Spring REIT continues to be the worst performing REIT in Hong Kong
The Manager continues to pursue measures that dilute Unitholders’ interests and entrench the control of related parties
The Manager’s conflict of interest with Mercuria Investment creates misalignment with its fiduciary duty owed to Spring REIT unitholders
The Manager continues to ignore the concerns raised by Unitholders and globally recognized shareholder advisors
Continued Unit price underperformance
Spring REIT is the worst performing general REIT in Hong Kong. HK$10,000 invested in Spring REIT’s 2013 IPO would only be worth HK$11,488 by 28 February 2020, while the same amount invested in other Hong Kong listed REITs* could be worth over HK$17,930!
* assuming invested in the Hang Seng REIT Index
Total Unitholder Returns (%) Since IPO to 28-02-2020
Declining distributions per unit (DPU)
The Manager has pursued corporate actions that have been DPU and Net Asset Value (NAV) dilutive. Spring REIT Unitholders have suffered the worst DPU decline vs Hong Kong peers.
Trapped Value
The value of Spring REIT’s underlying assets (NAV) are worth 95.2% more than its unit price of HK$2.94, as of 28 February 2020, representing a very high discount to its true value (48.8%). Comparable REITs are trading at an average discount to NAV of just 15.1%*. This discount reflects the markets’ lack of confidence in Spring REIT’s Manager and Spring REIT’s performance.
* Calculations based on comparing the unit price in the last 12 months with the then prevailing applicable NAV of respective Hong Kong REITs with Chinese assets, including Yuexiu REIT and Hui Xian REIT.
Spring REIT’s Management have conflicting priorities
75% of the Manager’s key personnel are also directly associated with Mercuria Investment, highlighting conflict of interest concerns. The Chairman of Spring REIT also serves as the CEO of Mercuria Investment, in which he has a personal 2.96% stake, while owning just a 0.06% stake in Spring REIT.
Mercuria Investment is also the Manager of RCA Fund, which is the largest investor in Spring REIT with a 25.1% holding.
Disproportionate control by one unitholder
Spring REIT’s Board of Directors and Committees has just 3 independent directors out of 7
TOSHIHIRO TOYOSHIMA
Chairman Of Spring REIT’s Manager
CEO of Mercuria Investment
HIDEYA ISHINO
Non-Executive Director Of Spring REIT’s Manager
Executive Director at Mercuria Investment
NOBUMASA SAEKI
Managing Director Of Spring REIT’s Manager
Executive Officer at Mercuria Investment
LEUNG KWOK HOE
Executive Director Of Spring REIT’s Manager
PAG Real Estate has requested, numerous times, an independent strategic review of Spring REIT, which have been ignored. In light of this, PAG Real Estate has at its own expense engaged a reputable global investment bank to undertake a strategic review of Spring REIT for the benefit of all Unitholders.
This is in order to provide an independent and unbiased assessment of how best to address the serious issues with Spring REIT as outlined in a recent letter to its Board of Directors, and how to unlock Spring REIT’s tremendous underlying value.
A summary of findings from the strategic review can be viewed here.
Spring REIT Unitholders are encouraged to seek dialogue with the Managers of Spring REIT, urging them to assess this strategic review carefully and to seriously consider the proposals therein.