HONGKONG LAND HOLDINGS LIMITED
STRATEGY UPDATE
This note updates shareholders on
Hongkong Land's ('HKL') new corporate strategy, following several
months of review led by our Chief Executive, Michael Smith.
Expanded materials will be uploaded to HKL's website by close of
business (Singapore time) on 30 October 2024.
New
strategic direction
Hongkong Land's aim is to become the leader in Asia's gateway
cities focused on ultra-premium integrated commercial
properties.
From today, our priority is to
simplify the business with a focus on Investment Properties ('IP')
in Asia's gateway cities, 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 into new integrated commercial property
opportunities.
Anchoring the portfolio will be the
Group's existing flagship prime mixed-use projects in Hong Kong,
Singapore and Shanghai, which provide a resilient base of
significant recurring earnings from which to invest to increase our
rate of growth in Asian gateway cities.
This strategy will, in time, enable
us to focus on a smaller number of ultra-premium projects
consistent with HKL's brand name and reputation. The aim is to
deliver enhanced shareholder value through clear long-term growth
objectives and targets supported by near-term performance metrics.
By 2035, HKL's new strategic plan and focus is expected
to:
· Double Underlying Profit
Before Interest and Tax in a
geographically diversified manner, with no single city accounting
for more than 40%
· Double Dividends Per
Share
· Grow AuM to
US$100bn with meaningful
participation from third party capital
· Actively recycle capital of
up to US$10bn
Evolving our business model
Our strategy will revolve around
four areas of focus:
1. Premium gateway assets
HKL will focus on investments in
premium regional gateway cities, which benefit from resilient and
growing demand from blue-chip tenants and luxury customers,
typically commanding some of the highest rental incomes
globally.
Within these cities, HKL will
develop, own, or manage ultra-premium mixed-use real estate,
located in central business districts, featuring a combination of
Grade A office, luxury retail, residential and hospitality
products. With a focus on the principles of innovation,
placemaking, exceptional hospitality and sustainability for
tenants, shoppers and guests, these portfolios of assets will
benefit from the "flight to quality" trends seen globally, namely
higher rents and occupancy throughout real estate
cycles.
2. Third-party capital
A new investment team will be
established within HKL to:
a) Source and secure new
projects in premium gateway cities;
b) Expand our IP AuM
from US$40bn to US$100bn by 2035 through a combination of LP
capital partnerships, private funds and REITs; and
c) Build a recurring
fee-based income stream over time.
This strategy will improve our
return on equity, growing the business through development and
management fees.
3. Portfolio recycling
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.
We will also be open to selectively
recycling assets into REITs and other third-party capital vehicles.
Overall, this new strategy will see up to US$10bn of existing
capital recycled over the next 10 years, generating cash for new
investments and enhanced shareholder returns. An estimated US$6bn
in proceeds will be generated from the wind-down of the
build-to-sell segment. A further US$4bn will come from the
recycling of selected IP assets.
4. Robust capital management
An updated capital allocation
framework will be implemented with an enhanced view on risk
adjusted financial returns and discipline in meeting this
threshold. New project investment proposals will also be assessed
against the merits of further dividends, share buybacks and debt
repayment.
The aim is to deliver mid-single
digit annual growth in dividends per share. As capital is recycled
into cash, up to 20% of the proceeds may, subject to market
conditions, be invested in the buy-back of shares where returns on
investment exceed our weighted average cost of capital.
This strategy is not expected to
require an increase in group net debt or funding from shareholders,
whilst preserving our investment grade credit-rating.
Aligning management with HKL's future
To align senior management's
interests with those of shareholders, a new Long-Term Incentive
Plan ('LTIP') will be introduced for senior leadership. This plan
will set a range of qualitative and quantitative progress
milestones and metrics (including with respect to HKL's share
price) to incentivise the execution of this strategy. Details of
this LTIP alongside changes to the organisation structure and
management team, which align with the strategy, will be effected by
the beginning of 2025.
Timeline
The speed at which this strategy
will unfold relies on our capital recycling and management
capabilities. Given the size and diversity of the Group's existing
real estate portfolio, the new strategy is expected to take a
number of years, with progress to be measured across three
implementation phases. Phase one primarily focuses on the recycling
of capital and establishment of deal sourcing and fundraising
capabilities. Further phases involve the deployment of capital into
long-term IP opportunities accompanied by active capital recycling
and third-party capital initiatives.
Michael Smith, Chief Executive,
Hongkong Land.
Submitted by:
Jonathan Lloyd, Jardine Matheson
Limited
For and on behalf of Hongkong Land
Holdings Limited
29 October 2024
www.hkland.com