Posted by: donmihaihai | March 15, 2014

Once a blue moon on HongKong Land Holdings Limited

HongKong Land is the largest property company (including REIT) listed in SGX in term of market capitalisation, total assets and Net Asset Value. A well run property part of Jardine Matheson group that does not keep hitting the news maybe because there is basically no hot “news” for the media or chasing investors.

Getting to know HongKong Land is easy.

Property is about location? Well it has a “to die for” of 12 prime commercial properties and a luxury hotel in Central, Hong Kong. These are carried at about US$22 billion on the B/S. In Singapore, HongKong Land has 1/3 interest in ORQ, MBFC and full interest in ORL. MBFC is the new CBD area of Singapore and ORQ is right beside it and even ORL is circling the new CBD area too. It goes without saying these are grade A again. It is unlikely that HongKong Land is able to replicate these commercial properties in the two countries easily. Hopefully I am wrong. Beside these two financial centres, HongKong Land is in Jakarta, Bangkok, Hanoi, Macau, China and Phnon Penh. It is trying to develop prime commercial properties in the CBD areas of these. Is HongKong Land getting the location right? I don’t know but they are in better position to know.

Is Residential development about land banking? I don’t know. Maybe Quek Land bank will know. But a manufacturer will reduce or stop producing product when there is excess in the market and when the cost is low, margin will be huge. HongKong Land is doing pretty well in Singapore on residential properties through MCL Land and trying to establish itself in certain cities in China. And yes, it has a “to die for” land bank too, especially in China. It is doing developments in Indonesia and Philippines too but too early to say these are one off or trying to be a developer in these countries.

Lastly, it has a “to die for” B/S. Not just about low debts how debts is being managed.

What is bad about HongKong Land?

Its “crown Jewel”. Those US$22 billion of commercial properties. No not that I am worry about the capitalisation rates are too low. It is just too big, all new developments in Jakarta, China and Phnon Penh will hardly move the needle plus it is at the end of a huge property cycle for many countries which mean growth will be slow.

And this is what I like about the management. I might be wrong. Facing the situation of having huge “crown jewel” with little debts will lead most management to go out shopping like crazy. Targeting certain percentage of properties from which country or which segment by certain year. Sound familiar? This is what many are doing but not HongKong Land as far as I am tell. It is using its “crown jewel” to plant more “crown jewel”. Certain percentage is a result not a target. Only gear up when there is a need not to target a certain level of gearing.

Question. What will happen if HongKong Land decided to be like majority? Spending 10 to 20 billion on shopping trips. i.e. gear up.

Lastly will be the question most will ask. REIT and recycle capital, will HongKong Land do it? I don’t know and I don’t think it will. And I am not a fan of REIT and recycle capital. It only make sense if that is a lousy asset and the timing must be right. Which management will tell you that they are a lousy stock operator or property operator? As far as I can see, companies doing recycling of capital is not doing as well as the others. Check the numbers and you will be surprise.

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Responses

  1. Hi, I used to own HK Land a few wks back. Found Wheelock Co (HK) cheaper, owns 1/2 of wharf holding but mkt cap is less than 1/2 wharf mkt cap. its like getting wheelock properties (SG), 77% owned + its land bank in hk free. But wheelock co has much higher gearing n its mkt – china n hk properties- are in bear mode now.

  2. Hi, got to know those companies from Third Avenue Fund Management. But I am not moving out of SGX yet.

    Getting lot of “free stuffs” just because share is listed is always great.

  3. Its HK propertities locations are great, but the remaining lease is quite short. Around 30 some years left?

    Don’t you worry about it after the lease expires?

  4. Which properties are you referring to? Base on older AR, shortest remaining leases for properties in HK are over 100 years and other are like over 800 years. All new leasehold properties in China, Singapore and Vietnam are having shorter leases.

  5. Sorry that I can’t find the exact source any more. I remember it is related to something that the lease granted by the British not recognized by the PRC government, thus all lease were shortened to the date 50 years after the PRC government took over Hong Kong in 1997.

    I will try to find the source and let you know.


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