Silver Point

Thomas J. Monaco

Independent Insight Provider

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

*No Results Surprise Post-Profit Warning: In January 2021, MTR Corp (66.HK) [MTR] issued a profit warning for FY 2020, suggesting that the company faced significant operational and valuation challenges, which led to its first loss since listing two decades ago. As warned, MTR announced losses of HKD 4.8 bn both related to the impact of the COVID-19 pandemic and a troubled mega project;*2021 Not Looking Much Better: The decision by the Hong Kong government to close all but three border checkpoints since the beginning of 2020 is likely to remain through most of 2021 as business conditions continue to worsen; and* New Projects Remain In Progress: The construction of Shatin-Central Link is in progress, Tuen Ma Line Phase 1 (Tai Wai to Kai Tak) has already opened, and the full Tuen Ma Line is scheduled to be completed in 3Q21. The 1Q22 opening of the Hung Hom to Admiralty section is likely to be delayed.

*No Results Surprise Post-Profit Warning: In January 2021, MTR Corp (66.HK) [MTR] issued a profit warning for FY 2020, suggesting that the company faced significant operational and valuation challenges, which led to its first loss since listing two decades ago. As warned, MTR announced losses of HKD 4.8 bn both related to the impact of the COVID-19 pandemic and a troubled mega project;*2021 Not Looking Much Better: The decision by the Hong Kong government to close all but three border checkpoints since the beginning of 2020 is likely to remain through most of 2021 as business conditions continue to worsen; and* New Projects Remain In Progress: The construction of Shatin-Central Link is in progress, Tuen Ma Line Phase 1 (Tai Wai to Kai Tak) has already opened, and the full Tuen Ma Line is scheduled to be completed in 3Q21. The 1Q22 opening of the Hung Hom to Admiralty section is likely to be delayed.  

*New Mainland China Deal Doesn’t Pass Smell Test: Link REIT (823.HK) [Link] announced the acquisition of a 50% stake in Qibao Vanke Plaza (QVP) - a retail shopping mall in Minhang, Shanghai, for CNY 2.8 bn. QVP will remain the shopping mall operator, while Link will have an equal number of board seats and committee representatives as the shopping mall operator. While its unclear if the numbers make any sense given the rental reversion and massive re-tenanting that would have to take place to cover the 3.0% plus per annum CNY financing cost, the lack of control over this property also raises significant risks for Link; and*Fundamental Risks Remain: Link remains in a real quandary - it continues to operate at a loss. Losses were attributed to negative fair value marks. While results on an operating basis were positive, the trend unfortunately remains negative for Link – declining HKD 564 mn (15.1%). The poor operating results were driven by weaker Hong Kong rental income which declined HKD 186 mn (5.4%) HOH; and a HKD 55 mn (9.8%) decline in mainland Chinese property-related revenues – begging the question of why mainland China acquisitions now?

*New Mainland China Deal Doesn’t Pass Smell Test: Link REIT (823.HK) [Link] announced the acquisition of a 50% stake in Qibao Vanke Plaza (QVP) - a retail shopping mall in Minhang, Shanghai, for CNY 2.8 bn. QVP will remain the shopping mall operator, while Link will have an equal number of board seats and committee representatives as the shopping mall operator. While its unclear if the numbers make any sense given the rental reversion and massive re-tenanting that would have to take place to cover the 3.0% plus per annum CNY financing cost, the lack of control over this property also raises significant risks for Link; and*Fundamental Risks Remain: Link remains in a real quandary - it continues to operate at a loss. Losses were attributed to negative fair value marks. While results on an operating basis were positive, the trend unfortunately remains negative for Link – declining HKD 564 mn (15.1%). The poor operating results were driven by weaker Hong Kong rental income which declined HKD 186 mn (5.4%) HOH; and a HKD 55 mn (9.8%) decline in mainland Chinese property-related revenues – begging the question of why mainland China acquisitions now?

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Capital Markets

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

*Profit Warning: MTR Corp (66.HK) [MTR] warned that it has faced significant operational and valuation challenges, which have led to its first loss since listing two decades ago. Losses of negative HKD 4.8 bn are likely from COVID-19 and a troubled mega project; and*2021 To Remain Very Challenging: The decision by the Hong Kong government to close all but three border checkpoints since the beginning of 2020 is likely to remain in place through much of 2021 as business conditions continue to worsen with the SAR now battling its now fourth wave of COVID-19. At it stands, ridership is down 31.5% YOY in 2020.

*Profit Warning: MTR Corp (66.HK) [MTR] warned that it has faced significant operational and valuation challenges, which have led to its first loss since listing two decades ago. Losses of negative HKD 4.8 bn are likely from COVID-19 and a troubled mega project; and*2021 To Remain Very Challenging: The decision by the Hong Kong government to close all but three border checkpoints since the beginning of 2020 is likely to remain in place through much of 2021 as business conditions continue to worsen with the SAR now battling its now fourth wave of COVID-19. At it stands, ridership is down 31.5% YOY in 2020.

*Weak Conference Highlighted By What Wasn’t Discussed: Link REIT (823.HK) [Link] discussed its continued operational and strategic challenges through the COVID-19 pandemic. Hong Kong shopping mall occupancy remains between 95%-96%, with rental reversion rates still tracking at negative 2.6%. Additional deals from mainland China expected to be yield accretive; and*New Acquisition Strategy: While it sounds ridiculous, Link has apparently had an epiphany with respect to evaluating portfolio acquisitions based on growth and risk/reward. If this is now the case, what was management actually thinking with The Cabot in London on July 26, 2020.

*Weak Conference Highlighted By What Wasn’t Discussed: Link REIT (823.HK) [Link] discussed its continued operational and strategic challenges through the COVID-19 pandemic. Hong Kong shopping mall occupancy remains between 95%-96%, with rental reversion rates still tracking at negative 2.6%. Additional deals from mainland China expected to be yield accretive; and*New Acquisition Strategy: While it sounds ridiculous, Link has apparently had an epiphany with respect to evaluating portfolio acquisitions based on growth and risk/reward. If this is now the case, what was management actually thinking with The Cabot in London on July 26, 2020.   

Hong Kong

Champion REIT is a real estate investment trust. The Trust, through its subsidiaries, invests in a wide range of real estate properties, including offices and retail.

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Champion REIT (2778 HK)

MTR Corp – Struggles Set To Continue

MTR CORP: As warned, MTR announced losses of HKD 4.8 bn both due to the impact of COVID-19 and a troubled mega project. With border closures to...

Thomas J. Monaco

Link REIT – Same Old, Same Old

LINK REIT: Link is acquiring a 50% stake in Qibao Vanke Plaza (QVP) in China. Its unclear if the numbers make sense given the variables, the lack...

Thomas J. Monaco

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

MTR Corp – Trainwreck

MTR CORP: MTR warned that it has faced significant operational and valuation challenges, which have led to a major loss. The border closure is...

Thomas J. Monaco

Link REIT – Novel Acquisition Approach

LINK REIT: Link recently discussed its continued operational and strategic challenges through the COVID-19 pandemic. Link has apparently had an...

Thomas J. Monaco

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