1. Healthcare

Asia Pacific Equity Research
31 January 2015
Hong Kong REITs
Rates and REITs – Two can tango
In this primer on HK REITs, we’ve analyzed the historical performance of
US REITs during interest rate cycles and put to the test the perception that
REITs perform poorly when rates are rising. We’ve also compared the HK
REIT Code and valuations with other developed markets and summarize the
features of each REIT/property-related trust listed in HK. REITs often suffer a
correction on initial expectations for rate increases, but they can yield
positive returns as the cycle proceeds. Stock-specific attributes are usually the
differentiator: our preferred plays are Fortune REIT, Champion REIT,
followed by Link REIT.
 Historical data show low correlation between REITs and 10-year bond
yield: Our US REITs team finds that the correlation statistics between REIT
stocks and Treasury yields in most time periods largely hover around zero.
But as REITs have been beneficiaries of yield-seeking investors, a reversal in
rates may unwind some of the benefits. Our regression shows that US REITs
have a stronger correlation with GDP than 10-year bond yield, implying that
as economy improves, expectation on rental growth gets higher, driving share
price performance.
 Yield spread of certain HK REITs may narrow: Comparing the yield
spread of HK REITs with other developed markets including Australia,
Japan, Singapore and the US, HK REITs trade at a higher spread most of the
time (HK: 4.4%; Singapore: 4.2%, Japan: 2.7%, Australia: 2.4% and US:
1.7%). While liquidity would be a reason for the valuation gap, we think that
financial engineering tied with some REITs is another reason. For those HK
REITs with clean yield and growth potential in DPU, we expect yield spread
to narrow. We regard Fortune as the name for potential yield spread
narrowing within our coverage. The stock is now trading at 3.6% yield
spread compared with 2.2% before global financial crisis.
Hong Kong, Singapore, China
REITs
Amy Luk, CFA
AC
(852) 2800 8524
[email protected]
Bloomberg JPMA LUK <GO>
Leo Ng
(852) 2800-8522
[email protected]
Cusson Leung
(852) 2800-8526
[email protected]
J.P. Morgan Securities (Asia Pacific) Limited
Figure 1: Yield spread over 10-year
government bond yield
5%
4.4%
4.2%
4%
2.7%
3%
2.4%
1.7%
2%
1%
0%
HK SingaporeJapan
Aus
US
Source: Bloomberg
 Prefer Fortune REIT over Link REIT: Given the market cap and liquidity
of Link REIT, the stock is usually a core holding for income-fund investors.
However, we prefer Fortune REIT over Link REIT given the valuation gap
between the two and the higher impact of acquisition growth of Fortune.
With Fortune REIT trading at 5.1% 12-month forward yield compared with
Link REIT at 3.6%, we expect the valuation gap to narrow given the
business risk of Link has increased after entering into property development.
Besides, we also like Champion REIT for the potential absorption of
upcoming Central office demand.
Equity Ratings and Price Targets
Company
Champion REIT
Fortune Real Estate Investment Trust
Jinmao Investments
Link REIT
Ticker
2778 HK
FRT SP
6139 HK
823 HK
Mkt Cap
(HK$ mn)
22,002.78
16,417.54
11,200.00
122,246.10
Rating
Price (HK$)
3.83
8.75
5.60
52.90
Cur
OW
OW
N
N
Prev
n/c
n/c
n/c
n/c
Price Target
Cur
Prev
4.15
3.95
9.80
8.60
6.10
n/c
49.50
47.50
Source: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 29 Jan 15.
See page 77 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision.
www.jpmorganmarkets.com
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Table of Contents
REITs and Rates – Two can tango ..........................................4
US REITs outperformed market in last two rate hike cycles .....................................4
US REITs have a higher correlation with GDP than LT rates ...................................6
HK yield spread higher than other markets ...........................8
Why invest in REITs? .............................................................10
Total return investments ........................................................................................10
Investment risks ....................................................................................................13
Code on REITs ........................................................................14
Amendments to HK REIT Code ............................................................................14
Comparison between REIT regulations across countries.........................................15
Comparison of stapled structure & REITs ...........................19
Components of stapled structure............................................................................19
Advantages and risks of stapled structure...............................................................19
List of REITs and stapled structure in HK............................21
Trustee and REIT Manager....................................................................................21
Link REIT vs Fortune REIT ....................................................23
Non-discretionary as major tenants mix .................................................................23
Solid rental growth since listing.............................................................................24
Prefer Fortune over Link .......................................................................................24
Valuation .................................................................................25
Valuation assumptions ..........................................................................................25
2
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Companies ..............................................................................32
Champion REIT.......................................................................33
Fortune Real Estate Investment Trust ..................................37
Jinmao Investments ...............................................................41
Link REIT .................................................................................46
Non-covered companies........................................................52
Langham Hospitality Investment ..........................................53
Langham Hospitality Investment: Summary of Financials ..................55
Mapletree Greater China Commercial Trust.........................56
Mapletree Greater China Commercial Trust: Summary of Financials ....58
New Century REIT ..................................................................59
New Century REIT: Summary of Financials ......................................61
Prosperity REIT.......................................................................62
Prosperity REIT: Summary of Financials..........................................64
Regal REIT ..............................................................................65
Regal REIT: Summary of Financials ................................................67
Spring REIT .............................................................................68
Spring REIT: Summary of Financials...............................................70
Sunlight REIT ..........................................................................71
Sunlight REIT: Summary of Financials ............................................73
Yuexiu REIT ............................................................................74
Yuexiu REIT: Summary of Financials ..............................................76
3
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
REITs and Rates – Two can tango
In this primer report on Hong Kong Real Estate Investment Trusts (REITs), we
studied the performance of US REITs performance in the last two Fed funds rate
cycles, valuation and REIT Code comparison between HK and other developed
markets and a company section summarizing the properties of each REIT and
property-related trust structure listed in Hong Kong.
It is a general market perception that interest rate-sensitive instruments like Real
Estate Investment Trusts (REITs) are not the preferred investment in an interest rate
hike cycle. As long-term interest rates increase, the required return for investing in
yield products like REITs will be higher, causing negative impact on the equity
performance. An interest rate upcycle will also drive up the borrowing cost of REITs
which, in turn, may dilute distributable income.
Our study on the last two US Fed funds rate hike cycles showed that right after rate
hike, US REITs stayed flattish. In the Jun-99 to Jan-01 cycle, REITs underperformed
for a few months before rebounding (Table 2). In the Jun-04 to Sep-07 cycle, REITs
were flattish one month after rate hike and then outperformed in one year after hike.
Currently JP Morgan US economist forecasts a 25 bps increase in fed fund rate in
2Q15 to 0.5%. And for 10-year US Treasury yield, JP Morgan rate strategy team
forecasts a 2.4% rise in 4Q15.
Table 1: JPM US 10-Year Treasury Yield forecast
1Q15E
2Q15E
3Q15E
4Q15E
2.10%
2.25%
2.30%
2.40%
Source: J.P. Morgan estimates as of 23 January 2015
While potential rate hike will impact the investment appetite for property stocks and
REITs, we think that HK REITs with company-specific drivers can still generate
stable performance this year. In particular, we like stocks with DPU growth potential
with undemanding valuation: Fortune REIT fits into this. Champion REIT is our next
preferred name where DPU growth is expected to come in 2016.
US REITs outperformed towards end of rate hike cycles
Since the history of HK REITs is relatively short (the first one, Link REIT, listed in
November 2005), and the sector has not passed through a full interest rate hike cycle,
we studied the US REITs’ performance in a rising rate environment. When the
economy is in expansion mode, the market expects rental incomes to rise, which can
lead to DPU increases. In the last two rounds of Fed funds rate hikes, from Jun-99 to
Jan-01 and from Jun-04 to Sep-07 where Fed funds rate increased by 175 bps and
425 bps, respectively, we found that the FTSE NAREIT Equity REITs Index initially
stayed flattish but outperformed both the Dow Jones Index and S&P 500 Index
towards the end of the cycles.
4
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Figure 2: REITs outperforming market near the end of Fed funds rate hike cycle in 1999-2000
115
%
110
6.5
105
6
100
5.5
95
5
90
4.5
85
80
Jun-99
7
Sep-99
Dec-99
Mar-00
FTSE NAREIT Equity REITs Index
S&P 500 Index
Jun-00
Sep-00
Dow Jones Index
Fed funds rate (RHS)
4
Dec-00
Source: Bloomberg, J.P. Morgan estimates
Figure 3: REITs outperforming general market most of the time in last Fed funds rate hike cycle
200
%
6
180
5
160
4
140
3
120
2
100
1
80
Jun-04
0
Dec-04
Jun-05
Dec-05
FTSE NAREIT Equity REITs Index
S&P 500 Index
Jun-06
Dec-06
Dow Jones Index
Fed funds rate (RHS)
Jun-07
Source: Bloomberg, J.P. Morgan estimates
During the last Fed funds rate hike cycle in Jun-04 to Sep-07, where rates increased
by 425 bps, FTSE NAREIT Equity REITs Index initially stayed flat and went up
53% for the entire rate hike cycle, significantly outperforming Dow Jones Index and
S&P500 Index, which increased 29% and 30%, respectively. In the rate hike cycle in
Jun-99 to Jan-01, where rates rose to a lesser extent of 175 bps, REITs initially
underperformed the general market and finally outperformed towards the end of the
rate hike cycle. During that period, REITs Index went up 1% compared with a 2%
drop in Dow Jones and a 5% drop in the S&P500.
Table 2: REITs outperforming general market in recent two US Fed funds rate hike
30 Jun 99 – 2 Jan 01: Fed funds rate increased 175 bps
1 day
1 month
3 month
1 year
REITs
0%
-4%
-10%
-2%
entire period
1%
Dow Jones
1%
0%
-5%
-3%
-2%
S&P500
2%
-1%
-5%
8%
-5%
30 Jun 04 – 17 Sep 07: Fed funds rate increased 425 bps
1 day
1 month
3 month
1 year
entire period
REITs
1%
1%
7%
27%
53%
Dow Jones
0%
-3%
-4%
0%
29%
S&P500
0%
-3%
-3%
6%
30%
Source: Bloomberg, J.P. Morgan estimates
5
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Mixed performance before rate hike
Regarding performance of REITs before fed funds rate hike, we found that the
pattern was mixed. We look at the performance of US REITs 6 months, 3 months
and 1 month before rate hike in the last 2 rate hike cycles. In both cases, REITs
stayed flattish from 6 months before rate hike to the time of rate hike. In 1 month
before hike, the performance was mixed. In Jun-99 to Jan-01 cycle, REITs
underperformed while in Jun-04 to Sep-07 cycle, REITs Index was in-line with the
general equity market.
Table 3: REITs performance before US Fed funds rate hike
30 Jun 99 – 2 Jan 01: Fed funds rate increased 175 bps
6 month before
3 month before
1 month before
1%
8%
-3%
Dow Jones
18%
11%
2%
S&P500
10%
5%
4%
REITs
30 Jun 04 – 17 Sep 07: Fed funds rate increased 425 bps
6 month before
3 month before
1 month before
REITs
1%
-8%
1%
Dow Jones
0%
1%
2%
S&P500
2%
1%
1%
Source: Bloomberg, J.P. Morgan estimates
US REITs have a higher correlation with GDP than LT rates
In the report 2015 REIT Outlook: We Are Constructive Given Strong Set-Up Going
into the Year, JPM US REITs team mentioned that the correlation statistics between
REIT stocks and Treasury yields in most time periods and for most bond durations
largely hover around zero, suggesting the securities don’t relate much to each other.
Yet they also mentioned that the REIT space has been a beneficiary of yield-seeking
investors around the globe, and thus a reversal in rates may unwind some of that
benefit that has accrued to the space. They forecast REITs to put up a 10-15% total
return in 2015.
Based on our regression analysis, we found that US REITs have a higher correlation
with US GDP than long-term interest rate. Combining the results of impact of US
Fed funds rate hike on REITs, we believe the underlying economy matters more with
regards to REITs’ performance than rate changes.
LT rates not necessarily driving REITs performance
Looking at the historical performance of US REITs versus long-term interest rate
(10-year bond yield), the correlation between the two was not high. Our US REITs
team has similar findings of low correlation between the two. Detailed correlation
results are on P.35 of their 2015 REIT Outlook research report. The low correlation
implies that rising interest rate may have small impact on US REITs performance.
For example, 10-year US bond yield increased from 1.6% in Jun-12 to 3.0% in Dec13, FTSE NAREIT Equity REITs Index was at similar level at the beginning and end
of this period.
6
Asia Pacific Equity Research
31 January 2015
FNRE Index Y/Y chg
Figure 4: US REITs performance and long-term interest rate not highly correlated
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
-2.50
-2.00
-1.50
-1.00
-0.50
0.00
0.50
1.00
USGG10YR Index Y/Y abs chg
FNRE Index Y/Y chg
1.50
2.00
2.50
Predicted FNRE Index Y/Y chg
Source: Bloomberg, CEIC, J.P. Morgan estimates
GDP has stronger correlation
On the other hand, we found that US GDP has a stronger correlation with US REITs
performance. When the economy is improving, demand for office and retail spaces
are usually higher which, in turn, offers higher bargaining power for the landlords
and commercial REITs to raise rental. We think the expectation of DPU growth is
driving share prices.
Figure 5: US GDP positively driving US REITs performance
40%
FNRE Index Y/Y chg
Amy Luk, CFA
(852) 2800 8524
[email protected]
20%
0%
-20%
-40%
-6.00
-4.00
FNRE Index Y/Y chg
-2.00
0.00
2.00
4.00
6.00
US GDP Y/Y
Predicted FNRE Index Y/Y chg
Linear (FNRE Index Y/Y chg)
Source: Bloomberg, CEIC, J.P. Morgan estimates
7
Asia Pacific Equity Research
31 January 2015
US 10-year bond yield
-4.0
FTSE NAREIT Equity REITs Index (RHS)
Source: Bloomberg, CEIC
US GDP Y/Y
Mar-14
Mar-12
Mar-10
Mar-08
-6.0
Mar-06
Mar-14
Mar-12
Mar-10
Mar-08
Mar-06
Mar-04
Mar-02
Mar-00
Mar-98
Mar-96
Mar-94
Mar-92
Mar-90
0
-2.0
Mar-04
2
0.0
Mar-02
4
2.0
Mar-00
6
700
600
500
400
300
200
100
0
%
4.0
Mar-98
8
6.0
Mar-96
700
600
500
400
300
200
100
0
%
Mar-90
10
Figure 7: US REITs vs US GDP
Mar-94
Figure 6: US REITs vs US 10-year bond yield
Mar-92
Amy Luk, CFA
(852) 2800 8524
[email protected]
FTSE NAREIT Equity REITs Index (RHS)
Source: Bloomberg, CEIC
Both GDP and LT interest rates impacting HK REITs performance
We also ran a regression for HK REITs to see the impact of GDP and long-term
interest rate (10-year HK Exchange Fund Note yield) changes on REITs’ performance.
Given the relatively short listing history, the results of the regression are not totally
consistent with the US REITs market. For HK, we found that both long-term interest
rates and GDP are positively correlated with HK REITs. Overall, both US and HK
markets show that the economy is a factor driving REITs’ performance.
Figure 9: HK REITs also positively correlated with LT interest rates
50.0%
HSREIT Index Y/Y chg
HSREIT Index Y/Y chg
Figure 8: HK REITs positively correlated with HK GDP
30.0%
10.0%
-10.0%
-30.0%
-50.0%
-10.0
-5.0
0.0
HK GDP Y/Y
HSREIT Index Y/Y chg
Linear (HSREIT Index Y/Y chg)
Source: Bloomberg
5.0
10.0
50.0%
30.0%
10.0%
-10.0%
-30.0%
-50.0%
-3.00
-2.00
-1.00
0.00
1.00
2.00
HKGG10Y Index Y/Y abs chg
Predicted HSREIT Index Y/Y chg
HSREIT Index Y/Y chg
Linear (HSREIT Index Y/Y chg)
Predicted HSREIT Index Y/Y chg
Source: Bloomberg
HK yield spread higher than other markets
Comparing the yield spread of HK REITs with other developed markets including
Australia, Japan, Singapore and US, HK REITs trade at a higher spread most of the
time. On a price-to-book perspective, HK REITs trade at a discount to book where
most other developed countries are trading above book.
8
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Figure 10: REITs – yield spread over 10-year bond
5%
Figure 11: REITs – P/B
2.50
4.4%
4.2%
4%
2.13
2.00
1.57
2.7%
3%
2.4%
1.06
1.7%
2%
1%
0%
1.32
1.50
1.00
0.69
0.50
HK
Singapore
Japan
Aus
Source: Bloomberg
US
0.00
US
Japan
Australia
Singapore
Hong Kong
Source: Bloomberg
We think the valuation gap between HK and other developed markets is attributable
to a few factors:

Financial engineering: Other than Link REIT, most of the REITs have some
sort of financial engineering to boost up the face yield when they had an initial
public offering to make it more attractive. Typical examples of financial
engineering include dividend waivers and rental guarantees by the sponsors.
Using IPO proceeds to fund interest rate swaps to boost yield were quite
common in the past.
Table 4: Examples of dividend waivers and revenue guarantee of HK REITs and stapled structure
REIT / Stapled Structure
Dividend waivers
Champion REIT
Sunlight REIT
Yuexiu REIT
Langham Hospitality
Details
Remarks
Great Eagle, Wing Tai, and Kerry Properties to waive 100%, 60% and 50% of their
dividends in the first three financial years of listing.
Dividend waivers by sponsors up till June 2011 (100% share of dividends in FY09, 60% in
FY10, and 50% in FY11); minimum rental guarantee of HK$405mn, HK$429mn and
HK$455mn for FY07-09, respectively.
Great Eagle terminated the dividend waiver
upon the purchase of Langham Place.
The waivers expired in June 2011.
Yue Xiu Property Company and related parties agreed to waive their rights to receive their
pro-rata portion of special distribution in FY12
Great Eagle Group to waive to receive distribution in respect of a portion of share stapled
units in FY13-FY17. The number of distribution waiver units is 150mn, 150mn, 100mn,
100mn and 50 mn in FY13-17, respectively
Expired.
In 2012, Yuexiu REIT acquired Guangzhou IFC from Yuexiu Property Company ("YXP") and
YXP agreed to provide income support for the REIT from 1 July 2012 to 31 December 2016
for the hotel and serviced apartment business. The top-up payment is the shortfall of actual
gross operating profits ("GOP") and the guaranteed GOP of hotel and serviced apartments.
Franshion Properties has agreed to provide an annualized distrib+B36ution guarantee
amount of not less than HK$960 mn for FY14 and Shortfall Payments for maximum
aggregate amount of HK$300 mn for FY15-17 to minimize exposure to the initial start-up
risks of Hyatt Regency Chongming, Renaissance Beijing Wangfujing Hotel and Grand Hyatt
Lijiang.
For FY13, cash received and/or receivable
according to the Deed of top-up payments
amounted to HK$165.8 mn.
For FY13, DPU before and after distribution
waiver is HK$0.174 and HK$0.188
respectively.
DPU and revenue guarantee
Yuexiu REIT
Jinmao Investments
n/a
Source: Company data.

Capital recycling is less active: In general, HK REITs are not active in
recycling their assets after listing. It is more common for HK REITs to acquire
assets than to dispose of assets. As the capital value of the portfolio may not
9
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
materialize, the stocks normally trade at a discount to book, similar to HK
landlords.

