While Hongkong Land (HKL) is known for its portfolio of prime commercial properties in Hong Kong, it is also active in mainland China and Singapore. Through its subsidiary MCL Land, it has a strong track record in residential development, and HKL also holds stakes in key office assets such as the Marina Bay Financial Centre.
In recent years, the company has faced pressure due to political unrest in Hong Kong and the pandemic, with its share price dropping to a third of its peak. There are signs that HKL is positioned for a recovery. Last June, the company announced plans to spend US$400 million ($547 million) to transform Landmark, a mixed-development commercial complex in Hong Kong’s Central, with retail, office and hospitality offerings.
In addition, 10 of the Landmark’s long-standing luxury tenants will stump up another US$600 million to more than double their footprints within this development, which is HKL’s largest property in Hong Kong, creating so-called “Maison destinations”. These brands include Cartier, Chanel, Dior, Louis Vuitton, Prada, Saint Laurent, Sotheby’s, Tiffany & Co and Van Cleef & Arpels, as they aim to continue growing sales within this mall even after a record 2023.
HKL says the capital expenditure will be funded over three years. As of June 30, 2024, its gearing stands at 18%, and its committed liquidity is US$3 billion. Given the steady recurring income from its commercial properties, this US$400 million is quite palatable.
Four months after the Landmark announcement, HKL announced a significant strategy update to address shareholders’ frustration at the underperforming share price. The company says it will no longer focus on investing in the build-to-sell segment across Asia, but instead focus its capital on integrated commercial property opportunities. The new strategy aims to “reinforce Hongkong Land’s core capabilities, generate growth in long-term recurring income and deliver superior returns to shareholders”.
Under CEO Michael Smith, formerly from Mapletree Investments, which is known for its successful REITs, HKL has signalled plans to recycle capital by selling select assets into REITs or third-party capital vehicles. It has indicated a target to recycle capital of up to US$10 billion by 2035 while growing its assets under management to US$100 billion from around US$40 billion now by drawing in external investors.
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By 2035, the company aims to double its underlying profit before tax in a “geographically diversified” manner, with no single city accounting for more than 40%. It is also striving to double its dividend by delivering mid-single-digit annual growth in dividends per share.
Feelers have been put out to help meet these goals. According to Bloomberg, HKL is considering selling MCL Land, its Singapore-based residential developer subsidiary. The asking price is reportedly $1.1 billion above the book value.
With a new direction ahead for HKL, JP Morgan is keeping a “neutral” stance on the counter with a price target of US$4.10 in a Dec 5, 2024 report. Shares in HKL were trading at US$4.18 on Jan 16. “Although HKL did not confirm the news (about the MCL Land sale), if this is true, we think the move is in line with its strategy to eventually cease development properties investments, as outlined in its strategic review,” says JP Morgan.
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DBS Group Research, which has a “buy” call and a US$5.34 target price, is more upbeat. In a Nov 15, 2024 note, DBS says HKL’s valuation remains inexpensive. “The new corporate strategy sets the direction for Hongkong Land to grow its business by focusing on its niche segments, supported by large-scale asset recycling. The introduction of the asset management initiative should add impetus to the company’s growth. We believe the stock offers good long-term value,” says DBS.
