Hongkong Land Reports Q3 Profit Jump on China Project Completions

Getting homes into the hands of mainland buyers helped boost Hongkong Land’s bottom line in the third quarter, with the blue chip developer reporting improved underlying profit for the period thanks to handing over housing completed at its residential and mixed-use China projects.

The Jardine Matheson-controlled developer did not disclose the magnitude of the underlying profit increase in its interim management statement released Thursday, with the company continuing to forecast a significant year-on-year decline in full year 2024 underlying profit despite the third quarter uptick.

“As announced at the Group’s interim results briefing in July 2024, full-year 2024 underlying profits will be significantly lower than the prior year, primarily due to the impact of the $295 million non-cash provisions in the Group’s China build-to-sell business, which were already recognised in the first half of the year,” Hongkong Land said in the statement.

The third quarter update comes less than three weeks after the builder unveiled a strategy overhaul aimed at doubling its recurring profit by 2035, with the company targeting to unlock up to $10 billion in capital by shuttering its build-to-sell residential development business and divesting assets into REITs and other third-party capital vehicles, while expanding its portfolio of “ultra-premium” commercial projects.

Central Portfolio Lags

Hongkong Land’s portfolio of office properties in Hong Kong’s Central district suffered negative rental reversion and rising vacancy during the quarter, with committed vacancy increasing to 7.6 percent at the end of September from 6.8 percent as of 30 June, while physical vacancy rose to 9.0 percent from 7.3 percent over the same period. The developer noted that office leasing enquiries have increased slightly during the quarter.

Contributions from Hongkong Land’s retail properties in Hong Kong were lower in the third quarter compared to the same period last year, with the company attributing the decline to planned tenant movements arising from the $1 billion upgrade of its Landmark luxury retail portfolio announced in June. Vacancy in the portfolio stood at 1.9 percent as of 30 September.

The performance of the Hong Kong investment properties contrasted with Singapore, where Hongkong Land’s office portfolio remained effectively fully occupied, with positive rental reversion during the quarter. Physical vacancy declined to 1.5 percent as of 30 September from 2.6 percent at the end of June, while committed vacancy stood at 1.3 percent.

Mainland China Residential Picks Up

In its build-to-sell residential business, Hongkong Land pointed to improving market sentiment in mainland China following recent policy support measures, with contracted sales during the October Golden Week holiday tripling compared to prior weeks.

In contrast to the recent upswing, during the third quarter the company’s attributable interest in contracted sales dipped to $169 million from $186 million in the same period last year. In the nine months through 30 September, Hongkong Land’s attributable interest in contracted sales was $1.0 billion, compared to $931 million in the same period last year, primarily driven by proceeds from sales of its West Bund project in Shanghai.

Hongkong Land expects overall planned completions and profitability in mainland China to be significantly higher in 2024 compared to the prior year.

In Singapore, Hongkong Land’s attributable interest in contracted sales was $60 million in the third quarter, comparable to the equivalent period in 2023. In the nine months through 30 September, attributable interest in contracted sales was $85 million, compared to $546 million in the same period last year, primarily due to limited inventory for sale.

Hongkong Land will focus on completing the construction of all committed projects, while refraining from taking on new standalone build-to-sell projects in the future, the company said.

10-Year Plan

Hongkong Land’s strategy revamp is part of a ten-year plan announced in late October, with the company planning to re-allocate capital from condo developments to new “ultra-premium” integrated commercial projects in Asian gateway cities.

“In October, the Group announced a new strategic direction, with the aim of becoming a leading real estate business in Asia’s gateway cities focused on ultra-premium integrated commercial properties,” Hongkong Land said. “Our priority is to simplify the business with a focus on Investment Properties, generating growth in long-term recurring income. As a result, we will no longer invest in the build-to-sell segment, but will instead actively recycle capital out from this business segment.”

This strategy will over time enable the company to focus on a smaller number of projects consistent with Hongkong Land’s brand name and reputation, the developer said.

The plan also calls for Hongkong Land to move beyond developing investment properties for its own portfolio to become a fee-earning manager of third party capital as it aims to grow its assets under management to $97 billion by 2035 through a combination of LP capital partnerships, private funds, and REITs.

The strategic overhaul comes after Hongkong Land booked an attributable loss of $833 million in the half year ended 30 June, more than double the shortfall from the same period last year. Hongkong Land’s development properties segment, which comprises residential and mixed-use projects in mainland China and Southeast Asia, swung to an operating loss of $260 million during the period, with the developer having suffered annual losses in three of the past four years.