Hongkong Land’s new strategy is like CapitaLand’s
The usually ultra-conservative property arm of the Jardine Group, which focused on share buybacks to generate value in the last 4 years– bought back beyond US$ 627 million ($ 830.1 million) of shares with little to show for it due to an impairment in China– announced dividend targets. Among its approaches is its own version of a style CapitaLand, GLP Capital, ESR, Goodman and the like have used in years gone by.
Hongkong Land is valuing its financial investment profile at an indicated capitalisation rate of 4.3%. Keppel REIT’s FY2023 results valued its one-third stake in Marina Bay Financial Centre at a 3.5% capitalisation rate and One Raffles Quay at 3.15%. This would make it fairly challenging for Hongkong Land to “REIT” these properties.
“While the path is generally positive, we believe execution might deal with some difficulties. As confirmed by the slow-moving progression in Link REIT’s similar method (Link 3.0) since 2023, sourcing value-accretive offers is difficult,” JP Morgan states.
“We think this method is in line with our assumptions (and will, as a matter of fact, take place naturally anyway in today’s environment), as Hongkong Land has long been placed as a commercial proprietor in Hong Kong and top-tier cities in Mainland China, with development property accounting for only 17% of its gross asset value,” JP Morgan says.
It thinks that the long-term investment property development plan will make the DPS commitment feasible. “Separately, up to 20% of capital recycling profits (US$ 2 billion) might be spent on share buybacks, that is equivalent to 23% of its current market capitalisation. Hongkong Land was active in share buyback in 2021-2023 and invested US$ 627 million,” JP Morgan adds.
According to the group, the brand-new technique aims to “reinforce Hongkong Land’s center capacities, generate development in long-term reoccuring income and deliver remarkable profits to shareholders”. It also states key elements following the new method, which is anticipated to take a number of months to apply, include expanding its financial investment estates business in Asian gateway cities through creating, having or handling ultra-premium mixed-use projects to bring in international local offices and financial intermediaries.
Additionally, the team aims to concentrate on enhancing strategic collaborations to sustain its development. The group is expected to prolong its partnership with Mandarin Oriental Hotel Group and even more team up with worldwide leaders in financial services and luxury products from amongst its greater than 2,500 renters.
Smith states: “Building on our 135-year legacy of innovation, remarkable hospitality and historical partnerships, our aspiration is to end up being the lead in producing experience-led city centres in primary Asian gateway cities that reshape the way individuals live and work.”
Under the new method, the group will not anymore focus on buying the build-to-sell sector throughout Asia. Rather, the group is anticipated to start recycling funding from the segment into new incorporated commercial estate opportunities as it accomplishes all remaining plans.
Hongkong Land publicized its new strategy on Oct 29 launch, following its long-awaited strategic assessment launched by Michael Smith, the group CEO assigned in April. A number of surprises were in store for clients. For one, Hongkong Land revealed a few numerical marks for 2035, which imply a 5.9% CAGR in ebit and dividends per share (DPS) and an 8.7% CAGR in assets under management (AUM).
“The business kept its DPS flat for the past six years without a concrete reward policy, and hence we view the brand-new commitment to deliver a mid-single-digit development in yearly DPS as a favorable action, particularly when most peers are cutting reward or (at best) maintaining DPS level. We expect the payout proportion to be at 80-90% in FY2024-2026,” says an upgrade by JP Morgan.
The brand-new strategy isn’t that distinct from the old one as progression, primarily residential development in China, has actually come to a digital stop. Instead, Hongkong Land will most likely remain to focus on creating ultra-premium retail real estates in Asia’s gateway cities.
A brand-new investment group will certainly be developed to source new investment property investments and recognize third-party capital, with the purpose of increasing AUM from US$ 40 billion to US$ 100 billion by 2035. Hongkong Land additionally prepares to reprocess assets (US$ 6 billion from development property and US$ 4 billion from selected financial investment real estates over the following 10 years) into REITs and other third-party vehicles.
He includes: “By focusing on our affordable strengths and strengthening our tactical collaborations with Mandarin Oriental Hotel Group and our key office and luxury renters, we expect to accelerate development and unlock worth for decades.”