Hongkong Land’s new strategy is like CapitaLand’s

A new financial investment team will be opened to source brand-new investment home investments and determine third-party funding, with the purpose of broadening AUM from US$ 40 billion to US$ 100 billion by 2035. Hongkong Land likewise intends to recycle assets (US$ 6 billion from development property and US$ 4 billion from chosen investment properties over the upcoming 10 years) into REITs and other third-party vehicles.

Under the new strategy, the group will no longer concentrate on buying the build-to-sell sector throughout Asia. Rather, the group is expected to begin recycling funding from the sector right into new integrated commercial real estate possibilities as it completes all occurring plans.

According to the group, the new strategy intends to “strengthen Hongkong Land’s center capabilities, produce development in long-term reoccuring earnings and supply exceptional profits to investors”. It also states key elements under the new method, that is expected to take several months to execute, include increasing its investment real estates operation in Asian gateway cities via developing, having or handling ultra-premium mixed-use plans to bring in multinational regional offices and financial intermediaries.

The brand-new method isn’t that distinct from the old one as development, primarily residential development in China, has come to a digital halt. Instead, Hongkong Land will most likely continue to concentrate on establishing ultra-premium commercial real properties in Asia’s gateway metros.

It thinks that the long-term financial investment property growth plan will make the DPS commitment feasible. “Separately, as much as 20% of capital recycling proceeds (US$ 2 billion) might be spent on share buybacks, that amounts 23% of its current market capitalisation. Hongkong Land was active in share buyback in 2021-2023 and invested US$ 627 million,” JP Morgan adds.

Hongkong Land announced its brand-new strategy on Oct 29 launch, following its long-awaited strategic assessment started by Michael Smith, the group chief executive officer assigned in April. A couple of revelations were in store for entrepreneurs. For one, Hongkong Land introduced a couple of numerical targets 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).

“We think this strategy is in line with our assumptions (and will, in fact, take place normally anyhow in today’s setting), as Hongkong Land has actually long been placed as a profitable landlord 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.

Marina View Residences Singapore

“The company kept its DPS flat for the past six years without a concrete returns plan, and therefore we view the new dedication to provide a mid-single-digit development in annual DPS as a favorable action, particularly when most peers are cutting reward or (at ideal) keeping DPS level. We anticipate the payout proportion to be at 80-90% in FY2024-2026,” claims an update by JP Morgan.

“While the direction is generally positive, we believe implementation could face some hurdles. As evidenced by the sluggish progression in Web link REIT’s comparable approach (Link 3.0) since 2023, sourcing value-accretive offers is difficult,” JP Morgan says.

He includes: “By focusing on our competitive strengths and growing our tactical partnerships with Mandarin Oriental Hotel Group and our main workplace and luxury tenants, we anticipate to accelerate expansion and unlock value for decades.”

In addition, the team aims to concentrate on enhancing strategic collaborations to uphold its expansion. The team is anticipated to expand its collaboration with Mandarin Oriental Hotel Group and further team up with global leaders in financial services and luxury items from amongst its more than 2,500 lessees.

Smith claims: “Building on our 135-year heritage of innovation, outstanding hospitality and historical collaborations, our ambition is to end up being the lead in creating experience-led city centres in primary Asian gateway metros that reshape how individuals live and work.”

Hongkong Land is valuing its investment portfolio at an implied capitalisation level 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.

The generally ultra-conservative realty arm of the Jardine Group, that focused on share buybacks to generate worth in the last 4 years– redeemed more than US$ 627 million ($ 830.1 million) of shares with little to show for it due to an issue in China– disclosed dividend targets. Among its approaches is its own type of a model CapitaLand, GLP Capital, ESR, Goodman and the like have taken on in years gone by.


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