Stocks are simple. All you do is buy shares in a great business for less than the business is intrinsically worth, with management of the highest integrity and ability. Then you own those shares forever. I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.

October 15, 2008

Third Avenue Q3 Comments on Market

As an example, if there is any group where FundManagement feels strongly that the probabilities are thatNAV over the next five years will increase by more than10% per annum compounded, it would be the HongKong issuers. This would be part and parcel of theexpected continued growth of Mainland China. There areinvestment risks, particularly political risks and a relativeabsence of securities law protection. However, in each case,we are invested alongside billionaire controlling families.

Henderson Land—

Hong KongHenderson owns more than 13 million square feet ofinvestment grade property in Hong Kong and MainlandChina. The company’s portfolio is more than 94% leasedand generates significant recurring rental income, whichis further supplemented by the dividend it receives fromits 40% stake in Hong Kong China & Gas and proceedsfrom residential property sales. As a real estate operatingcompany, Henderson retains about 75% of its free cashflow and reinvests in what is arguably one of the mostattractive development pipelines in Asia. For instance, inHong Kong, Henderson currently has 8.1 million squarefeet of property held for or under development and more than 8,000 acres of agricultural land for futuredevelopments. This is the largest land bank of any HongKong property developer. In Mainland China,Henderson has 14 million square feet of developmentsthat are expected to be completed by 2010 and anadditional 9,000 acres of land for future developments.Despite the strong underlying fundamentals in itsproperty portfolio and profitable development activity,Henderson Common has recently traded at pricesrepresenting a substantial discount to conservativeestimates of net asset value. The continued austeritymeasures implemented by the Chinese government to“cool down” the Mainland property market haveundoubtedly impacted a large number of the localdevelopers, especially those who have not been able toobtain financing or have been forced to sell into a weakmarket. However, Henderson has nearly $350 million ofrecurring cash flow that it can use to self-finance itsdevelopments. In addition, Henderson’s low debt levelsgive it the ability to hold inventory until the marketreturns and have allowed the company toopportunistically add Mainland property assets duringthe recent pullback.


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