by winston » Fri Dec 19, 2008 8:46 am
INTERVIEW-Hong Kong's Link REIT lives up to recession-proof tag
* pushing ahead with rent rises despite political pressure
* wants to refinance $350 mln of loans in early 2009
* floats idea of acquisitions
By Dominic Whiting
HONG KONG (Reuters) - Three years after Link REIT 0823.HK launched the world's biggest property trust IPO, the package of shopping malls serving Hong Kong's poor seems to be living up to its original billing as recession-proof.
While property trusts across the world slumped from mid-2007, because of debt refinancing concerns and falling asset prices, Link REIT units held steady until they were caught in the mass stock sell-off after the failure of Lehman Brothers in September.
Now, after a 19 percent fall in three months, analysts tout the trust's good value at a 6 percent forecast yield for 2009, especially because many retailers in its malls sell necessities -- rice, toothpaste, frozen Chinese dumplings.
A worry for investors is public pressure to cut rents, to help small shopkeepers as Hong Kong wallows in recession.
This week some politicians proposed the government buy a stake in Link REIT to gain influence at 151 shopping malls that it privatised in a $2.5 billion initial public offering in late 2005.
But while some 100 Link REIT tenants demonstrated outside, the city's legislative council voted the motion down.
The trust's chief executive, Ian Robins, who was grilled by politicians on Tuesday, told Reuters he would keep raising rents to market levels from the discounted rates charged when the buildings were government-run.
But a programme to refurbish shabby malls, and marketing campaigns, should help tenants increase revenue, he said.
"It's not about sending our tenants broke, we just want to get rents to market," said Robins, adding that after his legislative council experience, he was "sensitive to feedback."
The Link REIT charged an average 30 percent more for three-year leases that were renewed in the six months to the end of September. Another fifth of leases are due to expire before the end of March 2009.
While top-notch Hong Kong office and retail rents, which have soared in the last couple of years, are expected to drop by as much as 40 percent next year, Robins said the Link REIT's properties, in public housing estates, were very different.
"These guys haven't seen big increases for a long time," said Robins, declining to give the size of upcoming rent rises.
"It'll be whatever the market's going to bear," he added. "But there are difficult markets out there, I get that."
THUMBS-UP
Analysts are positive on the stock. Citigroup, UBS, JPMorgan and CLSA all have "buy" or "overweight" tips, with price targets of HK$15.70-HK$19.60 -- at least 17 percent more than its HK$13.36 unit price on Thursday.
CLSA analyst Aaron Fischer believes the Link REIT is Asia's most "defensive" property stock.
"It's a great story," Fischer said. "Sales for food and beverage, supermarkets, and things like cosmetics are not volatile," he added. "And sometimes you see consumers trading down, going from high-end malls to low-end malls."
The unit price could come under pressure if hedge funds, pressured by redemptions, need to cut their holdings. London-based The Children's Investment Fund is a major investor with an 18 percent stake worth slightly less than $1 billion.
But Robins, who has recently met investors in London, New York and across Asia, said the forced selling had already happened in September and October.
"Hedgies have largely gone off the register," he said, referring to hedge funds. "I've been round to a lot of investors, and a lot have strategic thinking, a three- to five-year view...A lot are supporting the stock, they like the defensive value."
The trust is lowly geared, with a debt to equity ratio of 23 percent, and four fifths of that debt is at fixed interest rates. About $350 million needs to be refinanced by August 2009, and Robins said he wanted to obtain a bilateral or syndicated Hong Kong bank loan early next year, hopefully with a five-year term.
After thriving for five years, most Singapore, Japanese and Australian REITs have seen their share prices slump this year, making growth through asset acquisitions almost impossible.
The Link REIT is now trading at 380 basis points above local 10-year bonds, rather than at the negative spread seen in its first two years as a listed company. But Robins said if he kept the cost of capital down, acquisitions would be possible, although he declined to give any details.
"Opportunities will come up over the next 24 months, and we want to be in a position to consider them," he said.
Source: Reuters
It's all about "how much you made when you were right" & "how little you lost when you were wrong"