Hongkong Land Holdings Limited (SGX:H78)

Hongkong Land (SGX:H78) is taking bold steps to unlock value, announcing a US$200 million share buyback and a partial sale of One Exchange Square (OES) in Hong Kong, moves that analysts say will be accretive to both net asset value (NAV) and earnings per share (EPS).

CGS International Research analysts Will Chu, Raymond Cheng, and Steven Mak maintained their “hold” rating but raised their target price slightly to US$4.91, citing the “slightly positive impact” of the transactions. Despite welcoming the value-unlocking activity, they caution that persistent weakness in Hong Kong office rents will likely cap re-rating potential over the next 12 months.

On April 24, Hongkong Land announced the sale of 147,025 sq ft of space in OES to Hong Kong Exchanges and Clearing Limited (HKEX) (HKEX:388) for HK$6.3 billion (US$1.07 billion). The sale covers the top nine floors — currently HKEX’s headquarters — plus two floors of retail space, representing 3.2% of Hongkong Land’s Central portfolio.

Management emphasised during an analyst call that Central Hong Kong, West Bund in Shanghai, and Marina Bay in Singapore will continue to anchor its core strategy. The company also remains committed to its US$400 million retail asset enhancement project in Central.

The average selling price (ASP) achieved is 85% above comparable Grade A office transactions in the area, reflecting the premium rental profile of OES. Based on CGSI’s estimates, the transaction translates to a 3.1% rental yield.

Proceeds from the sale will be allocated 80% to debt reduction and 20% to the buyback programme, with up to 6.3% earmarked for property enhancement works. CGSI expects this structure to be NAV-accretive, with modest EPS accretion projected for FY2025 to FY2027 due to savings from lower debt servicing costs exceeding the lost rental income.

Morningstar View: ‘Undervalued’ Hongkong Land

Morningstar Equity Research analyst Xavier Lee also revised Hongkong Land’s fair value estimate upwards by 7% to US$4.88 per share, noting that the stock remains undervalued at a 14% discount to his valuation.

Lee highlighted HKEX’s expanded footprint, as it will lease an additional 63,000 sq ft at Two Exchange Square, and sees “minimal impact” on Hongkong Land’s revenue following the sale. Like CGSI, Morningstar expects lower financing costs to offset revenue loss, prompting a 2% increase in net income forecasts from 2026 onward.

Lee noted the sale price’s alignment with independent valuations and its implied yield of 2.9% — favourable compared to a 3.4% average rental yield for Grade A offices as of January.

Despite investor worries over asset valuations amid high interest rates, Lee praised the deal for crystallising portfolio value. Hongkong Land’s low price-to-book ratio of 0.3 times continues to reflect investor caution, but Lee remains positive on the company’s ongoing capital recycling strategy.

Strategic Vision 2035: Capital Recycling On Track

With this deal, Hongkong Land has achieved 30% of its US$4 billion capital recycling target set for 2027. Management reiterated its focus on recycling proceeds into higher-yielding assets and driving mid-single-digit earnings growth under its “Vision 2035” roadmap.

Analysts agree that while more disposals from the Central portfolio are unlikely, continued disciplined execution on capital redeployment will be key to realising higher valuations.

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