Posted by: donmihaihai | April 4, 2015

Hong Kong Land 4 April 2015

Re- look into Hong Kong Land and what are important.

USD28billion of investment properties. All are top grade in the respective countries.

USD3billion of development properties. Trading stocks. Require billions to develop and some will last for another 5 to 10 years.

USD4.3billion of debts at subsidiaries level. Low cost debt with a good portions due 10 years out. Debts level in main JVs are not high as shown in FY2013 AR and it is repaying. Hong Kong Land share of debts in main JVs was likely to be 35% of USD3.5billion.

So Debt to total Assets should be around 25%. Perhaps a little more due to the nature of development properties. Interest coverage is around 8 to 10X. Most will be covered by income from rental. Debts on development properties is abit tricky due to the nature of cash flow which make a little more complex with different ways of selling houses in different countries. Thing to note is majority of these land banks are undeveloped and unsold. Not going to guess how much it will take to develop them and what kind of profits Hong Kong Land will earned as these are going to work out in the next 5 to 10 years. Most will be self funding after initial capital from Hong Kong Land. Well this is the nature of development properties.

Main Investment properties coming online In the next 4 years

Jakarta Land – WTC 3(50%)

Phnom Penh – Exchange Square (100%)

Beijing – WF Central(90%)

Beijing – CBD (30%)

These will not move the investment properties needle much and most likely just north of USD30billion by using the current value of current investment properties.

Together with the downturn of properties cycles in Asia, Hong Kong Land growth will not be excited.

I do care about growth. But stay away from companies that grow at any cost which also mean companies that do not have the capacities to grow that fast. Hong Kong Land has the capacities to grow.

It was just in Hong Kong in 1990. Now it has added Singapore, Jakarta, Bangkok, Hanoi, Macau and Cambodia in term of investment properties. And it look like Hong Kong Land is walking faster, of course the capacities to walk faster is there as well.

Let hope that there is no major issuing of shares in the future. At this stage, getting an investment property wrong or development property wrong is not as painful as getting a major acquisition wrong or do a major issuance of shares and produce return way less of it.

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