Hongkong Land’s new strategy is like CapitaLand’s
Within the new method, the group will no longer focus on purchasing the build-to-sell section across Asia. Instead, the team is expected to start reusing funding from the sector into new integrated business real estate opportunities as it accomplishes all occurring ventures.
Additionally, the team intends to focus on enhancing critical partnerships to uphold its expansion. The group is anticipated to expand its partnership with Mandarin Oriental Hotel Group and further work together with global leaders in financial companies and high-end items from among its more than 2,500 lessees.
Smith claims: “Constructing on our 135-year legacy of innovation, remarkable hospitality and historical partnerships, our aspiration is to become the leader in developing experience-led city hubs in main Asian gateway cities that improve how individuals live and function.”
He includes: “By concentrating on our affordable strengths and strengthening our tactical partnerships with Mandarin Oriental Hotel Group and our major office and upscale occupants, we expect to accelerate expansion and unlock value for years.”
“While the course is usually positive, we think implementation could face some hurdles. As evidenced by the slow progress in Link REIT’s comparable method (Link 3.0) since 2023, sourcing value-accretive deals is challenging,” JP Morgan states.
The new technique isn’t that different from the old one as progression, primarily residential property development in China, has come to a virtual stop. Rather, Hongkong Land are going to remain to concentrate on developing ultra-premium commercial properties in Asia’s gateway metros.
“The company kept its DPS flat for the past six years without a concrete reward plan, and therefore we view the new dedication to provide a mid-single-digit growth in annual DPS as a positive move, especially when most peers are reducing returns or (at ideal) maintaining DPS flat. We expect the payment ratio to be at 80-90% in FY2024-2026,” says an upgrade by JP Morgan.
Hongkong Land announced its new strategy on Oct 29 launch, following its long-awaited important review started by Michael Smith, the group chief executive officer assigned in April. A number of surprises were in store for investors. For one, Hongkong Land introduced a few 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).
It believes that the continued investment property development plan will make the DPS commitment feasible. “Separately, as much as 20% of capital recycling profits (US$ 2 billion) might be invested in share buybacks, that amounts 23% of its current market capitalisation. Hongkong Land was energetic in share buyback in 2021-2023 and spent US$ 627 million,” JP Morgan adds.
According to the group, the brand-new method intends to “reinforce Hongkong Land’s main capabilities, generate growth in long-term reoccuring earnings and supply remarkable returns to investors”. It also states essential aspects following the new approach, that is projected to take several months to carry out, consist of broadening its investment estates business in Asian gateway cities through creating, owning or regulating ultra-premium mixed-use projects to draw in international local offices and financial intermediaries.
A new investment group will be established to source brand-new investment property financial investments and determine third-party capital, with the purpose of expanding AUM from US$ 40 billion to US$ 100 billion by 2035. Hongkong Land also intends to reuse assets (US$ 6 billion from development property and US$ 4 billion from chosen financial investment properties over the following ten years) right into REITs and other third-party vehicles.
“We assume this approach remains in line with our assumptions (and will, as a matter of fact, occur naturally anyway in today’s environment), as Hongkong Land has actually long been placed as a commercial landlord in Hong Kong and top-tier cities in Mainland China, with development property accounting for just 17% of its gross asset value,” JP Morgan says.
The normally ultra-conservative property arm of the Jardine Group, which focused on share buybacks to generate profit in the past four years– redeemed more than US$ 627 million ($ 830.1 million) of shares with little to show for it because of an impairment in China– announced dividend targets. Among its approaches is its very own variation of a model CapitaLand, GLP Capital, ESR, Goodman and the like have adopted in years passed.
Hongkong Land is valuing its investment account at an implied capitalisation level of 4.3%. Keppel REIT’s FY2023 results valued its one-third risk in Marina Bay Financial Centre at a 3.5% capitalisation rate and One Raffles Quay at 3.15%. This would make it quite challenging for Hongkong Land to “REIT” these properties.