Sun Hung Kai Properties (SUHJY, Financial) has a series of bonds that yield 4.56% and mature May 31, 2021. They outyield comparable Treasurys by 330.35 basis points. They are a great bond for the right investor but probably not retail.
The bonds trade at 100.808, have a 4.75 coupon, and the cusip is G85705ac8. There is no rating and the bond must be bought in a minimum of 200. Definitely not for the retail investor. The offering is new and part of a swap from a bond due in 2017 that had a coupon of 6.375. Good idea on management’s part to refi.
Sun Hung has HK$24.1 billion ($3.21 billion) in cash, HK$312 billion ($40 billion) in investment properties and HK$161 billion ($20.8 billion) in properties for sale. Short-term debt is HK$14.5 billion ($1.93 billion) and long term debt is $HK66.1 billion ($8.8 billion). Though the bonds do not seem to be rated (according to my trader), the company is A+ rated by Standard & Poor's and A1 rated by Moody’s.
Sun Hung has 23.4 million feet of land under construction, 28.8 million completed and 30 million feet of agriculture. It owns hotels, ports, office buildings, condos, malls, mobile services and insurance services. Most of its properties are in Hong Kong or China. Rental income in the latest six months was HK$7.943 billion ($1.1 billion). HK$9.49 billion ($1.22 billion) of property was sold in the last six months.
The hotel portfolio is top notch. Four Seasons, Ritz Carlton, W and Crowne Plaza Hong Kong are four properties worth a fortune. However, sales have been down with the rest of the industry. The agricultural land will be worth a lot when China decides to spread into the New Territories. This area is between Hong Kong and China.
It seems that there is an abundance of residential property available in Hong Kong. This could portend a tougher real estate climate for Sun Hung. It’s a blue chip stock. Sun Hung is the largest developer in Hong Kong. It’s just that most Americans have never heard of it. That’s probably why the bonds yield so much.
A major shareholder, the Third Avenue Real Estate Fund, describes Sun Hung as "a Hong Kong-based REOC that is pound for pound one of the highest quality real estate companies globally." This came from the transcript of a recent shareholder conference call.
We would buy these bonds if we could. We work with retail investors so it’s not for us. The risk is that the Asian economy goes south, which it could. Sun Hung would probably liquidate assets if things got bad enough. There is an extremely good chance that the bonds are safe.
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