SPUNdamentals
Spin-Off Research and Analysis
In the Spotlight, Cheung Kong Property Holdings Ltd September 2015
SPUNdamentals provides spin-off research insights from Horizon Kinetics, LLC. The firm has produced spin-off research since 1996, andbegan covering international spin-offs in 2010. Horizon Kinetics Global Spin-Off Index (GSPIN), the underlying index of Market Vectors® Global Spin-Off ETF (SPUN), was launched in April 2014.
About SPUN
SPUN seeks to replicate GSPIN, a rules-based, equal-weighted index intended to track the performance of listed, publicly-held spin-offs that are domiciled and trade in the U.S. or developed markets of Western Europe and Asia.
In the Spotlight: Cheung Kong Property Holdings Ltd.
Written by Horizon Kinetics’ Research Analysts and CFA Charterholders Ryan Casey and Salvator Tiano, who bring more than 20 years of combined industry experience to their research roles focusing on domestic and international spin-offs.
Spin-Off Company: Cheung Kong Property Holdings Ltd. (Ticker: 1113 HK)
Parent Company: CK Hutchison Holdings Ltd. (Ticker: 1 HK)
Spin-off Date: June 2, 2015
GSPIN Index Inclusion Date: July 1, 2015
Cheung Kong Property Holdings Ltd. (“Cheung Kong Property”) (Ticker: 1113 HK) was spun off from CK Hutchison Holdings Ltd. (Ticker: 1 HK) in June 2015, the latter being the result of a merger between Cheung Kong (Holdings) Ltd. and its publicly traded subsidiary Hutchison Whampoa Ltd. The spin-off of Cheung Kong Property separates the real estate assets of Cheung Kong Holdings and Hutchison Whampoa from the remaining conglomerate and will create a pure-play real estate business that we believe should garner a market valuation more reflective of its asset value. The businesses of CK Hutchison Holdings will span utilities, transportation assets, telecommunications, port services, and energy. We expect Li Ka-shing, the richest man in Asia, to continue to own 30% of both entities.
Cheung Kong Property Holdings operates under four segments: property sales, property rentals, hotels and serviced suites, and property and project management. The first segment derives its revenue from the development and sale of real estate, particularly residential properties.
The property rental segment generates stable and recurring income from a portfolio of premium commercial real estate located primarily in Hong Kong. Hotels and serviced suites comprise properties in Hong Kong, China, and the Bahamas that are held for short-term leases. The company also owns equity interests in a number of publicly traded real estate investment trusts.
At the time of the spin-off, the company’s real estate portfolio was appraised at a market value of HKD420 billion,1 yet it is recorded on the balance sheet at a value of only HKD275 billion. By making this adjustment, one finds that the current share price represents a 35% discount to net asset value, thus allowing investors to purchase this real estate portfolio at an attractive price and potentially benefit from the value created by future development projects. Though the headwinds facing the Chinese economy are real and may well impact fundamentals for the China- and Hong Kong-based real estate assets, we believe the discount to net asset value at which the shares currently trade appears excessive.
1As appraised by various real estate brokers, including DTZ.
As of August 31, 2015, Cheung Kong Property Holdings Ltd. represented 1.2% of SPUN’s total net assets.
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SPUNMarket Vectors Global Spin-Off ETF
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Key Features:
• Spin-off investing is an established event-driven strategy
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SPUN Details
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Expenses for SPUN are capped contractually at 0.55% until at least 2/01/17. Cap excludes certain expenses, such as interest.
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IMPORTANT DISCLOSURE
The views and opinions expressed are those of Horizon Kinetics’ Ryan Casey and Salvator Tiano. The views and opinions are subject to change with market conditions and do not necessarily reflect the views and opinions of Van Eck Global. The views are provided for informational purposes only, are not meant as investment advice and are subject to change.Current market conditions may not continue. Non-Van Eck Global proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Horizon Kinetics. Past performance is not a guarantee of future results. All economic and performance information referenced is historical and is no guarantee of future results.
Market Vectors Global Spin-Off ETF (SPUN) is not sponsored, endorsed, sold or promoted by Horizon Kinetics, LLC. Horizon Kinetics, LLC makes no representation or warranty, express or implied, to the owners of Market Vectors Global Spin-Off ETF or any member of the public regarding the advisability of investing in securities generally or in Market Vectors Global Spin-Off ETF.
The Horizon Kinetics Global Spin-Off Index (the “Index” or “GSPIN”) was created by Horizon Kinetics, parent company to Horizon Asset Management LLC and Kinetics Asset Management LLC, among others. Indxx, LLC, a third party, has a contractual arrangement with Horizon Kinetics; whereby, it has agreed to calculate certain Index components. The Index was launched in April 2014.
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