Hongkong Land has unveiled a strategy overhaul aimed at doubling its recurring profit by 2035, with the developer 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 premium commercial projects.
Those initiatives are part of a ten-year plan announced Tuesday, with the Jardine Matheson-controlled builder planning to re-allocate capital from condo developments to new “ultra-premium” integrated commercial projects in Asian gateway cities.
“Today marks the beginning of an exciting new phase of growth for Hongkong Land,” Hongkong Land CEO Michael Smith said in a release. “Building on our 135-year heritage of innovation, exceptional hospitality and longstanding partnerships, our ambition is to become the leader in creating experience-led city centres in major Asian gateway cities that reshape how people live and work.”
The plan also calls for the company 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.
Ultra-Premium Portfolio
The strategic revamp 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. The builder’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.
Under its new strategy, Hongkong Land aims to grow its long-term recurring income through developing or acquiring new ultra-premium projects in central business districts of regional gateway cities, with those developments set to feature grade A office, luxury retail, hotel and branded residence elements.
Hongkong Land did not specify the cities in which the new projects will be located, but said it will focus on markets that attract multinational regional offices, financial intermediaries and high-net-worth individuals. With Hong Kong having accounted for 61 percent of the company’s underlying operating profit before corporate expenses in 2023, the developer is seeking geographical diversification under the new strategy as it aims for a 40 percent cap on underlying profit before interest and tax indicated for any single city.
The expanded commercial portfolio will be anchored by the company’s existing flagship investment properties in Hong Kong, Singapore, and Shanghai, with the recurring earnings from those assets helping to fund new projects. The expansion will also see Hongkong Land leveraging partnerships with tenants in the financial services and luxury goods sectors, as well as Jardine Matheson’s Mandarin Oriental Hotel Group.
“By focusing on our competitive strengths and deepening our strategic partnerships with Mandarin Oriental Hotel Group and our key office and luxury tenants, we expect to accelerate growth and unlock value for generations,” said Smith, who took the helm at Hongkong Land in April.
Before joining the developer, Smith had served as CEO of US and Europe for Singapore’s Mapletree Investments, and was a partner at Goldman Sachs in Singapore, where he led investment banking for Southeast Asia and real estate investment banking across Asia Pacific outside of Japan.
With Smith’s hiring signaling a new direction for Hongkong Land, the company’s stock has climbed nearly 35 percent since he came on board in April. Having traded at $7.51 per share as recently as March 2019, Hongkong Land shares fell to a 15-year low of $2.82 in April. The company’s Singapore-traded shares jumped 10.8 percent today after the new strategy was announced.
Hongkong Land bills Smith as a pioneer in Asia’s REIT industry, with the executive having worked on numerous REIT listings including Link REIT’s Hong Kong IPO and all four Mapletree REITs in Singapore, as well as having advised on numerous other listed trusts and real estate companies across Asia Pacific.
Third-Party Capital
As it aims to expand into new cities around the region, Hongkong Land plans to raise around $6 billion to fund this growth by disposing of build-to-sell projects from its portfolio, which includes developments across mainland China, Singapore, Thailand, Indonesia, Malaysia, and the Philippines.
“Our strategic decision to no longer invest in the build-to-sell segment will help us better manage earnings fluctuations influenced by land acquisition pace, market conditions and other external factors. We will work to accelerate the return of invested capital where possible, while still completing all currently committed projects to our same high standards,” Hongkong Land said.
The company expects to raise another $4 billion in growth capital by divesting some of its mature investment properties into REITs or private vehicles under its management. Of the combined $10 billion in cash, the company expects to raise $4 billion to $6 billion by 2027 and an additional $2 billion by 2030.
The developer, which has a primary listing in London and secondary listings in Singapore and Bermuda, is targeting to more than double its assets under management from $41 billion as of year-end 2023 to $97 billion in 2035, with the share of third party capital increasing from 26 percent to 56 percent over the same period.
Hongkong Land does not currently manage any funds on behalf of third party investors, with the company’s existing third party capital comprised solely of joint venture partners. The company has identified sovereign wealth funds, pension funds, and insurance companies as potential capital partners, with listed REITs, private funds, and joint ventures among the potential investment structures under the new strategy.
The participation of third party capital will provide funding to support growth, improve capital efficiency, and build a recurring fee-based income stream over time, Hongkong Land said. Of the $2.2 billion in recurring earnings the company aims to earn in 2035, the company is projecting management fee income and new investments to account for 37 percent of that profit.
In addition to these initiatives, Hongkong Land aims to double its dividend payout by 2035, while using up to 20 percent of recycled capital to invest in share buybacks.
“The roll out of the strategy commences immediately, with the initial phase focused on the recycling of capital, the establishment of deal sourcing and fundraising capabilities, and the enhancement of the Group’s culture and bench of talent through a new branding and values proposition and strategic hires,” Hongkong Land said.
Leave a Reply