IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/sf-real-estate-investment-trust" target="_blank" data-smartkarma-citation="entities:31496:1" rel="noopener">SF Real Estate Investment Trust (SF HK)</a> is a REIT formed with an initial focus on income-generating logistics properties in Hong Kong and China. The sponsor is <a href="https://www.smartkarma.com/entities/maanshan-dingtai-rare-a" target="_blank" data-smartkarma-citation="entities:4128:1" rel="noopener">S.F. Holding (002352 CH)</a>. SF REIT will be the first logistics-focused REIT to be listed in Hong Kong.SF REIT has launched its IPO with an indicative price range of HK$4.68-5.16 per unit. The total proceeds will be HK$2,433.6-2,683.2 million ($313-345 million) at the price range. Two cornerstone investors will subscribe for $50.0 million of the offer units (15.2% of the offer units at the mid-point of the price range). The cornerstone investors are China Orient International Asset Management and <a href="https://www.smartkarma.com/entities/ci-financial-corp" target="_blank" data-smartkarma-citation="entities:25448:1" rel="noopener">Ci Financial (CIX CN)</a>. <div class="content-highlight">In <a href="https://www.smartkarma.com/insights/sf-reit-ipo-initiation-the-reit-flow-of-things" target="_blank" data-smartkarma-citation="insights:50673" rel="noopener">SF REIT IPO Initiation: The REIT Flow of Things</a>,  we noted that SF REIT offers an attractive proposition for investors willing to invest in a niche segment of the Asian REIT sector. However, our valuation analysis suggests that units are fully priced at the minimum offer price. Consequently, we are inclined to give this IPO a pass and wait for a lower entry point. </div>

SF Real Estate Investment Trust (SF HK) is a REIT formed with an initial focus on income-generating logistics properties in Hong Kong and China. The sponsor is S.F. Holding (002352 CH). SF REIT will be the first logistics-focused REIT to be listed in Hong Kong.SF REIT has launched its IPO with an indicative price range of HK$4.68-5.16 per unit. The total proceeds will be HK$2,433.6-2,683.2 million ($313-345 million) at the price range. Two cornerstone investors will subscribe for $50.0 million of the offer units (15.2% of the offer units at the mid-point of the price range). The cornerstone investors are China Orient International Asset Management and Ci Financial (CIX CN). In SF REIT IPO Initiation: The REIT Flow of Things,  we noted that SF REIT offers an attractive proposition for investors willing to invest in a niche segment of the Asian REIT sector. However, our valuation analysis suggests that units are fully priced at the minimum offer price. Consequently, we are inclined to give this IPO a pass and wait for a lower entry point. 

HK/China Equity Long-Short

Osbert Tang, CFA

In this Insight, we take a look on <a href="https://www.smartkarma.com/entities/sf-real-estate-investment-trust" target="_blank" data-smartkarma-citation="entities:31496:1" rel="noopener">SF Real Estate Investment Trust (SF HK)</a> (SF REIT), which is a proposed REIT listing in Hong Kong with <a href="https://www.smartkarma.com/entities/maanshan-dingtai-rare-a" target="_blank" data-smartkarma-citation="entities:4128:1" rel="noopener">S.F. Holding (002352 CH)</a> (SFH) as its sponsor. The REIT will initially have three logistics properties in its portfolio, one in Hong Kong and two in China (Foshan and Wuhu). Having a gross lettable area of 307,990.8 sq.m., the appraised value of these properties amounted to HK$6.1bn.On balance and based on the information in the application proof prospectus, we view the REIT positively. Key positives are: 1.) quality assets; 2.) stable profit and cash flow; and 3.) potential injection. On the other hand, the key negatives are: 1.) focus on HK; 2.) reliance on SFH; and 3.) small size.

In this Insight, we take a look on SF Real Estate Investment Trust (SF HK) (SF REIT), which is a proposed REIT listing in Hong Kong with S.F. Holding (002352 CH) (SFH) as its sponsor. The REIT will initially have three logistics properties in its portfolio, one in Hong Kong and two in China (Foshan and Wuhu). Having a gross lettable area of 307,990.8 sq.m., the appraised value of these properties amounted to HK$6.1bn.On balance and based on the information in the application proof prospectus, we view the REIT positively. Key positives are: 1.) quality assets; 2.) stable profit and cash flow; and 3.) potential injection. On the other hand, the key negatives are: 1.) focus on HK; 2.) reliance on SFH; and 3.) small size.

