SAVE SPRING REIT
The Spring REIT management team has lost value for all its unitholders through
WHAT HAS GONE WRONG
WITH SPRING REIT?
Unitholders’ investments in Spring REIT are worth considerably less than they should be due to its poor management. Its Managers have failed or refused to listen to unitholders to address a number of issues that must be resolved, including but not limited to:
Continued share price underperformance
Spring REIT is the second worst performer in the official HKEX REIT Index. HK$10,000 invested in Spring REIT’s IPO would only be worth $11,150 by August 2017¹, while the same amount invested in other Hong Kong listed REITs could be worth over $16,736!
Cumulative Total Returns % (since 4 Dec 2013)
Current Discount to NAV %
The value of Spring REIT’s underlying assets (NAV) are worth 79% more than its unit price, representing a very high discount to its true value. Comparable REITs are trading at an average discount to NAV of 3.7%. This discount reflects the markets’ lack of confidence in Spring REIT’s Manager.
Excessively high management fees
We calculate that Spring REIT unitholders pay about HK$37 million too much in management fees every year. The Manger’s excessively high fees include HK$57 million (HK$470 per square metre) to manage 120,000 square metres of property last year, which is 57.3% higher than the Yuexiu REIT (HK$300 per square metre) and 122% more than the Hui Xian REIT (HK$212 per square metre).
Spring REIT’s management fees are a major contributor to Mercuria’s income
Spring REIT vs Mercuria Investment share/unit growth % (since Oct 2016)
We question the motives of Spring REIT’s Manager which is 90.2% owned by Mercuria Investment (Mercuria). Many executives and directors with a responsibility to Spring REIT unitholders have more money invested in Mercuria than they do in Spring REIT. This is concerning because 36% of Mercuria’s revenue comes from the high management fees that it charges Spring REIT unitholders. Mercuria has enjoyed a 212% increase in share price since it listed in Tokyo on November 2016 (versus a 0.9% decline for Spring REIT during the same period).
Lack of a coherent strategy
Spring REIT’s manager has repeatedly demonstrated that it has no clear plan to increase value for unitholders. As an example, its recent decision to acquire 84 suburban car servicing stations in the UK was a radical departure from Spring REIT’s existing portfolio and exposed unitholders to unnecessary economic risks without justified returns and reduced the potential distributions per unit. This acquisition was also funded by diluting the value of existing unitholders’ shares by issuing cut-price units.
WHAT SOLUTIONS WERE PROPOSED?
PAG requested an EGM to vote on the removal of Spring REIT’s Manager and other measures so that these problems can be fixed and Spring REIT’s hidden value can be unlocked for all unitholders.
The Manager convened an EGM on 10 Nov, 2017, but only permitted unitholders to vote on two of the four proposed resolutions. PAG had also proposed to:
WHAT CAN BE DONE NOW?
PAG has called for the Manager to now listen to other unitholders’ demands for change by initiating an external strategic review of Spring REIT by January 2018.
There is no valid reason why the Manager should deny all unitholders the opportunity to benefit from a strategic review, a process which has delivered proven value for unitholders in other REITs time and again.
Voice your support and hold the Manager accountable during the ongoing campaign to Save Spring REIT.