Liquidity: Both the market capitalization and average trading value of Hang
Seng REIT Index are lower than other developed markets, which should be
partly due to the smaller number of constituents in the REIT Index (10 members
in HSREIT Index vs 156 members in the FNER Index). Within Asia, the average
turnover of Japan and Singapore REIT is 6.2x and 1.7x of HK, respectively.
Some international investors might prefer a more liquid market.
Table 5: Comparison of market cap and liquidity
Cur. mkt cap
3M avg turnover
(US$MM)
(US$MM)
No. of constituents
903,892
1,502
155
48,881
89
32
Japan
89,141
324
49
AS52PROP Index
Australia
87,477
198
27
HSREIT Index
Hong Kong
28,222
52
10
Index
Country
FNER Index
US
FSTREI Index
Singapore
TSEREIT Index
Source: Bloomberg.
Why invest in REITs?
A REIT is a collective investment scheme constituted as a trust that invests primarily
in real estate with the aim to provide returns to holders derived from the rental
income of real estate. In HK, REITs are required to distribute at least 90% of audited
annual net income after tax. It provides an opportunity for investors to own real
estate without large amounts of capital commitments. As a REIT usually holds a
portfolio of different properties, it provides diversification of real estate portfolio that
an individual investor would not be able to buy alone.
Total return investments
In general, investors investing in REITs are looking for stable recurring income,
high-dividend payout and long-term growth potential. REITs are considered total
return investments which provide relatively high dividends compared with other
property developers and landlords, and provide capital appreciation opportunity as
the assets’ values appreciate via organic growth and acquisition growth.
US REITs outperformed nine times in past 15 years
Comparing the performance of US REITs, US corporate bonds and US equities in
the past 15 years, we found that US REITs have outperformed bonds and equities in
nine out of the past 15 years. We use JPM US Liquid Index (JULI) as a reference for
bonds performance, which measures the performance of investment grade dollar
denominated corporate bond market. The US REITs Index was the worst performer
in 2007 and 2008 since the physical property sector experienced some downturn
during the Global Financial Crisis (GFC).
10
Asia Pacific Equity Research
31 January 2015
Table 6: Performance of US REITs vs bonds and equity from 2000 to 2014
REITs
Bonds
Dow Jones
S&P 500
2000
17%
5%
-6%
-10%
2001
6%
3%
-7%
-13%
2002
-3%
6%
-17%
-23%
2003
28%
1%
25%
26%
2004
24%
-1%
3%
9%
2005
7%
-3%
-1%
3%
2006
30%
-2%
16%
14%
2007
-19%
-1%
6%
4%
2008
-41%
-6%
-34%
-38%
2009
21%
11%
19%
23%
2010
23%
2%
11%
13%
2011
4%
2%
6%
0%
2012
14%
2%
7%
13%
2013
-1%
-7%
26%
30%
2014
25%
2%
8%
11%
Source: Bloomberg, J.P. Morgan estimates.
From Dec-99 to Dec-14, FTSE NAREIT Equity REITs Index went up 175%, more
than bonds index and equity indexes. Yet during the GFC period the REIT index
experienced significant correction. Bonds index is less volatile than REITs and
general equity over the long run. For the same period from Dec-99 to Dec-14, JPM
JULI Index went up 13%.
Figure 12: US REITs vs Equity and Bonds
300
130
250
120
200
110
150
100
100
FTSE NAREIT Equity REITs Index ("RHS")
Dow Jones Index
Dec-14
Dec-13
Dec-12
Dec-11
Dec-10
Dec-09
Dec-08
Dec-07
Dec-06
Dec-05
Dec-04
Dec-03
80
Dec-02
0
Dec-01
90
Dec-00
50
Dec-99
Amy Luk, CFA
(852) 2800 8524
[email protected]
JPM US Liquid Index (RHS)
Source: Bloomberg, J.P. Morgan estimates.
HK REITs outperforming four times in the past six years
The Hang Seng REIT Index was launched in October 2008 so the history for
performance comparison is relatively short. We use JPM Asia Credit Index (JACI
Index Hong Kong) to track bond market performance. In the past six years, HK
REITs have outperformed the Hang Seng Index and JPM HK bond index four times.
While the low interest rate environment has attracted investors to look for yield
projects, we think that DPU growth for some REITs, like Link REIT and Prosperity
REIT, supported the share price growth.
11
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Table 7: Performance of HK REITs vs Bonds and Equities from 2009 to 2014
REITs
Equity
Bonds
2009
54%
52%
13%
2010
37%
5%
4%
2011
-13%
-20%
-1%
2012
36%
23%
7%
2013
-3%
3%
-4%
2014
10%
1%
3%
Source: Bloomberg, J.P. Morgan estimates
Figure 13: HK REITs vs Bonds and Equities
150
140
130
120
110
100
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
350
300
250
200
150
100
50
0
Hang Seng REIT Index
Hang Seng Index
90
JPM HK bond index (RHS)
Source: Bloomberg, J.P. Morgan estimates
HK$
HK$
0.30
0.25
0.20
0.15
0.10
Champion REIT share price
Source: Bloomberg
12
0.40
0.35
Jun-06
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
Figure 15: Fortune REIT – share price vs DPU
8.5
7.5
6.5
5.5
4.5
3.5
2.5
1.5
0.5
HK$
HK$
Sep-03
May-04
Jan-05
Sep-05
May-06
Jan-07
Sep-07
May-08
Jan-09
Sep-09
May-10
Jan-11
Sep-11
May-12
Jan-13
Sep-13
May-14
Figure 14: Champion REIT – share price vs DPU
DPU (RHS)
Fortune REIT share price
Source: Bloomberg
DPU (RHS)
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Figure 16: Link REIT – share price vs DPU
60
HK$
Figure 17: Prosperity REIT – share price vs DPU
HK$
50
2.00
3.0
1.75
2.5
1.50
40
HK$
0.14
0.13
1.5
1.00
0.16
0.15
2.0
1.25
30
HK$
0.12
1.0
0.11
10
0.50
0.5
0.1
Link REIT share price
Source: Bloomberg
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
0.75
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
20
DPU (RHS)
Prosperity REIT share price
DPU (RHS)
Source: Bloomberg
Investment risks
Acquisitions may cause dilution
As most of the REITs listed in Hong Kong pay out 100% of their distributable
income, the acquisition of new assets usually requires new capital financing of equity
and debt. Since most of the REITs are trading below book value, equity financing
may cause NAV and DPU dilution.
The acquisition of Langham Place in 2008 was an example of dilution as Champion
REIT issued equity to fund the acquisition. That said, acquisitions may not always
lead to DPU dilution. For instance, Fortune REIT funded the acquisition of Fortune
Kingswood in 4Q13 mainly by debt and partly by equity and achieved strong DPU
growth in 2014. For the NPI growth of 25.1% in FY14, 18.4% was brought by
Fortune Kingswood. DPU therefore grew by 15.8% Y/Y in FY14.
Higher interest cost may affect distribution growth
Given that REITs investors are usually seeking yield, it is generally perceived that
the performance of REITs will be affected by rising interest rates. As most of the
REITs or Trust Structures have gearing (total debt to total assets) of over 20%, their
interest expenses will increase in a rising rate environment which, in turn, will affect
earnings and distribution growth.
HK economic cycle may not follow US
In the case of interest rate hikes in HK, due to the fact that the HKD is pegged to the
USD, interest rate cycles in HK may not be fully following economic cycles. In an
environment of interest rate hikes in a sluggish economy, HK REITs performance
may get affected.
Looking at the historical correlation between HK economy and US and China, we
found that the correlation between HK and China has been quite steady over the
long-term. After GFC, the correlation between HK and US has jumped which we
think was due to the correlation of the financial markets in HK and US. Given that
HK economy appears to be affected by both China and US and JPM China
economist is forecasting a moderation in China GDP to 7.2% in 2015, there is a
possibility that HK economic growth will lag HK interest rate hike.
13
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Figure 18: Correlation between US and HK and China GDP growth
Figure 19: China, HK and US GDP growth (%)
1.00
20.00
15.00
0.50
10.00
5.00
0.00
0.00
-5.00
Source: IMF, CEIC, J.P. Morgan estimates. Note: correlation estimated on 10 year rolling basis.
HK
China
2013
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
Corr. of HK and China real GDP growth
Corr. of HK and US real GDP growth
Corr. of China and US real GDP growth
1991
-10.00
1989
2013
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
-0.50
US
Source: IMF, CEIC.
Potential drop in market value impacting gearing levels
The potential drop in market value of properties in the case of a market downturn
may cause gearing to exceed 45%, breaching regulatory limits. In case the limit is
exceeded, the REIT may not be required to dispose of assets to pay off part of the
borrowings. But no further borrowing is permitted.
Code on REITs
Compared with other developed financial markets in Asia, HK is relatively late in
setting up the Code on Real Estate Investment Trusts (REIT Code). The Securities
and Futures Commission (SFC) introduced the HK REIT Code in 2003. The first
REIT listed in HK was Link REIT (823 HK), which issued its IPO in November
2005. Prior to that, another REIT with assets exposure in HK, Fortune REIT, chose
to first list in Singapore in December 2003 and then become dual listed in both Hong
Kong and Singapore.
Amendments to HK REIT Code
The HK REIT Code was amended in August 2014 to expand the scope of investment
of a REIT. Investments in properties under development and investments in financial
instruments are now allowed. Key amendments include:

At least 75% of the gross asset value (GAV) shall be invested in real estate that
generates recurring rental income at all times;

Investments in properties under development and property development
activities should not exceed 10% of GAV at time of acquisition;

A REIT may invest in the following financial instruments (Relevant
Investments) where the holding of Relevant Investments issued by any single
group of companies may not exceed 5% of GAV:
a)
securities listed on the Stock Exchange of Hong Kong Limited or other
internationally recognized stock exchanges
b) unlisted debt securities
14
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
c)
government and other public securities
d) local or overseas property funds

The combined value of the Relevant Investments, property development costs
and aggregate contract value of uncompleted units of real estate shall not exceed
25% of GAV.
Link REIT is key beneficiary of amendments
The amendments will provide more flexibility for HK REITs, in our view. For REITs
looking for potential acquisition opportunities, previously they could only look for
completed properties. With the introduction of the amendments, they can now invest
in greenfield projects and be involved in designing the layout they prefer. We think
that Link REIT is the key beneficiary from this perspective as they do not have a
sponsor. Other than investing in new development properties, Link REIT can also
consider redeveloping aged properties in its portfolio for rental uplift potential.
However, we viewed the first property development project of Link REIT as
unattractive on an estimated initial yield of cost of 2.6-3.0%.
Most other REITs listed in Hong Kong have sponsors where they normally acquire
properties from sponsors on a completed basis where sponsors are involved in the
design and development of the properties.
Pros and cons of investment in properties under development
While the amendments provide flexibility for REITs, there are also some risks
associated with property development. Below is the summary of key positives and
negatives of investment in development properties for REITs:
Positives

For acquiring properties under development, REITs can be involved in the floor
plan they prefer, which may generate a higher yield upon completion.

Allowance of redevelopment may generate a higher yield than assets
enhancement.
Negatives

REITs without a property developer sponsor may not have extended experience
in property development.

Properties under development are not income-generating and not contributing to
dividends until completion.
Comparison between REIT regulations across countries
As investors look into different REIT markets, we believe it is worth comparing the
REIT regulations across markets. The REIT regulations can help protect investors'
interests to various extents and assess the potential investment risks. Also, they allow
us to take into account the financial impacts from different tax policies. We provide
below a summary of REIT regulations in some key Asian markets as well as the US
in terms of: 1) tax policies, 2) investment scope, and 3) leverage limit.
15
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Tax policies on REITs and investors
When we look at tax policies concerning REITs, it is split into two levels: 1) REIT
level and 2) investor level. For the seven markets in our study, all of them only levy
tax from either the REIT (on income) or investor (on distribution) except the
Philippines so as to avoid double taxation.
Regarding tax to be paid by REITs, it is indeed fairly common for countries such as
Australia, Singapore, Japan and the US to exempt tax if taxable income is distributed.
That said, these countries will levy tax from investors (e.g., withholding or income
tax) on the distributions received.
In contrast, Hong Kong charges tax at the REIT level (e.g., profit tax of 16.5% if the
REIT holds real estate indirectly via SPV) but none at the investor level. However,
the Philippines charges both income tax and dividend tax even though preferential
withholding tax rate will be applied if the investing entities satisfy certain conditions.
Hence, the Philippines may look less attractive from a tax perspective compared to
other markets.
Investments scope: Can REITs invest in development properties?
After amendments on the HK REIT Code, Japan became the only market prohibiting
investments in property developments among the seven countries. That said, Hong
Kong, the Philippines, Singapore and Thailand all set a cap of 10% of GAV or total
portfolio size on these investments.
On the other hand, some markets also set restrictions on the types of assets that can
be invested. For instance, some require at least 75% of GAV to be invested in real
estate assets or real estate that generates recurrent income. Certain markets are also
allowed to invest in financial instruments but also with a cap.
Gearing limits
In terms of restrictions on leverage, Singapore, Thailand and the Philippines set the
limit at 35% of gross borrowings to total assets or total property value. That said, the
gearing limit will be raised to 60-70% if the REIT obtains a credit rating. For Hong
Kong, the universal limit of 45% is still in place.
In contrast, Japan, the US and Australia do not have any specific limit on leverage.
However, individual REITs in Japan tend to establish leverage caps as a best practice
announcement to investors.
16
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Table 8: Comparison of REIT regulations across countries (part 1)
Do Investors in REITs
Pay Tax on Distributions?
Yes;
Withholding tax on distributions:
Domestic: None;
Foreign: 30% or reduced amount of
15% if invest via certain countries.
Can REITs Invest in
Development Properties?
Yes, REITs can invest in properties
under development. However, the
REIT cannot be the developer
otherwise tax flow-through treatment
will not apply, but a stapled
corporation can be the developer
Is there a Maximum % of
Assets that Invested in
Development Properties?
No
Country
Australia
Do REITs Pay Tax?
No, not on taxable income that is
distributed
Hong
Kong
Yes. Applicable taxes:
- Property tax (15% on net assessable
value which is computed based on
rental income) if the REIT holds real
estate in HK directly and derives
rental income
- Profit tax (16.5%) if the REIT holds
real estate indirectly via SPV
- Exempted from property tax and
profit tax if income derived from real
estate located outside HK
- Stamp duty for lease of property
(0.25% to 1% of average yearly rent
depending on lease term)
No
Yes
10% of gross asset value
Philippines
Yes. A REIT shall be subject to
income tax (30%) and also 12% VAT
on gross sales from any disposal of
real property or gross receipts from
rental revenues.
Yes. Cash or property dividends paid
by a REIT shall be subject to a final
tax of 10%, unless (a) the dividends
are received by a non-resident foreign
individual or corporation entitled to
claim a preferential withholding tax
rate of less than 10% pursuant to an
applicable tax treaty; or (b) the
dividends are received by a domestic
corporation or resident foreign
corporation. Overseas Filipino
investors are exempt from the
dividends tax for 7 years from the
date the tax regulations implementing
the Act takes effect.
Yes. A REIT may invest in real estate
located in the Philippines, whether
freehold or leasehold. However, a
REIT shall not undertake property
development activities whether on its
own, in a JV with others, or by
investing in unlisted property
development companies, unless
certain conditions are met.
Yes. The total contract value of
property development activities
undertaken and investments in
uncompleted property developments
should not exceed 10% of the
Deposited Property of the REIT
(allowed only if the REIT intends to
hold the developed property upon
completion).
Singapore
No if payout ratio is a min 90%
Depending on status: no taxation for
individual investors; prevailing
corporate tax rate (currently 17%) for
local corporate investors and 17%
withholding tax for foreign corporate
investors (reduced to 10% for
distributions made during the period
from 18 Feb 2005 to 31 Mar 2015).
Yes
Capped at 10% of total portfolio size.
Thailand*
No
Yes (10% for personal, 23% corp)
Yes
10%
Japan
No; as long as 90%+ of earnings are
distributed as dividends, JREITs are
not required to pay taxes.
Yes; total tax on distribution (income
tax + special corporate tax for
reconstruction + residents tax) is
10.147% until 12 Dec 2013 and
increased to 20.315% from 2014
No; JREITs are forbidden by law to
invest in development properties.
－
US
No; as long as 90%+ of taxable net
income is distributed as dividends.
However, the REITs may have to pay
taxes on non-rental related income
though this tends to be small.
Companies can have a TRS (taxable
REIT subsidiary) up to 25% of income
on which they do pay taxes
Yes, based on their federal ordinary
income tax rate
Yes
No
Source: PwC Worldwide REIT Regimes (May 2013), KPMG Taxation of REIT (Dec 2013), Asia Pacific REIT Survey (April 2011), APREA's Asia Pacific REITs: a comparative regulatory & tax study
(Jun 2014), local regulatory authorities, J.P. Morgan.
17
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Table 9: Comparison of REIT regulations across countries (part 2)
Country
Australia
Hong
Kong
Are there Restrictions on the
Type of Assets in which REITs
can Invest?
No
- At least 75% of GAV shall be
invested in real estate that generates
recurrent rental income at all times
What is the Definition of
Leverage?
NA
What is the Maximum
Permissible Leverage?
Unrestricted
Does the Maximum
Permissible Leverage
Change if the REIT is Rated?
NA
Gross borrowings / total assets
45%
NA
- May invest in the following financial
instruments provided that holdings in
any single group of companies would
not exceed 5%: (a) listed securities,
(b) unlisted debt securities, (c)
government and other public
securities and (d) local or overseas
property funds.
- The combined value of financial
instruments, property development
costs and aggregate contract value of
uncompleted units of real estate shall
not exceed 25% of GAV
Philippines
Yes. At least 75% of the deposited
property of the REIT must be invested
in income generating real estate. Not
more than 15% of investible funds
may be invested in any one issuer’s
securities or any one managed fund,
except with respect to government
securities where the limit is 25%. Not
more than 5% of its investible funds
may be invested in synthetic
investment products (subject to the
receipt of special authority from the
SEC)
The definition is not explicit but the
implementing rules and regulations
mentioned that "borrowings and
deferred payments" form part of
leverage.
Total borrowings and deferred
payments should not exceed 35% of
deposited property.
Yes. If rated by a duly accredited or
internationally recognized rating
agency, total borrowings and deferred
payments may exceed 35% to a
maximum of 70% of deposited
property.
Singapore
No restrictions on asset class, but min
75% of portfolio must be in realestate/real-estate related assets
Gross borrowings / total assets
35% of deposited property for non
credit-rated REITs
Yes (up to 60% if REIT is credit-rated)
Thailand*
No
Gross borrowings / total assets
not higher than 35%
60% in case having investment grade
rating
Japan
None; but individual REITs establish
boundaries on their statutes
The employing of borrowed capital to
increase profitability (ratio) of owned
capital
None by law; individual REITs tend to
establish leverage caps as safe
practice announcement to investors.
－
US
75% of assets must be real estate
related (can also be loan secured by
property), and 75% of income must be
derived from real estate income (rents
or mortgages)
Investment community looks at Debt
to Total Market Cap and Net
Debt/EBITDA, also coverage ratios
None specifically
－
Note: Proposals on regulatory changes in Singapore was released and changes can potentially take place in 1H15. Also, Thailand is still in the process of setting regulations by the SEC and details
provided here are preliminary and not finalized yet.
Source: PwC Worldwide REIT Regimes (May 2013), KPMG Taxation of REIT (Dec 2013), Asia Pacific REIT Survey (April 2011), APREA's Asia Pacific REITs: a comparative regulatory & tax study
(Jun 2014), local regulatory authorities, J.P. Morgan.
18
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Comparison of stapled structure & REITs
In 2013, a property-related trust was listed in the form of shared stapled units
structure (“stapled structure”), which was the spin-off of three Hong Kong hotels
from Great Eagle to Langham Hospitality Investment (1270 HK). In 2014, another
stapled structure Jinmao Investments (6139 HK) was listed.
Components of stapled structure
In the case of Jinmao, each share stapled unit comprises three components. They can
only be dealt with together in Share Stapled Units and may not be dealt with
individually. There is only a single price quotation for the structure. The components
are:

Units;

A beneficial interest in a specifically identified Ordinary Shares held by the
Trustee-manager, which is “Linked” to the Unit; and

A specifically identified Preference Share which is “Stapled” to the Unit.
For a detailed description of the structure, please refer to p.12-13 of our initiation
report “Jinmao Investments – Diversified portfolio capturing growing domestic
travel; Initiate with Neutral” published on 25 August 2014.
Advantages and risks of stapled structure
The stapled structure is more flexible in terms of type of investment, percentage of
ownership of assets, etc. even after the amendments of the REIT Code. For example,
there is no limit on percentage of GAV invested in any type of assets for stapled
structure. In addition, dividend policy and gearing levels are also more flexible than in
REITs.
The structure is relatively new to the Hong Kong market. The risk is that the HK
courts may not interpret the relevant investor protection provisions applicable to
holders of stapled structure in the same manner as those enjoyed by shareholders of
companies listed on the Stock Exchange of Hong Kong.
19
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Table 10: Key differences between Jinmao Investments and REITs
Jinmao Investments
A fixed single investment trust and may only invest in securities and
other interests in Jinmao (China) Investments Holdings Limited (“the
Company”). The Trustee-Manager has a specific and limited role,
which is to administer Jinmao Investments
REITs
Trustees or managers typically have wider powers of investment and
would typically invest in and manage a portfolio of securities issued by
different entities and/or other assets
Type of investments
Flexible to undertake development projects and to invest in other
types of assets
A REIT is permitted to invest in income generating real estate,
property under developments and financial instruments
Distribution Policy
100% of Distributable Income for period 31 December 2014 and FY15
and not less than 90% thereafter but the Company has the flexibility
to distribute a lesser %
A REIT in HK is required to distribute not less than 90% of its audited
annual net income after tax under the REIT Code
Share buyback
Share Stapled Units cannot be repurchased or redeemed by Jinmao
Investments or the Company unless and until specific regulations are
introduced by the Securities and Futures Commission
Allowed
Issue of new Units
Any issue by Jinmao Investments and the Company of new Share
Stapled Units on a non-pro rata basis requires prior approval by an
Ordinary Resolution
Allowed
Gearing limit
Jinmao Investments is not permitted to incur any debt but no limit on
the Company to incur debt
45% (aggregate borrowings to total gross asset value)
Ownership of assets
No restriction on ownership and control level
A REIT should have majority (more than 50%) ownership and control
in each property at all times
Role of trustee
Source: Company data, Securities and Futures Commission.
20
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
List of REITs and stapled structure in HK
There are currently ten REITs listed in Hong Kong with assets located in Hong Kong
and China. Including the two stapled structure trusts, there are altogether 12 property
related trusts listed in HK. On the other hand, there are two REITs listed in
Singapore with assets and rental income generated in Hong Kong and China, namely
Fortune REIT and Mapletree Greater China Commercial Trust.
The types of assets that HK REITs and stapled structure trusts are exposed to are
mainly office, retail and hotel. In general, the valuation of the properties held by
REITs and trusts are revalued every six months and reflected in the financial
statements. However, hotels are usually recognized as cost less depreciation in the
balance sheet unless there are master lease arrangements so that the hotels are
classified as investment properties.
Table 11: Summary of HK REITs – financial positions as at Jun-14 / Sep-14
Company
Sponsor
No. of
prop
Property
valuation
HK$mn
Total
debt
HK$mn
Total
assets
HK$mn
Gearing
% of fixed rate
/ hedged debt
Champion REIT
Great Eagle
2
Fortune REIT
Cheung Kong
17
Office / Retail
61,150
14,704
62,497
23.5%
21%
Retail
30,880
9,923
31,798
31.2%
Jinmao Investments
Franshion Properties
55%
9
Hotel / Office
10,092
5,344
21,371
37.0%
Langham Hospitality
Great Eagle
n/a
3
Hotel
16,719
6,800
17,527
38.8%
0%
Link REIT
n/a
Mapletree Greater China (in SGD)
Mapletree
2
Retail / Office
125,486
14,293
129,932
11.0%
80%
4,722
1,821
4,825
37.7%
77%
New Century REIT (in Rmb)
New Century Group/Carlyle
5
Prosperity REIT
Cheung Kong
8
Hotel
4,190
1,257
4,413
28.5%
93%
Office / I/O / Retail
9,609
2,774
9,679
28.9%
Regal REIT
Regal Hotels
7
Hotel
50%
22,749
7,594
23,897
31.8%
Spring REIT (in USD)
n/a
1
51%
Office / Retail
1,276
458
1,367
33.5%
100%
Sunlight REIT
Henderson Land
Yuexiu REIT (in Rmb)
Yuexiu Property
19
Office / Retail
15,391
3,872
16,152
24.3%
66%
6
Office / Retail
22,987
7,704
24,412
31.6%
28%
174
Type
Retail / Carpark
Source: Company data, J.P. Morgan estimates
Trustee and REIT Manager
Every REIT in HK should be structured as a trust and appoint a trustee which has the
fiduciary duty to hold the assets of a REIT. The trustee is usually a bank or a
subsidiary of a bank. Trustee’s fees are paid to the trustee as a percentage of property
value.
Internal and External Manager
In addition, every REIT in HK is required to appoint a management company to
manage the portfolio, including formulating the investment strategy, managing cash
flows, planning the tenant mix, etc. Other than Link REIT, which is internally
managed, the assets of other REITs and real estate trust structure listed in HK are
managed externally by REIT Managers where manager fees are paid based on asset
size and property income. For internally managed REIT, the manager’s fee is paid on
cost recovery basis.
21
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
REIT Managers fee payable in units and cash
REIT Managers in HK are usually subsidiaries of the sponsors. REIT managers’ fees
are paid in the form of cash and units. After receiving units as managers’ fees, the
REIT managers normally sell the units in the market. For the case of stapled
structure, they are considered as internally managed as the Trustee-Manager will not
receive any fee for administrating the stapled structure. The costs and expenses of
administering the stapled structure are deducted from the trust property.
Table 12: Summary of REIT Manager fee structure
REIT
REIT managers' fee structure
Champion REIT
Fortune REIT
Link REIT
Mapletree Greater China
12% of NPI
0.3% of property values + 3% of NPI
None
10% of distributable income + 25% of
DPU change
New Century REIT
Prosperity REIT
Regal REIT
Spring REIT
Sunlight REIT
Yuexiu REIT
0.3% of property values + 4% of NPI
0.4% of property values + 3% of NPI
0.3% of property values + 3% of NPI
0.4% of property values + 3% of NPI
0.4% of property values + 3% of NPI
0.3% of property values + 3% of NPI
Source: Company data
22
Trustee's fee (%
of prop value)
0.03%
0.035%
0.008%
0.02%
0.015-0.025%
0.03%
0.015-0.025%
0.025%
0.02-0.03%
0.03%
Remark
REIT Manager to receive 50% of manager's fee in units and 50% in cash for 1H14
Internally managed
REIT Manager to receive 80% of fee in units and 20% in cash for FY15
REIT Manager to receive 100% of fee in cash for FY15
REIT Manager to receive 80% of fee in units and 20% in cash for FY14
REIT Manager to receive 50% of manager's fee in units and 50% in cash for FY15
REIT Manager to receive 95% of manager's fee in units and 5% in cash for 1H14
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Link REIT vs Fortune REIT
Non-discretionary as major tenants mix
Given the similar types of tenants mix exposure of Link REIT and Fortune REIT,
investors are interested in comparing these two retail REITs. Both of the REITs hold
retail malls located in decentralized areas servicing mainly the residents living
nearby. Malls of Link REIT are located close to public estates, whereas malls of
Fortune REIT are near private estates. Since target customers are mainly residents
staying near the malls, non-discretionary consumer categories account for a major
portion of tenants mix. Food and beverage accounts for 25% and 23% of tenants mix
of Link and Fortune, respectively.
Table 13: Link REIT and Fortune REIT – summary of portfolio
No. of properties
Fortune REIT
Link REIT
18 (including Laguna Plaza)
175 (including Kwun Tong office project)
Passing rents (HK$psf)
36.4
43.6
34,800
125,486
Retail: 4.70%
Retail: 4.76%; Carpark: 5.09%
16,455
120,433
5.1%
3.6%
Property valuation (HK$mn)
Cap rate
Market cap (HK$mn)
12-month forward yield (%)
Source: Company data, J.P. Morgan estimates
Figure 20: Link REIT – retail trade mix by rent as at 30 Sep 2014
Others
17%
Personal Care,
Medicine, Optical,
Books & Stationery
8%
Services
11%
Markets/Cooked
Food Stalls
15%
Food and Beverage
25%
Education/Welfare,
Office and Ancillary
1%
Supermarkets and
Foodstuff
23%
Source: Company data
Figure 21: Fortune REIT – tenant mix by gross rental income as at 31 Dec 2014
Wet Markets Others
4%
Supermarkets 1%
8%
Services &
Education
21%
Leisure &
Entertainment,
Sports & Fitness
3%
Gifts & Speciality,
Hobbies, Toys,
Jewellery
5%
Banking & Real
Estate Services
21%
Community Services
1%
Electronics & IT
2%
Fashion & Shoes
8%
Homewares & Home
Furnishings
3%
Food & Beverages
23%
Source: Company data
23
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Solid rental growth since listing
Both REITs recorded solid growth in average rents since listing, mainly driven by
assets enhancements and tenants mix rebranding. Average passing rent of Fortune
went up 143% from HK$15 psf as at Dec-03 (on gross rentable area) to HK$36.4 psf
as at Sep-14. For Link REIT, it went up 90% from HK$23 psf as at Mar-06 (on
internal floor area) to HK$43.6 psf as at Sep-14. Fortune experienced a big jump in
average passing rent in 2005 after the acquisition of six malls as the new malls had a
higher average passing rent than the original five malls in the portfolio.
The passing rent of Link is higher than that of Fortune, which is mainly due to a
different basis. Rent of Link is measured on an internal floor area basis where
Fortune is measured on gross rentable area (GRA) basis. We found that for some
properties of Fortune, the GRA is the same as GFA. Assuming GRA and GFA is the
same for Fortune and assuming 50% efficiency of Link's malls, the average passing
rent of Fortune would be more than 60% higher than Link.
Figure 23: Fortune REIT – passing rent
Link REIT - passing rent (HK$ psf)
Fortune REIT - passing rent (HK$ psf)
Passing rent - Y/Y change (RHS)
Passing rent - Y/Y change (RHS)
Source: Company data, J.P. Morgan estimates
Jun-14
Sep-13
Dec-12
Jun-11
Mar-12
Sep-10
Dec-09
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
20.0
Jun-08
25.0
Mar-09
30.0
Sep-07
35.0
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
-5%
HK$ psf
Dec-06
40.0
40.00
35.00
30.00
25.00
20.00
15.00
10.00
Jun-05
HK$ psf
Mar-06
14%
12%
10%
8%
6%
4%
2%
0%
Sep-04
45.0
Dec-03
Figure 22: Link REIT – passing rent
Source: Company data, J.P. Morgan estimates
Prefer Fortune over Link
For 2015, we expect retail rent to be flattish. But some malls of Link and Fortune can
still have rental growth potential in 2015 for mall-specific reasons e.g. malls after
assets enhancement. Among the two, we prefer Fortune REIT over Link REIT for a
few reasons:
24

