Net loss for the period comes in at US$1.4 billion

 

PROPERTY developer on Friday (Mar 7) posted an underlying profit of US$410 million for the financial year ended Dec 31, 2024, down 44 per cent from US$734 million a year ago.

 

The group said in a bourse filing that its underlying profits had been affected by non-cash provisions from the Chinese mainland build-to-sell business.

 

&ldquo We expect a partial recovery in 2025 underlying profits amid uncertain market conditions, although at levels well below that of 2023,&rdquo added the group.

 

The group uses underlying profit in its internal financial reporting to distinguish between ongoing business performance and non-trading items, as its management considers this to be a key measure that provides additional information on the group&rsquo s underlying business performance.

 

Excluding the impact of the Chinese mainland non-cash provisions, underlying profit was US$724 million, down 12 per cent from the same period the year before.

 

The board is proposing a final dividend of US$0.17 a share. If approved by its shareholders, this would take the total dividend for the year to US$0.23 a share, up from US$0.22 a year ago. The final dividend will be paid out on May 14.

 

Revenue rose to US$2 billion in FY2024, up from US$1.8 billion the previous year.

 

Net loss attributable to shareholders for the period widened to US$1.4 billion, from a loss of US$582.3 million in FY2023.

 

The loss per share for FY2024 came in at US$0.6276, compared with a loss per share of US$0.2629 a year ago.

 

Underlying earnings per share for the same period was US$0.1856, lower than the US$0.3315 in the corresponding period last year.

 

The group said that it would simplify the business to focus on ultra-premium mixed-use commercial properties in Asia&rsquo s &ldquo gateway&rdquo cities.

 

&ldquo As a result, we will no longer invest in the build-to-sell segment, but will instead actively recycle capital out from this segment into new integrated commercial property opportunities,&rdquo said the group.

 

It expects contributions to decline over the next several years as capital is recycled.

 

The group&rsquo s existing prime, mixed-use projects in Hong Kong, Singapore and Shanghai will provide recurring earnings to support its future investments, it added.

 

The counter ended at US$4.46, down US$0.12 or 2.6 per cent, on Friday.

 

While Hongkong Land (HKL) is known for its portfolio of prime commercial properties in Hong Kong, it is also active in mainland China and Singapore. Through its subsidiary MCL Land, it has a strong track record in residential development, and HKL also holds stakes in key office assets such as the Marina Bay Financial Centre.

 

In recent years, the company has faced pressure due to political unrest in Hong Kong and the pandemic, with its share price dropping to a third of its peak. There are signs that HKL is positioned for a recovery. Last June, the company announced plans to spend US$400 million ($547 million) to transform Landmark, a mixed-development commercial complex in Hong Kong&rsquo s Central, with retail, office and hospitality offerings.

 

In addition, 10 of the Landmark&rsquo s long-standing luxury tenants will stump up another US$600 million to more than double their footprints within this development, which is HKL&rsquo s largest property in Hong Kong, creating so-called &ldquo Maison destinations&rdquo . These brands include Cartier, Chanel, Dior, Louis Vuitton, Prada, Saint Laurent, Sotheby&rsquo s, Tiffany & Co and Van Cleef & Arpels, as they aim to continue growing sales within this mall even after a record 2023.

 

HKL says the capital expenditure will be funded over three years. As of June 30, 2024, its gearing stands at 18%, and its committed liquidity is US$3 billion. Given the steady recurring income from its commercial properties, this US$400 million is quite palatable.

 

Four months after the Landmark announcement, HKL announced a significant strategy update to address shareholders&rsquo frustration at the underperforming share price. The company says it will no longer focus on investing in the build-to-sell segment across Asia, but instead focus its capital on integrated commercial property opportunities. The new strategy aims to &ldquo reinforce Hongkong Land&rsquo s core capabilities, generate growth in long-term recurring income and deliver superior returns to shareholders&rdquo .

 

Under CEO Michael Smith, formerly from Mapletree Investments, which is known for its successful REITs, HKL has signalled plans to recycle capital by selling select assets into REITs or third-party capital vehicles. It has indicated a target to recycle capital of up to US$10 billion by 2035 while growing its assets under management to US$100 billion from around US$40 billion now by drawing in external investors.

 

By 2035, the company aims to double its underlying profit before tax in a &ldquo geographically diversified&rdquo manner, with no single city accounting for more than 40%. It is also striving to double its dividend by delivering mid-single-digit annual growth in dividends per share.

 

Feelers have been put out to help meet these goals. According to Bloomberg, HKL is considering selling MCL Land, its Singapore-based residential developer subsidiary. The asking price is reportedly $1.1 billion above the book value.

 

With a new direction ahead for HKL, JP Morgan is keeping a &ldquo neutral&rdquo stance on the counter with a price target of US$4.10 in a Dec 5, 2024 report. Shares in HKL were trading at US$4.18 on Jan 16. &ldquo Although HKL did not confirm the news (about the MCL Land sale), if this is true, we think the move is in line with its strategy to eventually cease development properties investments, as outlined in its strategic review,&rdquo says JP Morgan.

 

DBS Group Research, which has a &ldquo buy&rdquo call and a US$5.34 target price, is more upbeat. In a Nov 15, 2024 note, DBS says HKL&rsquo s valuation remains inexpensive. &ldquo The new corporate strategy sets the direction for Hongkong Land to grow its business by focusing on its niche segments, supported by large-scale asset recycling. The introduction of the asset management initiative should add impetus to the company&rsquo s growth. We believe the stock offers good long-term value,&rdquo says DBS.

 

ASIAN real estate group Hongkong Land Holdings is considering selling its closely held property developer arm MCL Land, according to people with knowledge of the matter.

 

The Jardine Matheson-backed firm, which owns 100 per cent of MCL Land, is seeking to divest the Singapore-based company at a premium to its book value of S$1.1 billion, said the people, asking not to be identified as the process is private. Hongkong Land is speaking with prospective financial advisers to help prepare for a transaction, the people said.

 

Deliberations are ongoing and Hongkong Land could still opt to keep the assets, the people said.

 

A representative for Hongkong Land declined to comment, while MCL Land did not immediately respond to requests seeking comment.

 

Hongkong Land said in late October it plans to forgo residential development in a move that will eventually see it set up real estate investment trusts. It aims to expand its assets under management from US$40 billion to US$100 billion by 2035, much of which will be owned by third-party capital. It estimates that the new model will double profits and dividends.

 

Hongkong Land&rsquo s Singapore-listed stock has climbed 29 per cent this year, giving the company a market value of roughly US$10 billion.

 

Founded in 1889, Hongkong Land has a primary listing on the London Stock Exchange, with secondary listings in Bermuda and Singapore, according to its website. The group develops, owns and manages ultra-premium mixed-use real estate in Asian gateway cities, spanning more than 850,000 square metres. It counts flagship projects in Hong Kong, Singapore and Shanghai. Closely held residential developer MCL Land counts properties in Singapore and Malaysia.