SF REIT Pre-IPO: Initial Thoughts on S.F. Holding's (002352 CH) Logistics REIT In HK

Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

* Poor FY 2020 Results: Link REIT (823.HK) reported FY 2H20 losses of HKD 23.9 bn  - against FY 1H20 earnings results of HKD 6.7 bn, quite a swing during the COVID-19 pandemic. Bottom-line losses were driven primarily by one factor – the HKD 27.6 bn property revaluation loss versus a HKD 3.7 bn gain in FY 1H20;*Rental Reversion Rates Under Heavy Pressure: Asset enhancement initiatives (AEI) remain budgeted at only HKD 411 mn in Hong Kong during FY 2021 - lower than the HKD 700 mn which was previously guided. Unfortunately, given the weaker than expected Hong Kong retail environment is leading to lower level of rental reversions (RRR) – as noted by the HOH decline. Tenant occupancy costs were 14.7% for FY 2020, and 15.3% rate in FY 4Q20 for Link REIT – well above the 15% comfortable level where RRR becomes a challenge;  and *Capital Pressures On Horizon: Now is the time to conserve capital. Despite the significant 14% decline in book value per share HOH due to both the dividend and MTM of its property book on the 26 bp change in cap rates, management remains committed to its special distribution of HKD 0.14 per share through March 2022 and completing its share purchaser program. Perhaps Link REIT ought to focus on how it will maintain its 96.5% occupancy rate as the declining retail revenues in Hong Kong push its tenants into the red, rather than capital management in this current environment.

* Poor FY 2020 Results: Link REIT (823.HK) reported FY 2H20 losses of HKD 23.9 bn  - against FY 1H20 earnings results of HKD 6.7 bn, quite a swing during the COVID-19 pandemic. Bottom-line losses were driven primarily by one factor – the HKD 27.6 bn property revaluation loss versus a HKD 3.7 bn gain in FY 1H20;*Rental Reversion Rates Under Heavy Pressure: Asset enhancement initiatives (AEI) remain budgeted at only HKD 411 mn in Hong Kong during FY 2021 - lower than the HKD 700 mn which was previously guided. Unfortunately, given the weaker than expected Hong Kong retail environment is leading to lower level of rental reversions (RRR) – as noted by the HOH decline. Tenant occupancy costs were 14.7% for FY 2020, and 15.3% rate in FY 4Q20 for Link REIT – well above the 15% comfortable level where RRR becomes a challenge;  and *Capital Pressures On Horizon: Now is the time to conserve capital. Despite the significant 14% decline in book value per share HOH due to both the dividend and MTM of its property book on the 26 bp change in cap rates, management remains committed to its special distribution of HKD 0.14 per share through March 2022 and completing its share purchaser program. Perhaps Link REIT ought to focus on how it will maintain its 96.5% occupancy rate as the declining retail revenues in Hong Kong push its tenants into the red, rather than capital management in this current environment.

Link REIT - Squeezing Every Last Drop of Blood

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<a href="https://www.smartkarma.com/entities/link-reit" target="_blank" data-smartkarma-citation="entities:872:1" rel="noopener">Link REIT (823 HK)</a>, Hong Kong's largest listed REIT, has not avoided the uncertainties generated by COVID-19.
Its current P/B of 0.75x compares to its five-year average of 0.94x. Shares are down 28% yoy - which were impacted by localised protests - and down 18% YTD. This compares with 35% and 25% respectively for REIT peers.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/131/679/original/image_94931558221588734063822.png?1588734065" class="editor-image img-responsive" data-smartkarma-image-id="131679"></figure>
<div style="text-align: left;" class="content-caption">Source: CapIQ</div>
Retail accounts for 74.6% of Link's HK$224bn portfolio, the majority situated in Hong Kong.
Hong Kong just recorded a decline of 42% yoy in retail sales in March as various measures brought tourism to a standstill.
Link has diversified its portfolio into an office development project in Kowloon, a shopping mall in Australia - its first foray - and additional shopping malls in China. 
Further diversification is needed - and expected.

Link REIT (823 HK), Hong Kong's largest listed REIT, has not avoided the uncertainties generated by COVID-19.
Its current P/B of 0.75x compares to its five-year average of 0.94x. Shares are down 28% yoy - which were impacted by localised protests - and down 18% YTD. This compares with 35% and 25% respectively for REIT peers.