Valuation of Fortune REIT is more attractive with higher dividend yield than
Link REIT (12-month forward yield: Fortune: 5.1%, Link: 3.6%).

Impact of each acquisition for Fortune is higher than Link given Fortune’s size is
smaller, e.g., Fortune Kingswood in Tin Shui Wai contributed to 18% growth in
NPI in FY14.
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Valuation
As the objectives of HK REITs and Share Stapled Units Structure are to focus on the
payment of distributions to unit holders and to provide unit holders with the potential
for sustainable long-term growth, we believe a dividend discount valuation model
(DDM) is a fair method to value REITs and Share Stapled Units Structure.
Valuation assumptions
For REITs and stapled structure under our coverage, we apply a risk-free rate of 2.75%
versus current 10-year bond yield of 1.4% to incorporate potential volatility in interest
rate movement. The beta that we apply in our valuation ranges from 0.53 to 1.24 and
the discount rate that we apply ranges from 5.2 to 9.8%. Within our coverage, we apply
the highest discount rate for Jinmao Investments (9.8%) as their assets are located in
China and the hospitality sector is cyclical in nature.
The HK REITs sector (including stapled structures) trades on a long-term average of
6.1% dividend yield and 3.5% yield spread over the 10-year bond. This average
includes the period of GFC, when the average dividend yield peaked at 10.9% in
November 2008. During the GFC, there were concerns that some of the REITs might
breach the regulatory limit of 45%.
The sector is now trading at a range of CY15E dividend yield of 3.5% to 8.9% based
on our and consensus estimates, with the largest market cap Link REIT trading at the
lowest yield of 3.5% and New Century REIT with China hospitality exposure at the
highest-end at 8.9%. The market weighted average CY15E and CY16E yield is 5.0%
and 5.3%, respectively.
Change in price target
We have adjusted up the PT of Champion REIT, Fortune REIT and Link REIT
following the application of a lower risk-free rate assumption (from 3% to 2.75%) in
our DDM calculation. Our adjustment has taken into account the movement in HK
10-year bond yield and JPM US interest rate forecasts. JPM US Fixed Income
Strategy forecasts 10-year US treasury yield to be 2.4% in 4Q15 as at 23 January
2015, compared with a 2.8% as at 25 November 2014. Given the recent acquisition
of office property development by Link REIT, we think the business risk is increased
and hence beta assumption for Link is adjusted up from 0.51 to 0.53 accordingly.
Table 14: Summary of PT change
Old (HK$)
New (HK$)
% change
Key reasons for change
Champion REIT
3.95
4.15
5.1%
Change in risk-free rate assumption
Fortune REIT
8.60
9.80
14.0%
Change in risk-free rate assumption, update on
financial position after FY14 results
Link REIT
47.50
49.50
4.2%
Change in risk-free rate assumption, higher
business risk
Source: J.P. Morgan estimates.
25
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Table 15: US 10-year treasury rate forecasts
Date
1Q15
2Q15
3Q15
4Q15
23-Jan-15
2.10
2.25
2.30
2.40
09-Jan-15
2.10
2.25
2.30
2.40
19-Dec-14
2.35
2.50
2.60
2.70
12-Dec-14
2.55
2.70
2.75
2.80
25-Nov-14
2.55
2.70
2.75
2.80
21-Nov-14
2.60
2.75
2.95
n/a
07-Nov-14
2.60
2.75
2.95
n/a
31-Oct-14
2.60
2.75
2.95
n/a
24-Oct-14
2.60
2.75
2.95
n/a
17-Oct-14
2.60
2.75
2.95
n/a
03-Oct-14
2.85
3.00
3.10
n/a
26-Sep-14
2.85
3.00
3.10
n/a
19-Sep-14
2.85
3.00
3.10
n/a
12-Sep-14
2.85
3.00
3.10
n/a
05-Sep-14
2.85
3.00
3.10
n/a
Source: JPM US Fixed Income Strategy team forecasts.
Table 16: HK listed REITs and stapled structure valuation summary
FY Ending
(month)
Champion REIT
Dec
Fortune REIT
Dec
GZI REIT
Dec
Jinmao
Dec
Langham Hospitality
Dec
Link REIT
Mar
New Century REIT
Dec
Prosperity REIT
Dec
Regal REIT
Dec
Spring REIT
Dec
Sunlight REIT
Jun
Total/Market weighted average
Share price
29-Jan-15
(HK$)
3.83
8.83
4.09
5.60
3.55
52.90
3.24
2.87
2.16
3.75
3.93
Current
Mkt Cap
(HK$ MM)
22,003
16,568
11,451
11,200
7,179
121,235
3,017
4,074
7,036
4,161
6,417
237,348
Rating
OW
OW
NC
N
NC
N
NC
NC
NC
NC
NC
NPV
Forward
(HK$)
4.13
9.82
N/A
6.13
N/A
49.6
N/A
N/A
N/A
N/A
N/A
Source: Bloomberg, Bloomberg consensus for stocks Not Covered (NC), Company data, J.P. Morgan estimates
26
Prem/(disc) to
Fwd NPV
(%)
-7%
-10%
N/A
-9%
N/A
7%
N/A
N/A
N/A
N/A
N/A
2.3%
CY14E
(%)
5.1%
4.7%
7.0%
8.6%
8.1%
3.3%
9.7%
5.7%
N/A
8.3%
5.2%
4.8%
Div. yield
CY15E
(%)
4.8%
5.1%
7.5%
8.6%
8.1%
3.5%
8.9%
6.1%
N/A
8.3%
5.6%
5.0%
CY16E
(%)
5.1%
5.3%
7.5%
9.0%
8.1%
3.8%
8.1%
6.1%
N/A
7.9%
5.9%
5.3%
P/B ratio
FY14E
(x)
0.48
0.74
0.73
1.29
0.69
1.27
0.84
0.64
N/A
0.63
0.56
1.00
Gearing
FY13
(%)
23.3%
32.4%
31.9%
27.1%
38.2%
13.6%
26.3%
20.7%
29.8%
36.0%
24.0%
19.0%
Asia Pacific Equity Research
31 January 2015
Figure 24: HK and China REITs - 2014 share price performance
Link REIT
Fortune REIT
Prosperity REIT
Sunlight REIT
Spring REIT
Property Developers
Mapletree GCCT
Hang Seng REIT Index
Jinmao Investments
Hang Seng Property
Champion REIT
Yuexiu REIT
Property Investors
Hang Seng Index
Regal REIT
-8.1%
New Century REIT -9.3%
Langham Hospitalit y -9.7%
-9.8%
Hui Xian REIT
-20%
Figure 25: HK and China REITs – 2015 YTD share price performance
Fortune REIT
Sunlight REIT
Link REIT
Prosperity REIT
Property Investors
Property Developers
Hang Seng Property
Mapletree GCCT
Hang Seng REIT Index
Champion REIT
Langham Hospitalit y
Regal REIT
Yuexiu REIT
Hang Seng Index
Spring REIT
Hui Xian REIT
New Century REIT
Jinmao Investments
29.1%
24.4%
16.8%
16.7%
15.5%
14.7%
13.1%
9.7%
9.3%
7.2%
5.0%
2.9%
1.5%
1.3%
-10%
0%
10%
20%
30%
40%
12.8%
12.3%
9.0%
8.7%
7.9%
7.1%
6.9%
6.8%
6.7%
6.4%
5.7%
5.4%
5.1%
4.2%
2.5%
-0.3%
-1.8%
-4.3%
-10%
-5%
0%
5%
10%
15%
Source: Bloomberg, company data, J.P. Morgan estimates
Note: Prices as of 29 Jan 2015. Source: Bloomberg, company data, J.P. Morgan estimates
Figure 26: HK REITs and stapled structures – yield
Figure 27: HK REITs and stapled structure – yield spread
+2 s.d.
+1 s.d.
mean
-1 s.d.
%
8.0
+2 s.d.
6.0
+1 s.d.
4.0
mean
-1 s.d.
2.0
-2 s.d.
-2 s.d.
-2.0
Dec-05
Jun-06
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
0.0
Source: Bloomberg, company data, J.P. Morgan estimates
Source: Bloomberg, company data, J.P. Morgan estimates
Figure 28: HK REITs and stapled structures – CY15E yield
Figure 29: HK REITs and stapled structure – CY16E yield
%
%
Source: Bloomberg, company data, J.P. Morgan estimates
Spring REIT
Prosperity REIT
New Century REIT
CY16E Avg
Link REIT
Langham Hospitality
Jinmao
GZI REIT
CY16E
Fortune REIT
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Champion REIT
Hui Xian REIT
Sunlight REIT
Spring REIT
Prosperity REIT
New Century REIT
CY15E Avg
Link REIT
Langham Hospitality
Jinmao
GZI REIT
Fortune REIT
CY15E
Champion REIT
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Sunlight REIT
10.0
%
Dec-05
Jun-06
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
12.0
11.0
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
Hui Xian REIT
Amy Luk, CFA
(852) 2800 8524
[email protected]
Source: Bloomberg, company data, J.P. Morgan estimates
27
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Figure 30: Champion REIT yield spread
Figure 31: Champion REIT dividend yield
%
%
25
20
18
20
16
14
15
12
10
8
10
Long-term yield spread =458 bps
Long-term yield =7.03%
6
5
4
Avg yield before financial crisis: 7.92%
2
0
May-06
May-07
May-08
May-09
May-10
May-11
May-12
May-13
0
May-06
May-14
May-07
May-08
May-09
May-10
May-11
Source: Bloomberg, company data, J.P. Morgan estimates
Source: Bloomberg, company, J.P. Morgan estimates
Figure 32: Fortune REIT yield spread
Figure 33: Fortune REIT dividend yield
%
%
25.0
25
20.0
20
15.0
15
10.0
5.0
May-12
May-13
May-14
10 Avg yield before financial crisis: 6.10%
Avg yield spread before
financial crisis: 217 bps
5
Long-term yield spread =444 bps
Long-term yield =7.2%
358bps
0.0
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
0
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Source: Bloomberg, company data, J.P. Morgan estimates
Source: Bloomberg, company data, J.P. Morgan estimates
Figure 34: Link REIT yield spread
Figure 35: Link REIT dividend yield
%
%
7.0
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
9
6.0
8
5.0
7
4.0
3.0
Long-term yield spread =233 bps
207 bps
2.0
6
Long-term yield =4.89%
5
1.0
4
0.0
-1.0
-2.0
Jan-06
3
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Source: Bloomberg, company data, J.P. Morgan estimates
28
Jan-12
Jan-13
Jan-14
Jan-15
Avg yield before financial
crisis: 4.45%
2
Nov-05
Nov-06
Nov-07
Nov-08
Nov-09
Nov-10
Source: Bloomberg, company data, J.P. Morgan estimates
Nov-11
Nov-12
Nov-13
Nov-14
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Figure 36: Jinmao Investments yield spread
Figure 37: Jinmao Investments dividend yield
%
%
8
9.5
9.0
Long-term yield =8.56%
Long-term yield spread =668 bps
7
8.5
8.0
6
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
7.5
Jun-14
Dec-14
Jul-14
Aug-14
Sep-14
Sep-14
Oct-14
Nov-14
Nov-14
Source: Bloomberg, company data, J.P. Morgan estimates
Source: Bloomberg, company, J.P. Morgan estimates
Figure 38: Langham Hospitality yield spread
Figure 39: Langham Hospitality dividend yield
%
%
8
Dec-14
Jan-15
Jan-15
10.0
9.5
9.0
7
8.5
8.0
6
Long-term yield spread =578 bps
Long-term yield =7.85%
7.5
7.0
6.5
5
6.0
5.5
4
May-13
Jul-13
Sep-13
Nov-13
Source: Bloomberg, company data
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
5.0
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Source: Bloomberg, company data
29
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Figure 40: Mapletree Greater China Commercial Trust yield spread
Figure 41: Mapletree Greater China Commercial Trust dividend yield
%
%
6
8.0
7.0
Long-term yield spread =501 bps
Long-term yield =6.95%
5
6.0
4
Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15
5.0
Mar-13 May-13 Jul-13
Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14
Source: Bloomberg, company data
Source: Bloomberg, company data
Figure 42: New Century REIT yield spread
Figure 43: New Century REIT dividend yield
%
%
8
Sep-14 Nov-14 Jan-15
10.0
7
9.0
Long-term yield spread =666 bps
6
Long-term yield =8.75%
5
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
8.0
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Source: Bloomberg, company data
Source: Bloomberg, company data
Figure 44: Prosperity REIT yield spread
Figure 45: Prosperity REIT dividend yield
%
%
18
21
16
19
14
17
12
15
10
13
8
9
4
7
2
5
Source: Bloomberg, company data
30
Apr-09 Feb-10 Dec-10 Oct-11 Aug-12 Jun-13
Sep-14
Dec-11
Dec-12
Nov-14
Jan-15
11
Long-term yield spread =513 bps
6
0
Dec-05 Oct-06 Aug-07 Jun-08
Jul-14
Apr-14
3
Dec-05
Long-term yield =7.68%
Dec-06
Dec-07
Dec-08
Source: Bloomberg, company data
Dec-09
Dec-10
Dec-13
Dec-14
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Figure 46: Spring REIT yield spread
Figure 47: Spring REIT dividend yield
%
%
10
12
11
9
10
Long-term yield =9.35%
8
9
Long-term yield spread =730 bps
7
8
6
7
5
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
6
Dec-13
Dec-14
Feb-14
Apr-14
Jun-14
Aug-14
Source: Bloomberg, company data
Source: Bloomberg, company data
Figure 48: Sunlight REIT yield spread
Figure 49: Sunlight REIT dividend yield
%
%
25
28
20
23
15
18
10
Long-term yield spread =633 bps
Oct-14
Dec-14
13
Long-term yield =8.65%
8
5
0
Dec-06 Sep-07 Jun-08
Mar-09 Dec-09 Sep-10 Jun-11
3
Dec-06
Mar-12 Dec-12 Sep-13 Jun-14
Dec-07
Dec-08
Dec-09
Dec-10
Source: Bloomberg, company data
Source: Bloomberg, company data
Figure 50: Yuexiu REIT yield spread
Figure 51: Yuexiu REIT dividend yield
%
%
20
Dec-11
Dec-12
Dec-13
Dec-14
25
18
16
20
14
15
12
10
8
Long-term yield =7.93%
10
Long-term yield spread =538 bps
6
5
4
2
0
Dec-05
Dec-06
Dec-07
Dec-08
Source: Bloomberg, company data
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Avg yield before financial crisis:
7.66%
0
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Source: Bloomberg, company data
31
Asia Pacific Equity Research
31 January 2015
Companies
Amy Luk, CFA
(852) 2800 8524
[email protected]
32
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Champion REIT
Overweight
Multi-floors take-up mitigating move out of major tenants
2778.HK,2778 HK
Price: HK$3.83

Occupancy getting some support: In November 2014, Citibank Plaza recorded
leasing transactions for three whole floors at decent rentals. In particular, the 3/F
and 4/F (14K sf for each floor) acquired from the Government last year were
leased to a medical centre at HK$80 psf. Also, the 36/F (17K sf) was taken up
by a Chinese institution at HK$85 psf. The take-up of 45K sf space of the
building accounts for some 2.8% of total GFA of Citibank Plaza, which
mitigates the impact of Bank of America Merrill Lynch (~14.3% of area)
moving out to Cheung Kong Centre.

Flexible strategy in attracting tenants: The take-up of 45K sf indicated that
there is demand for the building at HK$80-85 psf. Effective rent may be lower
but this set a reference point for future leasing transactions. Other than
competitive pricing, we think the landlord would be flexible in lease terms to
attract tenants such that longer lease terms can attract tenants looking for a stable
long-term stay.

Expanded investment scope recently approved: After the amendments of the
HK REIT Code, Champion REIT is the first REIT to change the Trust Deed to
expand the investment scope to include investment in property development and
investment in financial instruments. We think that it is more likely for Champion
to invest in financial instruments that are yield-enhancing rather than invest in
property development projects at this stage.

