Hongkong Land’s potential disposal of MCL Land in line with strategy: JP Morgan

Last week, Bloomberg reported that Asian real estate group Hongkong Land Holdings is considering selling its 100%-owned Singapore property development subsidiary, MCL Land. The move, if true, would be in line with the former’s strategy to cease investing in development properties, says JP Morgan in an equity research report. In October, Hongkong Land announced in a strategic review that the group will no longer focus on investing in the build-to-sell segment across Asia. Instead, the group is expected to begin recycling capital from the segment into new integrated commercial property opportunities as it completes all existing projects. Sources cited by Bloomberg said that Hongkong Land is looking to divest MCL Land at a premium to its book value of $1.1 billion. While this is lower than Hongkong Land’s net investment for Singapore development properties of US$1.362 billion ($1.83 billion) reported as of end-June, it represents about 8% of the group’s total capital recycling target of US$10 billion and about 14% of of its US$6 billion capital recycling target for development properties, according to JP Morgan. Read also: Nava Grove achieves 65% sales on launch weekend at an average price of $2,448 psf Advertisement Advertisement In any case, the research house highlights that selling MCL Land above book value might be “a bit challenging”, given current market conditions and that it “would not be surprised if the company ends up disposing of MCL Land at slightly below book value” to meet its capital recycling targets. Alternatively, the group may take its time selling its development property projects and depleting its land bank. In November, MCL Land launched the 552-unit Nava Grove in Pine Grove, District 21. A joint development with Sinarmas Land, the 99-year leasehold condo achieved 65% sales on launch weekend at an average price of $2,448 psf. An upcoming project, expected to be launched next year, is a new 500-unit private residential development at Clementi Avenue 1. MCL Land and joint venture partner CSC Land Group beat five others to win the site with a bid of $633.45 million ($1,250 psf per plot ratio) last November. JP Morgan has maintained its “neutral” rating on Hongkong Land, with a target price of US$4.10. “We think HKL’s current valuations are fair, and thus we stay Neutral, but we could turn more positive if Hongkong Land demonstrates its ability to execute value-accretive deals.”