The mainland’s property crisis hasn’t deterred Robert Wong. The chief of the 133-year-old business says now is the time to be brave.
At a time when few dare to invest in China’s beleaguered property market, Hongkong Land CEO Robert Wong is doubling down. Over the past two years, the developer has made its largest-ever investment commitment in its 133-year history to transform the riverfront south of Shanghai’s city center into a new financial hub, while also adding residential projects in select Chinese cities.
In February 2020, when Covid-19 gripped China and was spreading globally, the company acquired a 231,300-square-meter site in Shanghai for $4.4 billion, which it is now developing at a total cost of $8.4 billion as part of a joint venture. The following year, even as several leading Chinese developers started showing financial strain, Hongkong Land bought eight new residential sites to build mostly mid- to high-end homes, boosting its mainland portfolio to 35 projects across seven cities as of December 2021.
“One should not be put off by short-term fluctuations,” Wong, 61, says in an exclusive interview at the company’s Hong Kong headquarters in late June. “When opportunities come, we should be brave and grab them.” While many property counterparts have shelved investment plans following Beijing’s crackdown on excessive borrowing that has spiraled into a debt crisis, Wong has almost doubled Hongkong Land’s investments across Asia to an average of $3.3 billion over the past two years from the pre-pandemic level of $1.8 billion, including strengthening the company’s core portfolio in Hong Kong and expanding its Southeast Asian footprint.
The crown jewel of Asian conglomerate Jardine Matheson, Hongkong Land has overcome many challenges through its long history. From surviving the Japanese occupation of Hong Kong during WWII to the 1997 Asian financial crisis and beyond, the company has helped shape the city’s famous skyline and turned Central into one of the world’s most prestigious business districts.
The Singapore-listed company has often found silver linings in dark economic times. Its Exchange Square, which houses the Hong Kong Stock Exchange as well as global banks and law firms, opened during Hong Kong’s stock market collapse in the 1980s. After the 1997 financial crisis, Hongkong Land took advantage of depressed prices to snap up sites in Southeast Asia, allowing it to become a major regional developer. However, with mainland China’s prolonged property market slump and a wave of defaults by leading local developers including China Evergrande Group and Sunac China Holdings, coupled with rising vacancies in Hong Kong amid tough Covid-19 restrictions, Hongkong Land once again faces turbulence.
Wong—who joined the company in 1985 after graduating from Hong Kong Polytechnic University as a surveyor and rose through the ranks to become the CEO six years ago—has earned a reputation for seizing opportunities and staying the course amid a crisis. At the turn of the millennium, between the Asian financial crisis and the 2003 SARS outbreak, he started rebuilding from scratch Hongkong Land’s residential property business, which it had divested in the 1980s.
His first project, a redevelopment of an aging Hong Kong apartment complex called Lai Sing Court, had a bumpy start. After Wong spent more than two-and-a-half years persuading at least 90% of homeowners to agree to a collective sale and overcame objections from authorities to relax its height restriction, SARS crashed Hong Kong’s property market. Charles Ng, one of Lai Sing Court’s homeowners, recalls Wong still honored his commitments—even though he could have tried to renegotiate—and pressed ahead with the redevelopment despite an economic slump at the time making the project uneconomical. Hongkong Land eventually earned a profit of about $300 million from the complex, which was renamed Serenade.
Wong is once again confident that Hongkong Land’s investments in mainland China and measures to enhance the appeal of its Hong Kong portfolio amid the current market uncertainty will reap dividends. The company’s earnings and stock performance reflect his optimism. In the first half of 2022, revenue edged up 0.9% from a year earlier to $894 million despite a 69% drop in contracted sales on the mainland to $419 million, and it swung to a net profit of $292 million from a $865 million net loss in the year-ago period, Hongkong Land said in its latest earnings report.
Underlying profit, its measure of income from ongoing businesses, rose 8% to $425 million, but the company expects it to drop “significantly” for the full year following pandemic-related construction delays. The developer’s stock has risen around 15% in the past 12 months as of Aug. 25, compared with declines of roughly 26% and 30% in rivals Henderson Land and New World Development, respectively, and an over 21% drop in the benchmark Hang Seng Index.
Wong believes the Shanghai joint venture—in which the company holds a 43% stake, and which includes a mainland-based investor and a government-held special purpose vehicle—possesses the attributes to be a success. The project will deliver a gross floor area of 1.1 million square meters, equivalent to about 110 Manhattan city blocks, along the West Bund riverside. It will offer 650,000 square meters of grade A offices, 230,000 square meters of luxury retail space, 1,700 high-end residences and serviced apartments, two five-star hotels, an exhibition and conference center, and a 1.4-kilometer waterfront with green spaces, according to company presentations and Wong.
“If we had not acquired that site, it would likely have been split into parcels and sold to different people. The opportunity would have been lost forever, no matter how much could have been paid in the future,” Wong says. “Looking back now, it was absolutely the right decision.” Hongkong Land’s bet is showing early signs of paying off with some companies and retail brands incorporating the project into their spending plans for the next three to five years, Wong adds. S&P Global Ratings analyst Oscar Chung expects the project to start contributing to Hongkong Land’s cash flow in 2022 and 2023, with the commencement of pre-sales of the residential portion. “While the pandemic remains an uncertainty for the near term, we think the West Bund project is well situated in Shanghai,” says Chung.