Alternative choice for Central office exposure: Given that the overall Central
market is facing tight supply with market vacancy at only 3.7% (as of endNovember 2014), we expect Citibank Plaza will be able to absorb some of the
gradual increasing demand. We believe the drop in FY15E DPU is already
factored into the share price and we expect FY16E DPU to rebound on an
improvement in occupancy next year. We believe Champion REIT is an
alternative choice to play Central office rental growth.
▲ Price Target: HK$4.15
Previous: HK$3.95
Hong Kong
REITs
Amy Luk, CFA
AC
(852) 2800 8524
[email protected]
Bloomberg JPMA LUK <GO>
J.P. Morgan Securities (Asia Pacific) Limited
Price Performance
3.9
3.7
HK$ 3.5
3.3
3.1
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
2778.HK share price (HK$)
HSI (rebased)
Abs
Rel
YTD
6.4%
2.2%
1m
6.4%
2.9%
Company Data
Shares O/S (mn)
Market Cap (HK$ mn)
Market Cap ($ mn)
Price (HK$)
Date Of Price
Free Float(%)
3M - Avg daily vol (mn)
3M - Avg daily val (HK$ mn)
3M - Avg daily val ($ mn)
HSI
Exchange Rate
Price Target End Date
3m
13.3%
10.0%
12m
15.4%
4.3%
5,745
22,003
2,838
3.83
29 Jan 15
36.3%
3.91
13.86
1.8
24,595.85
7.75
31-Dec-15
Champion REIT (Reuters: 2778.HK, Bloomberg: 2778 HK)
HK$ in mn, year-end Dec
FY12A
FY13A
Revenue (HK$ mn)
2,059
2,179
Net Property Income (HK$
1,666
1,748
mn)
Core Profit (HK$ mn)
963
1,075
Distributable Profit (HK$ mn)
1,254
1,271
EPU (HK$)
0.18
0.19
DPU (HK$)
0.21
0.21
Revenue growth (%)
6.1%
5.8%
Distribution growth
7.1%
1.4%
Dividend Yield
5.5%
5.5%
NPV per Share (HK$)
-
FY14E
2,195
1,742
FY15E
2,239
1,794
FY16E
2,365
1,919
1,057
1,183
0.18
0.19
0.7%
(7.0%)
5.1%
3.90
1,023
1,131
0.18
0.19
2.0%
(4.4%)
4.8%
4.13
1,092
1,207
0.19
0.20
5.6%
6.7%
5.1%
-
Source: Company data, Bloomberg, J.P. Morgan estimates.
33
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Table 17: Champion REIT's property portfolio in Hong Kong
Name of Property
Location
GFA (sf)
Valuation as of 31
Dec 2013 (HK$ mn)
Cap rate (%)
Revenue
(HK$ mn)
Net property
income (HK$ mn)
Occupancy
Passing rent
(HK$ psf)
Citibank Plaza
Central
1,637,600
37,900
Office: 3.30%;
Retail: 4.25%
1,202.0
990.0
85.3%
84.60
Langham Place
Mongkok
1,292,700
23,609
4.00%
977.3
757.8
n/a
n/a
702,900
7,381
4.00%
288.9
231.9
99.0%
32.86
589,800
15,723
4.00%
688.3
525.9
100.0%
144.26
2,930,300
61,509
2,179
1,748
Office
Retail
Total
Note: Operating data refers to FY13. Source: Company data
Figure 52: FY13 net property income breakdown
Figure 53: Property valuation breakdown (as of 31 Dec 2013)
LP Others
1%
LP Retail
25%
LP Retail
30%
CBP
57%
LP Office
13%
Note: CBP = Citibank Plaza, LP = Langham Place. Source: Company data
34
LP Office
12%
CBP Others
1%
CBP Retail
1%
Source: Company data
CBP Office
60%
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Investment Thesis, Valuation and Risks
Champion REIT (Overweight; Price Target: HK$4.15)
Investment Thesis
Given that the overall Central market is facing tight supply with market vacancy at
only 3.6%, we expect Citibank Plaza will be able to absorb some of the gradual
increasing demand. We believe the drop in FY15E DPU is already factored into the
share price and we expect FY16E DPU to rebound on improvement in occupancy
next year. Champion REIT is an alternative choice to play Central office rental
growth.
Valuation
Our Dec-15 price target of HK$4.15 is on par with our NPV estimate, which assumes
a discount rate of 5.9%.
Key assumptions
Bond Rate
Beta
2.8%
0.69
Market risk premium
4.5%
Discount Rate
5.9%
LT Grow th
1.0%
Terminal Cap Rate
4.9%
Risks to Rating and Price Target
Downside risks to our rating and price target include slower-than-expected
improvement of Central office market as well as vacancy rate of Citibank Plaza and
weaker-than-expected retail sales growth at Langham Place.
35
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Champion REIT: Summary of Financials
Income Statement
HK$ in millions, year end Dec
Revenues
% change Y/Y
EBIT
% change Y/Y
EBIT Margin
Net Interest
Earnings before tax
% change Y/Y
Tax
as % of EBT
Core net profit
% change Y/Y
Distributable income
% change Y/Y
Shares outstanding
EPS (reported) (HK$)
% change Y/Y
Core EPS (HK$)
% change Y/Y
Balance sheet
HK$ in millions, year end Dec
Cash and cash equivalents
Accounts receivable
Inventories
Others
Current assets
FY13
2,179
5.8%
1,517
(1.1%)
69.6%
(329)
1,526
61.5%
(113)
7.4%
1,075
11.6%
1,271
1.4%
5,714
0.25
71.2%
0.19
4.2%
FY14E
2,195
0.7%
1,512
(0.3%)
68.9%
(299)
1,213
(20.5%)
(156)
12.9%
1,057
(1.7%)
1,183
(7.0%)
5,744
0.18
(25.7%)
0.18
(2.3%)
FY15E
2,239
2.0%
1,557
3.0%
69.6%
(341)
1,216
0.3%
(193)
15.9%
1,023
(3.1%)
1,131
(4.4%)
5,774
0.18
(3.7%)
0.18
(3.7%)
FY16E
2,365
5.6%
1,668
7.1%
70.5%
(370)
1,298
6.7%
(206)
15.9%
1,092
6.7%
1,207
6.7%
5,807
0.19
6.1%
0.19
6.1%
FY13
1,066
185
64
1,315
FY14E
911
197
4
1,112
FY15E
919
208
4
1,131
FY16E
954
219
4
1,177
62,217
63,329
62,947
64,077
0
1,300
1,035
2,335
14,582
521
17,439
45,891
7.99
2,200
1,271
986
4,457
12,326
642
17,425
46,653
8.08
LT investments
Net fixed assets
61,509
Total Assets
62,824
Liabilities
ST loans
6,993
Payables
1,328
Others
1,106
Total current liabilities
9,427
Long-term debt
7,629
Other liabilities
405
Total Liabilities
17,460
Shareholder's equity
45,364
BVPS
7.94
Source: Company reports and J.P. Morgan estimates.
36
Cash flow statement
HK$ in millions, year end Dec
EBIT
Depr. & amortization
Change in working capital
Others
Cash flow from operations
FY13
1,517
0
40
448
1,414
FY14E
1,512
0
40
475
1,571
FY15E
1,557
0
40
464
1,527
FY16E
1,668
0
40
500
1,632
Capex
Disposal/(purchase)
Net Interest
Free cash flow
(2,311)
(193)
1,712
0
(307)
1,832
0
(339)
1,814
0
(432)
1,943
Equity raised/(repaid)
Debt raised/(repaid)
Other
Dividends paid
Beginning cash
Ending cash
DPS (HK$)
0
1,939
0
(1,179)
1,397
1,066
0.21
0
(40)
0
(1,379)
1,066
911
0.19
0
(56)
0
(1,124)
911
919
0.19
0
(51)
0
(1,113)
919
954
0.20
FY13
69.6%
49.3%
-
FY14E
68.9%
48.1%
-
FY15E
69.6%
45.7%
-
FY16E
70.5%
46.2%
-
(1.2%)
5.8%
11.6%
4.2%
4.6
23.0%
29.9%
0.0
1.4
2.8%
2.3%
0.1%
0.7%
(1.7%)
(2.3%)
5.1
23.0%
29.8%
0.0
1.4
2.6%
2.2%
1.5%
2.0%
(3.1%)
(3.7%)
4.6
22.6%
29.2%
0.0
1.4
2.4%
2.2%
5.0%
5.6%
6.7%
6.1%
4.5
22.2%
28.5%
0.0
1.4
2.6%
2.3%
Ratio Analysis
%, year end Dec
EBIT margin
Net margin
SG&A/Sales
Sales per share growth
- Sales growth
63,698 Net profit growth
64,876 EPS growth
Interest coverage (x)
4,000 Net debt to total capital
1,242 Net debt to equity
1,029 Sales/assets
6,271 Assets/equity
10,475 ROE
766 ROCE
17,512
47,364
8.16
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Fortune Real Estate Investment Trust
Overweight
Solid growth from acquisitions
FORT.SI,FRT SP
Price: HK$8.75

Fortune Kingswood driving NPI growth: In addition to organic growth,
acquisition is a key growth driver for Fortune REIT. Fortune Kingswood
acquired in October 2013 from parent company Cheung Kong contributed to
18% growth of FY14 Net Property Income (NPI). The potential asset
enhancement of the mall can further enhance DPU in the longer term.

Acquisition of Laguna Plaza enhancing DPU in FY15E: The acquisition of
Laguna Plaza in Kwun Tong was completed on 9 January 2015, funded by debt.
The initial yield is 4.7% on acquisition price. As at 31 Dec 20014, gearing levels
stood at 29.4%. Post acquisition gearing level will increase to around 33%, still
within regulatory limits of 35%. We estimate that the acquisition will enhance
FY15 gross revenue by close to HK$90 mn.

Potential change in Singapore REIT code: The Monetary Authority of
Singapore has published a consultation paper in October 2014 with the proposal
of changing the gearing limit for SREITs. Since Fortune has a dual listing in
Singapore and Hong Kong and it has not obtained a credit rating, it has been
following the Singapore regulatory limit of 35%. The proposal of changing the
gearing limit of 45% for all SREITs (with or without a credit rating) should give
more flexibility for Fortune to choose between debt and equity financing for
future potential acquisitions.

Room for potential yield spread narrowing: The stock is trading at a 12month forward yield of 5.1% and yield spread over 10-year HK Exchange Fund
Note at 3.6%. Though the current yield spread is below the long-term average of
446 bps, it is still far above the average yield spread of 217 bps before the global
financial crisis. On a P/B basis, valuation is also undemanding at 0.73x FY14
P/B.
▲ Price Target: HK$9.80
Previous: HK$8.60
Singapore
REITs
Amy Luk, CFA
AC
(852) 2800 8524
[email protected]
Bloomberg JPMA LUK <GO>
J.P. Morgan Securities (Asia Pacific) Limited
Price Performance
8.5
HK$
7.5
6.5
5.5
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
FORT.SI share price (HK$)
FTSTI (rebased)
Abs
Rel
YTD
12.8%
11.2%
1m
13.8%
12.3%
Company Data
Shares O/S (mn)
Market Cap (HK$ mn)
Market Cap ($ mn)
Price (HK$)
Date Of Price
Free Float(%)
3M - Avg daily vol (mn)
3M - Avg daily val (HK$ mn)
3M - Avg daily val ($ mn)
FTSTI
Exchange Rate
Price Target End Date
Price Target (HK$)
3m
23.8%
17.8%
12m
45.6%
33.4%
1,876
16,418
2,118
8.75
29 Jan 15
68.7%
0.49
3.81
0.5
3419.05
7.75
31-Dec-15
9.80
Fortune Real Estate Investment Trust (Reuters: FORT.SI, Bloomberg: FRT SP)
HK$ in mn, year-end Dec
FY12A
FY13A
FY14A
FY15E
Revenue (HK$ mn)
1,114
1,317
1,656
1,880
Net Property Income (HK$
788
928
1,161
1,322
mn)
Core Profit (HK$ mn)
441
439
629
703
Distributable Profit (HK$ mn)
549
642
781
856
EPU (HK$)
0.26
0.25
0.34
0.37
DPU (HK$)
0.32
0.36
0.42
0.45
Revenue growth (%)
22.5%
18.3%
25.7%
13.6%
Distribution growth
24.2%
16.9%
21.5%
9.6%
Dividend Yield
3.7%
4.1%
4.8%
5.2%
NPV per Share (HK$)
9.82
FY16E
1,956
1,384
738
895
0.39
0.47
4.0%
4.6%
5.4%
-
Source: Company data, Bloomberg, J.P. Morgan estimates.
37
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Table 18: Fortune REIT's property portfolio in Hong Kong
As at 31 Dec 2014
Location
GRA (sf)
Occupancy
Valuation (HK$ mn)
FY13 NPI (HK$ mn)
FY13 net property yield (%)
Fortune City One
Shatin
414,469
99.5%
7,124
208.6
4.4%
Fortune Kingswood
Tin Shui Wai
665,244
100.0%
6,652
47.3*
3.9%
Ma On Shan Plaza
Shatin
310,084
100.0%
4,896
173.5
4.6%
Metro Town
Tseung Kwan O
180,822
100.0%
3,026
100.1
4.3%
Fortune Metropolis
Hung Hom
332,168
98.2%
2,311
81.4
4.4%
Laguna Plaza^
Kwun Tong
163,203
96.7%
2,080
90.4
4.3%
Belvedere Square
Tsuen Wan
276,862
79.5%
1,914
69.5
4.7%
Waldorf Avenue
Tuen Mun
80,842
100.0%
1,582
55.6
4.5%
Caribbean Square
Tung Chung
63,018
100.0%
943
36.3
4.8%
Provident Square
North Point
180,238
90.3%
922
36.4
4.8%
Jubilee Square
Shatin
170,616
100.0%
863
27.6
4.6%
Smartland
Tsuen Wan
123,544
99.9%
658
22.2
4.9%
Tsing Yi Square
Tsing Yi
78,836
100.0%
574
21.1
4.9%
Nob Hill Square
Kwai Chung
91,779
99.7%
438
17.3
4.8%
Hampton Loft
West Kowloon
74,734
100.0%
258
10.6
4.9%
Centre de Laguna
Kwun Tong
43,000
99.4%
264
9.5
4.8%
Lido Avenue
Tsuen Wan
9,836
100.0%
182
7.1
4.9%
Rhine Avenue
Tsuen Wan
14,604
100.0%
113
4.2
4.2%
34,800
1,018.7
Total
3,273,899
*Acquired on 9 Oct 2013. ^Acquired on 9 January 2015; operating and financial data as at 31 Oct 2014; NPI refers to estimated FY14 income by JPM. Source: Company data, J.P. Morgan
estimates
Figure 54: Tenant trade mix by gross rental income (as at 31 Dec 2014)
Wet Markets Others
4%
Supermarkets 1%
8%
Services &
Education
21%
Leisure &
Entertainment,
Sports & Fitness
3%
Gifts & Speciality,
Hobbies, Toys,
Jewellery
5%
Source: Company data
38
Banking & Real
Estate Services
21%
Community Services
1%
Electronics & IT
2%
Fashion & Shoes
8%
Homewares & Home
Furnishings
3%
Food & Beverages
23%
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Investment Thesis, Valuation and Risks
Fortune Real Estate Investment Trust (Overweight; Price Target:
HK$9.80)
Investment Thesis
In addition to organic growth, acquisition is also a key growth driver for Fortune REIT.
Fortune Kingswood acquired in October 2013 from parent company Cheung Kong
contributed to meaningful growth of FY14 Net Property Income (NPI). Of the strong
NPI Y/Y growth of 25.1% in 2014, Kingswood accounted for 18.4%. Given the mall
has 31.3% of leases expiring this year and the mall is relatively under-rented, we expect
the rental uplift to continue in 2015. Moreover, the potential asset enhancement of the
mall can further enhance DPU in the longer term. The new acquisition of Laguna Plaza
should also contribute to rental growth in 2015.
Valuation
Our Dec-15 price target of HK$9.8 is based on par with NPV, where we adopt a
discount rate of 6.19% and a long-term growth rate of 1%.
Key assumptions
Bond Rate
Beta
Index Ratio
Discount Rate
LT Growth
Terminal Cap Rate
2.75%
0.77
4.50%
6.19%
1.00%
5.19%
Risks to Rating and Price Target
Downside risks to our rating and price target include lower-than-expected upside of
Fortune Kingswood after AEI, lower-than-expected rental reversions and a delay in
the completion of asset enhancement.
39
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Fortune Real Estate Investment Trust: Summary of Financials
Income Statement
HK$ in millions, year end Dec
Revenues
% change Y/Y
EBIT
% change Y/Y
EBIT Margin
Net Interest
Earnings before tax
% change Y/Y
Tax
as % of EBT
Core net profit
% change Y/Y
Distributable income
% change Y/Y
Shares outstanding
EPS (reported) (HK$)
% change Y/Y
Core EPS (HK$)
% change Y/Y
Balance sheet
HK$ in millions, year end Dec
Cash and cash equivalents
Accounts receivable
Inventories
Others
Current assets
FY14
1,656
25.7%
1,015
39.7%
61.3%
(215)
809
39.6%
(170)
21.1%
629
43.5%
781
21.5%
1,876
0.34
36.7%
0.34
36.7%
FY15E
1,880
13.6%
1,175
15.8%
62.5%
(299)
883
9.2%
(174)
19.7%
703
11.6%
856
9.6%
1,893
0.38
10.3%
0.37
10.8%
FY16E
1,956
4.0%
1,235
5.1%
63.1%
(315)
928
5.0%
(182)
19.6%
738
5.1%
895
4.6%
1,909
0.39
4.2%
0.39
4.2%
FY17E
2,017
3.1%
1,313
6.3%
65.1%
(320)
1,001
7.9%
(195)
19.5%
798
8.1%
958
7.1%
1,926
0.42
7.1%
0.42
7.2%
FY14
688
61
0
128
877
FY15E
827
69
0
128
1,024
FY16E
881
72
0
128
1,081
FY17E
932
74
0
128
1,134
35,300
36,324
36,026
37,107
955
1,112
10
2,077
9,845
438
12,359
23,965
12.66
948
1,157
10
2,114
8,927
465
11,506
25,600
13.41
LT investments
Net fixed assets
32,720
Total Assets
33,597
Liabilities
ST loans
940
Payables
979
Others
10
Total current liabilities
1,929
Long-term debt
8,881
Other liabilities
412
Total Liabilities
11,222
Shareholder's equity
22,376
BVPS
11.93
Source: Company reports and J.P. Morgan estimates.
40
Cash flow statement
HK$ in millions, year end Dec
EBIT
Depr. & amortization
Change in working capital
Others
Cash flow from operations
FY14
1,015
0
56
343
1,037
FY15E
1,175
0
141
424
1,275
FY16E
1,235
0
48
443
1,236
FY17E
1,313
0
38
452
1,296
Capex
Disposal/(purchase)
Net Interest
Free cash flow
(226)
0
(225)
980
(1,926)
0
(292)
(411)
(20)
0
(308)
1,469
(20)
0
(312)
1,533
Equity raised/(repaid)
Debt raised/(repaid)
Other
Dividends paid
Beginning cash
Ending cash
DPS (HK$)
0
(30)
(235)
(726)
858
688
0.42
0
1,919
(299)
(837)
688
827
0.45
0
30
(315)
(885)
827
881
0.47
0
30
(320)
(942)
881
932
0.50
FY14
61.3%
38.0%
-
FY15E
62.5%
37.4%
-
FY16E
63.1%
37.8%
-
FY17E
65.1%
39.6%
-
19.8%
25.7%
43.5%
36.7%
4.7
29.0%
40.8%
0.1
1.5
3.8%
2.6%
12.7%
13.6%
11.6%
10.8%
3.9
29.4%
41.6%
0.1
1.5
3.7%
2.8%
3.1%
4.0%
5.1%
4.2%
3.9
26.0%
35.1%
0.1
1.5
3.6%
2.8%
2.2%
3.1%
8.1%
7.2%
4.1
22.8%
29.5%
0.1
1.4
3.6%
2.9%
Ratio Analysis
%, year end Dec
EBIT margin
Net margin
SG&A/Sales
Sales per share growth
- Sales growth
36,766 Net profit growth
37,901 EPS growth
Interest coverage (x)
951 Net debt to total capital
1,192 Net debt to equity
10 Sales/assets
2,154 Assets/equity
8,006 ROE
494 ROCE
10,654
27,247
14.15
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Jinmao Investments
Neutral
Diversified portfolio capturing growing domestic travel
6139.HK,6139 HK
Price: HK$5.60

Focus on Shanghai office and China hotel sector: Jinmao is a fixed single
investment trust listed in Hong Kong in July 2014 with an initial focus on the
hospitality industry in China. The initial properties are located in prime cities in
China, including a mixed-use project Jin Mao Tower (with Grand Hyatt
Shanghai on the top floors) in Shanghai and 7 standalone completed hotels.

Diversified and balanced portfolio to capture both business and leisure
travelers: The properties in the initial portfolio are located in prime locations in
top-tier cities or tourist hot spots in China, including Beijing, Shanghai,
Shenzhen and Sanya. The two hotels in Sanya and the new hotel in Lijiang are
well-positioned to capture the growth of the domestic travel market. The income
stream is diversified with revenue split between rental, hotel room, hotel F&B
and other revenue was 20%/48%/28%/4% in FY13. The inclusion of flagship
property, Jin Mao Tower in Shanghai, provides a stable growing income source
that helped to mitigate the volatility in hotel revenue in the last few years.

Two new hotels opened in 2H14: Renaissance Beijing Wangfujing Hotel and
Grand Hyatt Lijiang commenced operations in 2H14. Both hotels are located in
prime locations and we expect them to turn EBITDA positive in 2015. Despite
the minimal initial earnings contributions of these hotels, Franshion agreed to
provide an annualized distribution guarantee of not less than HK$960 mn for
FY14 and shortfall payments for FY15-17 if EBITDA of the three new hotels is
less than HK$220 mn (subject to a maximum aggregate amount of HK$300 mn
for the entire period). We believe this will help mitigate the initial start-up risks
of the hotels and provide a cushion to distribution payments.

