great overview on the companies, thanks. (Just a minor typo - the tickers you have for the last 2 companies are accidentally the same 0064.HK)
Fantastic write-up! I personally hold SF REIT and held Great Eagle but sold it just a few days ago (value trap fatigue nothing wrong with it)
Love your approach to investing! You can't invest in a company unless you know how all their competitors do things. I am much lazier than you and reading your writeup gave me motivation to work harder. So thank you for the post!
I always wanted to invest in HK real estate stocks but there are just so many grifters and bad corporate governance. Only ended up with small positions of $173.hk and $J36.SG
Great work. Recommend checking 1036.hk. Trading at ~90% discount. Net cash. Hybrid developer and manager for parent. One concern they recently cut div to ~4.8% while hoarding cash.