Link REIT (0823) announced a rights issue last week, pumping money out of investors, and its share price plummeted. The market immediately worried that other real estate companies with heavy debt ratios would follow suit. In addition, property prices fell last year, and land sales in recent months have not been satisfactory. Further dragging down real estate stock prices.
However, some experts believe that the valuation of the relevant shares is not high. Once the rights issue, allotment of funds, or the dilution of the interests of major shareholders, as long as the property sales and other conditions do not deteriorate further, the chances of following Link REIT's approach are not high.
Last Friday (10th) Link announced its first rights issue since its listing 17 years ago, raising 18.8 billion yuan, about half of which was used to reduce debt.
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Recently, there has been a series of negative news about local real estate rental companies. Last Friday (10th), Link announced its first rights issue since its listing 17 years ago, raising 18.8 billion yuan, about half of which was used to reduce debt.
Worries about developers' "pumping water" dragged down real estate stocks to weaken
Link REIT, which has always been stable, also needs to raise funds to reduce debt, and the market immediately worries that real estate stocks with heavy debt ratios may also need to reach out to shareholders to "raise money, risk. According to the UBS report, as of the end of June last year, major developers in Hong Kong Among them, only Cheung Kong (1113) has net cash flow, while SHKP (0016), Link (0823), Kerry (0683), Hysan (0014), Henderson Land (0012) and New World (0017) all With liabilities, the debt-to-equity ratios are 17%, 30%, 36%, 41%, 41% and 74% respectively.
Among them, New World Development, which has a higher debt-to-equity ratio, fell 6.7% on Monday; Henderson Land also fell 4.8%; as for SHKP, which has a lower ratio, it fell 2.6%. Monday's "lost ground".
Siu Ho Wan Siu Ho Wan project Phase I passed the bid.
(File photo/photo by Li Zetong)
Land bids drag down the market
In addition to the market’s worries about the “pumping” of developers, the results of government land sales are also worrying. In 2023, government official land and “One Railway, One Bureau” projects have successively announced that they have lost bids, including the official land for luxury houses on Cape Road, Stanley, and the URA The fourth and fifth development zone projects in Kwun Tong city center (also known as Yu Man Fang commercial project), as well as the MTR Siu Ho Wan "Top Cannon" residential project, all of which have not yet had the reserve price and must be recovered.
Similarly, last year, the Lands Department began to include applicable provisions of the National Security Law in the terms of land sales and short-term leases. In addition to the government’s right to disqualify the bidders for reasons of national security, it also has the right to consider suspending short-term leases due to national security. This also makes the market concerned about the risks of developers. question.
Analysts believe that there is little chance for local developers to follow Link REIT's lead.
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Analysis: Developers have little chance of following Link’s approach
The normalization of interest rates in the United States and the haze of "clichés" such as geopolitical instability have not receded.
Zheng Huaiwu, Head of China-Hong Kong Real Estate Research at CGS CIMB Securities, said in an interview with "Hong Kong 01" that local developers have little chance of following Link REIT's "pumping".
He explained that although Henderson Land has spent more than 74 billion in the past to purchase two commercial sites in Central, and New World has increased its investment in the country, and the property sales market has weakened, making the market worry about its financial situation, whether it is necessary to pass Rights issue or allotment and other means to enhance their financial statements.
However, the current valuation of local real estate developers is not high, and the general stock price is about 50% discount to the net asset value (NAV).
He believes that unless the company's financing channels fail, or property sales in Hong Kong continue to weaken, there is little opportunity for rights issues and rights issues.
As for the land bid, Zheng Huaiwu believes that it has something to do with the fact that real estate developers have always been conservative in their investment strategies. "Firstly, we need to be cautious, and secondly, we need to see if there is a chance to acquire flat land."
Huang Minshuo is optimistic about the prospects of the two trusts of Champion and Fortune Properties.
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Huang Minshuo, director and chief investment officer of PC Securities, was interviewed by "Hong Kong 01" and believed that the above factors, together with Wharf Land (1997), Wharf (0004), and Hysan's profit warning, dragged down the performance of real estate rental stocks.
However, he is optimistic about Champion (2778) and Fortune Property (0778) two trusts. He believes that their business variables are less variable, defensive, and their rental income is stable. If the stock price falls, their returns will be attractive.
In addition, developers such as Cheung Kong, SHKP and Sino Land (0083) have low debt levels and even have a certain level of net cash, which is higher than companies with higher debts such as New World and Henderson Land.