Hongkong Land Holdings Ltd - A Pleasant Dividend Surprise
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- FY25 underlying profit from prime properties investment fell 8% y/y to USD458m, broadly in line with our estimate.
- Final DPS rose 12% y/y to USD0.19, ahead of our estimate.
- c.90% of the 2027 capital recycling target has been achieved.
- Ongoing share buybacks provide additional support. Maintain BUY with USD10.17 TP
Lower contributions from rental and build-to-sell businesses. Hongkong Land reported FY25 underlying profit of USD461m (+12% y/y), which included property provisions of USD371m and net gains of USD247m on reclassification of properties for sale to investment properties and fixed assets. Excluding these non-cash items, underlying profit would have declined 19% y/y, reflecting weaker contributions from both rental and build-to-sell segments. Stripping out earnings from the build-to-sell business, underlying profit from prime properties investment fell 8% y/y to USD458m. Despite softer earnings, final DPS increased 12% y/y to USD0.19, bringing full-year DPS to USD0.25.
Improving office vacancy. Attributable gross rental receipts declined 2% y/y, primarily due to reduced contributions from the Central portfolio. On a committed basis, vacancy in the Central office portfolio improved to 6.0% as of Dec-25, down from 6.9% in Jun-25, supported by strengthening leasing demand amid solid equity market performance and a robust IPO pipeline. This compares favourably with the broader Central office market vacancy of 11% as of Dec-25, according to Jones Lang LaSalle. However, negative rental reversions continued to flow through the Central portfolio, resulting in average office rents declining 7% y/y to HKD94 psf. With spot rents in Central showing signs of stabilisation, rental reversions are expected to turn less negative over the coming year.
Growing retail rents. The transformation of the LANDMARK retail portfolio remains ongoing, with more than 30% of retail space under renovation in 2025. This led to retail rental contributions declining 8% y/y in FY25. While overall tenant sales declined 5%, top-tier customers increased spending by 8% in 2025. Rental reversions remained positive, supported by tenant mix upgrades. Together with a number of new long-term leases commencing during the year, average retail rents increased 12% y/y to HKD236 psf.
Singapore portfolio remains a bright spot. The Singapore office portfolio continues to perform strongly, supported by tight supply conditions and ongoing flight-to-quality demand. On a committed basis, vacancy stood at 2.7% as of Dec-25. Average rents rose to SGD11.5 psf, up from SGD11.1 psf in 2024, supported by positive rental reversions. On the other hand, investment properties in Mainland China and Macau recorded weaker contributions, mainly due to pre-opening costs for pipeline projects in China and lower rents in Macau arising from ongoing renovations and planned tenant movements. Meanwhile, Ph 2 of Westbund Central in Shanghai was completed during the year. The office component (78,000 sqm) has been fully committed, with anchor tenants including Adidas and Lululemon. The retail component is scheduled to open in mid-2026, with pre-leasing exceeding 75%.
Sharply lower profits from build-to-sell segment. Hongkong Land has been winding down its build-to-sell portfolio, realising some USD800m from inventory sales, mainly in Mainland China. However, segment contributions declined 44% y/y to USD127m, excluding property provisions.
Strong financial position supports acquisitions. As of Dec-25, Hongkong Land reported total borrowings of USD6.14bn (Jun-25: USD6.03bn), with an average debt tenor of 5.8 years. 59% of total debt was fixed-rate (Jun-25: 70%) Weighted average borrowing costs improved slightly to 3.3% in Dec-25, from 3.6% in Dec-24. Following the divestment of MCL Land and partial disposal of MBFC Tower 3, net debt declined to USD3.58bn, from USD4.92bn in Jun-25, despite ongoing share buyback activities. This translated into a comfortable gearing ratio of 12% (Jun-25: 17%). With capital recycled from the establishment of the Singapore Central Private Real Estate Fund, Hongkong Land’s financial flexibility should strengthen further, enabling the company to raise dividends and pursue prime investment opportunities.
Ongoing share repurchase. Since 2024, Hongkong Land has recycled a total of USD3.6bn, achieving c.90% of its USD4bn capital recycling target by 2027. The share buyback programme was upsized from USD350m to USD650m, representing approximately 20% of recycled capital. Since its launch in Apr-25, the company has repurchased over USD340m worth of shares, reducing the number of outstanding shares by c.2.5%.
BUY with TP of USD10.17. Over the past three months, Hongkong Land’s share price has appreciated by 22%. The stock is trading at a 30% discount to our appraised current NAV. We believe the Central office market is bottoming out, supported by improving leasing demand amid stronger capital market activity. In addition, ongoing share buybacks and continued asset recycling should provide near-term share price support, while the development of a fund management platform could justify a higher long-term valuation. By applying a 15% target discount to our Dec-26 NAV estimate, we derive a target price of USD10.17, and maintain our BUY rating.
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