Sunway will assume ownership of MCL Land and its subsidiaries, including ongoing development projects in Singapore, as well as its portfolio of income-generating and development assets in Malaysia.
All MCL Land’s ongoing development projects will continue, providing Sunway with immediate earnings visibility. It will increase its unbilled sales in Singapore from $614 million to almost $1.8 billion.
For Hongkong Land, the sale advances its 2035 strategic vision, first launched on Oct 29, 2024, to recycle capital by exiting the residential build-to-sell segment and to focus growth on ultra-premium integrated commercial properties in Asian gateway cities.
The transaction will be settled in cash, taking Sunway Group’s net gearing to an undemanding 0.55 times.
See also: Sunway buys MCL Land for $738.7 million from Hongkong Land
For Hongkong Land, the transaction takes the total capital recycled since 2024 to US$2 billion ($2.56 billion), which is 50% of the company’s target of at least US$4 billion by end-2027. In October last year, Hongkong Land announced a US$10 billion monetisation target by 2035. Of this, US$6 billion is likely to be from investment properties, and US$4 billion from its build-to-sell residential portfolio.
Last October, Hongkong Land announced it would no longer be investing in the residential build-to-sell sector, not just in Singapore and Malaysia, but across all of the regions in which it operates.
The cash consideration of $739 million is the net asset value (NAV) of MCL Land as of end-June. Hongkong Land plans further share buybacks after the transaction is completed. “As we did in Hong Kong with the recent announcement of selling nine floors to the Hong Kong Exchange, we managed to sell [those] at NAV. We then instituted a [share] buyback at a significant discount,” says Hongkong Land CEO Michael Smith.
See also: Hongkong Land benefits from US Fed cuts, could be ready for asset monetisation
Following the sale of the nine floors to the Hong Kong Exchange for US$810 million, Hongkong Land implemented a US$200 million share buyback. “We are now extending that with this transaction by a further US$150 million. Effectively, we’re selling at NAV, crystallising NAV, and we’re buying back at around a 50% discount,” he says.
“We were pretty bold in some of our financial projections back in October, doubling our dividends, doubling our earnings, divesting US$10 billion of real estate and growing a fund management business. All of those endeavours are to create total shareholder return. As a career real estate banker, I’m very focused on closing that gap between our net asset value and our share price, and these types of transactions will help demonstrate that,” Smith adds.
Why did Sunway acquire MCL Land? Sarena Cheah, executive deputy chairman of Sunway Group, cites a few key reasons.
First, it is to accelerate Sunway Group’s growth in Singapore. “We really believe in the long-term fundamentals of this city. MCL Land allows us a platform immediately, with a management team with deep market knowledge,” she says.
Secondly, one of the assets in Malaysia Sunway is acquiring from MCL Land is an income-generating mall on land which has a higher plot ratio. “We will uplift the value and over the medium, longer term to repurpose and redevelop it,” Cheah says.
She points out that Sunway is acquiring MCL Land’s projects at historical cost. “The projects are selling very well, and the visibility of the earnings is very attractive to us as well. Our gross development value (GDV) with the Singapore projects will rise from $1.77 billion to $4.64 billion with this acquisition,” Cheah estimates.
MCL Land’s project in Seremban provides Sunway with the opportunity to create a community of services, including the potential of building townships, to bring full value to the land, she adds.
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Sunway is unlikely to follow Hongkong Land to China, though. “We have to be able to digest what we can. We are particular about going into markets where we actually have knowledge and some prior experience. We are in China as well. But after this transaction, I think more importantly, is to be able to deliver well in Singapore, create all the value and remain more focused,” Cheah says.
For Smith’s part, divesting MCL Land is part of the strategy for Hongkong Land to narrow the discount to NAV.
Hongkong Land shares have gained more than 50% year-to-date to close at US$6.65 on Sept 18, but still a significant discount to its NAV of US$13.62 as of end June.
“When I joined Hongkong Land, back in April last year, we embarked on a very deep soul search amongst the senior management. We hired a consultant. We took that to our board for approval, and the direction of that review is that we were quite spread across Asia,” recalls Smith.
The company was operating across Malaysia, Singapore, the Philippines, Thailand, Indonesia and in seven cities within China. “We didn’t have any scale in a particular marketplace. And residential development, though it was only 20% of our business, was taking a lot of our management time and a lot of our focus.”
As such, the capital markets were deemed not to value the profits Hongkong Land was generating. “What the markets or what our investors valued was our ability to manage Hongkong Land’s real estate in Central,” Smith explains.
Against this background, Hongkong Land announced its intention to divest its residential business. “We should no longer invest in the residential build-to-sell. We made commitments that everything that we were embarking on, we would complete, which is what’s the case here. The five residential projects that are within MCL Land will be transferred to Sunway. They will be completed as all of our projects in China and all the other markets,” he elaborates.
The rest of the proceeds will then be used to further de-gear Hongkong Land’s balance sheet, and for recycling into higher-yielding assets. “We can create a war chest for future endeavours, opportunities to grow our ultra-premium, integrated commercial product, which we have in Hong Kong, which we’re building in Shanghai, which we have in Marina Bay and Singapore, and looking at further opportunities to deploy capital in that type of ecosystem, in other gateway cities across Asia.
“Our focus should be on what we do best, which is the creation of these ultra-premium ecosystems, where we can bring a Mandarin Oriental, a Louis Vuitton or a Goldman Sachs in Singapore, a JP Morgan in Hong Kong. We’d like to do more in Singapore if there are opportunities for us. I’m a Singaporean, our CIOs are Singaporean,” Smith reveals.