Attractive yield similar to Langham but lower than New Century: Even
though the stock is trading at a 12-month forward yield of 8.7%, which looks
attractive, it is slightly higher than Langham (trading at forward yield of 8.1%)
which has a pure exposure in HK hotel market and similar to New Century REIT
(trading at forward yield of 8.8%) which runs its own domestic hotel brand in
China.
Price Target: HK$6.10
China
Property
Amy Luk, CFA
AC
(852) 2800 8524
[email protected]
Bloomberg JPMA LUK <GO>
J.P. Morgan Securities (Asia Pacific) Limited
Price Performance
6.2
5.8
HK$
5.4
5.0
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
6139.HK share price (HK$)
HSI (rebased)
Abs
Rel
YTD
-3.4%
-7.6%
1m
-2.8%
-6.3%
Company Data
Shares O/S (mn)
Market Cap (HK$ mn)
Market Cap ($ mn)
Price (HK$)
Date Of Price
Free Float(%)
3M - Avg daily vol (mn)
3M - Avg daily val (HK$ mn)
3M - Avg daily val ($ mn)
HSI
Exchange Rate
Price Target End Date
3m
0.0%
-3.3%
12m
4.7%
-6.4%
2,000
11,200
1,445
5.60
29 Jan 15
21.3%
0.27
1.54
0.2
2,4861.81
7.75
30-Jun-15
Jinmao Investments (Reuters: 6139.HK, Bloomberg: 6139 HK)
HK$ in mn, year-end Dec
FY12A
FY13A
FY14E
Revenue (HK$ mn)
2,649
2,634
2,849
Core Profit (HK$ mn)
639
1,013
312
Distributable Profit (HK$ mn)
560
708
903
EPU (HK$)
0.16
DPU (HK$)
0.48
Revenue growth (%)
(1.4%)
(0.6%)
8.2%
Distribution growth
(16.1%)
26.4%
27.5%
Dividend Yield
8.6%
NPV per Share (HK$)
5.58
FY15E
3,177
462
818
0.23
0.48
11.5%
(9.4%)
8.6%
6.13
FY16E
3,369
518
889
0.26
0.50
6.1%
8.6%
9.0%
-
Source: Company data, Bloomberg, J.P. Morgan estimates.
41
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Table 19: Summary of initial property portfolio
Investment properties
Leasable area (sqm)
for FY2013
111,292
10,605
670 carparking spaces
No. of rooms
555
550
411
450
501
235
329
400
3,431
Jin Mao Tower – office
Jin Mao Tower – retail
Jin Mao Tower –CP and observation deck
Completed Hotels
Grand Hyatt Shanghai
Westin Beijing
JW Marriott Hotel Shenzhen
Ritz Carlton, Sanya
Hilton Sanya Resort and Spa
Hyatt Regency Chongming
Renaissance Beijing Wangfujing Hotel
Grand Hyatt Lijiang
Total no. of completed rooms
Total market value
DTZ valuation (HK$mn) as
at 31 Mar 2014
8,368
1,418
346
3,980
3,433
2,517
3,812
3,428
1,043
1,304
1,286
30,935
Note: Based on exchange rate of RMB1.00: HK$1.2719. Source: Company, DTZ, J.P. Morgan calculation.
Table 20: Summary of Jinmao Investments' hotel portfolio
Location
Year of commencement of
operations
Development status
Hotel Brand
Total GFA (sqm)
Number of rooms
Average room rate for FY13
(HK$)
Occupancy Rate for FY13
RevPAR for FY13 (HK$)
Revenue for FY13
(HK$'000)
Hotel management fee for
FY13 (HK$'000)
Estimate total expenditure
for development (Rmb mn)
Valuation of Hotel as at 31
Mar 2014 by DTZ (Rmb mn)
Valuation of Hotel as at 31
Mar 2014 by DTZ (HK$ mn)
RitzCarlton,
Sanya
Sanya
Hilton
Sanya
Resort and
Spa
Sanya
Hyatt
Regency
Chongming
Chongming
Renaissance
Beijing
Wangfujing
Hotel
Beijing
Grand Hyatt
Lijiang
Lijiang
Total
-
Grand Hyatt
Shanghai
Shanghai
Westin
Beijing
Beijing
JW Marriott
Hotel
Shenzhen
Shenzhen
1999
2008
2009
2008
2006
2014
Aug-14
end-2014
-
Completed
Completed
Completed
Completed
Completed
Completed
Completed
-
Grand Hyatt
Westin
JW Marriott
Ritz-Carlton
Hilton
Renaissance
Grand Hyatt
-
76,013
77,945
51,730
83,772
75,208
Completed
Hyatt
Regency
48,992
44,435
82,063
540,158
555
550
411
450
501
235
329
312
3,343
2,053
1,709
1,301
3,471
2,085
n/a
n/a
n/a
-
58.6%
71.7%
75.0%
69.1%
65.8%
n/a
n/a
n/a
-
1,203
1,225
975
2,398
1,372
n/a
n/a
n/a
-
529,131
382,551
219,529
511,179
319,275
n/a
n/a
n/a
1,961,665
18,146
24,373
9,823
29,034
15,292
n/a
n/a
n/a
96,668
n/a
n/a
n/a
n/a
n/a
n/a
673
1,304
1,977
3,129
2,699
1,979
2,997
2,695
820
1,025
1,011
16,355
3,980
3,433
2,517
3,812
3,428
1,043
1,304
1,286
20,803
Note: Based on an exchange rate of RMB1.00: HK$1.2719. Source: Company data, DTZ.
Table 21: Jin Mao Tower – average rent on the uptrend
Office
Average occupancy (%)
Retail
2011
97.2%
Average effective rent
(HK$/sqm/mth)
306
97%
Average effective rent
(HK$/sqm/mth)
435
2012
97.0%
342
100%
498
2013
98.7%
372
100%
537
Source: Company data, J.P. Morgan estimates
42
Average occupancy (%)
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Figure 55: Historical performance of average room rate (HKD)
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Grand Hyatt The Westin JW Marriott
Shanghai
Beijing
Hotel
Chaoyang Shenzhen
2011
2012
2013
The RitzCarlton,
Sanya
Hilton Sanya
Resort and
Spa
Figure 56: Historical performance of occupancy rate (%)
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Grand Hyatt The Westin JW Marriott The Ritz- Hilton Sanya
Shanghai
Beijing
Hotel
Carlton, Sanya Resort and
Chaoyang Shenzhen
Spa
1H14
2011
2012
2013
1H14
Source: Company data
Source: Company data
Figure 57: Historical performance of RevPAR (HKD)
Figure 58: Historical performance of EBITDA margin (%)
3,000
50%
2,500
40%
2,000
30%
1,500
20%
1,000
10%
500
0
0%
Grand Hyatt The Westin JW Marriott
Shanghai
Beijing
Hotel
Chaoyang Shenzhen
2011
2012
2013
The RitzCarlton,
Sanya
Hilton Sanya
Resort and
Spa
Grand Hyatt The Westin JW Marriott The Ritz- Hilton Sanya
Shanghai
Beijing
Hotel
Carlton, Sanya Resort and
Chaoyang Shenzhen
Spa
1H14
2011
2012
2013
1H14
Source: Company data
Source: Company data
Figure 59: FY13 revenue breakdown by type
Figure 60: Valuation composition of Jinmao Investments (as of endMarch 2014)
Others
4%
Gross rental
income
20%
Hotel rooms
48%
Hotel F&B
28%
Source: Company. Note: Revenue after business tax.
Grand Hyatt
Shanghai,
13%
Jin Mao
Tower
(excl. hotel),
33%
Grand Hyatt
Lijiang, 4%
Renaissance
Beijing
Wangfujing
Hyatt
Hotel, 4% Regency
Chongming,
3%
Westin
Beijing, 11%
JW Marriott
Hotel
Shenzhen, 8%
Ritz-Carlton,
Sanya, 12%
Hilton Sanya
Resort and
Spa, 11%
Source: Company data, DTZ.
43
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Investment Thesis, Valuation and Risks
Jinmao Investments (Neutral; Price Target: HK$6.10)
Investment Thesis
The properties in the initial portfolio are located in prime locations in top-tier cities
or tourist hot spots in China, including Beijing, Shanghai, Shenzhen and Sanya. The
two hotels in Sanya and the new hotel in Lijiang are well-positioned to capture the
growth of the domestic travel market. The income stream is diversified with the
revenue split between rental, hotel room, hotel F&B and other revenue at
20%/48%/28%/4% in FY13. The inclusion of flagship property, Jin Mao Tower in
Shanghai, provides a stable growing income source that helped to mitigate the
volatility in hotel revenue in the last few years. We believe the diversified and
balanced portfolio in prime locations will allow Jinmao to capture both business and
leisure travelers and deliver steady performance and distributions.
Valuation
Our Jun-15 price target of HK$6.1 is based on par with NPV, where a discount rate
of 9.82% and long-term growth rate of 1% is adopted.
Bond Rate
Beta
Index Ratio
Discount Rate
LT Growth
Terminal Cap Rate
3.00%
1.24
5.50%
9.82%
1.00%
8.82%
Risks to Rating and Price Target
Downside risks to our rating and price target include lower-than-expected rental
reversion for Jin Mao Tower, higher-than-expected hotel and office vacancies,
interest rate hike and a sharp slowdown in China economy.
Upside risks to our rating and price target include better-than-expected performance
of the two new hotels, faster-than-expected recovery in occupancy and room rates as
well as high-than-expected rental growth from Jin Mao Tower and less impact from
Shanghai Tower.
44
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Jinmao Investments: Summary of Financials
Income Statement
HK$ in millions, year end Dec
Revenues
% change Y/Y
EBIT
% change Y/Y
EBIT Margin
Net Interest
Earnings before tax
% change Y/Y
Tax
as % of EBT
Core net profit
% change Y/Y
Distributable income
% change Y/Y
Shares outstanding
EPS (reported) (HK$)
% change Y/Y
Core EPS (HK$)
% change Y/Y
Balance sheet
HK$ in millions, year end Dec
Cash and cash equivalents
Accounts receivable
Inventories
Others
Current assets
FY13
2,634
(0.6%)
1,646
30.2%
62.5%
(280)
1,368
72.1%
(354)
25.9%
1,013
58.7%
708
26.4%
-
FY14E
2,849
8.2%
773
(53.0%)
27.1%
(360)
415
(69.6%)
(103)
24.9%
312
(69.2%)
903
27.5%
2,000
0.16
0.16
-
FY15E
3,177
11.5%
1,050
35.8%
33.0%
(437)
615
48.2%
(153)
24.9%
462
48.1%
818
(9.4%)
2,000
0.23
48.1%
0.23
48.1%
FY16E
3,369
6.1%
1,127
7.3%
33.4%
(439)
690
12.1%
(172)
24.9%
518
12.1%
889
8.6%
2,000
0.26
12.1%
0.26
12.1%
FY13
1,183
186
25
397
1,791
FY14E
1,042
195
26
0
1,263
FY15E
1,132
205
28
0
1,365
FY16E
1,230
215
29
0
1,474
LT investments
Net fixed assets
7,858
9,326
Total Assets
20,511
21,462
Liabilities
ST loans
3,470
231
Payables
1,198
1,258
Others
236
45
Total current liabilities
4,904
1,535
Long-term debt
2,099
9,685
Other liabilities
1,578
1,578
Total Liabilities
8,580
12,798
Shareholder's equity
11,931
8,665
BVPS
4.33
Source: Company reports and J.P. Morgan estimates.
9,461
21,710
295
1,384
45
1,724
10,018
1,578
13,320
8,391
4.20
Cash flow statement
HK$ in millions, year end Dec
EBIT
Depr. & amortization
Change in working capital
Others
Cash flow from operations
FY13
1,646
222
405
(97)
1,106
FY14E
773
253
256
(106)
818
FY15E
1,050
261
115
(156)
836
FY16E
1,127
265
127
(174)
908
Capex
Disposal/(purchase)
Net Interest
Free cash flow
(743)
86
(251)
669
(1,721)
(9)
(360)
(632)
(396)
(9)
(437)
768
(185)
(9)
(439)
1,052
Equity raised/(repaid)
Debt raised/(repaid)
Other
Dividends paid
Beginning cash
Ending cash
DPS (HK$)
0
150
(606)
0
1,360
1,183
-
3,052
4,348
(6,524)
(503)
1,183
1,042
0.48
0
396
82
(818)
1,042
1,132
0.48
0
185
87
(889)
1,132
1,230
0.50
Ratio Analysis
%, year end Dec
EBIT margin
Net margin
SG&A/Sales
FY13
62.5%
38.5%
-
FY14E
27.1%
10.9%
-
FY15E
33.0%
14.5%
-
FY16E
33.4%
15.4%
-
(0.6%)
58.7%
6.7
26.9%
36.8%
0.1
1.9
9.2%
7.4%
8.2%
(69.2%)
2.8
50.6%
102.4%
0.1
2.0
3.0%
3.2%
11.5%
11.5%
48.1%
48.1%
3.0
52.2%
109.4%
0.1
2.5
5.4%
4.2%
6.1%
6.1%
12.1%
12.1%
3.2
53.3%
114.3%
0.2
2.6
6.3%
4.5%
Sales per share growth
- Sales growth
9,381 Net profit growth
21,750 EPS growth
Interest coverage (x)
295 Net debt to total capital
1,522 Net debt to equity
45 Sales/assets
1,863 Assets/equity
10,203 ROE
1,578 ROCE
13,643
8,107
4.05
45
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Link REIT
Neutral
Increasing risk
0823.HK,823 HK
Price: HK$52.90

Unattractive initial yield on first property development: Shortly after
obtaining approval from unitholders on the expansion to property development,
Link REIT acquired a site jointly with non-listed property company Nan Fung in
Kowloon East for developing 2 Grade-A office towers with retail elements and
car parks. Attributable development costs for Link's 60% stake in the project is
about HK$6,325 mn. We estimate the initial yield on cost for the development is
unattractive at 2.6-3.0%.

Limited potential rental uplift of Longgang Vanke Mall in the near term:
Link REIT has entered into a Letter of Intent with China Vanke for proposed
acquisition of Longgang Vanke Mall in Shenzhen, China. The mall has GFA of
about 100,000 sqm. The mall is quite new (opened in Dec-13) and is fully
occupied. We have paid a visit to the mall recently and found that quite a
number of mid-end brands are already in the mall, e.g., Zara, H&M and Uniqlo.
Hence, we think that there is not much potential rental growth upside through
tenants mix rebranding in the first few years after acquisition.

New malls taking time to grow: Looking at the recent acquisition of Lions Rise
Mall and this potential acquisition of Longgang Vanke Mall, we think Link
REIT has a preference for buying relatively new malls. The initial yields of these
new malls are usually low and it will take one or two leasing cycles for the yield
to move up to a satisfactory yield. For example, Lions Rise Mall was acquired at
2.4% yield, which may take two to three years to rise to 4-5%.

