SINGAPORE (Aug 24): Ho Bee Land has been diversifying away from Singapore and into Europe, China and Australia. In June, the property group made its latest acquisition, paying $1.16 billion for Ropemaker Place in London.
Located less than 200m away from the London Crossrail Moorgate Station, the 602,000 sf building generates $53.8 million of annual rental income and has an average lease-to-expiry of 10.5 years.
With this acquisition, Ho Bee’s investment property portfolio rose to $4.3 billion with UK accounting for 56% of revenue geographically.
“We estimate rental revenue could surge from FY17’s $147 million to $213 million by FY19F or 85-90% of estimated topline, providing a steady and recurrent income base,” says CGS-CIMB Securities analyst Lock Mun Yee in a Thursday report.
In addition, Ho Bee has committed to co-invest up to EUR 40 million ($63.4 million) in the CS Real Estate SIVAC-SIF I – Credit Suisse (Lux) European Property Fund II as well as subscribe for up to EUR 50 million of notes in Clouse S.A. Funds. The capital will be invested in a commercial property in Munich which has redevelopment potential.
Back on home turf, Singapore residential developments form just 8% of Ho Bee’s RNAV as it has not replenished its landbank in recent years. But as land and residential price momentum takes a breather following the recent property cooling measures, Ho Bee will be well positioned to tap new landbanking opportunities.
On Sentosa island, Ho Bee’s remaining unsold inventory is 85% leased out, generating some cashflow. “We estimate end FY17 carrying value of its inventory was $1,400-1,900psf, in line with secondary market transactions in the area,” says Lock.
Elsewhere in Australia, with the Pearl in Melbourne fully sold and Rhapsody in Gold Coast 85% taken up, Ho Bee has replenished its development pipeline through the purchase of a 49% stake in a 16ha site in Wollert, Melbourne. The land parcel is slated to be developed into 285 landlots and phase 1 is currently being marketed. Lock estimates this project could boost RNAV by $0.01, when fully sold.
As for China, progressive completion of its three JV projects in Shanghai, Zhuhai and Tangshan should continue to filter into 2H18 earnings. Latter phases of the Tangshan and Zhuhai projects are currently being progressively developed and are expected to be completed over the next two years.
In its analysis update, Lock is raising FY18-20F EPS to reflect higher near-term China contribution, revaluation gain from the petrol station land and smaller share base due to buybacks.
With high recurrent income portion and estimated recurrent free cashflow of $60 million-70 million p.a., Lock thinks Ho Bee can continue its special dividends even with a higher net debt-to-equity of 77% as at 2Q18.
“We update Ho Bee’s model to incorporate its latest acquisitions in the UK and Europe as well as adjust for China development profit recognition and $28.3 million fair value surplus from the revaluation of its 999-year leasehold petrol station site in Singapore, announced during 2Q18 results,” says Lock.
Accordingly, CGS-CIMB is maintaining its “add” for Ho Bee with a higher target price of $3.00 is pegged to a 40% discount to RNAV of $4.99.
As at 12.34pm, shares in Ho Bee are trading at $2.65.
