Stuck in bad traffic, nothing to do, thinking back to this post from earlier today.   I admit I never studied economics in college and I don’t have an MBA but I do know a little something about business.  So the more I thought about this, the less I understood it.

Emperor buys a 1,200 square foot shop for HK$843 million.  In turn, they rent it out to one of their subsidiaries for $1.4 million per month.  That works out to $16.8 million per year.  Under what possible system of economics does this make any fiscal sense?  “The acquisition was prompted by the investment value of the location and a basic need for the shop,” said a source.

I mean, if they’re hoping to make the money back from rent, that’s gonna take 50 years.  If they’re buying it as an investment, as something to hopefully resell in the future, that’s a pretty darned speculative play for almost a billion dollars.  And what about the cost of funds?  Maybe they were able to pay for this outright thanks to deep pockets.  Wasn’t there some other way to spend a billion bucks and get a higher rate of return?

I do get the fact that this location is ground zero for the mainlanders who come to HK with paper sacks filled with cash, buying Rolexes and gold by the ton.  I’ve got little doubt that this shop can pay $1.4 million a month in rent plus overhead and expenses and still turn a tidy profit.  But enough profit to justify that scale of investment?

It just doesn’t add up.

Emperor Group is a privately held company.  They don’t have to answer to anyone on how they spend their money. Though it does make one pause and wonder what else they might have done with a billion dollars, either for their own good or for the good of Hong Kong.

Their web site does make prominent mention of a charity foundation.  “The foundation has made an accumulated donation of more than HK$100 million over the [past 12 years].”

I suppose $100 million is nothing to sneeze at.  But something smells a little bit off here.  Or have I missed something?

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