Hongkong Land Holdings

(04-08-2024, 05:50 PM)EnSabahNur Wrote: (1) HKL will exit certain non-core geographies and businesses ie. Those development stuff in SEA countries. But the buyers may be related parties like Astra and THACO.
(2) Jardines are well-known asset gatherers though. So any exits should be very minor. Any proceeds will also be doubled down into existing core geographies/ businesses (Greater China).


Why would they exit the SEA countries? I assume core here means HK/China/SG. Doubling down into HK/China would be.... interesting. Is it because there is long-term value or because they are forced to?

hi EnSabahNur,

I meant "development stuff in SEA countries", not SEA countries. Their grand plan release seem to hit the nail as the discussion here. Yes, I believe they surely did not seek counsel on this forum. 

Jardines first arrived at China as merchant ships bringing opium, in return for angmoh-beloved tea leaves. And that was a long time ago. The Communists took everything away from them in Shanghai in 1949 but they rebuilt in HK. When 1997 came, they hedged via taking their primary listings/company domicile away from HK. Now, they have returned to Pearl of the South with a vengeance. The current Communists are definitely not the 1949 peasants.

With this long term history, I am pretty sure Jardines are not "forced to" invest in HK/China. But I am pretty sure that the last decade has forced them to revaluate their approach.

An unexpected sale I suppose.

But now that the sale went along and if we look at the dynamics - Selling at cap rates lower than your cost of debt. And then using the proceeds to pay down the debt and do SBB on shares at ~60-70% discount of the NAV (which is reflective of the low cap rates). This is a superbly value accretive move.

While Jardines don't own the top floors now but they still "control it" and will probably continue to make money by providing commercial mgt services.

HONGKONG LAND TO SELL 147,025 SQUARE FEET OF ONE EXCHANGE SQUARE TO HKEX FOR HK$6.3 BILLION (US$810 MILLION) AND COMMENCE SHARE BUYBACK PROGRAMME

The purchase price of the Property was determined after arm’s length negotiations between the parties, with the net sale proceeds reflecting the carrying value of the Property by Hongkong Land as of 31 December 2024. The carrying value was based on a market valuation of the Property prepared by an independent valuation firm.

This transaction is expected to be earnings accretive, as the majority of the proceeds will be used to reduce net debt and lower net financing costs, more than offsetting the loss of rental income.

The Property represents 3.2% of the total value of the Group’s Central portfolio, using the carrying value as at 31 December 2024.

In line with our recently announced corporate strategy, the Company announces its intention to return capital to shareholders by way of a share buyback programme of up to US$200 million, which will be financed using proceeds from this transaction as well as other capital recycling activities carried out during the financial year ended 31 December 2024 (the ‘Buyback Programme’). The Buyback Programme will extend through to 31 December 2025. The Buyback Programme aims to reduce the Company's share capital with repurchased shares being cancelled.

https://links.sgx.com/FileOpen/HKLH0424%...eID=842372

(Yesterday, 11:33 AM)weijian Wrote: An unexpected sale I suppose.

But now that the sale went along and if we look at the dynamics - Selling at cap rates lower than your cost of debt. And then using the proceeds to pay down the debt and do SBB on shares at ~60-70% discount of the NAV (which is reflective of the low cap rates). This is a superbly value accretive move.

While Jardines don't own the top floors now but they still "control it" and will probably continue to make money by providing commercial mgt services.

HONGKONG LAND TO SELL 147,025 SQUARE FEET OF ONE EXCHANGE SQUARE TO HKEX FOR HK$6.3 BILLION (US$810 MILLION) AND COMMENCE SHARE BUYBACK PROGRAMME

The purchase price of the Property was determined after arm’s length negotiations between the parties, with the net sale proceeds reflecting the carrying value of the Property by Hongkong Land as of 31 December 2024. The carrying value was based on a market valuation of the Property prepared by an independent valuation firm.

This transaction is expected to be earnings accretive, as the majority of the proceeds will be used to reduce net debt and lower net financing costs, more than offsetting the loss of rental income.