Increasing risk premium: Though we expect the recent land acquisition has
neutral impact on DPU in the next 2-3 years, we believe the expansion to
property development will increase the business risk. We have adjusted up our
beta assumption for the stock from 0.51 to 0.53. The stock has been holding up
quite well since acquisition due to the current low interest rate situation, the
market cap of the stock and there is a cap of property development (10%), in our
view.
▲ Price Target: HK$49.50
Previous: HK$47.50
Hong Kong
REITs
Amy Luk, CFA
AC
(852) 2800 8524
[email protected]
Bloomberg JPMA LUK <GO>
J.P. Morgan Securities (Asia Pacific) Limited
Price Performance
55
50
HK$
45
40
35
30
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
0823.HK share price (HK$)
HSI (rebased)
Abs
Rel
YTD
9.0%
4.8%
1m
9.1%
5.6%
Company Data
Shares O/S (mn)
Market Cap (HK$ mn)
Market Cap ($ mn)
Price (HK$)
Date Of Price
Free Float(%)
3M - Avg daily vol (mn)
3M - Avg daily val (HK$ mn)
3M - Avg daily val ($ mn)
HSI
Exchange Rate
Price Target End Date
Price Target (HK$)
46
3m
14.1%
10.8%
12m
50.1%
39.0%
2,311
122,246
15,770
52.90
29 Jan 15
99.9%
6.72
329.68
42.5
24,595.85
7.75
31-Dec-15
49.50
Link REIT (Reuters: 0823.HK, Bloomberg: 823 HK)
HK$ in mn, year-end Mar
FY13A
FY14A
Revenue (HK$ mn)
6,506
7,155
Net Property Income (HK$
4,616
5,202
mn)
Core Profit (HK$ mn)
3,357
3,860
Distributable Profit (HK$ mn)
3,349
3,830
EPU (HK$)
1.47
1.68
DPU (HK$)
1.46
1.66
Revenue growth (%)
9.7%
10.0%
Distribution growth
14.6%
14.4%
Dividend Yield
2.8%
3.1%
NPV per Share (HK$)
Source: Company data, Bloomberg, J.P. Morgan estimates.
FY15E
7,579
5,541
FY16E
7,949
5,838
FY17E
8,469
6,251
3,992
4,120
1.73
1.80
5.9%
7.6%
3.4%
-
4,344
4,344
1.89
1.89
4.9%
5.4%
3.6%
49.59
4,680
4,680
2.04
2.04
6.5%
7.7%
3.9%
-
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Table 22: Link REIT's retail portfolio breakdown
Properties
Retail properties valuation
FY14 retail rentals
Avg mthly unit rent per leased IFA
Occupancy
HK$ mn
HK$ mn
HK$ psf
%
1-10
25,636
1,393
60.5
98.7
11-50
42,303
2,417
45.1
95.6
51-100
19,267
1,245
32.4
91.8
101-153
4,039
271
23.2
89.3
91,245
5,326
42.1
94.4
As at 31 Mar 2014
Total
Note: Properties ranked by retail valuation as at 31 Mar 2014. Source: Company data
Table 23: Key car park performance indicators
FY14
Utilisation of car park spaces (%)
88.1
Car park income per space per month (HK$)
1,566
Net property income margin (%)
69.1
Average valuation per space (HK$’000)
235
Source: Company data
Table 24: Capitalisation rates for valuation
As at 31 Mar 2014
Retail properties
4.40 – 6.60%
Retail properties: weighted average
5.09%
Car parks
4.80 – 7.60%
Car parks: weighted average
6.16%
Overall weighted average
5.27%
Source: Company data
Figure 61: Retail rental performance
45
40
35
30
25
20
15
10
5
0
94.1%
94.4%
92.9%
90.6%
30.6
95.0%
93.0%
91.5%
91.0%
32.8
35.8
38.4
42.1
89.0%
87.0%
85.0%
Mar-10
Mar-11
Mar-12
Average monthly unit rent (HK$ psf)
Mar-13
Mar-14
Occupancy (%)
Source: Company data
47
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Figure 62: FY14 revenue breakdown
Other property
related revenue
Car park rentals
5%
(hourly)
5%
Education/Welfare,
Office and
Ancillary
2%
Car park rentals
(monthly)
15%
Mall
Merchandising
2%
Markets/Cooked
Food Stalls
10%
Shops*
61%
*Includes base and turnover rents. Source: Company data
Figure 63: Tenant trade mix by monthly rent (as at 30 Sep 2014)
Others
17%
Personal Care,
Medicine, Optical,
Books & Stationery
8%
Services
11%
Markets/Cooked
Food Stalls
15%
Source: Company data
Figure 64: Longgang Vanke Mall Atrium
Figure 65: Longgang Vanke Mall
Source: J.P. Morgan.
Source: J.P. Morgan.
48
Food and Beverage
25%
Education/Welfare,
Office and Ancillary
1%
Supermarkets and
Foodstuff
23%
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Figure 66: Kowloon East map
MegaBox
Link REIT / Nan Fung:
HK$6,630 psf
Monorail
Station
(proposed)
Octa Tower
(Nan Fung)
One Bay East Wheelock:
HK$3,856 psf
Ngau Tau Kok
MTR Station
Kowloon
Godown
Wharf T&T
Plaza
Millennium
City Ph II
Source: Lands Department, J.P. Morgan.
Figure 67: Site in Kowloon East for office development with retail elements
Source: J.P. Morgan.
49
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Investment Thesis, Valuation and Risks
Link REIT (Neutral; Price Target: HK$49.50)
Investment Thesis
Though we expect the recent land acquisition has neutral impact on DPU in the next
2-3 years, we believe the expansion to property development will increase the
business risk. We have adjusted up our beta assumption for the stock from 0.51 to
0.53. The stock has been holding up quite well since acquisition due to the current
low interest rate situation, the market cap of the stock and there is a cap of property
development (10%), in our view.
Valuation
Our Dec-15 price target of HK$49.5 is based on par with NPV, where a discount rate
of 5.15% and long-term growth rate of 1% is adopted.
Bond Rate
Beta
2.75%
0.53
Risk premium
4.50%
Discount Rate
5.15%
LT Grow th
1.00%
Terminal Cap Rate
4.15%
Risks to Rating and Price Target
Downside risks to our price target and rating include a sudden rise in interest rates/
long bond yields, higher-than-expected vacancy, lower-than-expected rental
reversions, delay in the completion of AEIs and a sharp slowdown in the Hong Kong
economy.
Upside risks to our price target and rating include highly yield accretive acquisitions
in Hong Kong or China as well as faster-than-expected rental growth.
50
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Link REIT: Summary of Financials
Income Statement
HK$ in millions, year end Mar
Revenues
% change Y/Y
EBIT
% change Y/Y
EBIT Margin
Net Interest
Earnings before tax
% change Y/Y
Tax
as % of EBT
Core net profit
% change Y/Y
Distributable income
% change Y/Y
Shares outstanding
EPS (reported) (HK$)
% change Y/Y
Core EPS (HK$)
% change Y/Y
Balance sheet
HK$ in millions, year end Mar
Cash and cash equivalents
Accounts receivable
Inventories
Others
Current assets
FY14
7,155
10.0%
4,980
13.4%
69.6%
(365)
4,615
15.6%
(755)
16.4%
3,860
15.0%
3,830
14.4%
2,311
1.68
13.7%
1.68
13.7%
FY15E
7,579
5.9%
5,138
3.2%
67.8%
(357)
4,781
3.6%
(789)
16.5%
3,992
3.4%
4,120
7.6%
2,293
1.73
3.5%
1.73
3.5%
FY16E
7,949
4.9%
5,568
8.4%
70.0%
(365)
5,202
8.8%
(858)
16.5%
4,344
8.8%
4,344
5.4%
2,293
1.89
9.2%
1.89
9.2%
FY17E
8,469
6.5%
5,973
7.3%
70.5%
(368)
5,605
7.7%
(925)
16.5%
4,680
7.7%
4,680
7.7%
2,293
2.04
7.7%
2.04
7.7%
FY14
2,794
237
66
3,097
FY15E
1,027
131
35
1,194
FY16E
1,323
138
37
1,497
FY17E
1,734
147
39
1,920
127,756
129,281
129,387
131,215
2,825
1,516
660
5,001
9,399
3,454
17,854
111,427
48.59
2,825
1,590
693
5,107
9,599
3,823
18,530
112,685
49.14
LT investments
Net fixed assets
110,038
Total Assets
113,466
Liabilities
ST loans
2,825
Payables
1,606
Others
1,101
Total current liabilities
5,532
Long-term debt
9,699
Other liabilities
1,884
Total Liabilities
17,115
Shareholder's equity
96,351
BVPS
41.69
Source: Company reports and J.P. Morgan estimates.
Cash flow statement
HK$ in millions, year end Mar
EBIT
Depr. & amortization
Change in working capital
Others
Cash flow from operations
FY14
4,980
27
96
(13,413)
4,659
FY15E
5,138
27
(394)
(485)
3,735
FY16E
5,568
27
98
(365)
4,728
FY17E
5,973
27
138
(368)
5,123
Capex
Disposal/(purchase)
Net Interest
Free cash flow
(1,023)
0
3,941
(1,780)
(357)
2,252
(400)
(365)
4,632
(400)
(368)
5,031
Equity raised/(repaid)
Debt raised/(repaid)
Other
Dividends paid
Beginning cash
Ending cash
DPS (HK$)
0
(1,220)
(2,800)
1,657
560
1.66
(890)
(300)
(3,975)
560
305
1.80
0
200
(4,232)
305
601
1.89
0
200
(4,512)
601
1,012
2.04
FY14
69.6%
53.9%
-
FY15E
67.8%
52.7%
-
FY16E
70.0%
54.6%
-
FY17E
70.5%
55.3%
-
8.8%
10.0%
15.0%
13.7%
13.7
9.2%
10.1%
0.1
1.2
4.3%
4.1%
6.0%
5.9%
3.4%
3.5%
14.5
9.1%
10.0%
0.1
1.2
4.0%
3.7%
5.3%
4.9%
8.8%
9.2%
15.3
9.0%
9.9%
0.1
1.2
3.9%
3.7%
6.5%
6.5%
7.7%
7.7%
16.3
8.7%
9.6%
0.1
1.2
4.1%
4.0%
Ratio Analysis
%, year end Mar
EBIT margin
Net margin
SG&A/Sales
Sales per share growth
- Sales growth
131,030 Net profit growth
133,281 EPS growth
Interest coverage (x)
2,825 Net debt to total capital
1,694 Net debt to equity
738 Sales/assets
5,257 Assets/equity
9,799 ROE
4,269 ROCE
19,324
113,957
49.69
51
Asia Pacific Equity Research
31 January 2015
Non-covered companies
Amy Luk, CFA
(852) 2800 8524
[email protected]
52
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Not Covered
Langham Hospitality Investment
Price: HK$3.55
Date: 29 Jan 2015
www.langhamhospitality.com
Hong Kong
REITs
Company description
Langham Hospitality Investments is the first fixed single investment trust in HK
property sector with an initial focus to invest in completed hotels in Asia. The
initial asset portfolio comprises of 3 hotels in HK, namely The Langham,
Langham Place Hotel and Eaton, which are spun off from sponsor Great Eagle.
Amy LukAC
(852) 2800 8524
[email protected]
J.P. Morgan Securities (Asia Pacific)
Limited
Price performance
110
100
90
80
Jan-14
May-14
Sep-14
1270 HK Equity
Jan-15
HSI Index
Positives
The three hotels are located in Tsim Sha Tsui, Mong Kok and Yau Ma Tei which
can be conveniently accessed by both business and leisure travelers. Average
hotels occupancy of 92.1% in 1H14, higher than HK hotel markets where High
Tariff A and High Tariff B occupancy was at 86% and 91%, respectively, in
1H14. To provide some support on revenue, parent company Great Eagle (“GE”)
has entered into master leave arrangements with Langham for a term of 14 years
from 30 May 2013, where GE has agreed to pay fixed annual base rent of
HK$225 mn and a variable rent.
Source: Bloomberg
Performance
1M
3M
12M
Absolute (%)
5.3
9.6
-3.8
Relative (%)
0.7
5.6
-13.8
Source: Bloomberg
Company data
52-wk range (HK$)
Mkt cap. (HK$ MM)
Mkt cap. (US$ MM)
Avg daily value (US$MM)
Avg. daily volume (MM)
Shares O/S (MM)
Date of price
Index: HSI
Free float (%)
Exchange rate (HK$/US$)
3.17 - 3.94
7,179
926
0.402
0.927
2,022
29-Jan-15
24,595.85
35.9%
7.752
Negatives
The hospitality sector is cyclical in nature and vulnerable to any economic
slowdown and outbreak of epidemics. There is some sort of financial engineering
tied to the distribution of Langham where GE has agreed to wave its entitlement
to receive distributions of some share stapled units until FY17. In general,
investors prefer companies with clean yield.
Valuation
The stock is currently trading at 0.67x FY13 P/B and 9.0% FY13 annualized
dividend yield.
NOTE: THIS DOCUMENT IS BASED SOLELY ON PUBLICLY AVAILABLE
INFORMATION. THIS REPORT IS INTENDED AS INFORMATION ONLY AND NOT AS
RECOMMENDATION FOR ANY STOCK. J.P. MORGAN EQUITY RESEARCH DOES
NOT PROVIDE RESEARCH COVERAGE OR RATING FOR THIS COMPANY.
Source: Bloomberg
Bloomberg: 1270 HK; Reuters: 1270.HK
HK$ in millions, year-end Dec
Revenue (HK$ mn)
EBIT (HK$ mn)
Net Income (HK$ mn)
Total distribution (HK$ mn)
EPU (HK$)
DPU (HK$)
Revenue Growth (%)
Distribution Growth (%)
P/B (x)
Dividend Yield (%)
FY13
472
394
445
349
0.27
0.19
n/a
n/a
0.67
9.0%
Source: Bloomberg Note: Share price and valuations are as of 29 Jan 2015.
53
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Table 25: Langham's hotel portfolio in Hong Kong
Name of Property
Location
The Langham
Tsim Sha Tsui
Langham Place Hotel
Eaton
Total
No. of
rooms
495
GFA (sqm)
Average daily room
rate (HK$)
2,266
Occupancy
375,000
Valuation as of 31
Dec 2013 (HK$ mn)
6,080
Mong Kok
652
Yau Ma Tei
88.9%
RevPAR
(HK$)
2,013
Revenue
(HK$ mn)
170
580,000
7,030
1,883
452
339,000
3,586
1,208
90.7%
1,707
202
95.1%
1,149
1,599
1,294,000
16,696
99
472
Note: Operating data refers to FY13. Source: Company data
Figure 68: Operating performance of the three hotels in 2013
2,500
95.1%
2,000
1,000
2,266
95.0%
90.7%
88.9%
1,500
90.0%
2,013
1,883
85.0%
1,707
1,208
500
1,149
0
80.0%
75.0%
The Langham
Langham Place Hotel
Average daily room rate (HK$)
Eaton
RevPAR (HK$)
Source: Company data
Figure 69: Revenue contribution by hotel in 2013
Eaton
21%
The Langham
36%
Langham Place
Hotel
43%
Source: Company data
54
100.0%
Occupancy
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Langham Hospitality Investment: Summary of Financials
Profit and loss statement
Cash flow statement
HK$ in millions, year-end Dec
Revenues
% change Y/Y
EBIT
% change Y/Y
EBIT margin (%)
Net interest
Earnings before tax
% change Y/Y
Tax
as % of EBT
Net income (reported)
% change Y/Y
Total distribution
% change Y/Y
Shares outstanding
EPS (reported) (HK$)
% change Y/Y
HK$ in millions, year-end Dec
FY13
472
n/a
394
n/a
83.6%
77
310
n/a
38
12.1%
445
n/a
349
n/a
2,001
0.27
n/a
EBIT
Depreciation & amortisation
Change in working capital
Taxes
Cash flow from operations
FY13
394
84
1,446
38
310
Cashflow from investing
(10)
Cashflow from financing
420
Net changes in cash
720
Dividends paid
DPS (HK$)
(10,296)
0.1880
Source: Company data, Bloomberg
Source: Company data, Bloomberg
Balance sheet
Ratio analysis
HK$ in millions, year-end Dec
Cash and cash equivalents
Accounts receivable
Inventories
Others
Current assets
LT investments
Net fixed assets
Total assets
Liabilities
ST loans
Payables
Others
Total current liabilities
Long-term debt
Other liabilities
Total liabilities
Shareholders’ equity
BVPS (HK$)
FY13
752
129
0
6
887
0
16,696
17,583
0
46
24
69
6,718
125
6,913
10,669
5.33
Source: Company data, Bloomberg
%, year-end Dec
EBIT margin
Sales growth
Net profit growth
EPS growth
Interest coverage (x)
Net debt to total capital
Net debt to equity
Sales/assets
Assets/equity
ROE
ROCE
FY13
83.6%
n/a
n/a
n/a
5.0
34.3%
55.9%
2.7%
1.6
n/a
4.7%
Source: Company data, Bloomberg
Note: Financial performance for FY13 refers to the period from and including
the listing date (30 May 2013) to 31 December 2013.
55
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Not Covered
Mapletree Greater China Commercial
Trust
Price: S$1.015
Date: 29 Jan 2015
www.mapletreegreaterchinacommercialtrust.com
Hong Kong / China / Singapore
REITs
Amy LukAC
(852) 2800 8524
[email protected]
J.P. Morgan Securities (Asia Pacific)
Limited
Price performance
120
110
100
90
Jan-14
May-14
Sep-14
MAGIC SP Equity
Jan-15
HSI Index
Source: Bloomberg
Performance
1M
3M
12M
Absolute (%)
6.8
9.1
24.5
Relative (%)
5.2
3.2
10.3
Source: Bloomberg
Company data
52-wk range (S$)
Mkt cap. (S$ MM)
Mkt cap. (US$ MM)
Avg daily value (US$MM)
Avg. daily volume (MM)
Shares O/S (MM)
Date of price
Index: STI
Free float (%)
Exchange rate (S$/US$)
0.78 - 1.04
2,754
2,034
2.771
3.898
2,713
29-Jan-15
3,419.05
55.6%
1.354
Company description
Mapletree Greater China Commercial Trust (“MGCCT”) is listed in Singapore
with an aim to invest in the Greater China region. MGCCT has two commercial
assets, retail mall Festival Walk (“FW”) in Kowloon Tong with mid to high-end
positioning and Grade A office Gateway Plaza (“GP”) in Beijing. The portfolio
has total lettable area of 1.9 mn sf.
Positives
Solid rental reversions at both FW and GP. In 1HFY15, rental uplifts of 21% and
32% were achieved in FW and GP, respectively. Portfolio occupancy stayed high
at 99.2% in Sep-14. MGCCT has been optimizing the lettable area at FW
through leasing common and ancillary area for events and introducing kiosks and
carts to defined rental areas to enhance rental income.
Negatives
MGCCT is subject to currency risk as rental income from Festival Walk is in
HKD and Gateway Plaza in Rmb while DPU is denominated in SGD. We expect
overall HK retail sales to be flattish in 2015, which may impact the rental
reversions of FW. On the other hand, future office supply in Beijing may impact
office demand for GP.
Valuation
The stock is currently trading at 0.96x FY14 P/B and 6.2% FY14 dividend yield
(for distribution from listing date of 7 Mar 2013 to 31 Mar 2014) based on
Bloomberg consensus estimates.
NOTE: THIS DOCUMENT IS BASED SOLELY ON PUBLICLY AVAILABLE
INFORMATION. THIS REPORT IS INTENDED AS INFORMATION ONLY AND NOT AS
RECOMMENDATION FOR ANY STOCK. J.P. MORGAN EQUITY RESEARCH DOES
NOT PROVIDE RESEARCH COVERAGE OR RATING FOR THIS COMPANY.
Source: Bloomberg
Bloomberg: MAGIC SP; Reuters: MAPE.SI
S$ in millions, year-end Mar
Revenue (HK$ mn)
EBIT (HK$ mn)
Net Income (HK$ mn)
Total distribution (HK$ mn)
EPU (HK$)
DPU (HK$)
Revenue Growth (%)
Distribution Growth (%)
P/B (x)
Dividend Yield (%)
Source: Bloomberg Note: Share price and valuations are as of 29 Jan 2015.
56
Mar-14
268
192
119
168
0.04
0.06
n/a
n/a
0.96
6.2%
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Table 26: Mapletree's property portfolio
Name of Property
Location
Completion
date
GFA (sf)
Valuation as of 31
Mar 2014 (S$ mn)
Gross
cap rate
Gross revenue
(S$ mn)
Net property
income (S$ mn)
Occupancy
Festival Walk
Gateway Plaza
Kowloon Tong, Hong Kong
Nov-98
1,208,754
3,609
4.5%
201
158
100.0%
Lufthansa Area, Beijing
Aug-05
1,145,882
1,113
6.5%
67
58
97.5%
2,354,636
4,722
268
216
Total
Note: Operating data refers to FY13. Source: Company data
Figure 70: Operating performance of the two properties in FY13
180
160
140
120
100
80
60
40
20
0
101.0%
100.0%
100.0%
99.0%
158
97.5%
98.0%
58
97.0%
96.0%
Festival Walk
Net property income (S$ mn)
Gateway Plaza
Occupancy
Source: Company data
57
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
Mapletree Greater China Commercial Trust: Summary of Financials
Profit and loss statement
Cash flow statement
S$ in millions, year-end Mar
Revenues
% change Y/Y
EBIT
% change Y/Y
EBIT margin (%)
Net interest
Earnings before tax
% change Y/Y
Tax
as % of EBT
Net income (reported)
% change Y/Y
Total distribution
% change Y/Y
Shares outstanding
EPS (reported) (S$)
% change Y/Y
S$ in millions, year-end Mar
FY14
268
n/a
192
n/a
71.7%
42
150
n/a
30
20.3%
119
n/a
168
n/a
2,684
0.04
n/a
EBIT
Depreciation & amortisation
Change in working capital
Taxes
Cash flow from operations
FY14
192
(1)
(34)
26
142
Cash flow from investing
(2,034)
Cash flow from financing
2,021
Net changes in cash
129
Dividends paid
(85)
DPS (S$)
0.0627
Source: Company data, Bloomberg
Source: Company data, Bloomberg
Balance sheet
Ratio analysis
S$ in millions, year-end Mar
Cash and cash equivalents
Accounts receivable
Inventories
Others
Current assets
LT investments
Net fixed assets
Total assets
Liabilities
ST loans
Payables
Others
Total current liabilities
Long-term debt
Other liabilities
Total liabilities
Shareholders’ equity
BVPS (S$)
Source: Company data, Bloomberg
58
FY14
133
1
1
8
143
0
4,722
4,873
0
7
95
102
1,853
79
2,033
2,840
1.06
%, year-end Mar
EBIT margin
Sales growth
Net profit growth
EPS growth
Interest coverage (x)
Net debt to total capital
Net debt to equity
Sales/assets
Assets/equity
ROE
ROCE
Source: Company data, Bloomberg
FY14
71.7%
n/a
n/a
n/a
4.5
36.6%
60.6%
5.5%
1.7
n/a
n/a
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Not Covered
New Century REIT
Price: HK$3.24
Date: 29 Jan 2015
www.ncreit.com
China
REITs
Company description
New Century REIT is the first China-based hotel REIT holding with 5-star hotels
and one 4-star hotel. The portfolio has approximately 2,500 hotel rooms located
in Hangzhou, Ningbo, Changchun and Shanghai. The hotels are operated under
New Century, which is a domestic brand. New Century Group and Carlyle
Group are the sponsors of New Century REIT.
Amy LukAC
(852) 2800 8524
[email protected]
J.P. Morgan Securities (Asia Pacific)
Limited
Price performance
Positives
New Century has some downside protection from base rent amounting to
Rmb264 mn p.a. guaranteed by New Century Tourism and Bank of China. New
Century Hotel Group operates over 50 hotels in China, which could be
potentially injected to New Century REIT for potential acquisition growth.
110
100
90
80
Jan-14
May-14
Sep-14
1275 HK Equity
Jan-15
Negatives
The hospitality sector is cyclical in nature. The industry may be adversely
affected by any global economic downturn, which may affect the willingness of
both business and leisure travelers to spend in China. While potential
acquisitions might enhance New Century's revenue, the type of funding to
finance the acquisitions might also dilute book value and dividends per share.
HSI Index
Source: Bloomberg
Performance
1M
3M
Absolute (%)
12M
-2.4
-2.7
-9.5
Relative (%)
-6.8
-6.2
-18.9
Valuation
The stock is currently trading at 0.83x FY13 P/B and 10.1% FY13 dividend yield
(based on annualized distribution).
Source: Bloomberg
Company data
52-wk range (HK$)
Mkt cap. (HK$ MM)
Mkt cap. (US$ MM)
Avg daily value (US$MM)
Avg. daily volume (MM)
Shares O/S (MM)
Date of price
Index: HSI
Free float (%)
Exchange rate (HK$/US$)
3.16 - 3.90
3,017
389
0.233
0.545
931
29-Jan-15
24,595.85
21.1%
7.752
NOTE: THIS DOCUMENT IS BASED SOLELY ON PUBLICLY AVAILABLE
INFORMATION. THIS REPORT IS INTENDED AS INFORMATION ONLY AND NOT AS
RECOMMENDATION FOR ANY STOCK. J.P. MORGAN EQUITY RESEARCH DOES
NOT PROVIDE RESEARCH COVERAGE OR RATING FOR THIS COMPANY.
Source: Bloomberg
Bloomberg: 1275 HK; Reuters: 1275.HK
Rmb in millions, year-end Dec
Revenue (Rmb mn)
EBIT (Rmb mn)
Net Income (Rmb mn)
Total distribution (Rmb mn)
EPU (Rmb)
DPU (Rmb)
Revenue Growth (%)
Distribution Growth (%)
P/B (x)
Dividend Yield (%)
FY10
706
112
29
n/a
n/a
0.00
n/a
n/a
n/a
n/a
FY11
794
154
74
n/a
n/a
0.00
12.5%
n/a
n/a
n/a
FY12
804
158
76
n/a
n/a
0.00
1.2%
n/a
n/a
n/a
FY13
469
105
-131
81
-0.19
0.12
(41.7%)
n/a
0.83
10.1%
Source: Bloomberg Note: Share price and valuations are as of 29 Jan 2015
59
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Table 27: New Century REIT's hotel portfolio
Name of Property
Location
No. of
rooms
GFA
(sqm)
Valuation as of 31
Dec 2013 (Rmb mn)
Net property
yield
Avg daily room
rate (Rmb)
Occupancy
RevPAR
(Rmb)
New Century Grand Hotel Hangzhou
Hangzhou
699
130,105
1,900
5.0%
576
59.5%
342
New Century Hotel Xiaoshan Zhejiang
Xiaoshan
375
39,851
580
6.7%
341
59.8%
204
New Century Resort Qiandao Lake Hangzhou
Hangzhou
227
39,402
300
7.1%
870
57.1%
496
Shanghai Songjiang New Century Grand Hotel
Shanghai
446
71,027
810*
n/a
n/a
n/a
n/a
New Century Grand Hotel Ningbo
Ningbo
392
66,107
770
5.4%
534
54.9%
293
New Century Grand Hotel Changchun
Changchun
4.9%
642
64.2%
412
Total
328
45,625
640
2,467
392,117
5,000
*Valuation disclosed in 2014 interim report. Note: Operating data refers to FY13. Source: Company data
Figure 71: FY13 revenue breakdown
Ancillary services
3%
Rental income
31%
Food & beverage
41%
Hotel room revenue
25%
Source: Company data
60
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
New Century REIT: Summary of Financials
Profit and loss statement
Cash flow statement
Rmb in millions, year-end Dec
Revenues
% change Y/Y
EBIT
% change Y/Y
EBIT margin (%)
Net interest
Earnings before tax
% change Y/Y
Tax
as % of EBT
Net income (reported)
% change Y/Y
Total distribution
% change Y/Y
Shares outstanding
EPS (reported) (Rmb)
% change Y/Y
Rmb in millions, year-end Dec
FY10
706
n/a
112
n/a
15.9%
67
50
n/a
20
39.5%
29
n/a
n/a
n/a
n/a
n/a
n/a
FY11
794
12.5%
154
36.6%
19.3%
76
99
97.6%
24
24.3%
74
152.8%
n/a
n/a
n/a
n/a
n/a
FY12
804
1.2%
158
3.1%
19.7%
105
114
14.8%
36
32.1%
76
3.0%
n/a
n/a
n/a
n/a
n/a
FY13
469
(41.7%)
105
(33.6%)
22.4%
52
-158
(238.3%)
-27
17.1%
-131
(271.3%)
81
n/a
772
-0.19
n/a
FY10
112
99
15
16
130
FY11
154
92
2
23
176
FY12
158
94
114
28
317
FY13
105
51
(149)
30
(29)
Cashflow from investing
357
(712)
(198)
1,171
Cashflow from financing
(467)
563
189
(1,407)
21
27
309
(264)
0
0
0
(388)
0.0000
0.0000
0.0000
0.1225
FY10
15.9%
FY11
19.3%
FY12
19.7%
FY13
22.4%
n/a
n/a
n/a
12.5%
152.8%
n/a
1.2%
3.0%
n/a
(41.7%)
(271.3%)
n/a
1.7
51.8%
120.0%
34.8%
2.8
n/a
n/a
2.3
59.2%
165.3%
30.0%
3.3
9.8%
3.9%
2.1
41.5%
97.3%
26.5%
2.7
7.9%
3.2%
-2.0
28.5%
42.8%
10.6%
1.9
(7.5%)
(4.2%)
EBIT
Depreciation & amortisation
Change in working capital
Taxes
Cash flow from operations
Net changes in cash
Dividends paid
DPS (Rmb)
Source: Company data, Bloomberg
Source: Company data, Bloomberg
Balance sheet
Ratio analysis
Rmb in millions, year-end Dec
Cash and cash equivalents
Accounts receivable
Inventories
Others
Current assets
LT investments
Net fixed assets
Total assets
Liabilities
ST loans
Payables
Others
Total current liabilities
Long-term debt
Other liabilities
Total liabilities
Shareholders’ equity
BVPS (Rmb)
Source: Company data, Bloomberg
FY10
74
10
0
540
624
0
0
2,026
FY11
101
12
0
1,177
1,290
0
0
2,644
FY12
410
13
0
1,325
1,747
0
0
3,031
FY13
146
4
0
49
199
0
4,190
4,404
228
98
266
591
705
6
1,302
716
n/a
577
73
341
991
842
6
1,838
797
n/a
425
68
311
803
1,080
13
1,896
1,126
n/a
250
10
92
352
909
750
2,011
2,368
3.07
%, year-end Dec
EBIT margin
Sales growth
Net profit growth
EPS growth
Interest coverage (x)
Net debt to total capital
Net debt to equity
Sales/assets
Assets/equity
ROE
ROCE
Source: Company data, Bloomberg
61
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Not Covered
Prosperity REIT
Price: HK$2.87
Date: 29 Jan 2015
www.prosperityreit.com
Hong Kong
REITs
Company description
Prosperity REIT owns a portfolio of 8 properties in decentralized districts like
Island East and Kowloon East, mainly offices and industrial/office (“I/O”). The
total gross rentable area (“GRA”) is 1,35 mn sf. Cheung Kong together with
Hutchison own around 20% stake in Prosperity.
Amy LukAC
(852) 2800 8524
[email protected]
J.P. Morgan Securities (Asia Pacific)
Limited
Positives
In 2012, approval was obtained from the government to convert the use of
Prosperity Place from I/O to commercial use under the industrial buildings
revitalization scheme. Assets enhancement and alteration works on the building
upgraded the building image and attracted more high-quality commercial tenants.
New retail/service trade tenants accounted for over 20% of GRA as at 30 Jun 14.
There is still potential conversion in Prosperity existing portfolio such as Trendy
Centre. On the other hand, refinancing of debt amounted to HK$2.2 bn maturing
in August 2015 was arranged in November 2014 at Hibor + 135 bps. The REIT
will not have any major refinancing needs until 2019.
Price performance
130
120
110
100
90
80
Jan-14
May-14
Sep-14
808 HK Equity
Jan-15
HSI Index
Source: Bloomberg
Performance
1M
3M
12M
Absolute (%)
8.7
12.5
29.3
Relative (%)
3.9
8.5
15.8
Negatives
Grade A office supply in Kowloon East amounts to 1.3 mn sf and 0.6 mn sf in
2015 and 2016, respectively, according to Jones Lang LaSalle. This will create
potential competition on tenants to offices of Prosperity in that area, such as 9
Chong Yip Street in Kwun Tong.
Source: Bloomberg
Company data
52-wk range (HK$)
Mkt cap. (HK$ MM)
Mkt cap. (US$ MM)
Avg daily value (US$MM)
Avg. daily volume (MM)
Shares O/S (MM)
Date of price
Index: HSI
Free float (%)
Exchange rate (HK$/US$)
Valuation
The stock is currently trading at 0.63x FY13 P/B and 5.2% FY13 dividend yield.
2.16 - 2.95
4,074
526
0.472
1.355
1,420
29-Jan-15
24,595.85
87.6%
7.752
NOTE: THIS DOCUMENT IS BASED SOLELY ON PUBLICLY AVAILABLE
INFORMATION. THIS REPORT IS INTENDED AS INFORMATION ONLY AND NOT AS
RECOMMENDATION FOR ANY STOCK. J.P. MORGAN EQUITY RESEARCH DOES
NOT PROVIDE RESEARCH COVERAGE OR RATING FOR THIS COMPANY.
Source: Bloomberg
Bloomberg: 808 HK; Reuters: 0808.HK
HK$ in millions, year-end Dec
Revenue (HK$ mn)
EBIT (HK$ mn)
Net Income (HK$ mn)
Total distribution (HK$ mn)
EPU (HK$)
DPU (HK$)
Revenue Growth (%)
Distribution Growth (%)
P/B (x)
Dividend Yield (%)
FY10
270
177
653
148
0.49
0.11
2.4%
1.7%
1.07
3.8%
FY11
278
175
1,151
164
0.85
0.12
3.1%
10.6%
0.80
4.2%
Source: Bloomberg Note: Share price and valuations are as of 29 Jan 2015
62
FY12
308
196
1,075
187
0.78
0.14
10.8%
14.3%
0.68
4.7%
FY13
342
216
696
209
0.50
0.15
10.8%
11.9%
0.63
5.2%
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Table 28: Prosperity REIT's property portfolio
Name of Property
Location
GRA (sf)
Valuation as of 31
Dec 2013 (HK$ mn)
Net property
yield (%)
Revenue
(HK$'000)
Net property income
(HK$'000)
Occupancy as
at 31 Dec 2013
The Metropolis Tower
Hung Hom
271,418
2,943
3.4
113,754
91,409
97.6%
Prosperity Millennia Plaza
North Point
217,955
1,725
3.7
72,787
58,363
99.1%
9 Chong Yip Street
Kwun Tong
136,595
1,064*
n/a
31,246#
24,302#
95.8%*
Grade A Office
Commercial
Harbourfront Landmark (portion)
Hung Hom
77,021
461
3.8
22,194
16,942
100.0%
Prosperity Place
Kwun Tong
240,000
1,402
3.3
49,661
37,254
99.3%
Trendy Centre
Lai Chi Kok
173,764
912
3.9
39,909
30,103
99.2%
Prosperity Center (portion)
Kwun Tong
149,253
786
3.5
30,981
23,431
99.2%
86,168
289
4.0
12,597
9,429
100.0%
1,352,174
9,582
373,129
291,233
Industrial/Office
Industrial
New Treasure Centre (portion)
San Po Kong
Total
*As at 30 Jun 2014. #Annualised figures for 1H14 income. Note: Operating data refers to FY13. Source: Company data, J.P. Morgan estimates
Figure 72: FY13 net property income breakdown
Industrial/Office
18%
Figure 73: Property valuation breakdown (as of 31 Dec 2013)
Industrial
3%
Commercial
19%
Source: Company data, J.P. Morgan estimates
Industrial/Office
18%
Grade A Office
60%
Industrial
3%
Commercial
19%
Grade A Office
60%
Source: Company data, J.P. Morgan estimates
63
