Daily Hong Kong: Rental Rates for Last Mile Industrial Real Estate Poised to Move Higher in Most Key Global Markets and more

In this briefing:

1. Rental Rates for Last Mile Industrial Real Estate Poised to Move Higher in Most Key Global Markets
2. Fosun Tourism IPO Trading Update – Low Traded Volume and Fair Value Indicate It Has a Long Way to Go
3. Share Classifications: Mid-December 2018 Snapshot
4. Alpha Smart – Pre-IPO – PE Investors Recovered 56% of Their Cost in Two Years but Left It in Debt
5. H/A Spread & Southbound Monitor – Going Into Year End

1. Rental Rates for Last Mile Industrial Real Estate Poised to Move Higher in Most Key Global Markets

• New industry data this week, plus take-aways from  our latest discussions with company managements, all confirm that the likely trend in the industrial segment of the global real estate industry is for rental rates to rise.
• The growth in e-commerce is continuing to accelerate globally. In some key market, this is “triggering a land grab for distribution space that experts say is accelerating”.
• Therefore, the increasing scarcity value of well situated industrial real estate in high demand markets is likely to continue to push up rental rates to higher and higher levels.
• Given our expectation that fundamentals driving the growing demand for Last Mile Industrial real estate are likely to persist, we continue to expect this segment to outperform the broader Real Estate sector for the foreseeable future.

2. Fosun Tourism IPO Trading Update – Low Traded Volume and Fair Value Indicate It Has a Long Way to Go

Fosun Tourism (1992 HK)‘s IPO was priced at the low-end, HKD15.60/share. The retail tranche was undersubscribed while the institutional tranche was said to be moderately over-subscribed. I have covered most aspects of the deal in my earlier insights:

• Fosun Tourism Pre-IPO – No Improvement or Major Changes in Club Med Since the Acquisition
• Fosun Tourism IPO – Fair Value Is Probably Below Low-End

In this insight, I’ll provide an update on the deal dynamics, valuations and provide a table with the implied valuations at different share price levels.

3. Share Classifications: Mid-December 2018 Snapshot

This weekly share class summary is a companion insight to Travis Lundy‘s H/A Spread & Southbound Monitor – most recently discussed in H/A Spread & Southbound Monitor – Going Into Year End.   

This share class monitor provides a snapshot of the premium/discounts for various share classifications around the region, and comprises four sets of data:

1.  82 ADRs
2.  105 Korean Prefs
3.  22 Regional Dual Classes
4.  7 Foreign/Local Thai shares 

The average premium/discount for each set over a one-year period is graphed below.

For a granular breakdown of each set, PDFs are attached at the bottom of this insight.

4. Alpha Smart – Pre-IPO – PE Investors Recovered 56% of Their Cost in Two Years but Left It in Debt

Alpha Smart (ALS HK), the parent of Chinese menswear fashion retailer GXG, plans to raise US$300m in its Hong Kong IPO. L Catterton, LVMH’s investment arm, along with another PE investor, owns a 73% stake in the company. 

Earnings have been consistently growing with the highest contribution still coming from its flagship brand “GXG”. The recent expansion of the online channel has further aided sales growth, with ASL claiming to be the largest menswear retailer in terms of online sales.

Apart from a large dividend payout which covered half of the acquisition costs for L Capital, nothing much seems to have changed recently. In addition, operating cash flow has not kept pace with earnings due to a consistent increase in inventory. To add to that there are a few related party issues as well including some stores being run by former employees.

5. H/A Spread & Southbound Monitor – Going Into Year End

An H/A Spread Monitor Project offering a brief look at recent changes in H-Share and A-Share spreads, Southbound flow and impact, and where the spreads are trading within their own historical ranges.

There are five sets of data for now:
1.   HK-Shanghai Connect Southbound Turnover and Net Buying vs Indices and HKEx Turnover
2.   Top 20 Net Southbound buys and sells over the last 5 days
3.   H-Share/A-Share Discounts, Changes in Discount over 1 and 4 wks, Changes in Southbound Flow
4.   Southbound Flow as a % of Volume and Float on All Eligible Stocks
5.   H-Share/A-Share Sector Discount Ranges and Averages Charted Over the Last 12 months 

Net Southbound flows continue to be somewhat lacklustre. November was negative after a couple of positive months. December so far is very mildly positive. Northbound had been strongly positive for months, but say RMB 5.8bn of outflows in October only to rebound to RMB +32.5bn in November. So far this month, NB is positive too.