Hongkong Land targets $10b in asset recycling amidst strategic shift

This strategy could reduce the company’s earnings volatility over time.

Hongkong Land aims to generate $ 10 through an asset recycling program over the next decade, as the company pivots from its build-to-sell model to focus on stable, recurring income.

The strategy involves winding down residential projects in mainland China and Singapore, reallocating $6b from these assets, and an additional $4b from the sale of mature rental properties.

The proceeds will support new investments in premium commercial properties across Asian gateway cities while helping Hongkong Land reduce debt and limit new borrowing. The company plans to reinvest recycled capital to grow its fund management segment, with a target of $100b in assets under management by 2035.

According to S&P Global, this new strategy should reduce Hong Kong Land’s earnings volatility over time

“The build-to-sell segment has much higher volatility than the core business of property leasing. The segment accounted for about 30% of the company's underlying profit before corporate expenses over the past five years, a higher level than for similarly rated peers,” the ratings firm said.

The strategy may also lower asset concentration risks, given that the company aims to derive no more than 40% of its underlying profit before interest and tax from a single city. This may entail Hongkong Land monetising some existing commercial assets or entering new markets where the company has a limited track record. Hong Kong accounted for more than 60% of the company's underlying operating profit before corporate expenses in 2023.

“Whilst recurring management-fee income will grow, our assessment of Hongkong Land's credit profile will also depend on the asset and earnings quality of the expanded portfolio and the funding mix of projects. Hongkong Land is hiring a chief investment officer for this segment. The company may spin-off stabilized assets to limited partnerships, private funds or REITs, but retain 20%-30% stakes in these projects,” S&P Global.