The Property represents 3.2% of the total value of the Group’s Central portfolio, using the carrying value as at 31 December 2024.

In line with our recently announced corporate strategy, the Company announces its intention to return capital to shareholders by way of a share buyback programme of up to US$200 million, which will be financed using proceeds from this transaction as well as other capital recycling activities carried out during the financial year ended 31 December 2024 (the ‘Buyback Programme’). The Buyback Programme will extend through to 31 December 2025. The Buyback Programme aims to reduce the Company's share capital with repurchased shares being cancelled.

https://links.sgx.com/FileOpen/HKLH0424%...eID=842372

This is a good operational and financial move by HK Land.

For the stock, I think all the way up to 0.5 P/RNAV should be quite straightforward. But where it will get hard is actually setting up the fund and property management business from scratch.
 
Capitaland and Mapletree have about 20 years of headstart to get where they are today.

(Yesterday, 01:47 PM)postage paid Wrote: This is a good operational and financial move by HK Land.

For the stock, I think all the way up to 0.5 P/RNAV should be quite straightforward. But where it will get hard is actually setting up the fund and property management business from scratch.
 
Capitaland and Mapletree have about 20 years of headstart to get where they are today.

Hi postage paid,

If the Jardines continue to execute more value accretive moves like the one it just did, there is no reason that 0.5x NAV is the ceiling.

HKL has plenty of property management experience as they manage their own Central commercial properties. For example, they will also manage their sister Mandarin Oriental International's One Causeway Bay (ex Excelsior hotel) once it becomes operational this year.

Fund Mgt is indeed the tricky part. HKL's current top 2 hires (both new) were from Mapletree Investments, so that is a good start. One could also easily poach more of your competitors' talent but unfortunately, you still can't replicate your competitors' track record and reputation to fund raise from LPs. Nonetheless, I think the Saipans have scale and so if they want to change, they will. It is only a matter of generations , which they have gone through quite a couple and their 999year leases still have plenty of years to run down. 

(9 hours ago)weijian Wrote:

(Yesterday, 01:47 PM)postage paid Wrote: This is a good operational and financial move by HK Land.

For the stock, I think all the way up to 0.5 P/RNAV should be quite straightforward. But where it will get hard is actually setting up the fund and property management business from scratch.
 
Capitaland and Mapletree have about 20 years of headstart to get where they are today.

Hi postage paid,

If the Jardines continue to execute more value accretive moves like the one it just did, there is no reason that 0.5x NAV is the ceiling.

HKL has plenty of property management experience as they manage their own Central commercial properties. For example, they will also manage their sister Mandarin Oriental International's One Causeway Bay (ex Excelsior hotel) once it becomes operational this year.

Fund Mgt is indeed the tricky part. HKL's current top 2 hires (both new) were from Mapletree Investments, so that is a good start. One could also easily poach more of your competitors' talent but unfortunately, you still can't replicate your competitors' track record and reputation to fund raise from LPs. Nonetheless, I think the Saipans have scale and so if they want to change, they will. It is only a matter of generations , which they have gone through quite a couple and their 999year leases still have plenty of years to run down. 

Hi Weijian,
I agree 0.5 P/NAV is not the ceiling, but the trip to 0.5 will be easier, faster and more within management's influence than the trip above that.
 
Capland China trust and Link REIT sit about 0.55 to 0.6 and these are proxies for HK/ China property owners with the right capital structure. If these re-rate, then HK land will re-rate too. But this part is outside of the company's influence. Capitaland's choice to list a new REIT in china with a complicated ownership structure (i.e financial engineering), and only 2 properties instead of selling externally or waiting to sell to Capitaland China Trust likely indicates this will be unlikely in the next year.

I also agree HK land has property management experience. I should have stated that it is property and fund management experience for others, as this involves a sales and fundraising skill set that needs to be developed within the company and also relationships that need to be developed with the people with the funds (i.e. why let HK land manage, instead of an often incumbent competitor). With the political realities today, I dont see the pool of funds available for investing in China increasing.

It is an attractive investment at current valuation, but will become less attractive once the low fruit has been picked.