Sometimes Mr. Market offers long-term investors quality assets at distressed prices. We believe that now is such a time. Negative sentiment and excessive pessimism, in our view, have been plaguing Hong Kong and China for several months. This has opened up an opportunity for the Fund to buy Sun Hung Kai Properties Ltd. (HKSE:00016
) ("SHK"), the largest property developer and landlord in Hong Kong, at what we believe is a substantial discount to its net asset value. SHK is not a household name in the U.S., but consider this: think about prime office buildings and desirable residential towers located in central parts of the city that are closest to you, and you'll get a picture of SHK's business in Hong Kong as well as Shanghai, where the company is rapidly expanding its domain. With occupancy rates for its office and retail properties close to 100%, brisk demand for its apartments marketed to the mass affluent, and a full pipeline of new projects in premier areas, we believe that SHK is a package of solid assets that is trading at an attractive discount to its underlying value. Fears about a serious slowdown in China's economy, as well as local government efforts to cool property price increases, have fed into the negative market sentiment. Another issue that has cast a shadow over the company is the Hong Kong government's legal action that commenced two years ago against the co-chairmen of the company, brothers Raymond and Thomas Kwok. While the day-to-day operations of the company may not have been impacted, there has been an effect on investors who speculate about the impact on the company. Our view is that this legal issue has been discounted in the share price, and what we are left to analyze is the value of SHK's enormous property holdings. When this fog lifts – and we believe it will – we expect SHK's discount to net asset value to narrow, with the possibility of allowing Wintergreen's shareholders to profit from this glaring mismatch between current market price and intrinsic value.
From David Winters
)' Wintergreen Fund
) 2013 message to shareholders