Source: CapIQ
Retail accounts for 74.6% of Link's HK$224bn portfolio, the majority situated in Hong Kong.
Hong Kong just recorded a decline of 42% yoy in retail sales in March as various measures brought tourism to a standstill.
Link has diversified its portfolio into an office development project in Kowloon, a shopping mall in Australia - its first foray - and additional shopping malls in China. 
Further diversification is needed - and expected.

<a href="https://www.smartkarma.com/entities/758" target="_blank" data-smartkarma-citation="entities:758:1">Great Eagle Holdings Ltd (41 HK) ("GE")</a> has recently disconnected with 65.5%-held <a href="https://www.smartkarma.com/entities/759" target="_blank" data-smartkarma-citation="entities:759:1">Champion Reit (2778 HK)</a>, worth 81% of GE's market cap and ~48% of NAV.The bifurcation is the result of CREIT's outperformance to media reports its 100%-owned Langham Place office tower could fetch upwards of $24.5-$26bn for the 700k sqft site. CREIT had earlier <a href="http://www.hkexnews.hk/listedco/listconews/SEHK/2017/0704/LTN201707041551.pdf" target="_blank">announced</a> it was exploring a sale of the property. CREIT is up ~27% since the beginning of the month (11.61% yesterday on 6 1/2 year-high volume), adding around $8bn in market cap.GE's implied stub, comprising 10 <a href="http://www.langhamhotels.com/en/" target="_blank">Langham Hotels</a> (Australia, Shanghai, London &amp; the US) and investment property (mainly its headquarters, Great Eagle Centre), is currently trading at a 12-month low, or ~0.25x P/B of the stub assets.Separately, GE has recently featured in local media for all the wrong reasons as a family feud gets publicly aired. Last <a href="https://www.smartkarma.com/insights/stubworld-set-up-unwind-extremes-10-july-2017" target="_blank">week</a> I mentioned a High Court order towards dismissing the family trust.Liquidity for GE is low - around US$1.2mn/day. More below the fold.

Great Eagle Holdings Ltd (41 HK) ("GE") has recently disconnected with 65.5%-held Champion Reit (2778 HK), worth 81% of GE's market cap and ~48% of NAV.The bifurcation is the result of CREIT's outperformance to media reports its 100%-owned Langham Place office tower could fetch upwards of $24.5-$26bn for the 700k sqft site. CREIT had earlier announced it was exploring a sale of the property. CREIT is up ~27% since the beginning of the month (11.61% yesterday on 6 1/2 year-high volume), adding around $8bn in market cap.GE's implied stub, comprising 10 Langham Hotels (Australia, Shanghai, London &amp; the US) and investment property (mainly its headquarters, Great Eagle Centre), is currently trading at a 12-month low, or ~0.25x P/B of the stub assets.Separately, GE has recently featured in local media for all the wrong reasons as a family feud gets publicly aired. Last week I mentioned a High Court order towards dismissing the family trust.Liquidity for GE is low - around US$1.2mn/day. More below the fold.

Singapore

Fortune REIT is a real estate investment trust that invests in a portfolio of retail shopping malls located in Hong Kong.

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Fortune REIT (778 HK)

SF REIT IPO: Valuation Insights

SF REIT has launched its IPO to raise $313-345 million at the price range. Our valuation analysis suggests that units are fully priced at the...

Arun George

SF REIT Pre-IPO: Initial Thoughts on S.F. Holding's (002352 CH) Logistics REIT In HK

SF REIT will be an interesting REIT given its close tie with SF Holding. We see the huge potential for future acquisitions from the sponsor a clear...

Osbert Tang, CFA

Link REIT - Squeezing Every Last Drop of Blood

* Poor FY 2020 Results: Link REIT (823.HK) reported FY 2H20 losses of HKD 23.9 bn - against FY 1H20 earnings results of HKD 6.7 bn, quite a swing...

Thomas J. Monaco

Link REIT: Options Amidst Retail Pain

Link REIT (823 HK), Hong Kong's largest listed REIT, has not avoided the uncertainties generated by COVID-19. Its current P/B of 0.75x compares to...

David Blennerhassett

Great Eagle - Out of Place

Great Eagle Holdings Ltd (41 HK) ("GE") has recently disconnected with 65.5%-held Champion Reit (2778 HK), worth 81% of GE's market cap and ~48% of...

David Blennerhassett

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