Hong Kong Property: the two commercial properties investors

This is probably just another time where the market isn’t quite efficient, and ignoring information.

Excluding REITs, there are only two notable pure commercial properties investors traded in Hong Kong. Great Eagle (41.HK) and Hysan (14.HK). Swire Pacific (19.HK) and Wharf (4.HK) were not quite pure commercial landlords, but more like conglomerates, while Hongkong Land (HKLD.SI) is traded in Singapore instead of Hong Kong.

Previously, I pointed out that while the Hong Kong government action in curbing home prices is targeting at residential housing market (obviously), Great Eagle share price performance has gone oddly lower. In fact, Great Eagle has underperformed its peer Hysan for the year of 2010, especially in the latter half of the year.

One of the concerns, as I understand, is its hotel business exposure. Under the brand “Langham” and among other brands, Great Eagle owned hotels around the world, from the Langham London to Boston Massachusetts, Pasadena California. Apparently some people were worried about the weaknesses of the US economy and European problems, so the fact that they have no exposure to the residential sector in Hong Kong seems to be under-appreciated.

The hotel businesses are showing strong recovery. Via Calculated Risk, the occupancy rates and average daily room rates in the US are rising, translating into a 10.1% year-on-year increase in RevPAR (Revenue per available room, calculated by multiplying average daily room rates and occupancy rates). And the fact that the Langham London was undergoing renovation last year so that they will show strong number vs very little profit from London should add up to a good result in their hotel segment.

If there are some less favourable development, I would cite, first of all, there stake in Champion REIT (2778.HK) is now a significant part of their profit, but the vacancy rate at Citibank Plaza, one of the only two properties the REIT owns, is at more than 20% (although the share price are rising simply because of the QE2). Second, while everyone loves China, readers know that I am getting ever more sceptical. Great Eagle has entered into China markets, with an investment in Dalian, building a commercial complex with residential housing. It has also invested in a third of the stake in a hotel project in Shanghai Xintiande, plus a few more hotels management contracts in the pipeline. If there is anything bad about the China investment, it would be that they have started it too lately.

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About Zarathustra

Zarathustra: Founder and Managing Editor of Also sprach Analyst. Once an analyst, now an investor and entrepreneur. Based in Hong Kong, but Londoner at heart.