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Prosperity REIT: Summary of Financials
Profit and loss statement
Cash flow statement
HK$ in millions, year-end Dec
Revenues
% change Y/Y
EBIT
% change Y/Y
EBIT margin (%)
Net interest
Earnings before tax
% change Y/Y
Tax
as % of EBT
Net income (reported)
% change Y/Y
Total distribution
% change Y/Y
Shares outstanding
EPS (reported) (HK$)
% change Y/Y
HK$ in millions, year-end Dec
FY10
270
2.4%
177
2.0%
65.6%
65
782
57.2%
129
16.5%
653
54.7%
148
1.7%
1,343
0.49
53.1%
FY11
278
3.1%
175
(1.2%)
62.9%
46
1,173
50.0%
21
1.8%
1,151
76.5%
164
10.6%
1,360
0.85
73.5%
FY12
308
10.8%
196
11.8%
63.4%
44
1,100
(6.2%)
25
2.3%
1,075
(6.7%)
187
14.3%
1,380
0.78
(8.2%)
FY13
342
10.8%
216
10.3%
63.1%
42
724
(34.1%)
29
4.0%
696
(35.3%)
209
11.9%
1,396
0.50
(35.9%)
FY10
177
0
2
4
151
FY11
175
0
21
10
182
FY12
196
0
4
9
193
FY13
216
0
14
16
224
Cash flow from investing
(8)
(13)
(13)
(15)
Cash flow from financing
(167)
(146)
(189)
(195)
(24)
23
(9)
14
(147)
(154)
(174)
(200)
0.1101
0.1202
0.1354
0.1495
EBIT
Depreciation & amortisation
Change in working capital
Taxes
Cash flow from operations
Net changes in cash
Dividends paid
DPS (HK$)
Source: Company data, Bloomberg
Source: Company data, Bloomberg
Balance sheet
Ratio analysis
HK$ in millions, year-end Dec
Cash and cash equivalents
Accounts receivable
Inventories
Others
Current assets
LT investments
Net fixed assets
Total assets
Liabilities
ST loans
Payables
Others
Total current liabilities
Long-term debt
Other liabilities
Total liabilities
Shareholders’ equity
BVPS (HK$)
Source: Company data, Bloomberg
64
FY10
30
0
0
8
38
0
5,934
5,972
FY11
53
0
0
8
61
0
6,991
7,052
FY12
44
0
0
7
52
0
7,952
8,004
FY13
58
1
0
8
67
0
8,518
8,585
0
1
233
233
1,750
395
2,378
3,594
2.68
0
2
269
271
1,768
106
2,146
4,907
3.61
0
1
276
277
1,763
145
2,185
5,819
4.22
0
1
307
308
1,779
137
2,223
6,361
4.56
%, year-end Dec
EBIT margin
FY10
65.6%
FY11
62.9%
FY12
63.4%
FY13
63.1%
Sales growth
Net profit growth
EPS growth
2.4%
54.7%
53.1%
3.1%
76.5%
73.5%
10.8%
(6.7%)
(8.2%)
10.8%
(35.3%)
(35.9%)
Interest coverage (x)
Net debt to total capital
Net debt to equity
Sales/assets
Assets/equity
ROE
ROCE
12.9
32.2%
47.9%
4.5%
1.7
19.6%
12.8%
26.4
25.7%
35.0%
3.9%
1.4
27.1%
19.2%
26.2
22.7%
29.5%
3.9%
1.4
20.0%
15.1%
18.3
21.1%
27.0%
4.0%
1.3
11.4%
8.9%
Source: Company data, Bloomberg
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Not Covered
Regal REIT
Price: HK$2.16
Date: 29 Jan 2015
www.regalreit.com
Hong Kong
REITs
Company description
Regal REIT holds a portfolio of eight hotels with 4,570 rooms across Hong Kong
Island, Kowloon, New Territories and Lantau Island. The hotels are operated
under “Regal” brand. The five initial hotels are leased to Regal Hotels
International Holdings (“RHIHL”) which is the major unit holder of Regal REIT.
Amy LukAC
(852) 2800 8524
[email protected]
J.P. Morgan Securities (Asia Pacific)
Limited
Positives
Under the lease agreement with RHIHL, Regal REIT will receive an annual base
rent determined by an independent professional property valuer on an annual
basis and variable rent for the five initial hotels. This provides some support for
the REIT income. The REIT has a right of first refusal to purchase from
RHIHL’s majority interest in the hotel that it may wish to dispose of in the
future, providing an acquisition pipeline.
Price performance
110
100
90
80
Jan-14
May-14
Sep-14
1881 HK Equity
Jan-15
HSI Index
Negatives
The hospitality sector is cyclical in nature and vulnerable to any economic
slowdown and outbreak of epidemics. In FY13, 45% of the customers were
originally from China. Potential slowdown in mainland visitors may affect
occupancy and room rate.
Source: Bloomberg
Performance
1M
3M
12M
Absolute (%)
5.4
10.8
3.8
Relative (%)
0.7
6.7
-7.0
Valuation
The stock is currently trading at 0.45x FY13 P/B and 6.9% FY13 dividend yield.
Source: Bloomberg
Company data
52-wk range (HK$)
Mkt cap. (HK$ MM)
Mkt cap. (US$ MM)
Avg daily value (US$MM)
Avg. daily volume (MM)
Shares O/S (MM)
Date of price
Index: HSI
Free float (%)
Exchange rate (HK$/US$)
NOTE: THIS DOCUMENT IS BASED SOLELY ON PUBLICLY AVAILABLE
1.92 - 2.32
7,036
908
0.220
0.832
3,257
29-Jan-15
24,595.85
25.0%
7.752
INFORMATION. THIS REPORT IS INTENDED AS INFORMATION ONLY AND NOT AS
RECOMMENDATION FOR ANY STOCK. J.P. MORGAN EQUITY RESEARCH DOES
NOT PROVIDE RESEARCH COVERAGE OR RATING FOR THIS COMPANY.
Source: Bloomberg
Bloomberg: 1881 HK; Reuters: 1881.HK
HK$ in millions, year-end Dec
Revenue (HK$ mn)
EBIT (HK$ mn)
Net Income (HK$ mn)
Total distribution (HK$ mn)
EPU (HK$)
DPU (HK$)
Revenue Growth (%)
Distribution Growth (%)
P/B (x)
Dividend Yield (%)
FY10
910
810
997
617
0.31
0.19
19.2%
15.8%
0.71
8.8%
FY11
743
624
2,997
391
0.92
0.12
(18.3%)
(36.6%)
0.56
5.6%
FY12
845
708
3,549
456
1.09
0.14
13.6%
16.7%
0.44
6.5%
FY13
867
713
343
489
0.11
0.15
2.7%
7.1%
0.45
6.9%
Source: Bloomberg Note: Share price and valuations are as of 29 Jan 2015
65
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Table 29 Regal REIT's hotel portfolio in HK
Name of Property
Location
Opening
year
No. of
rooms
GFA
(sqm)
Valuation as of
31 Dec 2013
(HK$ mn)
Net
property
yield (%)
Regal Airport Hotel
Chek Lap Kok
1999
1171
71,988
3,440
7.2
Regal Hongkong Hotel
Causeway Bay
1993
482
25,091
4,290
3.4
Regal Kowloon Hotel
Tsim Sha Tsui
1982
600
31,746
5,480
3.1
Regal Oriental Hotel
Kowloon City
1982
494
22,601
2,230
Regal Riverside Hotel
Shatin
1986
1138
59,668
Regal iClub Hotel
Wanchai
2009
99
iclub Sheung Wan Hotel
Sheung Wan
2014
iclub Fortress Hill Hotel
North Point
2014
Total
Average
room rate
(HK$)
Occupancy
1,142
89%
1,413
91%
1,216
92%
3.4
830
94%
4,760
3.6
778
89%
5,326
880
3.4
49.0
1,208
100%
248
7,197
1,580^
n/a
79.0#
n/a
n/a
338
n/a
1,650*
n/a
82.5#
n/a
n/a
4,570
24,310
Gross rental &
hotel revenue
(HK$ mn)
817.9
1,028
*Valuation as of 30 Apr 2014. ^Valuation as of 30 Jun 2014. #Annual rent for the first lease year. Note: Operating data refers to FY13. Source: Company data, J.P. Morgan estimates
66
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Regal REIT: Summary of Financials
Profit and loss statement
Cash flow statement
HK$ in millions, year-end Dec
Revenues
% change Y/Y
EBIT
% change Y/Y
EBIT margin (%)
Net interest
Earnings before tax
% change Y/Y
Tax
as % of EBT
Net income (reported)
% change Y/Y
Total distribution
% change Y/Y
Shares outstanding
EPS (reported) (HK$)
% change Y/Y
HK$ in millions, year-end Dec
FY10
910
19.2%
810
20.3%
89.0%
41
1,120
42.2%
103
9.2%
997
46.1%
617
15.8%
3,242
0.31
43.7%
FY11
743
(18.3%)
624
(22.9%)
84.0%
44
3,071
174.1%
73
2.4%
2,997
200.6%
391
(36.6%)
3,257
0.92
198.1%
FY12
845
13.6%
708
13.4%
83.8%
103
3,644
18.7%
95
2.6%
3,549
18.4%
456
16.7%
3,257
1.09
18.2%
FY13
867
2.7%
713
0.7%
82.2%
162
436
(88.0%)
94
21.5%
343
(90.3%)
489
7.1%
3,257
0.11
(90.4%)
EBIT
Depreciation & amortisation
Change in working capital
Taxes
Cash flow from operations
FY10
810
0
(81)
21
669
FY11
624
5
120
42
535
FY12
708
7
(67)
35
471
FY13
713
8
101
75
628
Cash flow from investing
(120)
(83)
(45)
(2,137)
Cash flow from financing
(590)
(455)
(424)
1,533
(41)
(3)
2
23
(552)
(524)
(410)
(469)
0.1900
0.1200
0.1400
0.1500
Net changes in cash
Dividends paid
DPS (HK$)
Source: Company data, Bloomberg
Source: Company data, Bloomberg
Balance sheet
Ratio analysis
HK$ in millions, year-end Dec
Cash and cash equivalents
Accounts receivable
Inventories
Others
Current assets
LT investments
Net fixed assets
Total assets
Liabilities
ST loans
Payables
Others
Total current liabilities
Long-term debt
Other liabilities
Total liabilities
Shareholders’ equity
BVPS (HK$)
Source: Company data, Bloomberg
FY10
27
121
0
79
227
0
14,880
15,107
FY11
24
53
0
77
153
0
17,154
17,922
FY12
25
98
0
46
170
0
20,292
21,202
FY13
48
55
0
1,072
1,175
0
20,380
23,203
75
10
103
188
4,617
383
5,188
9,920
3.06
4,563
88
91
4,742
209
320
5,270
12,652
3.88
5
73
40
118
4,776
377
5,271
15,931
4.89
155
132
49
336
4,763
2,331
7,429
15,774
4.84
%, year-end Dec
EBIT margin
FY10
89.0%
FY11
84.0%
FY12
83.8%
FY13
82.2%
Sales growth
Net profit growth
EPS growth
19.2%
46.1%
43.7%
(18.3%)
200.6%
198.1%
13.6%
18.4%
18.2%
2.7%
(90.3%)
(90.4%)
Interest coverage (x)
Net debt to total capital
Net debt to equity
Sales/assets
Assets/equity
ROE
ROCE
28.3
31.9%
47.0%
6.0%
1.5
10.4%
7.1%
70.4
27.3%
37.5%
4.1%
1.4
26.6%
18.7%
36.4
23.0%
29.9%
4.0%
1.3
24.8%
18.6%
3.7
23.5%
30.9%
3.7%
1.5
2.2%
1.7%
Source: Company data, Bloomberg
67
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Not Covered
Spring REIT
Price: HK$3.75
Date: 29 Jan 2015
www.springreit.com
China
REITs
Company description
Spring REIT owns two Premium Grade office buildings with a total GFA of
120,245 sqm and approximately 600 car parking spaces in the CBD of Beijing,
to the west of East 4th Ring Road and at the intersection of Jianguo Road and
West Dawang Road, which is part of China Central Place (“CCP”), a mixed-use
complex with hotels and shopping centres.
Amy LukAC
(852) 2800 8524
[email protected]
J.P. Morgan Securities (Asia Pacific)
Limited
Price performance
Positives
Despite average monthly passing rental increasing meaningfully to Rmb359psm
in 3Q14 from Rmb288 psm in 2013, it is still lower than the spot rent at around
Rmb380 psm. There is still positive rental reversion potential. Occupancy
remained at a high level of 95% in 3Q14.
120
110
100
90
80
Jan-14
May-14
Sep-14
1426 HK Equity
Jan-15
Negatives
Spring REIT is subject to concentration risk in the Beijing office market as it is
essentially as single asset REIT. The future office supply in Beijing may impact
the demand for CCP offices. Under the distribution policy, the payout ratio is
100% for FY14 and at least 90% thereafter. There is a potential for a drop in
payout ratio in FY15 or after.
HSI Index
Source: Bloomberg
Performance
1M
3M
12M
Absolute (%)
2.2
5.3
23.0
Relative (%)
-2.4
1.5
10.2
Valuation
The stock is currently trading at 0.61x FY13 P/B and 1.9% FY13 dividend yield
(based on special distribution in FY13 for surplus cash held as the REIT was
listed on December 5, 2013).
Source: Bloomberg
Company data
52-wk range (HK$)
Mkt cap. (HK$ MM)
Mkt cap. (US$ MM)
Avg daily value (US$MM)
Avg. daily volume (MM)
Shares O/S (MM)
Date of price
Index: HSI
Free float (%)
Exchange rate (HK$/US$)
2.67 - 3.91
4,161
537
0.377
0.814
1,109
29-Jan-15
24,595.85
62.3%
7.752
NOTE: THIS DOCUMENT IS BASED SOLELY ON PUBLICLY AVAILABLE
INFORMATION. THIS REPORT IS INTENDED AS INFORMATION ONLY AND NOT AS
RECOMMENDATION FOR ANY STOCK. J.P. MORGAN EQUITY RESEARCH DOES
NOT PROVIDE RESEARCH COVERAGE OR RATING FOR THIS COMPANY.
Source: Bloomberg
Bloomberg: 1426 HK; Reuters: 1426.HK
US$ in millions, year-end Dec
Revenue (US$ mn)
EBIT (US$ mn)
Net Income (US$ mn)
Total distribution (US$ mn)
EPU (US$)
DPU (US$)
Revenue Growth (%)
Distribution Growth (%)
P/B (x)
Dividend Yield (%)
FY10
37
25
99
n/a
n/a
n/a
n/a
n/a
n/a
n/a
FY11
47
34
184
n/a
n/a
n/a
25.2%
n/a
n/a
n/a
FY12
53
39
194
n/a
n/a
n/a
13.8%
n/a
n/a
n/a
FY13
71
49
70
10
0.06
0.01
33.1%
n/a
0.61
1.9%
Source: Bloomberg Note: Share price and valuations are as of 29 Jan 2015. FY13 dividend yield based on special distribution only as the REIT was listed on December 5, 2013.
68
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Table 30: Spring REIT's property portfolio
Name of Property
Location
China Central Place
Beijing
Completion
date
GFA (sqm)
Valuation
(Rmb mn)
Net property
yield (%)
Rental revenue
(USD '000)
2006
145,373
7,760
5.1
66,240
n/a
120,245
n/a
n/a
65,746
96%
25,127
n/a
n/a
494
n/a
Office (Tower 1 & 2)
Car park (600 spaces)
Average
occupancy
Note: Operating data refers to FY13. Source: Company data
Figure 74: Average monthly spot rental vs average monthly passing
rental
400
350
300
250
200
150
100
50
0
332
198
188
375
288
372
400
300
241
201
Figure 75: Lease expiring profile and expiring rental
357
251
200
44%
Source: Company data
2012
2013
20%
32%
13%
2011
50%
30%
226
100
60%
40%
11%
0
2010
323
2014
2015
2016
10%
0%
2017 & beyond
Average monthly spot rental (Rmb/sqm)
Expiring leases as a % of leased office GFA (RHS)
Average monthly passing rental (Rmb/sqm)
Average monthly rental for expiring leases (Rmb/sqm)
Source: Company data
69
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Spring REIT: Summary of Financials
Profit and loss statement
Cash flow statement
US$ in millions, year-end Dec
Revenues
% change Y/Y
EBIT
% change Y/Y
EBIT margin (%)
Net interest
Earnings before tax
% change Y/Y
Tax
as % of EBT
Net income (reported)
% change Y/Y
Total distribution
% change Y/Y
Shares outstanding
EPS (reported) (US$)
% change Y/Y
US$ in millions, year-end Dec
FY10
37
n/a
25
n/a
67.9%
31
99
n/a
0
0.0%
99
n/a
n/a
n/a
n/a
n/a
n/a
FY11
47
25.2%
34
34.2%
72.7%
30
184
85.2%
0
0.0%
184
85.2%
n/a
n/a
n/a
n/a
n/a
FY12
53
13.8%
39
15.6%
73.9%
29
194
5.9%
0
0.0%
194
5.9%
n/a
n/a
n/a
n/a
n/a
FY13
71
33.1%
49
24.6%
69.2%
29
70
(64.1%)
0
0.0%
70
(64.1%)
10
n/a
1,098
0.06
n/a
FY10
25
0
3
0
10
FY11
34
0
3
0
12
FY12
39
0
3
0
16
FY13
49
0
11
0
54
Cashflow from investing
16
(15)
(6)
(25)
Cashflow from financing
(20)
0
0
26
Net changes in cash
6
(4)
10
55
Dividends paid
0
0
0
(15)
n/a
n/a
n/a
0.0090
EBIT
Depreciation & amortisation
Change in working capital
Taxes
Cash flow from operations
DPS (US$)
Source: Company data, Bloomberg
Source: Company data, Bloomberg
Balance sheet
Ratio analysis
US$ in millions, year-end Dec
Cash and Cash Equivalents
Accounts receivable
Inventories
Others
Current assets
LT investments
Net fixed assets
Total Assets
Liabilities
ST bank loans
Payables
Others
Total current liabilities
Long term debt
Other liabilities
Total liabilities
Shareholder's equity
BVPS (US$)
Source: Company data, Bloomberg
70
FY10
6
0
0
45
51
0
791
848
FY11
2
0
0
62
64
0
994
1,062
FY12
12
0
0
68
80
0
1,187
1,267
FY13
67
0
0
63
130
0
1,273
1,404
0
0
20
20
466
0
486
363
n/a
0
0
20
20
472
0
492
569
n/a
477
0
24
501
0
0
501
766
n/a
0
0
37
37
505
0
541
862
0.79
%, year-end Dec
EBIT margin
Sales growth
Net profit growth
EPS growth
Interest coverage (x)
Net debt to total capital
Net debt to equity
Sales/assets
Assets/equity
ROE
ROCE
Source: Company data, Bloomberg
FY10
67.9%
FY11
72.7%
FY12
73.9%
FY13
69.2%
n/a
n/a
n/a
25.2%
85.2%
n/a
13.8%
5.9%
n/a
33.1%
(64.1%)
n/a
4.2
55.5%
126.9%
4.4%
2.3
n/a
n/a
7.2
45.1%
82.6%
4.4%
1.9
39.4%
19.6%
7.7
37.4%
60.7%
4.2%
1.7
29.1%
17.0%
3.4
32.0%
50.7%
5.0%
1.6
8.6%
5.3%
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Not Covered
Sunlight REIT
Price: HK$3.93
Date: 29 Jan 2015
www.sunlightreit.com
Hong Kong
REITs
Company description
Sunlight REIT has a diversified portfolio of 12 office and 7 retail properties in
HK with an aggregate gross rentable area (“GRA”) of approximately 1.3 mn sf.
The properties are mainly located in decentralized locations and the split
between office and retail is balanced in terms of property valuation. Henderson
Land is the sponsor of Sunlight REIT.
Amy LukAC
(852) 2800 8524
[email protected]
J.P. Morgan Securities (Asia Pacific)
Limited
Price performance
Positives
The only Grade A office building in the portfolio, 248 Queen’s Road East, will
have 47.8% of expiring GRA in FY15. Net property income (“NPI”) Given the
average rent of expiring leases at HK$29.4 psf is lower than market rent, we
expect the building could achieve positive rental reversion in FY15. In 1QFY15,
the property achieved rental reversion of 21.6% for about 23.2% of GRA.
120
110
100
90
Jan-14
May-14
Sep-14
435 HK Equity
Jan-15
HSI Index
Negatives
Sheung Shui Centre Shopping Arcade, accounting for 24.5% of FY14 NPI, is
facing the risks of potential drop in same day visitors from mainland as the mall
is located close to the border in New Territories. Tenants sales in this mall may
get negatively impacted in case there is any change in the multiple entry scheme
to Shenzhen residents of the Individual Visit Scheme.
Source: Bloomberg
Performance
1M
3M
12M
Absolute (%)
12.6
18.7
38.9
Relative (%)
7.6
14.4
24.4
Valuation
The stock is currently trading at 0.56x FY14 P/B and 5.1% FY14 dividend yield.
Source: Bloomberg
Company data
52-wk range (HK$)
Mkt cap. (HK$ MM)
Mkt cap. (US$ MM)
Avg daily value (US$MM)
Avg. daily volume (MM)
Shares O/S (MM)
Date of price
Index: HSI
Free float (%)
Exchange rate (HK$/US$)
2.71 - 4.05
6,417
828
0.661
1.435
1,633
29-Jan-15
24,595.85
68.1%
7.752
NOTE: THIS DOCUMENT IS BASED SOLELY ON PUBLICLY AVAILABLE
INFORMATION. THIS REPORT IS INTENDED AS INFORMATION ONLY AND NOT AS
RECOMMENDATION FOR ANY STOCK. J.P. MORGAN EQUITY RESEARCH DOES
NOT PROVIDE RESEARCH COVERAGE OR RATING FOR THIS COMPANY.
Source: Bloomberg
Bloomberg: 435 HK; Reuters: 0435.HK
HK$ in millions, year-end Jun
Revenue (HK$ mn)
EBIT (HK$ mn)
Net Income (HK$ mn)
Total distribution (HK$ mn)
EPU (HK$)
DPU (HK$)
Revenue Growth (%)
Distribution Growth (%)
P/B (x)
Dividend Yield (%)
FY11
532
337
1,655
239
1.05
0.18
9.0%
28.3%
0.75
4.5%
FY12
582
369
1,027
272
0.64
0.17
9.2%
13.8%
0.70
4.3%
FY13
630
408
1,675
286
1.04
0.18
8.3%
4.9%
0.60
4.5%
FY14
689
440
1,230
325
0.76
0.20
9.3%
13.7%
0.56
5.1%
Source: Bloomberg Note: Share price and valuations are as of 29 Jan 2015.
71
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Table 31: Sunlight REIT's property portfolio
Total
Valuation
at 30 Jun 14
(HK$ mn)
6,490
376,381
3,986.0
3.85
108,506
9,403
117,909
867.2
41,004
10,763
51,767
611.6
Central
37,937
2,177
40,114
Sheung Wan
60,844
3,071
63,915
235 Wing Lok Street Trade Centre Property
Sheung Wan
47,481
4,804
Java Road 108 Commercial Centre Property
North Point
35,694
2,229
Yue Fai Commercial Centre Property
Aberdeen
41,272
On Loong Commercial Building Property
Wan Chai
23,856
Everglory Centre Property
TST
Sun Fai Commercial Centre Property
Mong Kok
Wai Ching Commercial Building Property
Yau Ma Tei
Name of Property
Avg rent at
30 Jun 14
(HK$ psf)
NPI
(HK$'000)
Occ.
rate
(%)
3.75
32.1
135,346
98.5
3.85
4.20
24.1
28,617
97.4
3.95
3.60
36.2
20,239
100.0
490.3
3.85
4.00
38.0
16,349
97.2
439.3
3.85
4.20
22.3
14,610
100.0
52,285
269.8
3.85
4.25
16.9
8,994
98.9
37,923
242.2
3.95
4.20
20.5
7,394
100.0
1,479
42,751
236.3
4.10
4.10
18.8
7,631
99.4
1,708
25,564
216.1
3.95
4.00
27.3
7,368
100.0
25,896
3,906
29,802
186.0
3.85
4.15
19.7
6,184
100.0
23,817
2,334
26,151
154.5
4.10
4.35
20.6
5,516
98.1
14,239
2,082
16,321
58.7
3.85
4.20
10.7
1,621
100.0
830,437
50,446
880,883
7,758.0
Location
Office
Wan Chai
369,891
Bonham Trade Centre Property
Sheung Wan
Righteous Centre Property
Mong Kok
Winsome House Property
135 Bonham Strand Trade Centre Property
GRA (sf)
Retail
Cap rate (%)
Office
Retail
Grade A Office
248 Queen’s Road East Property
Grade B Office
Sub-total
259,869
New Town Retail
Sheung Shui Centre Property
Sheung Shui
0
122,339
122,339
3,670.8
n/a
4.40
102.9
131,034
97.4
Metro City Phase I Property
TKO
0
188,889
188,889
2,678.8
n/a
4.50
44.9
102,373
98.3
Kwong Wah Plaza Property
Yuen Long
39,101
25,741
64,842
906.1
3.85
3.80
43.8
28,484
99.3
Royal Terrace Property
North Point
0
9,565
9,565
156.5
n/a
4.25
47.6
6,097
100.0
Beverley Commercial Centre Property
TST
0
7,934
7,934
125.5
n/a
4.30
51.8
4,436
94.5
Supernova Stand Property
North Point
0
4,226
4,226
57.2
n/a
4.00
47.6
1,948
100.0
Palatial Stand Property
Hung Hom
n/a
4.35
13.2
824
100.0
Urban Retail
Sub-total
Total
3,566
5,059
8,625
37.7
42,667
363,753
406,420
7,632.6
275,196
873,104
414,199
1,287,303
15,390.6
535,065
Note: Operating data refers to FY14. Source: Company data
Figure 76: Property valuation breakdown (as at 30 Jun 2014)
Urban Retail
2%
Figure 77: FY14 net property income breakdown
Urban Retail
3%
Grade A
Office
26%
New Town
Retail
47%
New Town
Retail
49%
Grade B
Office
23%
Grade B
Office
25%
Source: Company data
72
Grade A
Office
25%
Source: Company data
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Sunlight REIT: Summary of Financials
Profit and loss statement
Cash flow statement
HK$ in millions, year-end Jun
Revenues
% change Y/Y
EBIT
% change Y/Y
EBIT margin (%)
Net interest
Earnings before tax
% change Y/Y
Tax
as % of EBT
Net income (reported)
% change Y/Y
Total distribution
% change Y/Y
Shares outstanding
EPS (reported) (HK$)
% change Y/Y
HK$ in millions, year-end Jun
FY11
532
9.0%
337
9.9%
63.2%
118
1,685
18.9%
30
1.8%
1,655
19.1%
239
28.3%
1,586
1.05
18.0%
FY12
582
9.2%
369
9.6%
63.4%
96
1,070
(36.5%)
43
4.0%
1,027
(37.9%)
272
13.8%
1,606
0.64
(39.0%)
FY13
630
8.3%
408
10.6%
64.7%
103
1,726
61.2%
51
3.0%
1,675
63.0%
286
4.9%
1,616
1.04
62.5%
FY14
689
9.3%
440
8.0%
63.9%
95
1,290
(25.2%)
60
4.7%
1,230
(26.5%)
325
13.7%
1,628
0.76
(26.9%)
FY11
337
0
129
141
270
FY12
369
0
3
6
320
FY13
408
0
21
20
345
FY14
440
0
24
28
383
Cash flow from investing
(43)
(41)
108
(131)
Cash flow from financing
(228)
(312)
(349)
(331)
0
(33)
103
(80)
(213)
(257)
(277)
(304)
0.1760
0.1700
0.1770
0.2000
EBIT
Depreciation & amortisation
Change in working capital
Taxes
Cash flow from operations
Net changes in cash
Dividends paid
DPS (HK$)
Source: Company data, Bloomberg
Source: Company data, Bloomberg
Balance sheet
Ratio analysis
HK$ in millions, year-end Jun
Cash and cash equivalents
Accounts receivable
Inventories
Others
Current assets
LT investments
Net fixed assets
Total assets
Liabilities
ST loans
Payables
Others
Total current liabilities
Long-term debt
Other liabilities
Total liabilities
Shareholders’ equity
BVPS (HK$)
Source: Company data, Bloomberg
FY11
0
18
0
438
456
0
12,222
12,888
FY12
1
17
0
427
445
0
13,039
13,692
FY13
329
12
0
174
515
0
14,409
15,156
FY14
345
13
0
161
519
0
15,391
16,152
3,948
32
350
4,329
0
297
4,626
8,262
5.21
0
28
405
433
3,916
321
4,671
9,022
5.62
0
27
423
450
3,875
300
4,625
10,532
6.52
0
36
451
487
3,872
297
4,657
11,495
7.06
%, year-end Jun
EBIT margin
FY11
63.2%
FY12
63.4%
FY13
64.7%
FY14
63.9%
Sales growth
Net profit growth
EPS growth
9.0%
19.1%
18.0%
9.2%
(37.9%)
(39.0%)
8.3%
63.0%
62.5%
9.3%
(26.5%)
(26.9%)
Interest coverage (x)
Net debt to total capital
Net debt to equity
Sales/assets
Assets/equity
ROE
ROCE
15.3
32.3%
47.8%
4.1%
1.6
22.1%
14.5%
12.1
30.3%
43.4%
4.2%
1.5
11.9%
8.2%
17.7
24.6%
33.7%
4.2%
1.4
17.1%
12.2%
14.6
23.0%
30.7%
4.3%
1.4
11.2%
8.3%
Source: Company data, Bloomberg
73
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Not Covered
Yuexiu REIT
Price: HK$4.09
Date: 29 Jan 2015
www.yuexiureit.com
China
REITs
Company description
Yuexiu REIT is 36% owned by Yuexiu Property (123 HK), which is a
Guangzhou government-backed property enterprise. Yuexiu REIT has a portfolio
of six commercial properties located in Guangzhou, China with a total area of
about 680,000 sqm. The portfolio includes a CBD complex Guangzhou IFC in
Zhujiang New Town CBD acquired in 2012.
Amy LukAC
(852) 2800 8524
[email protected]
J.P. Morgan Securities (Asia Pacific)
Limited
Price performance
Positives
The revenue stream is diversified where office segment contributing to 41% of
1H14 revenue, followed by 27% from hotel and serviced apartment, 24% from
wholesale mall and 8% from retail mall. The portfolio recorded stable revenue
growth where revenue from Guangzhou IFC acquired in 2012 went up 23.6% in
1H14 vs 1H13 on higher occupancy (88.8% vs 74.1%). Asset enhancement in
White Horse Building and Victory Plaza may enhance rental level.
110
100
90
Jan-14
May-14
Sep-14
405 HK Equity
Jan-15
HSI Index
Negatives
Commencing from 31 Dec 2016, a number of deferred units will be issued at
HK$4 to sponsor Yuexiu Property (“YXP”) which may dilute DPU of Yuexiu
REIT. In addition, after 2016, the income support from YXP for Guangzhou IFC
hotel and serviced apartment will expire.
Source: Bloomberg
Performance
1M
3M
12M
Absolute (%)
5.4
7.1
12.1
Relative (%)
0.7
3.2
0.4
Valuation
The stock is currently trading at 0.70x FY13 P/B and 6.7% FY13 dividend yield.
Source: Bloomberg
Company data
52-wk range (HK$)
Mkt cap. (HK$ MM)
Mkt cap. (US$ MM)
Avg daily value (US$MM)
Avg. daily volume (MM)
Shares O/S (MM)
Date of price
Index: HSI
Free float (%)
Exchange rate (HK$/US$)
3.59 - 4.11
11,451
1,477
1.517
2.997
2,800
29-Jan-15
24,595.85
37.0%
7.752
NOTE: THIS DOCUMENT IS BASED SOLELY ON PUBLICLY AVAILABLE
INFORMATION. THIS REPORT IS INTENDED AS INFORMATION ONLY AND NOT AS
RECOMMENDATION FOR ANY STOCK. J.P. MORGAN EQUITY RESEARCH DOES
NOT PROVIDE RESEARCH COVERAGE OR RATING FOR THIS COMPANY.
Source: Bloomberg
Bloomberg: 405 HK; Reuters: 0405.HK
Rmb in millions, year-end Dec
Revenue (Rmb mn)
EBIT (Rmb mn)
Net Income (Rmb mn)
Total distribution (Rmb mn)
EPU (Rmb)
DPU (Rmb)
Revenue Growth (%)
Distribution Growth (%)
P/B (x)
Dividend Yield (%)
FY10
485
293
636
220
0.60
0.21
3.3%
0.1%
0.93
5.9%
FY11
522
308
1,337
231
1.25
0.22
7.8%
5.1%
0.69
6.5%
Source: Bloomberg Note: Share price and valuations are as of 29 Jan 2015.
74
FY12
712
364
688
403
0.48
0.22
36.4%
74.3%
0.73
6.5%
FY13
1,371
452
524
599
0.19
0.22
92.5%
48.4%
0.70
6.7%
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Table 32: Yuexiu REIT's property portfolio in Guangzhou
Name of Property
Type
Location
Guangzhou IFC
Commercial complex
Cap rate
(%)
NPI
(Rmb mn)
457,357
Valuation as at
31 Dec 2013
(Rmb mn)
15,715
Yuexiu District
n/a
267,804
n/a
4.50-5.00%
Retails
46,989
n/a
4.75-5.25%
Hotel
91,461
n/a
Serviced Apartments
51,102
Grade A Office
GFA
(sqm)
417.7
Occupancy
as at 31
Dec 2013
88.0%*
Unit rent as at
31 Dec 2013
(Rmb psm)
203
n/a
85.4%
221
n/a
98.4%
140
n/a
n/a
n/a
n/a
n/a
4.50%
n/a
n/a
n/a
White Horse Building
Wholesale shopping mall
Tianhe District
50,199
3,980
7.75-8.25%
268.7
100.0%
554
Fortune Plaza
Grade A office
Tianhe District
41,355
806
7.00-8.00%
53.9
99.3%
138
City Development Plaza
Grade A office
Tianhe District
42,397
672
7.50-8.50%
43.9
96.6%
120
Victory Plaza
Retail shopping mall
Yuexiu District
27,698
804
7.50-8.00%
28.9
92.2%
192
Yue Xiu Neo Metropolis Plaza
Commercial complex
Tianhe District
61,964
772
6.50-8.00%
47.3
97.6%
100
680,971
22,749
Total
860.4
Note: Operating data refers to FY13. Source: Company data, J.P. Morgan estimates
Figure 78: FY13 net property income breakdown
Hotel and serviced
apartments
6%
Retail
11%
Office
52%
Wholesales
31%
Source: Company data
75
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Yuexiu REIT: Summary of Financials
Profit and loss statement
Cash flow statement
Rmb in millions, year-end Dec
Revenues
% change Y/Y
EBIT
% change Y/Y
EBIT margin (%)
Net interest
Earnings before tax
% change Y/Y
Tax
as % of EBT
Net income (reported)
% change Y/Y
Total distribution
% change Y/Y
Shares outstanding
EPS (reported) (Rmb)
% change Y/Y
Rmb in millions, year-end Dec
FY10
485
3.3%
293
(2.7%)
60.5%
36
650
134.8%
14
2.2%
636
140.1%
220
0.1%
1,066
0.60
143.1%
FY11
522
7.8%
308
5.2%
59.0%
37
1,371
111.0%
34
2.5%
1,337
110.4%
231
5.1%
1,066
1.25
108.3%
FY12
712
36.4%
364
17.9%
51.1%
145
738
(46.2%)
50
6.8%
688
(48.6%)
403
74.3%
2,743
0.48
(61.6%)
FY13
1,371
92.5%
452
24.2%
33.0%
441
673
(8.9%)
149
22.1%
524
(23.8%)
599
48.4%
2,767
0.19
(60.4%)
FY10
293
2
11
9
265
FY11
308
1
12
9
278
FY12
364
35
21
7
103
FY13
452
144
49
10
656
Cash flow from investing
(5)
(187)
(4,643)
116
Cash flow from financing
(241)
51
4,793
(907)
18
142
253
(134)
(241)
(223)
(275)
(563)
0.2070
0.2171
0.2151
0.2164
FY10
60.5%
FY11
59.0%
FY12
51.1%
FY13
33.0%
3.3%
140.1%
143.1%
7.8%
110.4%
108.3%
36.4%
(48.6%)
(61.6%)
92.5%
(23.8%)
(60.4%)
19.2
24.3%
35.1%
8.0%
1.5
16.8%
11.4%
38.1
20.6%
28.6%
7.1%
1.4
29.5%
20.8%
6.1
36.2%
60.6%
2.9%
2.0
7.8%
4.9%
2.5
35.0%
56.8%
5.6%
1.9
4.2%
2.5%
EBIT
Depreciation & amortisation
Change in working capital
Taxes
Cash flow from operations
Net changes in cash
Dividends paid
DPS (Rmb)
Source: Company data, Bloomberg
Source: Company data, Bloomberg
Balance sheet
Ratio analysis
Rmb in millions, year-end Dec
Cash and cash equivalents
Accounts receivable
Inventories
Others
Current assets
LT investments
Net fixed assets
Total assets
Liabilities
ST loans
Payables
Others
Total current liabilities
Long-term debt
Other liabilities
Total liabilities
Shareholders’ equity
BVPS (Rmb)
Source: Company data, Bloomberg
76
FY10
379
0
0
9
388
0
5,433
6,024
FY11
521
0
0
184
705
175
6,471
7,375
FY12
774
11
0
1,353
2,138
125
18,264
24,874
FY13
640
11
0
912
1,563
0
18,605
24,550
1,775
0
110
1,884
0
159
2,043
3,981
3.73
0
0
129
129
1,978
173
2,280
5,095
4.78
300
9
1,553
1,862
8,058
2,348
12,267
12,524
4.57
300
13
1,420
1,733
7,542
2,522
11,797
12,669
4.58
%, year-end Dec
EBIT margin
Sales growth
Net profit growth
EPS growth
Interest coverage (x)
Net debt to total capital
Net debt to equity
Sales/assets
Assets/equity
ROE
ROCE
Source: Company data, Bloomberg
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research
analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document
individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views
expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of
any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views
expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per
KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or
intervention.
Important Disclosures

Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Jinmao
Investments within the past 12 months.

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Jinmao Investments, Link
REIT, Regal REIT, Yuexiu Real Estate Investment Trust.

Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment
banking clients: Jinmao Investments.

Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients,
and the services provided were non-securities-related: Jinmao Investments.

Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation from investment banking Jinmao
Investments.

Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking
services in the next three months from Jinmao Investments.
Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for
compendium reports and all J.P. Morgan–covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406,
or e-mailing [email protected] with your request. J.P. Morgan’s Strategy, Technical, and Quantitative
Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-4770406 or e-mail [email protected].
Date
Champion REIT (2778.HK, 2778 HK) Price Chart
8
26-Nov-08 UW
N HK$4.3
UW HK$0.99
N HK$2.83
N HK$3.18N HK$4.1 N HK$3
N HK$3.5
N HK$3.5
6
UW HK$0.85
UW HK$2.85
N HK$3.29
N HK$3.74
N HK$4
N HK$3.35
N HK$3.25
N HK$3.8
N HK$3.7
UW HK$3.1
N HK$3.4
5
Price(HK$) 4
3
2
1
0
Apr
08
Oct
09
Apr
11
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Initiated coverage Nov 26, 2008.
Oct
12
Apr
14
Price Target
(HK$)
1.56
0.85
UW
1.90
0.99
07-Aug-09 UW
3.02
2.85
18-Aug-09 N
2.84
2.83
01-Dec-09 N
3.18
3.29
22-Feb-10 N
3.37
3.18
17-Aug-10 N
3.86
3.74
21-Nov-10 N
4.50
4.10
22-Feb-11 N
4.62
4.30
12-Aug-11 N
3.89
4.00
07-Oct-11
N
2.78
3.00
21-Feb-12 N
3.44
3.35
21-Aug-12 N
3.26
3.25
17-Jan-13
N
4.05
3.80
22-Jul-13
N
3.45
3.70
26-Nov-13 UW
3.49
3.10
25-Feb-14 N
3.37
3.50
14-Jul-14
N
3.64
3.40
12-Aug-14 N
3.58
3.50
30-Oct-14
3.38
3.95
OW HK$3.95 16-Feb-09
7
Oct
06
Rating Share Price
(HK$)
OW
77
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Date
Fortune Real Estate Investment Trust (FORT.SI, FRT SP) Price Chart
18
OW HK$4.9
N HK$6.7
OW HK$4
OW HK$3.6
OW HK$4.3
OW HK$5.7
OW HK$6.9
OW HK$8.2
OW HK$7.9
OW HK$8.3
12
OW HK$6.7
Price(HK$)
OW HK$2.7
OW HK$3.4
OW HK$4
OW HK$4.9
OW HK$5
OW HK$4.88
OW HK$5
OW HK$6.4
OW HK$8.1
OW HK$8
OW HK$8.4
6
0
Oct
06
Apr
08
Oct
09
Apr
11
Oct
12
Apr
14
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Initiated coverage May 09, 2007.
Price Target
(HK$)
09-May-07 OW
4.70
6.70
01-Aug-07 N
5.06
6.70
29-Jan-09
OW
1.96
2.70
07-May-09 OW
2.52
4.00
OW
3.30
4.90
25-Aug-09 OW
3.09
3.40
04-Nov-09 OW
2.75
3.60
05-May-10 OW
3.59
4.00
09-Nov-10 OW
4.08
4.90
24-Jul-11
OW
4.00
5.00
07-Oct-11
OW
3.29
4.30
13-Nov-11 OW
3.65
4.45
31-Jan-12
OW
3.89
4.88
10-May-12 OW
4.17
5.00
20-Jul-12
OW
4.90
5.70
31-Oct-12
OW
6.12
6.40
25-Jan-13
OW
6.60
6.90
09-May-13 OW
7.83
8.10
22-Jul-13
OW
7.22
8.20
11-Nov-13 OW
6.35
8.00
26-Jan-14
OW
5.88
7.90
24-Jul-14
OW
7.23
8.40
30-Oct-14
OW
7.07
8.30
08-Dec-14 OW
7.44
8.60
OW HK$8.6 29-Jul-09
OW HK$4.45
Rating Share Price
(HK$)
Jinmao Investments (6139.HK, 6139 HK) Price Chart
N HK$6.1
5
Price(HK$)
Date
Rating Share Price
(HK$)
25-Aug-14 N
0
Jun
14
Jun
14
Jul
14
Aug
14
Sep
14
Oct
14
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Initiated coverage Aug 25, 2014.
78
Nov
14
Dec
14
Jan
15
5.75
Price Target
(HK$)
6.10
Asia Pacific Equity Research
31 January 2015
Amy Luk, CFA
(852) 2800 8524
[email protected]
Link REIT (0823.HK, 823 HK) Price Chart
OW HK$19.3
85
OW HK$43
N HK$18.6
N HK$29
OW HK$38.5
OW HK$44.2
68
Price(HK$)
Rating Share Price Price Target
(HK$)
(HK$)
11-Jun-07
OW
17.70
20.00
10-Jun-08
OW
19.40
21.50
13-Nov-08 OW
13.88
15.70
18-Jun-09
N
17.40
18.50
18-Aug-09 N
17.28
18.60
24-Sep-09 OW
16.42
19.30
OW HK$20OW HK$21.5
OW HK$15.7
N HK$18.5
OW HK$21
OW HK$20.9
N HK$27
N HK$27.9
N HK$26
N HK$32.3 OW HK$45
OW HK$44.8
OW HK$48
N HK$47.5 20-Nov-09
OW
17.56
21.00
03-Jun-10
OW
19.08
20.90
11-Nov-10 N
24.95
27.00
02-Jun-11
N
26.45
27.90
07-Oct-11
N
24.40
26.00
10-Nov-11 N
27.30
29.00
07-Jun-12
30.85
32.30
28-Aug-12 OW
33.95
38.50
08-Nov-12 OW
39.60
43.00
06-Jun-13
OW
39.60
45.00
22-Jul-13
OW
37.60
44.20
13-Nov-13 OW
38.65
44.80
05-Jun-14
OW
42.35
48.00
30-Oct-14
N
46.35
47.50
51
34
17
0
Oct
06
Date
Apr
08
Oct
09
Apr
11
Oct
12
Apr
14
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Initiated coverage Jun 11, 2007.
N
The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire
period.
J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated
Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:
J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve
months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s)
coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of
the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if
applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy
reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a
recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock’s expected total return is
compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear
in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research
website, www.jpmorganmarkets.com.
Coverage Universe: Luk, Amy Ka Ping: Champion REIT (2778.HK), Fortune Real Estate Investment Trust (FORT.SI), Great Eagle
(0041.HK), Hang Lung Group (0010.HK), Hang Lung Properties (0101.HK), Hongkong Land (HKLD.SI), Hysan Development Co
(0014.HK), Jinmao Investments (6139.HK), Link REIT (0823.HK), New World Development (0017.HK), Swire Properties (1972.HK),
The Wharf (Holdings) Limited (0004.HK)
J.P. Morgan Equity Research Ratings Distribution, as of January 1, 2015
J.P. Morgan Global Equity Research Coverage
IB clients*
JPMS Equity Research Coverage
IB clients*
Overweight
(buy)
45%
56%
45%
75%
Neutral
(hold)
43%
49%
48%
67%
Underweight
(sell)
12%
33%
7%
52%
*Percentage of investment banking clients in each rating category.
For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold
rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table
above.
79
Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
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Amy Luk, CFA
(852) 2800 8524
[email protected]
Asia Pacific Equity Research
31 January 2015
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