Shanghai’s economy shrank almost 14% in the second quarter and retail sales slumped 21% year on year, government data show, as China’s zero-tolerance approach to Covid-19 forced the commercial hub into a lockdown from late March to end-May. China’s top policymaking body in late July reaffirmed its commitment to stanching future outbreaks through mass testing and movement restrictions, despite the country recording its weakest economic growth in over two years.
Meanwhile, the mainland’s property crisis has deepened with frustrated homebuyers of at least 328 stalled housing projects across 100 cities threatening to withhold mortgage payments, according to data on software development platform GitHub as of Aug. 25. Most projects belong to debt-saddled Chinese developers, including billionaire Hui Ka Yan’s Evergrande and Sun Hongbin’s Sunac, that have struggled to complete pre-sold apartments amid lockdowns and liquidity woes. S&P has forecast that in a worst-case scenario, Chinese banks could face $350 billion in mortgage losses.
Wong says his strategy of focusing only on seven Chinese cities—including Chongqing, Shanghai and Nanjing—and building quality homes, has kept Hongkong Land out of trouble. “The market dynamics are changing in China. In the past, you only needed to have the courage to take action because after that, rapid urbanization would have saved you anyway,” he says. “As urbanization slows, you need to do it right as people nowadays are looking for a flight to quality.”
While the Shanghai project has increased the developer’s debt in recent years, leverage remains relatively low. Hongkong Land’s net debt stood at $6.1 billion as of June 30, up from $5.1 billion at the end of 2021 and $4.6 billion at the end of 2020 as it increased borrowings to buy land, and cash declined due to lower residential pre-sales and share buybacks. Though net gearing climbed to 18% from 15% at the end of last year, it was a fraction of the 177% for Evergrande estimated by JPMorgan. Both Moody’s and S&P have maintained Hongkong Land’s credit ratings of A3 and A, respectively.
Hongkong Land owns more than 850,000 square meters of commercial properties and has about 11 million square meters of developable area as of 2021.
Hongkong Land is also bolstering its foothold in Southeast Asia, particularly in Singapore where it codeveloped the Marina Bay Financial Center and One Raffles Quay. In 2021, it acquired three new residential plots in the city-state, which will be developed jointly with billionaire Kwek Leng Beng’s City Developments. The projects are among Hongkong Land’s 18 developments in the pipeline in Southeast Asia, including a high-end condo codeveloped with Jardines’ Indonesian unit Astra International.
In Hong Kong, which accounted for 67% of its property assets and contributed 49% of its underlying profit in 2021, the developer has minimized vacancies at a time when the number of empty offices is soaring. The city’s overall office vacancy rate is forecast to climb to 13.5% by end-2022 from 10.9% and 11.2% in the first and second quarters of the year, respectively, as new supply comes on the market and leasing demand dwindles, real estate services firm Colliers said in a July report. The new developments include two prime offices built by billionaire Li Ka-shing’s CK Asset and Lee Shau Kee’s Henderson Land, which are set to be launched a few blocks away from Hongkong Land’s commercial cluster in Central next year.
Hongkong Land has refreshed its decades-old Central portfolio by launching a flexible working space and transforming basements into modern food courts and pop-up stores. The portfolio saw its vacancy rate on a committed basis edge up to 5.1% at the end of June from 4.9% six months earlier, according to its latest earnings report. That’s lower than the overall average of 7.9% in Central and reflects the portfolio’s resilience, according to S&P analyst Ricky Tsang.
Wong credits the company’s relatively low vacancies to its ability to retain its biggest tenants and a flight to quality amid declining office rents. The top 30 tenants occupying almost half of Hongkong Land’s office portfolio in Central had a weighted average lease expiry of 5.6 years as of June. Its major office tenants include JPMorgan, KPMG, Mayer Brown, PwC and the Stock Exchange of Hong Kong. On the retail side, Hongkong Land has Giorgio Armani, Hermes, LVMH and others as tenants.
While Hong Kong’s lingering travel restrictions and recent crackdown on political dissent risk diminishing its global financial hub status, and the mainland’s property woes deepen despite Beijing’s resuscitative efforts, Wong remains upbeat on the company’s two most important markets. He believes the Chinese government’s efforts to deleverage mainland developers will help restore the long-term health of the sector and create new opportunities.
“While we need to be prudent during difficult times, we should not be overly conservative,” Wong says. “We should still seek out and explore opportunities. With crisis comes opportunity.”
—With assistance by Robert Olsen
Founded in 1832 by British merchants William Jardine and James Matheson as a tea and opium trading house, Jardine Matheson group’s history is intertwined with Hong Kong’s. From its role in triggering the First Opium War (1839-42) that led to the city’s surrender to imperial Britain to becoming today’s diversified conglomerate, Jardines has helped shape Hong Kong’s destiny.
However, in a move that raised eyebrows in London and Beijing, Jardines moved its listing from Hong Kong to Singapore in 1994, three years before the former British colony returned to Chinese sovereignty, while remaining headquartered in Hong Kong. With businesses ranging from property development to hospitality, car dealerships, heavy engineering, financial services and logistics, Jardines generates more than $109 billion in revenue and employs over 400,000 people.
Last year, it delisted its second-largest business unit, Jardine Strategic, in a $5.5 billion buyout. The restructuring untangled Jardines’ complex cross-shareholding structure that was set up in the 1980s to defend it against hostile takeovers following an attempt by Li Ka-shing, Hong Kong’s richest man, to acquire Hongkong Land.
For most of its 190-year existence, Jardines has been helmed by the Keswick family. It is currently headed by Ben Keswick, 49, who took the reins as executive chairman from his uncle, Henry, in 2019.