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.

[weijian]

Several realignment of strategic priorities and actions have already happened at HKL's sister companies at DFI, MOI and JCC for the last 1-2years. So HKL is actually playing catch up.

New CEO with "asset monetization capability" came on board in FY24 as VBs previously pointed out. Maybe he has the blessing of the Keswicks after all.

HONGKONG LAND HOLDINGS LIMITED HALF-YEAR RESULTS FOR THE SIX MONTHS ENDED 30TH JUNE 2024

The Group is currently undergoing a comprehensive strategic review of its overall business strategy and commercial priorities. Upon its completion, which is expected to be before the end of 2024, the Group intends to present a strategy update.

HKL 1H24:
https://links.sgx.com/FileOpen/HKLH%20Si...eID=813897

[money]

Several realignment of strategic priorities and actions have already happened at HKL's sister companies at DFI, MOI and JCC for the last 1-2years. So HKL is actually playing catch up.

New CEO with "asset monetization capability" came on board in FY24 as VBs previously pointed out. Maybe he has the blessing of the Keswicks after all.

HONGKONG LAND HOLDINGS LIMITED HALF-YEAR RESULTS FOR THE SIX MONTHS ENDED 30TH JUNE 2024

The Group is currently undergoing a comprehensive strategic review of its overall business strategy and commercial priorities. Upon its completion, which is expected to be before the end of 2024, the Group intends to present a strategy update.

HKL 1H24:
https://links.sgx.com/FileOpen/HKLH%20Si...eID=813897

The new CEO also doesnt have it easy. What can he do with the unsold china properties? What can he do with with the falling office rental? If he attempts to sell the HK central offices, will there be buyers today? Feels very tough... i think the reason why HKLand hasnt fallen more is because it is listed in SGX. If it is listed in HK, i think it will be trading way lower

[weijian]

The new CEO also doesnt have it easy. What can he do with the unsold china properties? What can he do with with the falling office rental? If he attempts to sell the HK central offices, will there be buyers today? Feels very tough... i think the reason why HKLand hasnt fallen more is because it is listed in SGX. If it is listed in HK, i think it will be trading way lower

hi money,

When we look at HKL, I think we have to consider the bigger picture by looking at the entire Jardine Group.

In the past 1 year, 3 out of its 4 listed entities have new CEOs. The 3 new CEOs are outsiders and each has clear expectations of what the Keswicks want him to do. On the entire Jardine Group level, a revamp of the BOD has also been made. Ben Keswick used to be the executive chairman on JMH and the non-executive chairmen on all 4 listed entities - but no longer so in the recent revamp. Everyone has very clear responsibilities towards the expectations landed on them.

Now back to HKL. The Central properties will never be sold. The closest thing that can happen is a possible injection into a REIT. But I suspect its cap rates are so low that no amount of financial engineering can make it attractive enough for an IPO. As for the "unsold China properties", didn't they just took a loss by adjusting its carrying value? Anyways, China is huge in breadth and so lots of opportunities to make back the money elsewhere.

So what may happen for this review? Its tempting to do a mental exercise on it, isn't it?  Again, if we take reference from what has happened across the Jardine Group - my wild guess:

(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).

[EnSabahNur]

(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?

[ghchua]

The grand plan is out.

Hongkong Land to exit build-to-sell business, pivot to fund management, eyes Reits
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
https://www.businesstimes.com.sg/propert...eyes-reits

[weijian]

hi ghchua,

The actual PR has more color on the grand plan. Superficially reading it - somehow many things don't reconcile though.

(1) HKL aims to double dividend per share in 10years - which means annualized 7.2% increase in dividend. But it also says it aims to deliver mid-single digit growth in dividend per share - ie. 5% and including SBB reducing share count. That doesn't line up.

(2) Double existing 40bil AUM to 100bil AUM by 2035, while recycling existing 10bil asset. If we exclude the debt embedded within that 10bil figure and assume a 20% GP : 80% LP kind of ownership, 10bil divestments will attract another 40bil to have total 50bil --> 80bil AUM. And with partial stake sales in their remaining core 30bil, 100bil AUM looks much achievable without any M&A. So while all these looks achievable in theory (unlike the dividend per share I mentioned above), but whether is it achievable in practice is probably another question. Let's see how they start assembling their team!

New strategic direction

An estimated US$6bn in proceeds will be generated from the winddown of the build-to-sell segment. A further US$4bn will come from the recycling of selected IP assets.

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.

https://links.sgx.com/FileOpen/HKLH1029....eID=823339