Hongkong Land Holdings

[weijian]

Ok, so each Maison is expected to spend 60mil USD of CAPEX to re-fit their stores? While the storefronts of these Maison look opulent and intimidating (to me), I don't think the renovation costs 60mil each. These sums probably include the total fixed/variable rents they will pay over the 10-20years lease, to make the catchy headline figure.

But HKL has to cough out 400mil and that will be cold hard capital. Good use of capital? Or no choice to stay competitive? Will value be created? or trapped?

HK mall to get US$1 billion upgrade with help from Hermes, LVMH

The plan to upgrade Landmark, Hongkong Land’s flagship retail space in Central, will create multi-story maison-style stores for 10 tenants, who will see their total shop space double, according to the landlord. It will include new restaurants.

Cartier, Chanel, Dior, Hermes, Louis Vuitton, Prada, Saint Laurent, Sotheby’s, Tiffany & Co and Van Cleef & Arpels are expected to spend US$600 million collectively on the fit-out of the new stores.

For Hongkong Land, the project will cost US$400 million. The tenants have on average 10-year lease commitments to Landmark.

https://www.businesstimes.com.sg/interna...ermes-lvmh

[Choon]

It was mentioned by Robert Wong at FY23 results call (per my notes) "Luxury brands are asking for more retail space. Capex (e.g. duplex) by HKL is anticipated. Store expansion by luxury brands will further strengthen Landmark as a luxury shopping destination."

Thus my first reaction reading the article was one of pleasant satisfaction - it wasn't an empty statement by HKL afterall.

US$600M for 220,000 square feet derives development cost of US$2700/psf which I think is not very high especially when considering that construction cost in HK is much higher than SG. I have this vague impression in my mind that Jewel SG was about S$10,000/psf.

Immediate concern is whether DPS may be reduced also considering that HKL just did a impairment in 1Q24.

[weijian]

US$600M for 220,000 square feet derives development cost of US$2700/psf which I think is not very high especially when considering that construction cost in HK is much higher than SG. I have this vague impression in my mind that Jewel SG was about S$10,000/psf.

Let's take a look at LVMH and Richemont's annual reports to approximate their renovation costs since these 2 conglomerates generally operate their own stores. The numbers are taken as of end FY23 results:

LVMH
Improvement costs (on cost basis): 14,309mil euros
No. of retail stores: 6,097
Cost per store: 2.3mil euros (2.5mil USD)

Richemont
Improvement costs (on cost basis): 4,298mil euros
No. of retail stores: 2,422
Cost per store: 1.77mil euros (1.9mil USD)

So the average cost of a store (regardless of size/location) would be 1.9-2.5mil USD.

60mil USD per store (or 600mil for 10) is ~25x of the average store renovation cost using the 2.5mil figure. It is not impossible but looks on the high side (improbable) unless we are talking about their own flagship property on Fifth Avenue or a Paris department store that can boast of a 150year history.

[mscheng13]

My thinking is that the contribution of the US$600mil may not be for the direct Capex for the renovation/retrofit of the stores. Could be their commitment for the rental for the future lease term.

Development cost of US$2700/psf sounds exorbitant to me.

US$600M for 220,000 square feet derives development cost of US$2700/psf which I think is not very high especially when considering that construction cost in HK is much higher than SG. I have this vague impression in my mind that Jewel SG was about S$10,000/psf.

Let's take a look at LVMH and Richemont's annual reports to approximate their renovation costs since these 2 conglomerates generally operate their own stores. The numbers are taken as of end FY23 results:

LVMH
Improvement costs (on cost basis): 14,309mil euros
No. of retail stores: 6,097
Cost per store: 2.3mil euros (2.5mil USD)

Richemont
Improvement costs (on cost basis): 4,298mil euros
No. of retail stores: 2,422
Cost per store: 1.77mil euros (1.9mil USD)

So the average cost of a store (regardless of size/location) would be 1.9-2.5mil USD.

60mil USD per store (or 600mil for 10) is ~25x of the average store renovation cost using the 2.5mil figure. It is not impossible but looks on the high side (improbable) unless we are talking about their own flagship property on Fifth Avenue or a Paris department store that can boast of a 150year history.