The group intends to recycle up to US$10 billion in assets by 2035, and grow assets under management from US$40 billion today to up to US$100 billion by then

 

HONGKONG Land will exit the build-to-sell residential development business as it pivots towards fund management and focuses on ultra-premium integrated commercial properties in Asia&rsquo s gateway cities. 

 

Announcing its new business strategy on Tuesday (Oct 29), the 135-year-old listed property group, which is part of the giant Jardine Matheson conglomerate, said this will reinforce its core capabilities, generate growth in long-term recurring income, and deliver superior returns to shareholders. 

 

The group intends to recycle up to US$10 billion in assets by 2035, and grow assets under management from US$40 billion today to up to US$100 billion by then. It expects to double its profit before interest and tax, and double dividends per share in that time. 

 

In an interview with The Business Times, Michael Smith, chief executive of Hongkong Land, said: &ldquo The core competencies of Hongkong Land lie in integrated complexes and that&rsquo s why we want to pivot that way.

 

&ldquo The ideal situation is that we become a much more investment property-oriented, high-quality income company. We want to have third-party capital. We want to be a fund manager.&rdquo        

 

The moves are the result of a comprehensive strategic review of its business. Hongkong Land swung to an underlying loss of US$7 million in the six months to Jun 30, 2024, from an underlying net profit of US$422 million in the year-ago period. 

 

Hongkong Land&rsquo s holdings include a cluster of prime commercial buildings in Hong Kong&rsquo s Central area, the West Bund mixed-use project under development in Shanghai, China, and the Marina Bay Financial Centre (MBFC) and One Raffles Quay in Singapore. Its development properties are primarily premium residential and mixed-use developments built to sell in China, Singapore and South-east Asia.

 

Development projects are &ldquo subject to the vagaries of individual markets that they operate in, and the volatility of cash flows can be pretty pronounced&rdquo , Smith told BT. 

 

He said: &ldquo There are a lot of external factors that can influence the development cash-flow business, which you don&rsquo t have in the investment property business&rdquo . 

 

Hongkong Land&rsquo s residential projects in Singapore come under its MCL Land development arm. The company most recently marketed a new condomium project in the Pine Grove area.

 

Asked about the future of MCL Land, Craig Beattie, Hongkong Land&rsquo s chief financial officer, said: &ldquo MCL Land has been in operation for a long time &ndash it&rsquo s got a great presence in Singapore. It&rsquo s been a steady contributor to Hongkong Land for quite some time.&rdquo

 

He added: &ldquo Given its strong reputation, track record and great brand recognition among buyers in the Singapore market, one option that could arise is it attracting interest from a custodian that potentially can take that business forward and grow from there.&rdquo  

 

Smith said: &ldquo If there&rsquo s the option of high-end residential as part of one of our integrated commercial gateway city complexes, then we will build residential.&rdquo  

 

A way this could play out would be for Hongkong Land to partner its sister company Mandarin Oriental, he said. &ldquo They have ambitions of growing their branded residences and we&rsquo d love to be able to be the provider of capital to help them achieve that.&rdquo  

 

Hongkong Land said it will leverage strategic partnerships to expand its portfolio, enter new markets and secure new projects.  

 

&ldquo We will work closely with third-party capital &ndash a combination of perhaps a listed platform like a Reit (real estate investment trust) which we may look to establish. We are also going to work with or create private funds,&rdquo said Beattie. 

 

He added: &ldquo Nothing is set in stone, but we&rsquo ve got some early ideas we are working on.&rdquo  

 

Deal-sourcing and fundraising capabilities will be established, and the group will also make strategic hires.

 

Asked how soon a Hongkong Land-backed Reit could be listed, Smith said the group will do what it thinks is in the best interest of shareholders at the right point in time. 

 

Smith added: &ldquo If one looks at MBFC and One Raffles Quay, we developed a third of that with Keppel and Cheung Kong, and the other two-thirds sit in Reits. Ours does not. I&rsquo m not suggesting anything from that, but it&rsquo s an interesting observation. 

 

&ldquo We love those properties. We would want to continue to control whatever entity those assets sit in. The beauty of Reits is that you don&rsquo t need to have majority ownership to have some control through the management entity. This opportunity is not lost on us.&rdquo  

 

He also said: &ldquo We have quite a lot of assets in China and there&rsquo s a nascent China Reit market underway. There&rsquo s obviously an established Hong Kong Reit market. We&rsquo ve got lots of different opportunities to assess.&rdquo  

 

Smith joined Hongkong Land in April 2024 from Mapletree Investments, where he served as regional CEO of Europe and USA. A veteran of the Asian Reit industry, he was involved in the structuring of several major Reits.

 

The group will further invest in Hong Kong, Singapore and Shanghai, and selectively pursue expansion opportunities into other major gateway cities in Asia which benefit from the flight-to-quality trend. 

 

These are cities &ldquo where you might find multinational corporations, financial centres, prime stock exchanges, or a congregation of high-net-worth individuals, which are important for the luxury proposition to ensure that works properly&rdquo , said Beattie.  

 

Developing luxury retail in Singapore could also be on the cards.  

 

Smith said: &ldquo We&rsquo ve got a very long history and association with the luxury retail brands, which is why they are supporting us so much in Hong Kong with the Tomorrow&rsquo s Central project.

 

&ldquo I think we can bring that group of tenants with us if we find the right opportunity. We haven&rsquo t found anything right now, but we would be open to opportunities in places like Singapore.&rdquo

 

In June, Hongkong Land announced its Tomorrow&rsquo s Central project, where the group will invest more than US$1 billion together with its luxury tenants &ndash which include Chanel, Cartier, Dior and Louis Vuitton &ndash to transform its Hong Kong Central portfolio. The portfolio spans 450,000 square metres of retail, office, and hotel space over 12 buildings, including the Landmark Atrium. 

 

Hongkong Land&rsquo s vacancies in its office portfolio in Hong Kong are half of that in the market, Smith said. This reflects that &ldquo as long as you can provide these ecosystems, very high-quality buildings and management, you can benefit through (property) cycles&rdquo .